Sadie Eustace, Plaintiff-appellant, v. Cooper Agency, Inc., and Bogue Brothers, Inc., D/b/a L & Ghome Furnishings, Defendants-appellees, 741 F.2d 294 (10th Cir. 1984)

After examining the briefs and the appellate record, this three-judge panel has determined unanimously that oral argument would not be of material assistance in the determination of this appeal. See Fed. R. App. P. 34(a); Tenth Circuit R. 10(e). The cause is therefore ordered submitted without oral argument.

Sadie Eustace brought this action under the Truth-in-Lending Act, 15 U.S.C. § 1601 et seq., (TILA) and Federal Reserve Board Regulation Z, 12 C.F.R. Sec. 226. Her complaint alleged, inter alia, that defendant Cooper Agency, Inc. (Cooper Agency) and Bogue Brothers, Inc., (Bogue Brothers) failed to comply with requirements of the statute and the regulation by not disclosing the creditor status of Cooper Agency in the transaction.¹  Defendants Cooper Agency and Bogue Brothers denied any violation of the Act and Regulation.

After a non-jury trial the district court entered judgment against plaintiff Eustace and she appeals. She argues that the district court erred in holding that defendant Cooper Agency was not a creditor in the transaction at issue for the purposes of the Act and the Regulation, and in refusing to rule on Eustace's motion for summary judgment.

* On August 28, 1980, Eustace and defendant Bogue Brothers entered into an installment credit contract for the purchase of a washer and dryer; Eustace also refinanced the balance which she owed to Bogue Brothers from a previous retail installment contract. I R. 2, 5-6. This contract was assigned to defendant Cooper Agency which had also been assigned the previous retail installment contract. I R. 19.

The complaint in this action alleged that defendants failed to identify both creditors in the transaction, in violation of Secs. 226.8(a) and 226.6(d) of Regulation Z; failed to make the disclosures using the prescribed terminology, in violation of Secs. 226.6(a) and 226.8(c) (1) of Regulation Z; failed to make all required disclosures clearly, conspicuously, and in meaningful sequence, and in accordance with the further requirements of the Act and the Regulation; disclosed improper additional information, in violation of Sec. 226.6(c) of the Regulation; and alternatively, failed to make all required disclosures on one side of one page, in violation of Sec. 226.8(a) of the Regulation. I R. 3. In its Memorandum Opinion and Order the district court concluded:

The plaintiff has failed to establish that Cooper Agency was a "creditor" as that term is defined by the Truth in Lending Act in this consumer credit transaction. Therefore, the fact that the plaintiff's Retail Installment Contract did not identify Cooper Agency as a "creditor" on its face is immaterial and does not constitute a violation of the Truth in Lending Act.

I R. 40. Judgment was entered against plaintiff. I R. 42.

II

The dispositive questions before us are (1) Was the Cooper Agency a creditor under TILA and Regulation Z? and (2) If the Cooper Agency was a creditor, was it identified as a creditor as required by TILA and Regulation Z?² 

Eustace first argues that the district court erred in holding that Cooper Agency is not a creditor for purposes of the Act and Regulation Z because the "creditor" status of Cooper Agency was never controverted, because the admission that Cooper Agency is a "creditor" is binding and conclusive, and because failure to abide by the admission denies Eustace due process of law. Eustace quotes paragraph 5 of her complaint which alleges:5. At all times relevant hereto, Defendants, in the ordinary courses of their businesses, regularly extended, offered to extend, arranged or offered to arrange the extension of credit to their customers for which a finance charge is or may be imposed or which is payable in more than four installments.

I R. 2. Defendants admitted the allegations of paragraph 5 and some other averments.

Defendants state that "the admitted fact that Cooper was, in a general sense, a creditor as defined by law, does not establish that Cooper was a creditor in the disputed transaction. Cooper's role in the transaction was disputed throughout the proceedings." Brief of Appellees at 4-5. Defendants also say that "the fact that Cooper was generally in the business of being a creditor is perhaps probative of its role in the transaction; however, it is not dispositive." Id. at 7. We feel it is not clear that defendants admitted that Cooper Agency was a creditor within the meaning of TILA in this transaction. However, in any event the district judge evidently thought this matter to be an issue at trial because he considered the evidence and found that Cooper Agency was not a creditor. Thus the question before us is whether that finding was correct.

