Appeal from the United States Bankruptcy Court for the Central District of Illinois, Honorable Max J. Lipkin, Bankruptcy Judge; there to the United States District Court for the Central District of Illinois, Honorable Robert D. Morgan, District Judge. Bankruptcy No. 180-00180; Bankruptcy Adversary No. 180-0077; District Court No. 80-1167.
Before Sprecher, Circuit Judge, Markey,*fn* Chief Judge of the U.s. Court of Customs and Patent Appeals, and Cudahy, Circuit Judge.
Appeal from a judgment of the district court for the Central District of Illinois denying a guarantor recovery under the Truth In Lending Act (Act) for inadequate disclosure made to a principal borrower. We reverse.
Raymond Pine sought to borrow from Gale Employees Credit Union (Union) of which he was a member. His wife Darlene was not a member, because she was employed elsewhere. Among the papers evidencing the loan transaction, all of which are dated 1 June 1979, is a "Comaker and Guarantor Agreement" and a "Wage Assignment" in favor of Union, both signed by Darlene, and an Agreement and Truth in Lending Disclosure signed only by Raymond. Because the disclosure document was signed only by Raymond, it is presumed that the disclosure required by the Act was made only to him and that Darlene did not see it.
The Pines having filed in bankruptcy, trustee Barash sued Union for violation of the Act, seeking to recover the statutory maximum ($1,000) for each of Raymond and Darlene under Section 1640(a) of the Act.*fn1 On August 1, 1980, the bankruptcy court issued a judgment order requiring payment of $2,000 in damages, plus $500 as attorneys fees, and costs, to the plaintiff. On October 24, 1980, the district court issued a judgment reducing the damages in the bankruptcy court order from $2,000 to $1,000.
Neither the bankruptcy nor the district court supplied an opinion with their respective orders. It is clear, however, and the parties have so presented the matter to us, that the bankruptcy court viewed the remedy for violation of the Act as encompassing recovery of civil penalties by Raymond and Darlene and the district court considered the remedy as limited to recovery by Raymond.
The issue is whether, along with the primary obligor, a guarantor is entitled to recover under the Act, the disclosure violative of the Act having been made only to the primary obligor.
The material facts are not in dispute. Raymond is a primary obligor. Darlene is a guarantor.*fn2 Union's disclosure constituted a violation of the Act and was made only to Raymond. Raymond is entitled to recover $1,000 in damages, plus an attorney fee and costs.*fn3 The sole contention on appeal is whether Darlene, a guarantor, may also recover $1,000 in damages.*fn4 We hold that she can.
As reflected in the guarantor agreement signed by Darlene, Union was "unwilling to extend credit to debtor unless it receives a guaranty of payment". That agreement specified that Darlene unconditionally guaranteed payment of the full amount loaned, plus interest accrued and the costs of collection. Respecting Raymond's liabilities, it provided that Darlene waived presentment, demand, protest, and notice of protest and dishonor. In addition, she gave Union an assignment of her wages from her employment with Rockwell International and future employers. Darlene thus undertook, as required by Union, substantial obligations to Union. If Raymond defaulted, she would stand in his shoes.
Union argues that Darlene was not a co-maker or joint obligor, asserting that she would be liable only on default of Raymond. Harkening to the statute and its remedial purposes, however, it is clear that Darlene's status as a contingent obligor is enough. Whether Darlene's obligations were primary or contingent bears no probative relation to the question of whether Union's breach of its disclosure duty under the Act should render it liable to her. Nothing in the Act limits a creditor's liability for its violation to primary obligors, co-makers or joint obligors. The civil penalties of Section 1640(a), (2)(A), and (3), limited in amount as they are, were designed to aid enforcement of the Act, not to compensate or reimburse a party for having undertaken a particular obligation. Actual damages resulting from the violation may be recovered under Section 1640(a)(1).
To hold that because Darlene's obligations were contingent upon Raymond's default she could not recover the penalty for Union's failure to make truthful disclosures would be to countenance a practice under which a creditor would be the beneficiary of substantial, albeit contingent, obligations running from a guarantor, but would be free of any reciprocal responsibilities whatever. Such an interpretation would enable a violator of the Act to obtain the benefit of guaranteed repayment, while limiting liability for his violation to a single payment of $1,000 to the one primary obligor. Nothing in the Act, in its legislative history, in common sense, or in the record here, would appear to justify such a "heads I win, tails you lose" approach.
In Mirabal v. General Motors Acceptance Corporation, 537 F.2d 871 (7th Cir., 1976), this court, after pointing out (at 875) that the disclosure requirements of the Act were enforceable only by regulation and private suits for ...