United States District Court, Central District of Illinois, Peoria Division
December 4, 1992
JOHN M. ROWLAND AND CAROL S. ROWLAND, PLAINTIFFS,
MAGNA MILLIKIN BANK OF DECATUR, N.A., DEFENDANT.
The opinion of the court was delivered by: McDADE, District Judge.
Before the Court are cross motions for summary judgment filed
by Plaintiffs, John and Carol Rowland; and Defendant, Magna
Bank of Central Illinois. Plaintiffs' complaint is in two
counts alleging violations of the Truth in Lending Act,
15 U.S.C. § 1601 et seq (TILA), on the part of Defendant. This
Court has jurisdiction of this case pursuant to 15 U.S.C. § 1640(e)
and 28 U.S.C. § 1331. In Count I, Plaintiffs seek
rescission of a Retail Installment Contract entered into
between Plaintiffs and Defendant. 15 U.S.C. § 1635. In Count
II, Plaintiffs seek civil liability against Defendant for
failing to comply with the provisions of the TILA. 15 U.S.C. § 1640.
For the reasons stated herein, the Court GRANTS in part
and DENIES in part Plaintiffs' Motion for Summary Judgment on
Count I, and DENIES Plaintiffs' Motion for Summary Judgment on
Count II. (# 12 & # 15). Additionally, the Court GRANTS in part
and DENIES in part Defendant's Motion for Summary Judgment on
Count I and GRANTS Defendant's Motion for Summary Judgment on
Count II. (# 12 & # 15).
According to the deposition of John Funk, Defendant's
Assistant Vice President in the Retail Lending Department, Nu
View Window of Illinois, Inc. (Nu View) presents about 400
contracts a year to Defendant for the financing of window sales
to Nu View customers. The total amount of home improvement
business which Defendant and Nu View transact each year amounts
to approximately $1,000,000.00 (one million dollars). (Funk
deposition, pp. 8-9). What follows is a chronological series of
events involving Plaintiffs, Defendant, and Nu View.
On December 5, 1988, Plaintiffs met with a sales
representative from Nu View and agreed to buy six windows for
$4,364.00 (four thousand three hundred sixty-four dollars). (J.
Rowland Deposition pp. 9-10,
Defendant's deposition exhibit # 1). On that date, Plaintiffs
and the sales representative also partially completed a Retail
Installment Contract (Plaintiffs' exhibit # 1),*fn1 and a
Notice of Right of Rescission. (Plaintiffs' exhibit # 6), The
Rescission Notice stated that the date of the transaction was
December 5, 1988, and that Plaintiffs had until midnight of
December 8, 1988, to exercise their rescission rights.
Id. On December 13, 1988, Plaintiffs mortgaged their home to
Defendant to secure payment of a note in the amount of
$4,364.00 (four thousand three hundred sixty-four dollars).
(Plaintiffs' exhibit # 7). On December 14, 1988, Defendant
notified Plaintiffs that their credit was satisfactory for the
amount of $4364.00 (four thousand three hundred 64 dollars) for
60 months. On January 18, 1989, Defendant dated its copy of the
Retail Installment Contract. (Unmarked exhibit attached to
Defendant's brief, Doc # 15; Funk Dep. p. 20, see Plaintiffs'
exhibit # 5). On January 25, 1989, the Plaintiffs' mortgage of
their home to Defendant was recorded. (Plaintiffs' exhibit #
7). On February 5, 1991, Plaintiffs, by letter to Defendant,
rescinded the transaction and demanded release of their
mortgage on their residence. (Plaintiffs' Exhibit # 2). On
February 12, 1991, Defendant refused to terminate the
transaction or release the mortgage. The instant action was
filed on March 26, 1991, and on June 13, 1991, Defendant
released the mortgage.
Of key significance to the present action are the differences
between the Plaintiffs' copy of the Retail Installment Contract
and the Defendant's copy of the Installment Contract. The
following is a discussion of those differences.
Attached to Plaintiffs' Complaint as Plaintiffs' Exhibit # 1
is the original buyer's copy of the Retail Installment
Contract. This copy was the one which Plaintiffs' kept in their
possession. Most notably, Plaintiffs' copy of the contract is
almost completely illegible. For instance, in the box marked
"TRUTH IN LENDING DISCLOSURES," (federal box) it is impossible
to accurately determine the finance charge and the total of
payments, and the total sale price is too blurred to attempt to
make an accurate reading. The contract states that payments are
due "45 days after installation," but no specific date is
given. Additionally, the contract is not dated and bears only
the signature of John Rowland.
