Weber v. Langholz, B084839

• Citation: 46 Cal.Rptr.2d 677,39 Cal.App.4th 1578
• Decision Date: 13 November 1995
• Docket Number: No. B084839,B084839
• Court: California Court of Appeals
• Parties: , 95 Cal. Daily Op. Serv. 8748, 95 Daily Journal D.A.R. 15,088 Jean T. WEBER, Individually and as Trustee, etc., Plaintiff and Appellant, v. Ike LANGHOLZ et al., Defendants and Respondents.

Page 677

46 Cal.Rptr.2d 677

39 Cal.App.4th 1578, 95 Cal. Daily Op. Serv. 8748,

95 Daily Journal D.A.R. 15,088

Jean T. WEBER, Individually and as Trustee, etc., Plaintiff and Appellant, v. Ike LANGHOLZ et al., Defendants and Respondents.

No. B084839.

Court of Appeal, Second District, Division 4, California.

Nov. 13, 1995.

R. P. Reddingius and Daniel B. Condon, Pasadena, for plaintiff and appellant.

Salz & Salz and Brian Alan Baker, Pasadena, for defendants and respondents.

CHARLES S. VOGEL, Acting Presiding Justice.

Plaintiff and appellant Jean T. Weber, "individually and as trustee for the Jean T. Weber Trust," brought this action against Unique Funding, Inc., and its assignees defendants and respondents Langholz and Wolveck, under the federal Truth in Lending Act (15 U.S.C. § 1601 et seq., hereafter the Act), seeking return of interest and fees paid on a loan secured by residential property. The trial court granted summary judgment in favor of defendants on multiple grounds raised in defendants' motion, including that the Act does not apply to the parties' transaction, and that even if it did plaintiff waived or did not timely exercise rights under the Act. Pursuant to an attorney fee clause in the promissory note and deed of trust, the court also awarded over $21,000 in attorney fees to defendants. Plaintiff appeals from the judgment contending the court erred in finding the Act inapplicable and in awarding attorney fees. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

The underlying facts are mostly undisputed. Jean T. Weber is an 89-year-old widow living on Social Security and investments. She has a revocable living trust, of which she is the trustee. She began investing heavily in coins, borrowing and liquidating trust property in order to give Eugene Steinledge money to buy coins for her. Over a period of time approximately $600,000 was given to Steinledge for this purpose. The last of this money came from the loan transaction involved here.

Title to Weber's home was in the Jean T. Weber Trust. On January 17, 1990, Jean T. Weber as trustee of the Jean T. Weber Trust borrowed $160,000 from Unique Funding, Inc., signing a promissory note and deed of trust securing the loan with the residence property. Interest was $2,000 monthly and the principal was due February 1, 1991. Unique Funding retained $24,000 as prepaid interest and charged additional fees and commissions which, when added to the retained interest, amounted to over $49,500 according to the complaint. Defendants Langholz and Wolveck purchased the note from Unique Funding in January 1990.

Plaintiff was unable to pay the principal due on February 1, 1991. In order to avoid foreclosure, plaintiff sold the property to a third party, then paid defendants the balance due. The deed by which Jean T. Weber as trustee of the Jean T. Weber Trust sold the property to the buyers was executed May 14, 1991, and recorded June 21, 1991. The escrow for the sale was opened April 19, 1991, with escrow instructions signed by Jean T. Weber as Trustee.

The theory of plaintiff's suit, filed February 19, 1992, is that Unique Funding violated the requirement of the Act that the consumer be given notice of the right to rescind the The trial court granted summary judgment on each of several grounds raised by defendants: (1) the Act does not apply because the loan transaction was with Jean T. Weber as Trustee of the Jean T. Weber Trust. The Act applies only to "consumer" credit transactions and defines consumer as a "natural person" and exempts transactions with an "organization," which is defined to include a trust (15 U.S.C. §§ 1602(c), (h), 1603(1)); (2) the Act does not apply because the purpose of the loan was to invest in coins. The Act defines a consumer credit transaction as one "primarily for personal, family, or household purposes" (15 U.S.C. § 1602(h)); (3) even if the Act applies, plaintiff did not timely seek rescission. She could not seek rescission after contracting to sell the subject property to a third party (15 U.S.C. § 1635(f)); (4) at the time of the transaction plaintiff signed a handwritten waiver of the three-day right to rescind, which was effective despite its failure to recite any emergency reason. The Act permits a consumer to waive the three-day rescission period. (15 U.S.C. § 1635(d); 12 C.F.R. former § 226.23(e), now § 226.15(e).)

                loan within three days.  (15 U.S.C. § 1635.)   The parties dispute when plaintiff gave notice that she was electing to [39 Cal.App.4th 1582] rescind the transaction.  Defendants contend that plaintiff lost the right to rescind when she agreed on April 19, 1991, to sell the subject property to a third party.  (15 U.S.C. § 1635(f).)
                

