United States District Court, Northern District of Illinois, E.D
December 6, 1984
CSABA BOKROS, PLAINTIFF,
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.
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.
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
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 both
personal and business use was subject to TILA's disclosure
That contention is of course belied by the representations
in the Affidavit, in which Bokros explicitly affirmed the loan
proceeds were to be used for business purposes. While the
Affidavit is not conclusive on that score, given the necessity
to examine the transaction as a whole, it is strong evidence
of the loan's character. But even apart from the all-or-none
characterization in the Affidavit, on Bokros' own current
statement of the facts (Complaint Count I ¶ 3) more than half
the proceeds — $9,000 of the $17,000 — were in fact used for
down payment on a tractor-trailer for
his business (unquestionably a "business" or "commercial"
After all TILA § 1603 does speak in terms of "primarily." And
even though Gallegos, 593 F.2d at 375 did talk of "a factual
issue to be resolved by the trier of fact," it was referring to
a mixed factual bag with permissible inferences going either
way. By contrast Tower, which said "the nature of the credit
transaction is ultimately determined by the entire surrounding
factual circumstances" (625 F.2d at 1166 n. 4), considered a
set of facts that were not in dispute and resolved the TILA
exemption question as a matter of law (id. at 1166-67). It is
worth noting that is precisely how courts deal with the
analogous (or, rather, even more factually oriented) question
whether the "dominant purpose" of a contract is for sale of
goods or for services, governing the applicability vel non of
UCC Article 2; see, e.g., WICO Corp. v. Willis Industries,
567 F. Supp. 352, 355 (N.D.Ill. 1983) and cases cited there.
If "primarily" is to have any substantive content (as it
must), in the context of a loan like Bokros' — taken out for
two discrete purposes — it must refer to the use of more than
half the funds. That use, for purchase of the tractor-trailer,
was concededly for "business [or] commercial . . . purposes."
Because the loan thus involved an "extension of credit
primarily for business [or] commercial . . . purposes," TILA
was inapplicable to the loan under TILA § 1603(1) as a matter
This opinion could end right now. But because Bokros must
founder on still another ground, it may be worth some further
discussion on the assumption the primary purpose of the loan
could pose a factual question. If so, the principles of Conley
v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d
80 (1957), recently reaffirmed in Hishon v. King & Spalding,
___ U.S. ___, 104 S.Ct. 2229, 2233, 81 L.Ed.2d 59 (1984), would
require going forward.
2. Liability of Associates as Assignee
TILA § 1641 defines the scope of an assignee's liability:
(a) Except as otherwise specifically provided in
[TILA], any civil action for a violation of
[TILA] . . . which may be brought against a
creditor may be maintained against any assignee
of such creditor only if the violation for which
such action or proceeding is brought is apparent
on the face of the disclosure statement.
However a different rule controls the right to rescission
provided by TILA § 1635. On that score TILA § 1641(c) provides:
Any consumer who has the right to rescind a
transaction under section 1635 of this title may
rescind the transaction as against any assignee
of the obligation.
That unequivocal language is confirmed by the legislative
history (S.Rep. No. 368, 96th Cong., 1st Sess. 32-33,
reprinted in 1980 U.S.Code Cong. & Ad.News 236, 268):
In addition, this section eliminates ambiguity on
the question of assignee liability for rescission
by stating explicitly that a consumer's exercise
of this right is effective against an assignee.
Without such protection for the consumer, the
right of rescission would provide little or no
Thomas' assignment of the loan, in other words, did not
suspend Bokros' rights under TILA § 1635, even as against
3. Limitations Analysis
Under TILA § 1635(a), a debtor who has entered into a credit
transaction subject to TILA and who, as part of the
transaction, has granted the creditor a security interest in
his principal dwelling:
shall have the right to rescind the transaction
until midnight of the third business day
following the consummation of
the transaction or the delivery of the
information and rescission forms required under
this section together with a statement containing
the material disclosures required under this
subchapter, whichever is later, by notifying the
creditor, in accordance with regulations of the
Board, of his intention to do so. The creditor
shall clearly and conspicuously disclose, in
accordance with regulations of the Board, to any
obligor in a transaction subject to this section
the rights of the obligor under this section. The
creditor shall also provide, in accordance with
regulations of the Board, appropriate forms for
the obligor to exercise his right to rescind any
transaction subject to this section.
TILA § 1635(f) imposes a time limit on that right to rescind:
An obligor's right of rescission shall expire
three years after the date of consummation of the
transaction or upon the sale of the property,
whichever occurs first, notwithstanding the fact
that the information and forms required under
this section or any other disclosures required
under this part have not been delivered to the
obligor. . . .
Bokros' loan was consummated*fn5
July 11, 1979 — or at least
by August 25, 1979, the date of the first installment payment.
By the plain terms of the statute, then, Bokros' right to
rescind as against Thomas or its assignees had expired long
before Bokros gave Associates notice of rescission April 24,
In an effort to avoid that conclusion, Bokros contends both
Thomas and Associates fraudulently concealed from him his
right to rescind under TILA § 1635. His theory is he was
deliberately kept in the dark as to his rights by parties who
had an affirmative duty to disclose, so that equitable tolling
principles suspended the running of the limitations clock for
the period the fraudulent concealment continued.