Another copy of the contract which was submitted by Defendant
but not marked as an exhibit (this copy of the contract is the
same as Plaintiffs' # 5) contains some significant differences
from Plaintiffs' copy of the contract. This copy of the
contract is completely legible. Furthermore, the contract bears
not only the signature of John Rowland, but also the signatures
of Carol Rowland and Tamela Huff, the Office Manager of Nu
View, Inc. Additionally, the contract bears the date "1-18-89"
in the upper right hand corner. Most importantly, the federal
box clearly shows the finance charge, total of payments, and
total sale price. Moreover, the federal box not only states
that payments are due "45 days after installation," but also
gives the date 3-4-89." Several other differences exist between
the two contracts but need not be discussed here.
"A motion for summary judgment is not an appropriate occasion
for weighing the evidence; rather, the inquiry is limited to
determining if there is a genuine issue for trial." Lohorn v.
Michal, 913 F.2d 327, 331 (7th Cir. 1990); see Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2510,
91 L.Ed.2d 202 (1986). This Court must "view the record and all
inferences drawn from it in the light most favorable to the
party opposing the motion." Holland v. Jefferson National Life
Ins. Co., 883 F.2d 1307, 1312 (7th Cir. 1989). When faced with
a motion for summary judgment, the non-moving party may not
rest on its pleadings. Rather, it is necessary
for the non-moving party to demonstrate, through specific
evidence, that there remains a genuine issue of triable fact.
See, Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct.
2548, 2553, 91 L.Ed.2d 265 (1986); Bank Leumi Le-Israel, B.M.
v. Lee, 928 F.2d 232, 236 (7th Cir. 1991).
Initially, the Court notes that TILA "must be liberally
construed in favor of the consumer." Davis v. Werne,
673 F.2d 866, 869 (5th Cir. 1982). Furthermore, "TILA requirements are
enforced by imposing a sort of strict liability in favor of
consumers who have secured financing through transactions not
in compliance with the terms of the Act. `It is strict
liability in the sense that absolute compliance is required and
even technical violations will form the basis for liability.'"
Shepeard v. Quality Siding & Window Factory, Inc., 730 F. Supp. 1295,
1299 (D.Del. 1990) (citations omitted). In Smith v. No.
2. Galesburg Crown Finance Corp., 615 F.2d 407 (7th Cir. 1980),
the Seventh Circuit provided the Court with clear guidelines
for evaluating complaints of violations of the Act. Smith
It is not sufficient to attempt to comply with
the spirit of TILA in order to avoid liability.
Rather, strict compliance with the required
disclosures and terminology is required. Many
violations of TILA involve technical violations
without egregious conduct of any kind on the part
of the creditor. However, congress did not intend
that the creditors should escape liability for
merely technical violations. Thus, while it may be
true, in some sense . . . that the terminological
violations here are inconsequential, the fact
remains that they are violations. Any misgivings
which creditors may have about the technical
nature of the requirements should be addressed to
Congress or to the Federal Reserve Board, not to
the courts. . . . We will therefore require strict
adherence to the required terminology under the
statute and regulations, and we will not
countenance deviations from those requirements,
however minor they may be in some abstract sense.
Id. at 416-417. (citations omitted).
In the case at bar, Plaintiffs seek to rescind the
transaction into which they entered. A right of rescission
exists "[i]n a credit transaction in which a security interest
is or will be retained or acquired in a consumer's principal
dwelling. . . ." 12 C.F.R. § 226.23(a). A security interest was
retained in the case at bar, giving Plaintiffs a right to
In its Motion for Summary Judgment, Defendant argues that
Count I is time-barred because Plaintiffs failed to exercise
their right to rescind within the applicable statute of
limitations. 15 U.S.C. § 1635(a) states in pertinent part:
Except as otherwise provided in this section . .
. the obligor 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 the
regulations of the Board, of his intentions to do
Id. (emphasis added).
In the event that the obligor fails to receive the required
information, forms and disclosures, subsection (f) sets out a
three-year time limit for the obligor to exercise the right of
recision. Specifically, subsection (f) states:
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.
15 U.S.C. § 1635(f).
The Code of Federal Regulations also discusses the right of
rescission and the attendant time limits. 12 C.F.R.
