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VALENTINE v. INFLUENTIAL S&L ASSN.

June 29, 1983

ELIZABETH VALENTINE and ROBERT VALENTINE
v.
INFLUENTIAL SAVINGS AND LOAN ASSOCIATION



The opinion of the court was delivered by: HUYETT

 HUYETT, J.

 This is an action arising out of a claim for violations of the disclosure requirements of the Truth-in-Lending Act, 15 U.S.C. § 1601 et seq., and Regulation Z, 12 C.F.R. § 226, in which the plaintiffs seek judicial enforcement of their rescission of a loan made to them by the defendant, and an award of the statutory civil penalty. Jurisdiction is based upon the Act's specific jurisdictional grant, contained in 15 U.S.C. § 1640, and 28 U.S.C. § 1337. Before me are cross-motions for summary judgment. Upon consideration of these motions, the memoranda submitted by the parties, and for the reasons set forth below, plaintiffs' motion will be granted and defendant's motion is denied.

 I. FACTS.

 A review of the record reveals that the following facts are not in dispute.

 In June, 1979, plaintiff Elizabeth Valentine purchased the home at 3337 North "H" Street, Philadelphia, Pennsylvania. In October, 1979, plaintiffs applied for a loan from Salmon Building and Loan Association ("Salmon"). The application stated that Elizabeth Valentine was the owner of the home and that the purpose of the loan was to "refinance" the home for the purpose of "panelling, recement cellar walls, decorating." The title report acquired by Salmon in connection with the loan states that Elizabeth Valentine was conveyed the property by deed in June, 1979, and that there were no outstanding liens. Salmon lent the plaintiffs $4,500 on October 24, 1979. In connection with the loan, Salmon took a security interest in plaintiffs' home.

 Salmon subsequently merged with Influential Savings and Loan Association ("Influential"), the defendant in this action. The Valentine loan contract was assigned by Salmon to Influential at that time.

 On May 21, 1982, plaintiffs' counsel notified Influential by certified mail that plaintiffs were rescinding the loan. Defendant took no action within ten days of its receipt of plaintiffs' notice of rescission on May 22, 1982, to terminate its security interest in the real property owned and used by plaintiffs as their principal residence.

 II. DISCUSSION.

 The Truth-in-Lending Act ("Act") guarantees the meaningful disclosure of credit terms so that consumers can more readily compare different financing options and their costs. 15 U.S.C. § 1601. . . In keeping with its purposes, it has been held that the Act is to be liberally construed in favor of the consumer. See Thomka v. A.Z. Chevrolet, Inc., 619 F.2d 246 (3d Cir. 1980).

 The meaningful disclosure of credit terms guaranteed by the Act is provided to the consumer in a disclosure statement. 15 U.S.C. § 1368 (1982). The Act dictates which credit terms must be included in this statement. Id. Regulation Z mandates that the requisite information be set forth in a clear, conspicuous and easily understandable manner. See 12 C.F.R. § 226.6 (1982).

 Section 1635 of the Act applies when a creditor takes a security interest in a property that is used as the principal residence of the consumer. It provides that the consumer has the right to rescind the transaction until the end of the third business day following the transaction, or until the creditor delivers to the consumer the information, notification of rescission forms and disclosure statement that are required by the Act, whichever is later. 15 U.S.C. § 1635(a). Accordingly, if the disclosure statement does not comply with the disclosure requirements set forth in the Act, the consumer has an ongoing right to rescind the transaction for as long as the creditor fails to comply. 15 U.S.C. § 1635(f). There is a three-year limitations period for the right to rescind notwithstanding non-disclosure by the creditor. Id.

 In order to warrant the rescission remedy, the non-disclosure must be material. Bustamante v. First Fed. Sav. & Loan Ass'n, 619 F.2d 360, 363 (5th Cir. 1980). An objective standard is utilized to determine whether a non-disclosure is material. The test is whether the disclosure violation relates to the information which would be important to a consumer's decision to obtain credit from a particular lender. Id.

 When a consumer exercises his right to rescind, he is discharged from liability for any finance or other charge, and the security interest which he has given becomes void. 15 U.S.C. § 1635(b). Within ten days after receipt of the notice of rescission, the creditor must return to the consumer any money given as a down payment, earnest money, or otherwise, and must take appropriate action to terminate any security interest created. After the creditor has complied ...


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