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O'NEIL v. FOUR STATES BUILDERS & REMODELERS

July 24, 1979

SYBIL O'NEIL
v.
FOUR STATES BUILDERS AND REMODELERS, INC.



The opinion of the court was delivered by: NEWCOMER

MEMORANDUM AND ORDER

Plaintiff alleges that defendant Four States Builders and Remodelers violated the Truth In Lending Act, 15 U.S.C.A. § 1601 et seq., by making false and incomplete disclosures in connection with a home improvement contract. Defendant, in its answer to the complaint, admits that in the ordinary course of business it regularly arranges for the extension of financing for its customers, rendering it a "creditor" under the Truth In Lending Act. 12 C.F.R. § 226.2(s). At this time, plaintiff has moved for summary judgment. Upon consideration of plaintiff's motion, the Court has determined that there is no genuine dispute as to whether a violation has occurred and that plaintiff is entitled to judgment as a matter of law.

 The Truth In Lending Act (TILA) requires creditors to make certain specified disclosures in connection with consumer credit transactions of the type involved in this case. By enacting this legislation, Congress sought 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.A. § 1601(a).

 Although defendant's brief in opposition to the motion is somewhat confusing, it appears to advance two arguments, both aimed at relieving defendant from its obligations under the Act, rather than defend against the specific allegations of TILA violations. First, defendant contends that it never entered into the transaction contemplated by the parties, since no mortgage on plaintiff's property was secured and the contract could not be assigned to First Pennsylvania Bank as the parties had intended. Alternatively, it asserts that if the parties had entered into a contract, defendant had a right to rescind the contract since it alleges that Sybil and Alston O'Neil made a material misrepresentation in connection with it. Having the right to rescind, defendant maintains that it exercised it, extinguishing retroactively any obligation imposed by the TILA.

 (2, 3) With regard to defendant's second contention, the Court need not address the questions of whether defendant had a valid reason for rescinding the contract and whether it actually effectuated this rescission, because even if defendant legally rescinded the agreement, it would not escape the TILA duties. A valid rescission of a "credit sale" contract does not render inoperative the disclosure requirements of the Act, as the creditor's obligation to make specific disclosures arises prior to the consummation of the transaction. 12 C.F.R. § 226.8(a). The time of consummation is defined in § 226.2(kk) as "the time a contractual relationship is created between a creditor and a customer . . . irrespective of the time of performance of either party." Here, a contractual relationship was created between the parties when they signed the Home Improvement Installment Contract document which states that defendant agrees to sell and plaintiff agrees to buy certain goods and services. Therefore, before the signing of the agreement, defendant was obligated to make the TILA disclosures.

 Finding defendant's objections to plaintiff's motion without merit, the Court must determine whether the defendant fulfilled the duties imposed by the Act.

 (4) O'Neil contends that defendant violated 15 U.S.C. § 1635 and 12 C.F.R. § 226.9. Section 1635(a) provides that in a consumer credit transaction involving a security interest in an obligor's home, the obligor has a right to rescind the transaction within a specified period; the statute also imposes a duty to disclose this right of rescission to the consumer. 12 C.F.R. § 226.9(b) specifies the type of notice required; the creditor must furnish the obligor with two copies of the following notice:

 
Notice to customer required by Federal law:
 
You have entered into a transaction on ______ (date) which may result in a lien, mortgage, or other security interest on your home. You have a legal right under Federal law to cancel this transaction, if you desire to do so, without any penalty or obligation within 3 business days from the above date or any later date on which all material disclosures required under the Truth in Lending Act have been given to you. If you so cancel the transaction, any lien, mortgage or other security interest on your home arising from this transaction is automatically void. You are also entitled to receive a refund of any downpayment or other consideration if you cancel. If you decide to cancel this transaction, you may do so by notifying ______ (name of creditor) at (Address of creditor's place of business) by mail or telegram sent not later than midnight of ______ (date). You may also use any other form of written notice identifying the transaction if it is delivered to the above address not later than that time. This notice may be used for that purpose by dating and signing below.
 
I hereby cancel this transaction.
 
___
 
(Date)
 
(Customer's ...

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