The consumer may exercise the right to rescind
until midnight of the third business day following
delivery of the notice required . . . or delivery
of all material disclosures, whichever occurs last.
If the required notice or material disclosures are
not delivered, the right to rescind shall expire 3
years after consummation. . . .
Id. (emphasis added).
For the purposes of rescission, "[t]he term material
disclosures means the required disclosures of the annual
percentage rate, the finance charge, the amount financed, and
the payment schedule." 12 C.F.R. § 226.23(a)(3) n. 48. These
disclosures must be made "clearly and conspicuously in writing
in a form that the consumer may keep." 12 C.F.R. § 226.17(a).
In applying the law to the facts in the case at bar, the
Court must first determine whether a consumer-creditor
relationship was established. The parties have not disputed
that a consumer-creditor relationship existed, and the Court
finds that Plaintiffs' were consumers and Defendant a creditor
in the instant action.
The next issue for the Court to determine is the date of
consummation of the contractual relationship. Consummation
"means the time that a consumer becomes contractually obligated
on a credit transaction. Id. at (a)(13). Although the parties
do not dispute that the transaction was consummated, they offer
four separate consummation dates: (1) December 5, 1988, the
date Plaintiffs signed the contract and received the rescission
notice; (2) December 13, 1988, the date Plaintiffs mortgaged
their home; (3) December 14, 1988, the date Defendant notified
Plaintiffs by mail that the loan was approved; and (4) January
18, 1988, the date on Defendant's copy of the contract. Here,
the Court finds that the contract was consummated on December
5, 1988, because that was the date Plaintiffs contracted for
financing and became bound to the credit terms. See,
12 C.F.R. § 226 Sup. I subpart A § 226.2(a)(13) 1 and 2.
The Court must next determine whether the required
disclosures were properly made. If the disclosures were proper,
Plaintiffs had three days to rescind the contract after
December 5, 1988. If the disclosures were improper, then
Plaintiffs would have had three years to rescind the contract.
See, 15 U.S.C. § 1635(a) & (f); 12 C.F.R. 226.23(a)(3) (1992).
As previously mentioned, one of the problems with the
Plaintiffs' copy of the contract is the illegibility of the
disclosures. According to Smith, 615 F.2d at 418 "[n]othing can
be more central to the entire scheme of TILA than the notion
that disclosures made must be legible. The required disclosures
become meaningless if the consumer is unable to decipher them."
Id. The regulations also require that "the disclosures must be
legible, whether typewritten, handwritten, or printed by
computer." 12 C.F.R. part 226, supp. I, subpart C, § 226.17(a)
para. 1, p. 359 (1992).
Certainly, the blurred and illegible disclosures on the
Plaintiffs' copy of the contract were not clearly and
conspicuously made as required by 12 C.F.R. § 226.6(a).
Accordingly, under Smith, the Court finds that Defendant failed
to make material disclosures because many of the disclosures
were illegible. The Court notes that other copies of the
contract were legible, but the Act mandates that "[t]he
creditor shall make the disclosures required by this subpart
clearly and conspicuously in writing in a form that the
consumer may keep." Id. at 226.17(a). As noted above, the copy
of the contract that the customer was allowed to keep did not
contain clear and conspicuous disclosures.
The Court also notes that the Defendant did mail a letter to
Plaintiffs on December 14, 1988, which clearly stated the net
amount of the note at $4364.00, the face amount of the note at
$6127.80, the monthly installments of $102.13 per month, and
the annual percentage rate of 14%. (Defendant's deposition
exhibit # 4). However, this letter did not state the finance
charge, the most blurred of the disclosures on Plaintiffs' copy
of the contract. Thus, Defendant has clearly violated 15 U.S.C. § 1632(a)
which states that the finance charge "shall be
disclosed more conspicuously than other terms . . ." Id.
Additionally, the letter did not state when the payments
were to begin, thus the required payment schedule, which must
reveal the timing of payments, was not disclosed. See
12 C.F.R. § 226.18(g). For the above stated reasons, the letter cannot be
considered to have provided the required disclosures.
The Court also finds that Defendant's failure to include a
specific date stating when payments were due on Plaintiffs'
copy of the contract, constitutes a failure to make a material
disclosure. As previously noted, failure to disclose the
payment schedule is a material non-disclosure, and the payment
schedule disclosure requires that the timing of payments be
revealed. 12 C.F.R. § 226.18(g).
