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BOKROS v. ASSOCIATES FINANCE

December 6, 1984

CSABA BOKROS, PLAINTIFF,
v.
ASSOCIATES FINANCE, INC., DEFENDANT.



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.

Facts*fn2

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.

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
  against Thomas.
    3. Both TILA limitations provisions were tolled
  because both Thomas and Associates fraudulently
  concealed from Bokros his right to rescind the
  loan.

This opinion will consider each contention in turn.

1. Applicability of TILA

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
  organizations.

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 ...


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