Williams v. Western Pac. Financial Corp.

• Decision Date: 23 April 1981
• Docket Number: No. 80-7137,80-7137
• Citation: 643 F.2d 331
• Parties: 31 UCC Rep.Serv. 690 Roosevelt WILLIAMS and Dorothy Williams, Plaintiffs-Appellees, v. WESTERN PACIFIC FINANCIAL CORPORATION, Defendant-Appellant. . Unit B
• Court: U.S. Court of Appeals — Fifth Circuit

Page 331

643 F.2d 331

31 UCC Rep.Serv. 690

Roosevelt WILLIAMS and Dorothy Williams, Plaintiffs-Appellees, v. WESTERN PACIFIC FINANCIAL CORPORATION, Defendant-Appellant.

No. 80-7137.

United States Court of Appeals, Fifth Circuit.

Unit B

April 23, 1981.

Hatcher, Dorsey, Irvin & Pressley, Henry M. Hatcher, Jr., Atlanta, Ga., for defendant-appellant.

Bowen, Derrickson, Goldberg & West, Ralph Goldberg, Atlanta, Ga., for plaintiffs-appellees.

Appeal from the United States District Court for the Northern District of Georgia.

Before HILL and FRANK M. JOHNSON, Jr., Circuit Judges and SCOTT ^*, District Judge.

PER CURIAM:

Roosevelt and Dorothy Williams brought an action under the Truth in Lending Act, 15 U.S.C.A. § 1601 et seq., TILA, contending inter alia that Western Pacific Financial Corporation failed to make certain disclosures required by the TILA and 12 C.F.R. 226.1 et seq. (Regulation Z) ¹ in connection with a loan to purchase real property, secured by a security deed. The district court held that Western Pacific had violated the TILA and Regulation Z by failing to disclose the 10-day limitation imposed by Georgia Code § 109A-9-204(4)(b) on a security interest in after-acquired consumer goods, and Western Pacific appeals. We reverse and remand.

Western Pacific made a loan to Roosevelt and Dorothy Williams in the principal amount of $18,350 to facilitate their purchase of a home at 1056 Happy Valley Trail, Atlanta, Georgia, located on Lot 21 of Moreland Estates. To secure their note, the Williams executed a security deed granting Western Pacific a security interest in a tract or parcel of land described as Lot 21 of Moreland Estates and

all buildings and improvements thereon (or that may hereafter be erected thereon) ; together with the hereditaments and appurtenances and all other rights thereunder belonging, or in anywise now or hereafter appertaining, and the reversion, remainder and remainders, rents, issues and profits thereof, and all plumbing, heating and lighting fixtures, and equipment now or hereafter attached to or used in connection with said premises.

R. 77 (Emphasis added).

At the closing, Western Pacific supplied the Williams with a form prepared by Western Pacific entitled "Notice to Customer Required by Federal Law and Federal Reserve Regulation Z." Among the disclosures contained in the form was the following:

SECURITY INTEREST The Lender's security interest in this transaction is a trust deed/mortgage covering real property and improvements located at 1056 Happy Valley Trail, Atlanta, Georgia and certain other rights and property relating thereto, all as described in the trust deed/mortgage a copy of which will be provided. The trust deed/mortgage secures approved future advances and other indebtedness, the terms of which are described therein. The trust deed/mortgage also covers after acquired property located on or attached to the described real property. A security agreement will not be taken on furniture, fixtures, and equipment situated therein.

R. 83 (Emphasis added).

On July 7, 1978, the Williams filed this action claiming that Western Pacific violated the TILA and Regulation Z, § 226.8(b)(5), in connection with their loan by failing to disclose the 10-day limitation on a lender's security interest in after-acquired consumer goods provided in Georgia Code § 109A-9-204(4)(b). ² Both parties filed motions for summary judgment which were referred to the United States Magistrate. In his Report and Recommendation, the magistrate concluded that the language of the security interest disclosure (italicized in the quotation, supra) narrowed the category of after-acquired property to the point that no "consumer goods" could be deemed to have been included in Western Pacific's security interest. Accordingly, the 10-day limitation was inapplicable and, thus, not required to be disclosed.