Plaintiffs also argue that Defendant failed to disclose that
it had taken a security interest in Plaintiffs' home, but the
regulations do not consider such a failure to amount to a
material non-disclosure, and the issue will not be considered
here. See, 12 C.F.R. § 226.23(a)(3) n. 48; Shepeard, 730
F. Supp. at 1303.
For the above stated reasons, the Court finds that Defendant
failed to make certain material disclosures. Accordingly, the
Court finds that Plaintiffs had three years and not three days
in which to rescind the contract. Therefore, Plaintiffs'
rescission was timely.
On page six of their Complaint, Plaintiffs seek the following
relief regarding Count I: (a) rescission of the transaction;
(b) a release of the record of the mortgage; (c) reasonable
attorney's fees; (d) costs; and (e) such other proper relief.
(Doc. # 1 p. 6). Count I was later amended to add paragraph (f)
seeking "[j]udgment for all money or property given as earnest
money, downpayment, or otherwise (including the monthly
payments made by plaintiffs to defendant). 15 U.S.C. § 1635(b);
Regulation Z §§ 226.15(d)(2) and 226.23(d)(2)." (# 11). The
Court finds that Defendant failed to disclose material
information on the contract, and Plaintiffs' request for a
rescission is GRANTED. Regarding the release of the mortgage,
Plaintiffs and Defendant agree that Defendant delivered a
release of the mortgage to Plaintiffs on June 13, 1991. The
Court also finds that Plaintiffs are entitled to reasonable
attorney fees and costs with respect to Count I. See,
15 U.S.C. § 1640(a)(3).
The Court's decision to grant Plaintiffs' rescission request
warrants further discussion. The effects of rescission are
governed by 15 U.S.C. § 1635(b). Having found that Plaintiffs
are entitled to a rescission, the security interest
automatically becomes void, Id., and the Defendant must "take
any action necessary to reflect the termination of the security
interest." 12 C.F.R. § 226.23(d)(2). In the case at bar, the
Defendant has released the mortgage, thus fulfilling the above
requirement of 15 U.S.C. § 1635(b).
Another consequence of rescission is that Plaintiffs are no
longer liable under the terms of the transaction. Thus,
Plaintiffs need not pay "any finance or other charge. . . ."
Id. Furthermore, the regulations dictate that "[w]ithin 20 days
after receipt of a notice of rescission, the creditor shall
return any money or property that has been given to anyone in
connection with the transaction. . . ."
12 C.F.R. § 226.23(d)(2). Recision, however, is an equitable remedy, and
"the court may condition the return of monies to the debtor
upon the return of property to the creditor." Shepeard, 730
F. Supp. at 1307, (quoting, Rudisell v. The Fifth Third Bank,
622 F.2d 243, 254 (6th Cir. 1980)).
In a case similar to this in which a consumer received siding
that could not be returned, the court held that the consumers
were required to "tender the reasonable value of the property
they received since they . . . [could not] give back what they
actually received. . . ." Rudisell, 622 F.2d at 254. On this
matter, the regulations provide that "the consumer shall tender
the money or property to the creditor or, where the latter
would be impracticable or inequitable, tender its reasonable
value." 12 C.F.R. § 226.23(d)(3). The official comments to this
If returning the property would be extremely
burdensome, to the consumer, the consumer may
offer to the creditor its reasonable value rather
than return the property itself. For example, if
building materials have already been incorporated
into the consumer's dwelling, the consumer may pay
their reasonable value.
12 C.F.R. § pt. 226, sup. I at 396 (1992).
In the case at bar, it would be equitable for Plaintiffs to
pay the reasonable value of the windows installed at their
home. Plaintiffs argue, however, that because they filed for
bankruptcy on January 18, 1991, and were discharged on June 17,
1991, (Case No. 91-80120, Bankr.C.D.Ill.), they no longer need
to tender the value of the windows as a condition of
rescission. Plaintiffs cite several cases in support of their
position, but in no way do these cases countenance the
inequitable position taken by Plaintiffs. See, In re Moore,
117 B.R. 135 (Bankr.E.D.Pa. 1990), aff'd 1991 WL 146241 (E.D.Pa.
1991); In re Perkins, 106 B.R. 863 (Bankr.E.D.Pa. 1989); In re
Brown, 106 B.R. 852 (Bankr.E.D.Pa. 1989); In re Celona, 90 B.R. 104
(Bankr.E.D.Pa. 1988), aff'd 98 B.R. 705 (E.D.Pa. 1989); In
re Gurst, 79 B.R. 969 (Bankr.E.D.Pa. 1987).
