Court Opinion

ID: 9463155
Source: CourtListenerOpinion
Date Created: 2023-08-04 22:59:27.85144+00
Date Added: 2024-06-11T17:37:57.319878
License: Public Domain

WINTER, Circuit Judge
(concurring in part and dissenting in part):
While I agree that plaintiffs may not recover more than a single civil penalty of $1,000 and that the district court should be free to increase the award of counsel fees to compensate plaintiffs’ counsel for his services in this appeal, I think that the majority otherwise misreads the record and misapplies the law. In my view, plaintiffs rescinded the transaction in accordance with the Act. I find no basis on which to say that they committed an anticipatory breach of any obligation which the Act imposed on them. To the contrary, defendant failed to fulfill its obligations under the Act with the legal effect, in my view, of forfeiting the return of the home improvements or payment of their reasonable value. Defendant’s right, if any, to reimbursement for the sums it paid in satisfaction of plaintiffs’ indebtednesses existing at the time that the new loan was made must be determined by state law. I would vacate the judgment and remand the case for further proceedings, but on a basis different from that outlined by the majority. From a contrary disposition, I respectfully dissent.
I.
Plaintiffs’ September 20, 1974 letter of rescission, written and signed by Eugene R. Powers, identified the July 22, 1974 loan and stated: “I am cancelling the transaction in accordance with my rights under the Federal Truth-in-Lending Act. To date none of the disclosures required by the Truth-in-Lending Act have been given to me or my wife.” (Emphasis added.)
The majority suggests that this notice was ineffective to rescind the transaction unless the plaintiffs’ claim that they never physically received the defendant’s disclosure statement and notice of right to rescission is substantiated on remand. At the same time, the majority concludes that the lender failed to give notice of plaintiffs’ three-day right of rescission. On that single ground, the majority upholds the district court’s conclusion that the defendant’s disclosure documents, even if received, were not in full compliance with the Act, and hence that the plaintiffs could have rescinded the transaction had they worded their notice of rescission differently. Thus, the majority appears to hold: (1) that a notice of rescission must be accompanied by a statement of reasons therefor, which must subsequently prove accurate; and (2) that the reason stated by Eugene Powers in his September 20 letter was insufficient to embrace the insufficiency in disclosure found by the majority. I disagree with both conclusions.
First, I would conclude that the district court correctly decided that plaintiffs had a right to rescind on each of the several grounds identified by the district court. More importantly, I think it clear that neither the Act nor Regulation Z requires that a notice of rescission specify the reasons therefor; significantly the majority cites no *1223authority to support its invocation of the vague notion of “fairness” to suggest a contrary conclusion. Plaintiffs’ assignment of a reason was superfluous. Unless it was so narrow as to have seriously misled the defendant — and for reasons I shall state shortly, I do not believe it was — I would simply disregard this portion of the September 20 letter and allow the plaintiffs to rely on any available legal ground to support rescission.
Second, I think that plaintiffs’ assigned reason for rescission — that “none of the disclosures” required by the Act had been received — was essentially correct. The majority interprets this phrase as referring only to the physical absence of the disclosure documents.1 I construe it differently. The Act requires numerous specific disclosures to be made relating to various terms of the credit transaction, and these disclosures must be made in a particular way. Thus, the reference to “disclosures required by the Truth-in-Lending Act” logically embraces not just the delivery of two pieces of paper, but the legal sufficiency of the disclosures contained therein. In my view, the use of the broad phrase may well have been intended to preserve the right later to challenge every possible aspect of the disclosures. Since I think this tactic perfectly permissible, inasmuch as no reason at all need be assigned, and since at least one required disclosure is now found to have been legally wanting, I conclude that even if the superfluous assigned reason has legal relevance, it was sufficient to put the defendant on notice that it would be called upon to defend its disclosures and could not be considered misleading.
II.
The events following the September 20, 1974 notice of rescission and their legal effect can be evaluated only in the light of the Act, and so I first turn to it.2 Section 1635(b) of Title 15, U.S.C., contains the controlling language and it provides an overall three-step scheme:
(1) “When an obligor exercises his right to rescind . . he is not liable for any finance or other charge, and any security interest given by the obligor becomes void upon such rescission.”
(2) “Within ten days after receipt of a notice of rescission, the creditor shall return to the obligor any money or property . . and shall take any action necessary or appropriate to reflect the termination of any security interest created under the transaction.”
(3) “Upon the performance of the creditor’s obligations . . . the obligor shall tender the property to the creditor [or if return is impracticable, its reasonable value] . . .
If the steps contemplated by (2) and (3) are fully performed, such performance, coupled with the provisions of (1), will serve to close out the transaction. But apparently in contemplation that (3) may not be fully performed, 15 U.S.C. § 1635(b) further provides that “[i]f the creditor does not take *1224possession of the property within ten days after tender . . . ownership of the property vests in the obligor without obligation on his part to pay for it.”
I particularly note that, by their terms, each of these three provisions is conditioned and contingent upon the preceding condition having been performed. Thus, the creditor’s obligation to return money and property and to confirm cancellation of the security interest, (2), comes into play only after a notice of rescission; and the obligor’s obligation to tender property to the creditor, (3), comes into play only after the creditor has fulfilled his obligation as set forth in (2).
With the provisions of the statute in mind, I examine the facts.
Plaintiffs’ September 20, 1974 letter of rescission must have been received the next day or shortly thereafter, because defendant responded by two letters, both dated September 25, 1974. In one, addressed to plaintiffs, defendant, placing a specific and not generic meaning on the phrase “the disclosures,” as employed in plaintiffs’ letter, wrote that plaintiffs had received the documents to which they were entitled under the Act and since they had not exercised their three-day right of cancellation in three days, “your attempted cancellation of the transaction is hereby denied and rejected.” In the other, addressed to plaintiffs’ counsel, defendant’s counsel transmitted a copy of the “Disclosure Statement” and accused plaintiffs of making an untrue statement that they had never received this document.
