Court Opinion

ID: 9478560
Source: CourtListenerOpinion
Date Created: 2023-08-05 06:52:09.5956+00
Date Added: 2024-06-11T17:46:29.756429
License: Public Domain

*1265THORNBERRY, Circuit Judge,
dissenting:
I agree with the majority that Troy & Nichols retained discretion to investigate Clark’s financial status after executing the Rate & Discount Agreement (“the agreement”). However, the conclusion that this discretion reflects an absence of a “consummation” evokes this opinion by which I respectfully dissent.
The agreement expressly states that the “terms of this agreement are hereby accepted” by Clark and Troy & Nichols. At this point, had Clark wanted to back out of the agreement, he would have been committed to pay a penalty equal to 1% of the loan amount or, in this case, over $2000. Thus, he was bound. Whether this is the type of obligation envisioned by the Truth in Lending Act requires a look at Regulation Z, the Act’s implementing provision.
Regulation Z provides that “consummation” is the “time that a consumer becomes contractually obligated on a credit transaction.” (emphasis added). The definitional focus is on the time the consumer not the lender becomes bound. “Since TIL is ‘consumer protection’ legislation, we think the appropriate focus should be on the time of the contact with the consumer. That is, we must examine the transaction through the eyes of the consumer.” Cody v. Community Loan Corp. of Richmond Cty, 606 F.2d 499, 505 (5th Cir.1979), cert. denied, 466 U.S. 988, 100 S.Ct. 2973, 64 L.E.2d 846 (1980).
In Cody, a bank associated with an insurance company to market cancer insurance policies at the time loans were extended. The bank negotiated with the plaintiffs for the sale of the insurance policy; however, the bank did not have authority to approve the policy. Instead, once the plaintiff agreed to purchase the policy, the bank forwarded the documentation to the insurer for its approval. We held that, from the plaintiffs perspective and for purposes of TIL, the sale occurred at the time the plaintiff agreed to purchase the policy, not when the policy was ultimately approved. Thus, the bank violated TIL by not making sufficient disclosures at the time the plaintiff agreed to purchase the policy.
Cody involved determining when a “credit sale” occurred. We resorted to the definition of “consummation” for that issue’s resolution. Though not on all fours with the present dispute, I believe Cody is so closely analogous to the situation at hand that it should control. Thus, even if Troy & Nichols retained complete discretion to walk away from the agreement (a position with which I disagree as explained below), from the time the agreement was executed Clark remained bound to go forward or pay a 1% penalty. From his vantage point, he was contractually bound.
Alternatively, one might insightfully argue that the agreement bound Clark not “on a credit transaction” as required by Regulation Z’s definition of “consummation,” but merely on an option to enter into a credit arrangement. However, it seems equally plausible to characterize the agreement as a credit transaction incorporating a 1% liquidated damage clause. While state law governs when a contract arises, characterization of the transaction is a matter of federal law. Cody, 606 F.2d at 499. To remain consistent with the universally applied principle of liberally construing the terms of the Truth in Lending Act to effectuate the underlying purpose of consumer protection, I believe the “option versus credit transaction” dialogue should be resolved in the consumer’s favor.
Finally, even if one insists on shifting the emphasis of Regulation Z’s definition of “consummation” from the time Clark became bound to the time Troy & Nichols became bound, I remain convinced that the agreement obligated both parties. Once the parties agreed on the terms and executed the agreement, a contract was formed. That a contract existed does not mean that the parties were obligated to perform. To the contrary, Troy & Nichols expressly conditioned their duty to perform on Clark’s ability to meet certain conditions. These conditions however were conditions precedent to Troy & Nichols’ duty to perform, not to the formation of *1266the contract. See 5 Williston on Contracts § 666 (3d ed.1961).
A common example of a contract with conditions precedent to performance is an earnest money contract for the purchase of a home. After agreeing on the purchase price and Closing Date, a buyer and seller generally execute an earnest money contract. The buyer’s earnest money is placed in escrow until the closing date. The earnest money contract imposes conditions on each party before the other is obligated to perform, i.e. to close. For example, the buyer conditions his performance on the seller’s ability to show good title. The seller conditions its obligation to sell on the buyer’s ability to present acceptable financing. Despite these conditions (which may or may not be met), after execution of the earnest money contract, the parties are not free to walk away from the deal. The buyer risks losing his earnest money while the seller risks a suit for specific performance. Thus, at the time the earnest money contract is executed, the parties are bound even though not yet obligated to perform.
I detect no legal distinction between an earnest money contract scenario and the agreement at hand and therefore would reverse the district court on this issue.
My thoughts also diverge from the majority’s with respect to the second issue— whether the disclosures were accurate. My reading of the majority’s opinion suggests that as long as the disclosures accurately disclose information necessary to evaluate a credit arrangement, there can be no TIL violation. The majority concludes that even though the lender never intended to extend credit on the terms disclosed, the accuracy of the disclosures remain untainted. In my view, an intention from the outset not to extend credit on disclosed terms is far more egregious than inaccurate terms. On careful review of the disclosures, one might detect an inconsistency between the interest rate promised and the amortization schedule disclosed. By contrast, there is no way to enter the lender’s mind to determine whether he means what he discloses.
Disclosures feigning one’s true intention, in my view, are inaccurate. As the appellant has presented evidence raising a genuine issue of material fact as to Troy & Nichols’ underlying intent, I would reverse the summary judgment and remand this issue for trial.