The district court disagreed, focusing upon the disclosure statement that "(t)he trust deed/mortgage also covers after acquired property located on or attached to the described property." The court concluded that the subsequent sentence excluding "furniture, fixtures, and equipment" did not rule out other after-acquired consumer goods which might be located on the property described in the security deed. ³ The district court held that the language used in the disclosure was so vague as to encompass at least certain consumer goods within the property subject to Western Pacific's security interest and, thus, that failure to disclose the 10-day limitation constituted a violation of the TILA, citing Pollock v. General Finance Corp., 535 F.2d 295, 299 (5th Cir. 1976), cert. denied, 434 U.S. 891, 98 S.Ct. 265, 54 L.Ed.2d 176 (1977). Accordingly, the Court rejected the magistrate's Report and Recommendation and awarded each plaintiff the statutory maximum award of $1,000 plus costs and attorney fees. Because we conclude that Pollock does not support the district court's decision, we reverse.

AFTER-ACQUIRED PROPERTY UNDER § 226.8(b)(5)

Under the TILA, if a lender retains any security interest in connection with a consumer loan, the lender must disclose a description of the security interest and "a clear identification of the property to which the security interest relates." 15 U.S.C.A. § 1639(a)(8). With regard to security interests in after-acquired property, Regulation Z, § 226.8(b)(5), requires that

If after-acquired property will be subject to the security interest, or if other future indebtedness is or may be secured by any such property, this fact shall be clearly set forth in conjunction with the description or identification of the type of security interest held, retained, or acquired.

Section 109A-9-204 of the Georgia Code governs whether after-acquired property is subject to a security interest. In pertinent part, it states that "except as provided in subsection (4) a security agreement may provide that collateral, whenever acquired, shall secure all obligations covered by the security agreement." Ga.Code § 109A-9-204(3). Subsection (4), however, states that "no security interest attaches under an after-acquired property clause ... (b) to consumer goods other than accessions (Section 109A-9-314) when given as additional security unless the debtor acquires rights in them within 10 days after the secured party gives value." Ga.Code § 109A-9-204(4)(b). In Pollock v. General Finance Corporation, 535 F.2d 295 (5th Cir. 1976), supra, the court held that a lender violates Regulation Z § 226.8(b)(5) by failing to disclose the nature of its security interest retained in after-acquired consumer goods when it omits from its disclosure statement the 10-day limitation provided in Georgia Code § 109A-9-204(4)(b).

The district court cited Pollock as authority for Western Pacific's liability in the instant case. We think Pollock is clearly distinguishable. In that case the security agreement stated: "(T)here is a Security Agreement on household and consumer goods belonging to Borrowers and located at their address stated above, and on any property listed below." The disclosure statement recited that the security agreement "may cover after-acquired property." Id. at 297 and n. 1. The court held that the disclosure statement, although perhaps not false, failed to make a complete disclosure of the security interest retained, not only because it failed to indicate that a security interest would be taken, but also because it failed to disclose the 10-day limit on a security interest in after-acquired consumer goods. Id. at 298-99. There was no question that the lender retained a security interest in after-acquired consumer goods under the security agreement. The issue was whether that interest had been adequately disclosed. Briefly stated, the distinction is that in Pollock the lender had a security interest in consumer goods under the terms of a security agreement while in the instant case under the security deed the lender had none. We are confident in concluding that neither the TILA nor Regulation Z require Western Pacific to disclose a non-existent security interest.

Some courts have held that whether the lender actually retains a security interest is irrelevant. Franklin v. Community Federal Savings & Loan Association, 629 F.2d 514, 515-16 (8th Cir. 1980); Basham v. Finance America Corporation, 583 F.2d 918, 923-25 (7th Cir. 1978), cert. denied, DeJaynes v. General Finance Corporation of Illinois, 439 U.S. 1128, 99 S.Ct. 1046, 59 L.Ed.2d 89; Ives v. W. T. Grant, 522 F.2d 749, 761 (2d Cir. 1975). These cases presented roughly similar situations. The lender's security interest disclosure statement contained a broad disclosure of a security interest in after-acquired property with little or no qualification or limitation. The disclosure was challenged under Regulation Z § 226.8(b)(5). To the lender's defense that it did not actually claim such a security interest or that state law limited the security interest actually retained, the court replied that whether a lender actually retains a security interest is irrelevant where the disclosure itself is so misleading that a borrower would be led to believe that such a security interest had been retained.

The superficial similarity between Pollock v. General Finance Corporation and these cases is apparent, but we reiterate that in Pollock there was never any question that the lender retained a security interest in after-acquired consumer goods. Moreover, the rationale of the Pollock court is subtly different. The court held that the lender "failed to disclose the nature of the security interest" retained in after-acquired consumer goods by failing to disclose the 10-day limitation imposed by Georgia law. Id., 535 F.2d at 299. The violation was linked to a failure to adequately identify the type of security interest retained and not to the misleading nature of the disclosure. This circuit has stated that a misleading disclosure is as much a violation as a...