Accordingly, the Court finds that Plaintiffs are entitled to
a rescission of the contract they entered into on December 5,
1988, and Plaintiffs are "not liable for any finance or other
charge." 15 U.S.C. § 1635(a). However, it would be
impracticable for Plaintiffs to return the installed windows,
and Plaintiffs must tender to Defendant the reasonable value of
the windows, less the amount already paid. Shepeard, 730
F. Supp. at 1309. Neither party has provided evidence on the
reasonable value of the windows. Accordingly, the Court finds
that the parties do not dispute that the reasonable value of
the windows is the contract price, $4364.00 (four thousand
three hundred sixty-four dollars). Id. at 1307. Thus,
Plaintiffs owe Defendant $4364.00 less the amount already paid
on the windows.
In paragraph (f) of their amendment to Count I, Plaintiffs
seek a return of any "money or property given as earnest money,
downpayment, or otherwise (including the monthly downpayments
made by plaintiffs to defendant. . . ." (# 11). Such relief is
proper under 15 U.S.C. § 1635(b). The evidence indicates,
however, that Plaintiffs did not make a downpayment or tender
earnest money, and the monthly payments are to be credited to
the value of the windows. Accordingly, the Court DENIES
Plaintiffs' request for relief under paragraph (f) of the
amendment to Count I.
In their Motion for Summary Judgment, Plaintiffs requested
judgment for twice the finance charge, not to exceed $1000.00,
15 U.S.C. § 1635(g) and 1640(a), and prejudgment interest.
However, no such request was made in Count I of the Complaint,
and such damages will not be allowed.
In Count II of the Complaint, Plaintiffs allege that they are
entitled to statutory damages pursuant to
15 U.S.C. § 1640(a)(2)(A)(i). This section provides that "any creditor who
fails to comply with any requirement imposed under this part
including any requirement under section 1635 on this title . .
. with respect to any person is liable to such person . . . for
twice the amount of any finance charge . . . except that
liability shall not be less than $100 nor greater than $1,000.
. . ." Id. However, the statute of limitations provides that
"[a]ny action under this section may be brought . . . within
one year from the date of the occurrence on the violation." Id.
at § 1640(e). Defendant argues that because the alleged
violation occurred more than one year prior to the filing of
the lawsuit, Count II is time-barred. In response to
Defendant's argument, Plaintiffs appear to argue that the
violation occurred when Defendant failed to respond to
Plaintiffs' rescission request of February 5, 1991. However,
Count II of the Complaint does not seek damages for a violation
concerning the rescission request of February 5, 1991, but for
violations which occurred on December 5, 1988, the date of
consummation. Accordingly, the violations for which Plaintiffs
seek damages under Count II occurred more than
one year prior to the date Plaintiffs commenced the instant
action and Count II is, therefore, time-barred. The Court
further finds that Plaintiffs' argument concerning damages for
failing to respond to the rescission demand cannot be
considered to apply to Count I, because, as noted, Count I does
not seek statutory damages under § 1640.
For the above stated reasons, the Court GRANTS in part and
DENIES in part Plaintiffs' Motion for Summary Judgment on Count
I of Plaintiffs' Complaint. (# 12 & # 15). Additionally, the
Court GRANTS in part and DENIES in part Defendant's Motion for
Summary Judgment on Count I. Plaintiff is GRANTED a rescission
of the contract and reasonable attorney's fees and costs, but
is DENIED all other relief requested in Count I. Plaintiff must
also tender to Defendant the reasonable value of the windows,
$4364.00 (four thousand three hundred sixty four dollars), less
payments already made. Regarding the award of attorney's fees
and costs, if the parties are unable to resolve the fee amount
among themselves, Plaintiffs are directed to file with the
Court a fee petition, together with supporting documentation,
within thirty (30) days of the date of this Order. Defendant
will have ten (10) days to respond to any motion for fees filed
As to Count II, The Court GRANTS Defendant's Motion for
Summary Judgment and DENIES Plaintiffs' Motion for Summary
Judgment. (# 12 & # 15). The Clerk of the Court is Directed to
enter judgment accordingly.