III

Eustace argues that there was no basis on which to find that Cooper Agency was not a "creditor." She says that "the fact that Lender had not 'approved the credit application before the seller of the consumer goods consummated its sale' " is not the sine qua non of creditor status for a subsequent assignee of a contract as the court held. Brief of Appellant at 15. On the other hand, defendants argue that the evidence failed to establish that Cooper Agency extended, arranged or offered credit on August 28, 1980. Brief of Appellee at 7.

The district court found that "Cooper Agency was not a 'creditor' as that term is defined in the Act in this consumer credit transaction." I R. 39.³  We disagree, concluding that this finding was in error. See Ford Motor Credit Co. v. Cenance, 452 U.S. 155, 101 S. Ct. 2239, 68 L. Ed. 2d 744 (1981) (per curiam); Boncyk v. Cavanaugh Motors, 673 F.2d 256 (9th Cir. 1981). See also Rudisell v. Fifth Third Bank, 622 F.2d 243, 253 (6th Cir. 1980). In Cenance, 452 U.S. at 157, 101 S. Ct. at 2240, the Supreme Court found that Ford Motor Credit Co. (FMCC), as the assignee from automobile dealers of retail installment contracts, was a creditor within the meaning of TILA, stating that

a prospective purchaser of an automobile entered into an installment sales transaction with an automobile dealer. Prior to completion of the transaction the dealer submitted the buyer's credit application to petitioner Ford Motor Credit Co. (FMCC). Once the dealer was notified that the buyer met FMCC's credit standards, the buyer and the dealer executed a retail installment contract... Pursuant to the arrangement between the dealer and FMCC, FMCC purchased each contract without recourse against the dealer. Although FMCC did not assist in the actual negotiations, it provided the dealer with credit forms, including blank retail installment contracts. Although each did so, none of the dealers was obligated to seek financing from FMCC in perfecting its sales transaction.

Id. at 155-56, 101 S. Ct. at 2239-40. The Court quoted the following language from the opinion of the Fifth Circuit in Cenance, 621 F.2d 130, 133:

"The Meyers [539 F.2d 511] analysis applies with even greater force to the instant situation because here the dealers regularly dealt only with Ford. The dealer and Ford prearranged for the assignment of the finance instrument. At no time did the risk of finance reside with the dealer. The transaction between dealer and automobile purchaser was conditioned upon acceptance of the credit application by Ford. Indeed, the credit application form was prepared by Ford. As in Meyers [539 F.2d 511], it would be elevating form over substance to hold that Ford was anything but an original creditor within the meaning of the Act and Regulation Z."

452 U.S. at 156-57, 101 S. Ct. at 2240-41. The Supreme Court concluded:

Each dealer arranged for the extension of credit but FMCC actually extended the credit. The facts negate any suggestion that the dealers anticipated financing any of these transactions. The sales were contingent upon FMCC's approval of the credit worthiness of the buyer. The acceptance of the contract and the assignment became operational simultaneously, and the assignment divested the dealer of any risk in the transaction. In short, we agree with the Court of Appeals that it would be elevating form over substance to conclude that FMCC is not a creditor within the meaning of the Act. (footnote omitted) (emphasis in original).

Id. at 158, 101 S. Ct. at 2241.

Here Bogue Brothers had a dealer financing agreement with Cooper Agency which agreed to purchase security agreements and sales contracts from Bogue Brothers that were acceptable to Cooper Agency. Deposition of Charles Bogue at Ex. 1.⁴  Bogue Brothers agreed to prepare such contracts on forms satisfactory to and to be furnished by Cooper Agency. Id. Bogue Brothers also agreed to repurchase from Cooper Agency any note, contract or agreement which shall become ninety days or more delinquent. Id. Bogue Brothers did about 90% of its business on credit and assigned all of its installment contracts to a financing entity. Id. at 8, 10. Approximately 65% of these contracts were assigned to Cooper Agency with which Bogue Brothers had been doing business for about 10 years. Id. at 11-12.

