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AQUINO v. PUBLIC FIN. CONSUMER DISCOUNT CO.

April 12, 1985

ANNA E. AQUINO
v.
PUBLIC FINANCE CONSUMER DISCOUNT COMPANY



The opinion of the court was delivered by: LORD

 Anna E. Aquino has filed suit against the Public Finance Consumer Discount Company ("Public"), alleging that Public failed to meet its obligations under § 125(b) *fn1" of the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., following her notice of rescission. *fn2" Plaintiff seeks the following relief: (1) a declaration that the transaction was properly rescinded; (2) the return of all money or property received by Public from plaintiff in this transaction; (3) a declaration that Public has forfeited its right to receive any additional money or property from plaintiff; (4) statutory damages; and (5) attorney's fees. Both parties have filed summary judgment motions on which I heard oral argument. For the reasons that follow, both motions will be granted in part and denied in part.

 I. The Facts

 In October, 1981, plaintiff purchased a used car from Sheehy Ford. The purchase price was financed with a $5,000 loan from Public. The loan was secured by a mortgage on Aquino's home, a lien on the car and a security interest in Aquino's household goods.

 In January, 1983, Public repossessed plaintiff's car. On February 10, 1983, plaintiff sent a letter to Sheehy and Public demanding rescission of the loan pursuant to § 1635(a). *fn3" Defendant initially declined to accept the rescission demand, whereas Sheehy settled out of court. Sometime in July, 1983, after reexamining the records of the Aquino transaction, Public acknowledged Aquino's right to rescind and cancelled the mortgage on her home.

 Section 125(b) of the TILA required Public to "take any action necessary or appropriate to reflect the termination of any security interest created under the transaction", and also required Public to return any money or property paid by Aquino in connection with the transaction, both within twenty days after receiving Aquino's notice of rescission. 15 U.S.C. § 1635(b). Public, however, waited approximately five months before taking any action to reflect the termination of Aquino's mortgage, and has yet to return its security interest in Aquino's household goods or any of the money paid by her in connection with the transaction.

 II. Plaintiff's Right to Rescind

 There is no doubt that Public is correct in acknowledging Aquino's right to rescind. Whenever a consumer credit transaction results in a creditor acquiring a security interest in an obligor's home, § 1635(a) gives the obligor "the right to rescind the transaction until midnight of the third business day following the consummation of the transaction or the delivery of the disclosures required under this section and all other material disclosures required under this part, whichever is later . . ." 15 U.S.C. § 1635(a) (1976) (amended in other respects effective Oct. 1, 1982). Moreover, § 1635(a) requires the creditor to disclose this right to rescind in accordance with regulations promulgated by the Federal Reserve Board. Id. According to the Board's regulations, creditors are required to provide customers with a notice of their right to rescind that specifies the precise date upon which the three day rescission period expires. 12 C.F.R. 226.9(b) (1982) (replaced effective Oct. 1, 1982). Although Public provided the proper notice form, it failed to specify the date upon which the three day period expired. Since Public failed to make this required disclosure, Aquino had the right to rescind the transaction. *fn4"

 III. The Validity of Plaintiff's Rescission Notice and of Defendant's Response

 Public, however, argues that its tardy acknowledgement of plaintiff's right to rescind should not be construed as a violation of the TILA. After receiving plaintiff's notice of rescission, Public undertook a "thorough review" of its records but failed to discover any disclosure violation which would have justified rescission. When Public discovered the defective notice it had provided Aquino, it acted promptly to fulfill its obligations under § 1635(b). Since Aquino did not specify any particular disclosure violation which she believed entitled her to rescind the transaction, Public argues that it would be inequitable to penalize it for failing to ascertain the validity of her rescission notice within the twenty day period provided by § 1635(b).

 Public's equitable argument is also undercut by its complete lack of initiative in seeking to determine its rights and obligations under the TILA. For no apparent reason, Public failed to contact plaintiff's counsel and inquire into the alleged basis of her notice of rescission. Although aware of the twenty day deadline, Public also failed to petition the court for a declaration of its rights and obligations under the TILA. A party's appeal to the court's conscience to excuse its delay in fulfilling statutory obligations must fall upon deaf ears when that party failed to take obvious steps to fulfill those obligations in a timely fashion.

 Public also argues that Aquino's notice of rescission constituted an anticipatory breach of her obligations under the TILA, thereby relieving Public of its obligation to perform.

 Public acknowledges that upon notice of rescission § 1635(b) requires the creditor to return to the obligor "any money or property given as earnest money, down payment, or otherwise," but notes that upon performance of its obligations § 1635(b) then requires the obligor to tender to the creditor any property the creditor has delivered to the obligor. According to Public, Aquino would therefore be required to return the $5,000 loan.

 Aquino, however, in her notice of rescission, implied that she would not comply with Public's interpretation of § 1635(b). She stated that her only obligation under § 1635(b) was to return the car she had received in the underlying transaction. Since Public had already repossessed the car, she felt that her obligations under § 1635(b) were satisfied.

 In support of its position, Public points to Powers v. Sims and Levin, 542 F.2d 1216 (4th Cir. 1976), where a divided panel of the Fourth Circuit held "that when rescission is attempted under circumstances which would deprive the lender of its legal due, the attempted rescission will not be judicially enforced unless it is so conditioned that the lender will be assured of receiving its legal due." Id. at 1222. More specifically, the court held that a creditor could ignore its obligations under § 1635(b) when it is no longer assured of receiving its legal due from debtors who have announced their intention to make only partial restitution. Id. at 1221. *fn5"

 
Rescission is an equitable doctrine, and there is nothing in the statutory provision of the right of rescission or in § 1635(b)'s provision of the procedural steps in effecting the right of rescission which limits the power of a court of equity to circumscribe the ...

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