On October 1, 1974, plaintiffs wrote defendant another letter. Because the majority and I differ so markedly about what it says, what it means and its legal effect, I set it forth in the margin.3
The majority asserts that plaintiffs said in this letter that they would not reimburse defendant for sums which it paid to satisfy plaintiffs’ obligation on their mortgage, taxes, insurance, etc., existing at the time that they made the loan in suit, and this they treat as an anticipatory breach of plaintiffs’ obligation under 15 U.S.C. § 1635(b) so as to justify requiring plaintiffs to reimburse defendant for these sums, notwithstanding defendant’s omissions and defaults.
I read the letter in vain for any such language. It does not say that plaintiffs decline to reimburse defendant for sums advanced by defendant for plaintiffs. It is merely a gratuitous offer by plaintiffs to return the home improvements or their reasonable value — a statement not required to be made by the Act and an anticipation of plaintiffs’ obligation under the Act which had not yet arisen. To the extent that it speaks, the letter is no more than an assurance that plaintiffs expected to fulfill at least part of their statutory obligations when they arose.
I can see no factual basis on which to treat the October 1,1974 letter as an anticipatory breach. Of course, the subject of plaintiffs’ reimbursing defendant for its payment of plaintiffs’ preexisting debts did appear in later communications. In a letter dated October 8, 1974, defendant’s counsel wrote to plaintiffs’ counsel confirming an offer of settlement made by the former. The proposal was that (a) plaintiffs repay *1225the sums advanced, the costs of making the loan, return an air conditioner, and pay the cost of home improvements, in which event defendant would release the mortgage and return $50 payment, or (b) the original loan be renegotiated to reduce monthly payments to $50 and an adjustment made for home improvement work that was defective or incomplete. By letter dated October 9, 1974, plaintiffs’ counsel rejected the alternative proposals of settlement.
I cannot read the record to establish that plaintiffs made any comment with regard to reimbursement for payment of preexisting debts before October 9.4 By that time, defendant was in default in that it had failed, within ten days following receipt of the notice of rescission, to refund the $50 payment and to take action appropriate to reflect the termination of its security interest which was voided by plaintiffs’ notice of rescission, incorrectly asserting that plaintiffs were required to comply with step (3) of the statutory scheme — tender of the property received — before it took the action required of it by step (2). Defendant’s default makes it impossible for plaintiffs to be guilty of a subsequent anticipatory breach, and prevents any relation back of plaintiffs’ position as set forth in the October 9, 1974 letter of their counsel, to their letter of October 1, 1974, which cannot in itself be read as repudiating their statutory obligations.
II.
As I view the case in light of the statute, plaintiffs effectively rescinded the transaction on September 20 simply “by notifying the creditor ... of [their] intention to do so.” 15 U.S.C. § 1635(a). The rescission extinguished plaintiffs’ contractual obligation to make further monthly payments. Also on that date, defendant’s security interest became void by operation of 15 U.S.C. § 1635(b). Plaintiffs had an inchoate statutory obligation to tender the return of the property they had received, but this duty never ripened because defendant never fulfilled its antecedent obligation to refund the $50 payment and take action to reflect the voiding of its security interest.5
The only remaining question is whether the defendant may still have a viable state-law action against plaintiffs for unjust enrichment, sounding in quasi-contract. I assume that such an action is generally available in Virginia to recover moneys paid in performance of a contract which has been rescinded by operation of law, although it could be that the unjust enrichment remedy would be denied by a state court to a party whose unlawful action precipitated the rescission. See 6A A. Corbin, Contracts §§ 1534^41. I conclude that under the facts, of this case, defendant may still have available such a remedy.
Section 1635, Title 15, U.S.C., provides: “If the creditor does not take possession of the property within ten days after tender by the obligor, ownership of the property vests in the obligor without obligation on his part to pay for it.” If this sentence is applicable, clearly no state law remedy is available to the defendant. It may seem that § 1635 cannot be invoked, for it does not fit the facts of this case; there has been no tender by the obligors (plaintiffs), and tender of the property received by the obligors is a condition precedent to the creditor’s duty to take possession of the property. However, in my view, the application of general contract law principles leads to the conclusion that the performance of the condition of tender has been excused, because the defendant prevented its performance by failing to carry out its antecedent duties under the statutory scheme (return *1226of payments and release of security interest within ten days of rescission).
Restatement of Contracts § 295 provides: If a promisor prevents or hinders the occurrence of a condition, or the performance of a return promise, and the condition would have occurred or the performance of the return promise been rendered except for such prevention or hindrance, the condition is excused .
Since the tender was excused, the defendant’s duty to take possession of the property matured just as if tender had been timely made.
If a condition in a contract is excused, the promisor becomes subject to a duty to perform without the existence or occurrence of the condition . . . . Restatement of Contracts § 294.
Thus, “the creditor [did] not take possession of the property within ten days after tender by the obligor,” and defendant may keep it.
However, a condition is excused only if the obligee prevented its performance and “the performance of the return promise [would have] been rendered except for such prevention . . . .” As applied to the facts of this case, this principle means that the plaintiffs’ duty to tender was excused only if they would have tendered had the defendant not ignored its statutory obligations. While the present record shows that plaintiffs intended to return the home improvements or their reasonable value, it does reflect their admission that they were neither prepared nor intended to make the required tender of sums paid by defendant in satisfaction of their preexisting indebtedness. Thus, I would declare a statutory forfeiture of the home improvements, but I would remand the case to the district court for a determination of whatever state law remedies the defendant may have with respect to recovery of sums paid by defendant in satisfaction of plaintiffs’ preexisting indebtednesses.