Bogue Brothers was Cooper Agency's largest source of business. Deposition of Lowell G. Engholm at 11-12. If a customer passed Bogue Brothers' credit check, Bogue Brothers could prepare a contract which Cooper Agency would accept. Deposition of Bogue at 22. Cooper Agency played a role in passing on the credit worthiness of the purchasers only after the fact. Deposition of Engholm at 21. If Cooper Agency had a record that did not turn up in Bogue Brothers' credit investigation, Cooper Agency made them aware of it; otherwise, Cooper Agency relied on Bogue Brothers' credit evaluation. Id. During the time the two did business together, there were no more than two or three contracts which Bogue Brothers requested Cooper Agency to return and which Cooper Agency did not purchase. Id. at 18.

The major difference, then, between the transaction here and those in Cenance is that in Cenance the dealer first submitted the buyer's credit application to FMCC for approval. After the dealer was notified that the buyer met FMCC's credit standards, the buyer and dealer executed a retail installment contract. FMCC then purchased each installment contract without recourse against the dealer. Here Cooper Agency played a role in passing on the credit worthiness of the purchasers only after the fact. Cooper Agency purchased all but two or three of the contracts which Bogue Brothers assigned to it and Cooper Agency purchased the contracts with recourse against Bogue Brothers. There was no need for Cooper Agency to give prior approval to the buyer's credit application because Cooper Agency had recourse against Bogue Brothers. We are not convinced that this difference is significant. See Jennings v. Edwards, 454 F. Supp. 770, 773 n. 6 (M.D.N.Car.1978), aff'd, 598 F.2d 614 (4th Cir. 1979).

In Boncyk v. Cavanaugh Motors, 673 F.2d 256 (9th Cir. 1981), purchasers of used cars brought actions against the car dealers and the financing bank as creditors for violation of TILA. The financing bank claimed that it was not a creditor because it merely accepted the assignment of a completed credit agreement between the buyers and the dealers. At the time of the transactions in question there was in effect an Automobile Dealer Agreement between the dealers and the financing bank. In this agreement, the bank required each dealer to submit evidence of insurance coverage for the vehicle or of the buyer's agreement to furnish insurance. The dealers, when making a credit sale of an automobile, never intended to carry the paper itself and during 1974 assigned to financial institutions all their automobile credit sales contracts. The agreement and disclosure statement was prepared by and furnished to the dealers by the financing bank. The bank accepted every contract offered it in 1974 by the dealers. Even before it received any documents concerning the transaction, the bank advised the dealer that the Hughes contract, the contract of one of the purchasers bringing suit, met the bank's standards for assignment. The bank assumed that contracts, written on the forms prepared and supplied by it, would be assigned to it. Both contracts in question were assigned to the bank on the same day the transaction took place. Id. at 258-59. The court concluded that

[t]he position of the Bank in this case is virtually identical to that of FMCC in the Cenance case. We therefore conclude that the Bank is a creditor.

Id. at 259.

In Boncyk, as here, if the contract was written on forms prepared and supplied by the financing entity, approval of the assignment was given by the financing entity. We conclude that just as the financing bank in Boncyk was a creditor, Cooper Agency is also a creditor within the definition of TILA. The Eighth Circuit has pointed out that

[i]n interpreting the Act, the Federal Reserve Board and the majority of courts have focused on the substance, rather than the form, of credit transactions, and have looked to the practices of the trade, the course of dealing of the parties, and the intention of the parties in addition to specific contractual obligations.

Joseph v. Norman's Health Club, Inc., 532 F.2d 86, 90 (8th Cir. 1976). Moreover the Supreme Court has noted that

[t]he hearings held by Congress reflect the difficulty of the task it sought to accomplish. Whatever legislation was passed had to deal not only with the myriad forms in which credit transactions then occurred, but also with those which would be devised in the future ... The language employed evinces the awareness of Congress that some creditors would attempt to characterize their transactions so as to fall one step outside whatever boundary Congress attempted to establish.

