Appeal from the Circuit Court of Cook County. No. 97 CH 10793 The Honorable Robert V. Boharic, Judge Presiding.
The opinion of the court was delivered by: Presiding Justice Gordon
Plaintiff, Iver Johnson, brought a foreclosure action against defendant, Kathy Thomas, for failure to make payments pursuant to a retail installment contract for home improvement work, which was secured by a mortgage on Thomas' home. Thomas subsequently filed a counterclaim, alleging various violations of the Truth in Lending Act (TILA) (15 U.S.C. §1601 et seq. (1994)) and slander of title. Following a bench trial, the trial court entered judgment for Thomas, awarding her $6,000 for three TILA violations and $59,901 in attorney fees and costs. The court further ordered Thomas to pay Johnson $10,000 for the reasonable value of the work performed on her home. Johnson appeals.
At trial, Thomas testified that she met with Marvin Bilfeld, d/b/a Davenport Construction Company, at her home in Matteson, Illinois, on July 18, 1995, to discuss a home remodeling contract. During the meeting, Bilfeld obtained Thomas' signature on five documents: (1) a proposal specifying that the remodeling work would total $15,000 with payments to be made in 120 monthly installments of $300; (2) a blank retail installment contract (RIC), which displayed empty boxes entitled "annual percentage rate," "finance charge," "amount financed," "total of payments," "total sale price" and "payment schedule"; (3) a blank mortgage document; (4) a notice of right to cancel, which contained the name and address of Davenport Construction Company as the party to contact in the event of cancellation and displayed a blank line following the instructions "If you cancel by mail or telegram, you must send the notice no later than midnight of"; and (5) a blank wage assignment.
Thomas testified that Bilfeld told her the RIC required her to make payments to his "partner," Iver Johnson. He stated he was responsible for the construction work and Johnson collected the payments. He also told her that she could pay for the work in the monthly installments specified in the proposal or she could refinance her first mortgage and obtain a loan from another lender. He suggested she contact Dolphin Mortgage Company (Dolphin) if she wished to refinance. Thomas stated that she received a copy of the proposal and possibly the notice of right to cancel at the meeting, but did not receive copies of the other documents she signed. Construction on her home began the following day, July 19, 1995.
After contacting Dolphin, Thomas reported to Bilfeld that Dolphin's interest rate was too high and she would pay for the work according to the terms set forth in his proposal. Thomas testified that the documents she signed did not contain an interest rate and she was unaware that paying 120 monthly installments of $300 incorporated an interest rate of approximately 21%.
Thomas called Bilfeld in late July to report that she was not satisfied with the work of some of his subcontractors. On August 1, 1995, Bilfeld visited Thomas' home and told her she would need to pay an additional $3,000 to have the work done to her specifications. On that day, Thomas signed a second proposal, which provided that the specified work would be completed for a total of $18,000 to be paid in 120 monthly installments of $360. No other documents were executed at that time.
Thereafter, Thomas continued to complain about the work performed on her home; however, Bilfeld failed to respond to her concerns. As a result, she sent him a letter on September 30, 1995, detailing the remaining problems with the remodeling work and stating she would not make any payments until the work was done properly. Thomas further requested that Bilfeld send her copies of all of the documents she had signed. Upon receiving some of the documents from Bilfeld and reviewing others at a later date, Thomas learned that additional numbers had been inserted on the RIC and the notice of right to cancel after she had signed them, outside of her presence and without her approval. Because Thomas had received copies, she did not learn the documents had also been altered using liquid paper until she was shown the originals at her deposition in the year 2000.
The documents introduced at trial showed that the boxes on the RIC had been filled in to reflect the terms of the July proposal. Liquid paper had then been applied in certain boxes, and numbers consistent with the August 1, 1995, proposal had been written on top of the liquid paper. The numbers written over the liquid paper provided as follows: (1) annual percentage rate -- 21.01%; (2) finance charge -- $25,200; (3) amount financed -- $18,000; (4) total of payments -- $43,200; and (5) total sale price -- $43,220. In addition to the alterations using liquid paper, an "8" had been written over a "5" in the amount financed box, changing $15,000 to $18,000. A "6" was also written over a "0" to change the 120 monthly payments of $300 to 120 monthly payments of $360.
