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TIRADO v. "Z" FRANK

August 28, 1981

VINCENTE R. TIRADO, PLAINTIFF,
v.
"Z" FRANK, INC., A CORPORATION, AND GENERAL MOTORS ACCEPTANCE CORPORATION, A CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Aspen, District Judge:

MEMORANDUM OPINION AND ORDER

Plaintiff Vincente R. Tirado ("Tirado") brought this action against defendants, "Z" Frank, Inc. ("Z Frank") and General Motors Acceptance Corporation ("GMAC"), alleging a failure to disclose certain information in connection with the sale of a used car, in violation of sections 121 and 128 of the Truth in Lending Act, 15 U.S.C. § 1601 et seq. ("TILA"), Federal Reserve Regulation Z, 12 C.F.R. § 226 ("Regulation Z"), and the Illinois Motor Vehicle Retail Installment Sales Act, Ill.Rev.Stat. ch. 121½, § 561 et seq. ("MVRISA"). Jurisdiction in this case is based on 15 U.S.C. § 1611, 1638.

On June 11, 1981, GMAC filed a motion to dismiss Counts I and II of the complaint for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6). At the same time Z Frank moved to dismiss Count IV of the complaint for failure to state a claim under TILA and to dismiss Count V for failure to state a claim under MVRISA and for lack of federal jurisdiction.*fn1 By order of this Court dated June 18, 1981, Counts I and II of Tirado's complaint were dismissed as to Z Frank and the complaint was dismissed in its entirety as to GMAC. This case is now before the Court on Z Frank's motion to dismiss Counts IV and V of the complaint.

Z Frank contends that Count IV of Tirado's complaint should be dismissed pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure because it does not state a claim under the TILA. In Mathers Fund, Inc. v. Colwell Co., 564 F.2d 780, 783 (7th Cir. 1977), the United States Court of Appeals for the Seventh Circuit applied the following standard to a motion to dismiss pursuant to Rule 12(b)(6):

  [O]n a motion to dismiss, a complaint must be
  construed in the light most favorable to the
  plaintiff, the allegations thereof being taken as
  true; and, if it appears reasonably conceivable that
  at trial the plaintiff can establish a set of facts
  entitling him to some relief, the complaint should
  not be dismissed.

See Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957).

In Count IV, Tirado alleges that on November 23, 1979, he and Z Frank signed a purchase order for an automobile. In pertinent part, the purchase order stated,

  I [Tirado] have requested SELLER to attempt to
  arrange financing of this purchase for me. I
  understand that until such financing satisfactory to
  both of us is arranged, either SELLER or I can cancel
  this order at any time.

Tirado alleges that he attempted to cancel the purchase order before financing was arranged, but Z Frank refused to permit him to cancel. Because of the refusal to permit cancellation, Tirado claims that Z Frank was required to make credit disclosures prior to execution of the purchase order, since the transaction was consummated at that time; and that by failing to make such disclosure, Z Frank is in violation of §§ 121 and 128 of the TILA and Regulation Z.

The Truth in Lending Act provides that in connection with each consumer credit sale the creditor shall disclose relevant credit information to enable the consumer to compare various credit arrangements offered by other lenders or sellers. 15 U.S.C. § 1638(a); Gonzalez v. Schmerler Ford, 397 F. Supp. 323 (N.D.Ill. 1975). Section 1638(b) further requires that such disclosures ". . . shall be made before the credit is extended, and may be made by disclosing the information in the contract or other evidence of indebtedness to be signed by the purchaser." In elaboration of this provision, Regulation Z states that "such disclosures shall be made before the transaction is consummated," 12 C.F.R. § 226.8(a) and that "a transaction shall be considered consummated at the time a contract relationship is created between a creditor and customer irrespective of the time of performance of either party." 12 C.F.R. § 226.2(kk).

The issue before the Court is whether the transaction for the purchase of the automobile was consummated as Tirado contends on November 23, 1980, when the purchase order was signed, or as Z Frank contends on December 4, 1980, when the retail installment contract was signed. If the transaction was consummated on November 23, Z Frank was required to make credit disclosures at that time, and Tirado's complaint does state a claim under the TILA. If, however, the transaction was consummated on December 4, Z Frank's retail installment contract form sets forth the credit terms as required, and Tirado's complaint merely states a claim for breach of contract for refusal to allow cancellation, rather than a federal cause of action under the TILA.

Tirado contends that disclosure of credit terms by Z Frank was required on November 23, 1980, even though the installment sales contract was not signed until December 4, 1980. In support of this position, Tirado cites Gonzalez v. Schmerler Ford, 397 F. Supp. 323 (N.D.Ill. 1975). In Gonzalez, the parties completed an agreement for the purchase of a car on October 1, 1973, indicating a downpayment of $10.00 had been made and that the balance was due on October 3, 1973. The October 1 document also contained plaintiff's credit references and the credit terms sought by plaintiff. On October 3, 1973, the parties completed an installment sales contract that fully disclosed the credit information required by law. Plaintiff brought an action against defendant for a failure to disclose credit information in connection with the execution of the October 1 document in violation of the TILA and Regulation Z.

The defendant in Gonzalez maintained that disclosure of credit terms was not required on October 1, since the October 1 document indicated the balance was to be paid on October 3 in a single installment, a transaction not covered by the TILA.*fn2 Defendant further maintained that since they had no way of knowing whether the finance company would approve plaintiff's credit, the credit arrangement sought by plaintiff was not so integral a part of the October 1 agreement to create a contractual relationship regarding financing on October 1, and consequently, TILA disclosures were not required on that date.

In essence, defendant's position was that on October 1, it had a binding contract for a cash sale, not subject to the TILA, or a binding contract for an installment credit sale in which disclosures were required to be made on October 3. The court disagreed, concluding that under defendant's operating procedures, the only way a consumer was free to negotiate his credit terms and reject the defendant's offer was to subject himself to a lawsuit. The court held that although the October 1 contract was not binding, the financing arrangements were such an integral part of the sale that a contractual ...


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