Mourning v. Family Publications Service, Inc., 411 U.S. 356, 365, 93 S. Ct. 1652, 1658, 36 L. Ed. 2d 318 (1973).

Here the record shows that Bogue Brothers had a dealer financing agreement with Cooper Agency under which Cooper Agency agreed to purchase security agreements and sales contracts from Bogue Brothers which were acceptable to Cooper Agency. Bogue Brothers agreed to prepare such contracts on forms satisfactory to and to be furnished by Cooper Agency. Bogue Brothers assigned all of its installment contracts, 65% of which were assigned to Cooper Agency, with which Bogue Brothers had been doing business for about 10 years. During the time the two did business together there were no more than two or three contracts which Bogue Brothers requested Cooper Agency to return and which Cooper Agency did not purchase. On these facts we hold that Cooper Agency was a creditor within the definition of TILA.

IV

Defendants say that even if Cooper Agency was a creditor in the transaction, any failure to disclose that fact was only a technical violation of the Act and recovery is not warranted, relying in part on the Truth-in-Lending Simplification and Reform Act, 94 Stat. 168, 15 U.S.C.A. Sec. 1601 et seq. Defendants maintain that with those amendments, it became clear that Congress did not intend that the identity of every potential creditor be treated as material, citing the legislative history of the Simplification Act. Brief of Appellee at 9, 12. We feel that in a case like this which arose at about the time of Cenance, we must apply the Cenance interpretation of the notification requirements, and of the term "creditor."⁵  TILA mandates that each creditor must be clearly identified.⁶  The court in Boncyk noted that "it is implicit in the opinion of the Court in Cenance that a failure to clearly identify each creditor is a failure to disclose which imposes liability under the TILA." Boncyk, 673 F.2d 260.

It is true that the Court stated in Cenance, "the statement notifying the buyer that the contract was, upon acceptance, assigned to FMCC served the purpose of the Act by disclosing the nature of the relationship of the finance company to the transaction." Cenance, 452 U.S. at 159, 101 S. Ct. at 2241. However, here although Eustace's copy of the contract stated " [t]he foregoing security is hereby assigned under the terms of the Seller's Recourse, recommendation, Assignment and Guaranty on the reverse side hereof unless otherwise indicated," her copy did not contain on the reverse side the printed language entitled "Seller's Recommendation, Assignment and Guaranty (With Recourse)," or a statement that the contract was assigned to Cooper Agency. I R. 6.⁷  While Eustace's copy did contain a reference to the "Group Creditor Life Policy, pursuant to the agency agreement of Cooper Agency, Inc," I R. 5, this statement did not clearly identify Cooper Agency as a creditor.

Defendants further argue that plaintiff admitted at trial that all material facts were known to her before she entered into the transaction. Brief of Appellees 10. In this connection, plaintiff did acknowledge she was making payments directly to Cooper Agency. She was asked whether she was contending that she did not know Cooper Agency was a creditor and replied "I guess not." III R. 14. However, a showing that the creditor had actual knowledge does not excuse a failure to comply with the mandatory disclosure requirements, or prevent recovery under the mandatory remedial provisions of the Act and the regulations. Lauletta v. Valley Buick, Inc., 421 F. Supp. 1036, 1040 (W.D. Pa. 1976); Desselles v. Mossy Motors, Inc., 442 F. Supp. 897, 901-02 (E.D. La. 1978). "The identification [of the creditor] must be made on the disclosure statement even if the creditor has actual knowledge of the seller's precise role in the financing transaction." Whitlock v. Midwest Acceptance Corp., 575 F.2d 652, 654 (8th Cir. 1978).

We conclude that Eustace's contract did not clearly notify her of the assignment to Cooper Agency or its status as a creditor, and hold that the mandatory disclosure requirements of TILA, as interpreted by Cenance, were not met.

V

Accordingly, the judgment is reversed and the case is remanded to the district court for further proceedings and the granting of relief afforded by the Act.