According to Thomas, the notice of right to cancel had also been altered. Thomas testified that when she signed the notice, it contained the name and address of Davenport Construction Company as the party to contact in the event of rescission and a transaction date of July 18, 1995. Following her signing of the document, liquid paper had been applied to the transaction date, changing it to August 1, 1995. In addition, the expiration date of the right to rescind had been written in as August 4, 1995. None of the alterations to the RIC or the cancellation notice were initialed by Thomas and she testified that she neither gave consent for the alterations nor received copies of the documents after they were altered.
To the contrary, Bilfeld testified that on July 18, 1995, Thomas signed only the proposal and stated she wished to obtain financing elsewhere. She later agreed to Bilfeld's financing terms and all of the documents were executed on August 1, 1995. Bilfeld stated he applied liquid paper to the RIC because he accidentally began filling out the document using the numbers agreed to for the $15,000 contract. Upon discovery of the error, he applied liquid paper to the incorrect numbers and completed the form consistent with the $18,000 agreement. He stated the RIC form was the last one in his briefcase, otherwise he would have simply discarded it and filled out a new one instead of using liquid paper. Bilfeld further testified that Thomas signed the documents after they were fully completed and that she received copies, while the original RIC was given to Johnson. He did not, however, correct Thomas' copies with liquid paper. He testified this was unnecessary because the revised numbers appeared clearly on the three or four carbonless copies. Finally, Bilfeld admitted that the mortgage document was blank when Thomas signed it and that the necessary information was subsequently typed in by Johnson. He further admitted that he did not fill out the wage assignment because it was too difficult.
A forensic document examiner, Diane Marsh, testified that numbers consistent with a $15,000 transaction appeared under the liquid paper on the RIC, while numbers consistent with an $18,000 transaction appeared on top of the liquid paper. She further testified that the date on the notice of right to cancel was originally "7/18/95." Liquid paper was applied over that date and "8/1/95" was written over the liquid paper.
Thomas testified that on August 9, 1995, she signed a completion certificate, certifying that she was satisfied with the work done by one of the subcontractors. She stated that each of the two subcontractors had his own completion certificate and she refused to sign the other one because the subcontractor never completed the contracted-for work. Bilfeld stated, however, that the completion certificate signed by Thomas was for all of the work done on Thomas' home. All of the problems about which Thomas complained had been rectified and, at that time, she was satisfied with all of the work done in her home. The certificate itself was introduced at trial and provided a preprinted warning stating, "DO NOT SIGN this certificate until you are satisfied that the contractor has carried out his obligations to you and that the work or materials have been satisfactorily completed or delivered in accordance with the terms of your contract with the contractor." The certificate contained Thomas' signature; however, the blanks providing for the address of the property and the date of the credit application, as well as the boxes specifying whether the work included materials and installation or materials only, were not completed. There were no notes specifying full or partial completion.
Johnson testified that, on August 23, 1995, he paid Bilfeld $17,450 for assignment of the RIC. Johnson stated the aforementioned liquid paper was apparent on the face of the RIC, but that Bilfeld told him that Thomas had been present when he made the alterations and had agreed to them. Johnson admitted on cross-examination that liquid paper was also visible under the date on the notice of right to cancel. Johnson stated that he received a mortgage document to secure the RIC, which was "probably" blank when he received it. The mortgage document had been signed by Thomas and dated August 1, 1995. Bilfeld also gave Johnson the completion certificate discussed above, the signed notice of right to cancel which was dated August 1, 1995, and the blank wage assignment that had been signed by Thomas. Johnson acknowledged that he and Bilfeld had discussed the mortgage and purchase of the RIC prior to August 1, 1995, and that he had agreed at that time to the purchase provided Bilfeld completed all the required paperwork and the work on Thomas' home. Johnson also acknowledged that he spoke to Thomas on the telephone on September 29, 1995, at which time she told him the signed completion certificate only pertained to the "outside" work and that the "inside" work was not completed. As a result, she refused to make any payments. Johnson further testified that, in a subsequent conversation, Bilfeld told him that the work had been completed and Thomas merely required a "service call." Johnson received a letter on December 11, 1995, indicating that Thomas had contacted the Better Business Bureau regarding Bilfeld's work.
