The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER
Csaba Bokros ("Bokros") charges Associates Finance, Inc.
("Associates") with violations of the Truth in Lending Act
("TILA"), 15 U.S.C. § 1601-1667e,*fn1 and various state
statutory and common law rules. On Associates' motion, this
Court dismissed Bokros' original complaint and this action
because the limitations periods applicable under TILA (one for
rescission and one for damage actions) had run, thus
eliminating the sole basis for federal jurisdiction. Bokros
then filed an Amended Complaint (the "Complaint") seeking to
meet Associates' objections. Associates in turn renewed its
Fed.R.Civ.P. ("Rule") 12(b)(6) motion to dismiss, which this
Court granted from the bench October 24, 1984. Bokros now moves
for a order vacating the dismissal and reinstating the lawsuit.
For the reasons stated in this memorandum opinion and order
that motion is denied.
On July 11, 1979 Bokros entered into an agreement with
Robert Thomas & Associates ("Thomas") to borrow $17,000. Part
of the loan proceeds — $8,000 — was used to retire a mortgage
on Bokros' residence, while more than half — $9,000 — was used
to help finance the purchase of a tractor-trailer. Bokros'
obligation to repay the principal sum plus finance charges,
calling for monthly installments over a five-year period, was
secured by a junior mortgage on Bokros' house.
Though Bokros received $17,000 in loan proceeds, the note
and security agreement memorializing the loan (the
"Note,"*fn3 no copy of which was supplied to Bokros)
reflected loan proceeds of $20,000, to which a finance charge
of $12,400 was added, for a total repayment obligation of
$32,400. While the printed terms of the Note contemplated a
loan secured by a security interest, with a space provided for
a description of the collateral, no such description was
included. Indeed the space allotted
for describing collateral other than a motor vehicle simply
contained the following handprinted term: "Prepayment penalty
of 5% of principal balance will be in effect for 1 yr."
Moreover the line provided for specifying the annual
percentage rate on the loan was left blank. In two places the
Note specified 60 monthly payments of $540 each beginning in
August 1979. Bokros also signed and delivered a "business
loan" affidavit (Appendix A, the "Affidavit"; see
Ill.Rev.Stat. ch. 17, ¶ 6404(c), formerly ch. 74, ¶ 4(c))
attesting (1) he was engaged in the trucking business, doing
business as Bokros Trucking, and (2) the loan proceeds were to
be used solely to carry on the business (referring specifically
to "down payment on tractor-trailer").
In 1981 Bokros and his wife experienced financial
difficulties and filed for relief under Chapter 13 of the
Bankruptcy Reform Act of 1978, 11 U.S.C. § 1301-1330. Before
that, however, Thomas had assigned the Note to Associates,
which filed with the Cook County Recorder of Deeds a mortgage
on Bokros' residence reflecting a principal debt of $20,000
plus finance charges. After the assignment Bokros had been
making the monthly payments under the Note to Associates,
though after the Chapter 13 filing he made payments to the
Chapter 13 trustee, who in turn made payments to Bokros'
creditors, including Associates. In all Associates has received
payments of at least $29,953.93 on the outstanding obligations.
In 1983 Bokros asked Associates for, and received, a copy of
the Note. In light of the discrepancy as to principal amount
and other omissions, Bokros decided to invoke TILA. On April
24, 1984 he notified Associates he was rescinding the loan
under TILA § 1635. Associates refused to honor the rescission,
leading Bokros to initiate this lawsuit July 18, 1984.
Claimed Bases for Vacating Dismissal
Bokros makes a three-part argument in support of his motion:
1. Thomas' loan to him was a consumer credit
transaction subject to the provisions of TILA.
2. Associates took the Note subject to any
claims and defenses Bokros would have asserted
3. Both TILA limitations provisions were tolled
because both Thomas and Associates fraudulently
concealed from Bokros his right to rescind the
This opinion will consider each contention in turn.
TILA § 1603(1) exempts from TILA's provisions:
Credit transactions involving extensions of
credit primarily for business, commercial or
agricultural purposes, or to government or
governmental agencies or instrumentalities, or to
To determine whether an extension of credit falls within that
exemption, the court "must examine the transaction as a whole
and the purpose for which the credit was extended." Tower v.
Moss, 625 F.2d 1161, 1166 (5th Cir. 1980).
Bokros argues the loan does not qualify as primarily for
business or commercial purposes, because nearly half its
proceeds were used to retire Bokros' existing residential
mortgage. See Gallegos v. Stokes, 593 F.2d 372, 375 (10th Cir.
1979) (loan extended for purchase of a pickup truck for ...