DISCUSSION

Truth in Lending

Plaintiff's case is based on 15 United States Code section 1635(a) which requires a creditor to clearly and conspicuously disclose the right of an obligor to rescind the transaction within three business days. ¹ That section applies to "any consumer credit transaction." Section 1602(h) provides, "The adjective 'consumer,' used with reference to a credit transaction, characterizes the transaction as one in which the party to whom credit is offered or extended is a natural person, and the money, property, or services which are the subject of the transaction are primarily for personal, family, or household purposes." (Emphasis added.)

Here the transaction was with Jean T. Weber as trustee of the Jean T. Weber Trust. Not only does section 1602(h) define consumer as a natural person, but section 1603(1) exempts "[c]redit transactions involving extensions of credit ... to organizations." Section 1602(c) defines "organization" to mean "a corporation, government or governmental subdivision or agency, trust, estate, partnership, cooperative, or association." (Emphasis added.) By the plain language of the statute, this transaction is excluded.

On the other hand, a revocable living trust with the settlor as trustee has become a common device for people to manage their own assets during lifetime, avoid having to establish a conservatorship in the event of incapacity, and avoid probate upon death. (Drafting Cal.Revocable Living Trusts (Cont.Ed.Bar 3d ed.1994) §§ 2.1-2.3, pp. 2-2 to 2-4; Fisch, Spiegler, Ginsburg & Ladner v. Appel (1992) 10 Cal.App.4th 1810, 1813, 13 Cal.Rptr.2d 471.) Neither party cites any federal authority or legislative history in point, but it seems unlikely Congress had this type of trust in mind when it defined consumer credit transactions as involving natural persons and excluded trusts. In Fisch, Spiegler, Ginsburg & Ladner v. Appel, supra, 10 Cal.App.4th at page 1813, 13 Cal.Rptr.2d 471, the court held the settlors of a revocable living trust had a reversionary interest in the subject property which was sufficient to claim a homestead exemption, which can be claimed only by natural persons. It appears the current regulations under the Act take a similar view that "natural person" includes persons whose ownership interest in their dwelling will be subject to a security interest. (12 C.F.R. § 226.2(a)(11).)

We need not decide, however, if Congress intended a trustee of a revocable living trust to be considered a natural person, however reasonable that conclusion might be. Another necessary element of plaintiff's case is that the loan be "primarily for personal, family, or household purposes." (§§ 1602(h) [definition of consumer credit], 1603(1) [exemption It is undisputed that this transaction was to provide part of the funding for plaintiff's investment of $600,000 in coins, an investment program ongoing before this transaction. Plaintiff's own declaration showed she wanted the loan to take advantage of a good opportunity to buy certain coins at a bargain price.

of "extensions of credit primarily for business, commercial, or agricultural purposes"].) Plaintiff contends this involves a question of fact inappropriate for resolution by summary judgment. A question of fact can become one of law, however, when only one reasonable conclusion can be drawn from the undisputed foundational facts. (Tryer v. Ojai Valley School (1992) 9 Cal.App.4th 1476, 1480, 12 Cal.Rptr.2d 114.)

In Thorns v. Sundance Properties (9th Cir.1984) 726 F.2d 1417, the court listed factors to consider in determining whether a loan is for personal, family, or household purposes or for business or commercial purposes. These are, the relationship to the borrower's primary occupation, the degree to which the borrower personally manages the funds, the ratio of the funds to the borrower's income, and the size of the transaction. (Id. at p. 1419.) Here the loan was very large, $160,000, and was obtained expressly to fund part of a $600,000 investment program in coins. Although plaintiff relied on Mr. Steinledge to manage the investment, she is still an investor. We conclude as a matter of law on the undisputed facts that the purpose of the loan was not primarily personal or household but business investment; therefore the loan was exempted from the Act. (See also Tower v. Home Const. Co. of Mobile, Inc. (S.D.Ala.1978) 458 F.Supp. 112, 117; Puckett v. Georgia Homes, Inc. (D.S.C.1974) 369 F.Supp. 614, 619-620.)

Finally, even assuming that the Act applies to this transaction and that Unique Funding failed to disclose to plaintiff the three-day right to rescind, plaintiff did not timely exercise her statutory rights but sold the subject property to a third party. Although ordinarily the three-day rescission period would not begin to run until the lender made the required disclosure of the right to rescind (§ 1635(a)), section 1635(f) provides, "Time limit for exercise of right. An obligor's right of rescission shall expire three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first, notwithstanding the fact that the information and forms required under this section ... have not been delivered to the obligor...."...