On August 28, 1997, Johnson filed a foreclosure action on Thomas' mortgage. On November 11, 1997, Thomas notified Johnson that she was invoking her option to rescind the agreement. One week later, she filed an answer and counterclaim against Johnson, alleging TILA violations and slander of title. The slander of title claim was voluntarily dismissed at trial.
The trial court found Thomas to be a credible witness and "in no way" believed Bilfeld's testimony. The court concluded that three TILA violations had occurred -- one each on July 18 and August 1, 1995, when Bilfeld failed to make the required TILA disclosures and failed to provide Thomas with copies of the signed documents, and the third when Johnson refused to release the lien on Thomas' home after receiving notice of her election to rescind. The court further found that Johnson qualified as a "creditor" under the TILA due to his role as Bilfeld's de facto "partner." The court based this finding on Thomas' testimony that Bilfeld held Johnson out to be his partner at the time Thomas signed the RIC and the fact that the mortgage to Johnson was signed on August 1, 1995, although he did not become an assignee to the RIC until August 23, 1995. In the alternative, the court found that even if Johnson was not a creditor, he was liable for the TILA violations as an assignee because they were apparent on the face of the RIC. The court awarded Thomas $6,000 for the three TILA violations and $59,901 in attorney fees and costs. Finding the transaction had been properly rescinded, the court declined to foreclose on Thomas' home, but ordered her to pay $10,000 for the reasonable value of the construction work performed.
Johnson appeals the trial court's judgment, contending that the court improperly found him to be a "creditor" pursuant to the TILA and that he is not liable as an assignee because the TILA violation was not apparent on the face of the RIC. He also contends that Thomas should not have been permitted to rescind the RIC and should not have been awarded attorney fees and costs. We affirm, but modify the award of damages for the reasons that follow.
The purpose of the Truth in Lending Act and its regulations, issued by the Federal Reserve System (Regulation Z) (12 C.F.R. §226.1 et seq. (1995)), is "to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices." 15 U.S.C. §1601(a) (1994); see also Shepeard v. Quality Siding & Window Factory, Inc., 730 F. Supp. 1295, 1299 (D. Del. 1990). In order to do this, TILA and Regulation Z require creditors to disclose certain information upon extending credit to a consumer. 15 U.S.C. §1638 (1994); 12 C.F.R. §226.17 (1995). "Credit" is defined as "the right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment." 15 U.S.C. §1602(e) (1994). When such credit is extended, the creditor must provide the consumer with the annual percentage rate for the credit, the finance charge, the amount financed, the total of payments and the payment schedule. 15 U.S.C. §1638 (1994). This information must be provided in a clear, conspicuous manner and a copy of the disclosures must be given to the consumer in writing. 15 U.S.C. §1632 (1994). A creditor who fails to make the required disclosures is liable to the consumer according to the monetary penalties specified in the statute. 15 U.S.C. §1640(a) (1994). An assignee of a creditor is also liable for a creditor's failure to provide the required disclosures when the TILA violation "is apparent on the face of the disclosure statement." 15 U.S.C. §1641 (1994). The statute is remedial in nature and must be construed liberally in favor of the consumer. Ramadan v. Chase Manhattan Corp., 156 F.3d 499, 502 (3rd Cir. 1998). Even mere technical violations provide a basis for liability under the TILA. Shepeard, 730 F. Supp. at 1299.
In reviewing a judgment following a bench trial, we must accept the circuit court's factual determinations unless they are clearly erroneous, and we review its legal conclusions de novo. Northwestern National Insurance ...