Fraudulent concealment doctrine has long been recognized as
applicable to federal statutes of limitations. As Justice
Frankfurter put it in Holmberg v. Armbrecht, 327 U.S. 392, 397,
66 S.Ct. 582, 585, 90 L.Ed. 743 (1946):
[T]his Court long ago adopted as its own the old
chancery rule that where a plaintiff has been
injured by fraud and "remains in ignorance of it
without any fault or want of diligence or care on
his part, the bar of the statute does not begin
to run until the fraud is discovered, though
there be no special circumstances or efforts on
the part of the party committing the fraud to
conceal it from the knowledge of the other
party." Bailey v. Glover, 21 Wall. 342, 348, 22
L.Ed. 636. . . .
That "equitable doctrine is read into every federal statute of
limitation," id. at 397, 66 S.Ct. at 585, including those under
TILA. See Davis v. Edgemere Finance Co., 523 F. Supp. 1121,
1125-27 (D.Md. 1981); Chevalier v. Baird Savings Association,
66 F.R.D. 105, 106-08 (E.D.Pa. 1975).
To make out a case of fraudulent concealment under TILA,
though, Bokros must do more than "merely intoning the word
`fraudulently,'" Charlotte Telecasters, Inc. v. Jefferson-Pilot
Corp., 546 F.2d 570,
574 (4th Cir. 1976) or more than alleging mere nondisclosure,
Davis, 523 F. Supp. at 1126. Rather he must allege facts
indicating (Davis, 523 F. Supp. at 1125, quoting Charlotte
Telecasters, 546 F.2d at 574, in turn quoting Weinberger v.
Retail Credit Corp., 498 F.2d 552, 555 (4th Cir. 1974)):
(1) fraudulent concealment by the party raising
the statute together with (2) the other party's
failure to discover the facts which are the basis
of his cause of action despite (3) the exercise
of due diligence on his part.
As to Thomas, Bokros has satisfied the
Weinberger-Charlotte-Davis test. Thomas' alleged modification
of the principal amount of the loan on the Note, without giving
a copy of the alleged Note to Bokros, concealed from Bokros the
documented terms of the transaction. Thomas' failure to specify
an annual percentage rate may be cast in a similar light.
Moreover, assuming (most favorably to Bokros) that Thomas knew
the loan was subject to TILA yet induced Bokros to execute the
Affidavit, Thomas may be charged with attempting to conceal
from Bokros the availability of TILA remedies, including TILA §
But as to Associates (the party to this lawsuit) Bokros has
made no particular allegations (as required by Rule 9(b))
indicating fraudulent concealment. He alleges only (1)
Associates knew or should have known the specification of the
principal amount on the Note had been altered and (2) by virtue
of receiving a copy of the Affidavit, Associates had reason to
know Bokros had received no notice of his right to rescind.
Those facts, Bokros contends, evince a reckless disregard for
his rights and indicate Associates furthered the concealment.
Even were it assumed the irregularities and omissions in the
Note should have raised some doubt on Associates' part about
Thomas' diligence and care in documenting the loan, those
deficiencies themselves are not badges of fraud. It requires
an impermissible leap of faith to move from the notion
Associates might have been put on inquiry of possible
irregularities in its assignor's handling to the conclusion
it engaged in fraudulent concealment.
Moreover any argument Associates might have been charged
with doubts as to Thomas' compliance with TILA requirements is
dispelled by the existence of the Affidavit, in which Bokros
himself represented the loan was not a consumer transaction.
Bokros' contention that Associates' receipt of the Affidavit
put it on notice Bokros had received no notice of his "right"
to rescind subsumes an assumption he had such a right — an
assumption negated by the Affidavit itself. That argument is
impermissibly circular. Nothing in the Complaint alleges, or
creates the reasonable inference, Associates had reason to
doubt the accuracy or validity of the Affidavit.*fn8
In short, on Bokros' own allegations Associates took no
affirmative steps to conceal from Bokros his TILA § 1635
rights, nor do the alleged facts reasonably imply a deliberate
failure by Associates to investigate a patently suspect
transaction. At worst (and even this requires a stretching of
the facts) Associates must be viewed as involved in "mere
nondisclosure" — conduct, in other words, not rising to the
fraudulent concealment. Davis, 523 F. Supp. at 1126.*fn9
Bokros is not entitled to claim TILA's protection, for his
loan was excluded under TILA § 1603(1). And even were that not
so, his right to rescind the loan as against Associates would
be barred by the three-year statute of limitations under TILA §
1635(f). Bokros' TILA § 1635 claim thus fails as a matter of
law. Lacking any other basis for federal jurisdiction, this
Court is also without power to hear Bokros' pendent state
claims. Bokros' motion to vacate the order dismissing his
Complaint and this action is denied.
ROBERT THOMAS AND ASSOCIATES, INC.
215 North Arlington Heights Road
Arlington Heights, Illinois 60004
STATE OF ILLINOIS
COUNTY OF COOK
I, Csaba Bokros of the City of Streamwood, County of
__________, State of Illinois, being duly sworn, to dispose and
say that I own and operate a business known as Bokros Trucking,
located at 714 Ridge, Illinois; that the purpose of the loan
applied for by me is soley for the purpose of carring on such
business and the proceeds will be used for such purpose and for
no other. I, the undersigned, warrant that I am in the trucking
business; that the proceeds of this loan will be used for
working capital for such business and to pay business debts of
such business; that I make this AFFIDAVIT of my own free will
and that it is soley induce ROBERT THOMAS & ASSOCIATES, INC. to
grant a certain loan to me for business exclusively. I am not a
corporation, I D B A Bokros Trucking. The funds from ROBERT
THOMAS & ASSOCIATES, INC. were used for my business in the
following manor: down payment on tractor trailer.
Mr. Csaba Bokros /s/
Mrs. [signature illegible]
Subscribed and Sworn before me this date 7/11/79