. The majority relies on the lender’s understanding of the letter as confirmed by the allegations of the complaint. First, a recipient’s understanding of a letter he receives may be relevant but it is not conclusive. The test is what a reasonable man would gather from the language of the letter, not what meaning the recipient may choose to place upon it. By the reasonable man test, the language of the letter would encompass not only the failure to supply physical documents but also to furnish information required to be disclosed under the Act and the regulations. Second, while the complaint alleges three instances of defendant’s failure to supply physical documents, it also alleges five instances of failure to disclose requisite information. The latter, the majority fails to mention.

. To my mind, the Act is the bible that we must follow. The majority places emphasis on the fact that the Act does not specifically prohibit the invocation of equitable doctrines in effecting a statutory right of rescission. I think it more significant that in establishing a statutory remedy Congress did not authorize the invocation of equitable doctrines. In short, where the statute is clear and unambiguous, it should be applied as written and not subverted by judicial notions of propriety. I add that, even if equitable doctrines are to be invoked, it is new law to me to permit the lender, who obviously defaulted under the Act, to bootstrap his own default into a victory.

. Route 2, Box 69
Glen Allen, Virginia October 1, 1974
SIMS & LEVIN
Travelers Building
1106-8 E. Main Street
Richmond, Virginia 23219
Dear Sirs:
I have received your letter dated September 25, 1974, denying my right to cancel and rescind the transaction we entered into on or about July 22, 1974. In my letter of September 20, 1974, notifying you of my decision to cancel the transaction, I neglected to offer to return to you the property constituting the home improvements made or if this is not possible the reasonable value of the property. This letter is intended to inform you that I am willing to return to you the property constituting the home improvements or if this is not possible, the reasonable value of the property.
Please let me know whether this offer changes your previous position regarding recission [sic], /s/ Eugene R. Powers

. As the majority points out, plaintiffs, in response to requests for admissions after suit was instituted, stated that they “did not intend and were not prepared to tender” reimbursement for defendant’s payment of plaintiffs’ preexisting obligations. But this response was not filed until October 23, long after defendant was in default.

. Had defendant fulfilled its obligation to refund the $50 payment and to release its security interest of record, I think that plaintiffs’ obligation to reimburse defendant for sums it advanced in payment of plaintiffs’ preexisting indebtedness would have then arisen,