Court Opinion

ID: 8909657
Source: CourtListenerOpinion
Date Created: 2022-11-27 02:30:15.570353+00
Date Added: 2024-06-11T17:08:25.546940
License: Public Domain

CHARLES CLARK, Circuit Judge,
concurring in part and dissenting in part:
I concur in the result reached by the majority on the Truth-in-Lending Act issues raised in these four cases. I dissent, however, from the majority’s disposition of the Public Finance Corporation’s counterclaims under Georgia law.
All parties concede that if the notes in these cases violate the Georgia Industrial Loan Act, Ga.Gode Ann. §§ 25-301 et seq., the lenders may not recover the outstanding principal under any legal theory. The Georgia Supreme Court has held that when a loan agreement violates the Georgia Industrial Loan Act, the lender may not recover the principal or the interest either directly through an action on the note or indirectly in a suit for money had and received. Hodges v. Community Loan & Investment Corp., 234 Ga. 427, 216 S.E.2d 274 (1975). In Jackson v. Uslife, the lender concedes that the note violates the Georgia Act and I therefore concur in the court’s judgment in the Jackson case. In Williams, Smith and Singletary, however, the only impropriety asserted to be present in the notes sued on is that part of the principal advanced to the borrowers when each was executed refinanced unpaid principal from prior notes that admittedly did violate the Georgia Act. I disagree with the court’s holding that the refinancing of the prior notes renders the new notes sued on in these cases violative of the Georgia Act. Since no illegality under the Georgia Act is present in these new notes, I would allow the lenders, under their theory of money had and received, to recover that portion of the principal of the notes that represents new money advanced to the borrowers.
*361The critical case in the area is Douglas v. Dixie Finance Corp., 139 Ga.App. 251, 228 S.E.2d 144 (1976), an intermediate Georgia court decision. In Douglas a lender sued on a note to recover $2,640 of unpaid principal, of which $1,350 represented refinancing of an amount unpaid on a prior note that violated the Georgia Act. The trial court had held that the earlier voided instrument “ ‘was superseded by the later contract as to which it constituted an accord and satisfaction.’ ” Id. at 144. The appellate court reversed; its entire discussion of the point was set forth in two paragraphs:
“Accord and satisfaction is where the parties, by a subsequent agreement, have satisfied the former one, and the latter agreement has been executed. The execution of a new agreement may itself amount to a satisfaction where it is so expressly agreed by the parties; and without such agreement, if the new promise is founded on a new consideration, the taking of it is a satisfaction of the former contract.” Code § 20-1201.
Unless specifically agreed to by the parties, a renewal of a promissory note alone is not an accord and satisfaction. Blackshear Mfg. Co. v. Harrell, 191 Ga. 433(2), 12 S.E.2d 328. The record does not show any such agreement in this case. Moreover, the prior illegal contract could not be valid consideration for the execution of the note sued upon. “If the consideration be good in part and void in part, the promise will be sustained or not, according as it is entire or severable, as hereinafter prescribed. If the consideration be illegal in whole or in part, the whole promise fails.” Code § 20-305. Hanley v. Savannah Bank & Trust Co., 208 Ga. 585, 68 S.E.2d 581.
Id. at 144-45. Nowhere in Douglas does the court state that the void consideration rendered the new note illegal under the Georgia Industrial Loan Act. The Act is not even mentioned in the pertinent part of the court’s opinion. The Douglas court’s discussion is limited to a straightforward analysis under Georgia contract law as to the effect of a partially voided consideration. The Douglas court’s holding — if the consideration be good in part and void in part and the instrument is not severable, the whole promise fails — is taken verbatim from Ga.Code Ann. § 20-305, part of Georgia’s codification of the common law of contracts. See also Ga.Code Ann. § 20-1201. Similarly, the two judicial authorities cited, Hanley and Blackshear Mfg. Co., are Georgia contract law cases which have nothing to do with the Georgia Industrial Loan Act.
Neither Douglas nor Hodges would foreclose an action for money had and received on the new money advanced in the notes in these cases. Douglas did not hold that the void consideration rendered the second note itself violative of the Georgia Act; it merely held that the contract “failed” for lack of consideration under the doctrine that partially illegal consideration voids the entire promise. Douglas would not preclude an action for money had and received. Similarly, the unequivocal holding of Hodges that no recovery is permissible for any money lent in violation of the Georgia Act would be honored by disallowing recovery on the refinance portion of the principal while allowing return of the new money advanced.
Finally, though I join in the result reached by the court on the Truth-in-Lending Act issues presented in these cases, I cannot join in the language employed by the court or the spirit it appears to express. The court characterizes the lenders involved in these cases as “credit wolves” dressed in “sheeps clothing,” and the borrowers as persons of “valor” to be “richly rewarded” for “catching a lending beast.” These pejoratives obscure the economic realities and legal issues that ought to govern these cases.
The lenders in these cases have not preserved for appeal the lower court’s finding that the notes involved violated the Truth-in-Lending Act, 15 U.S.C. §§ 1601 et seq., (TILA). In analyzing the legal and economic issues at stake in these cases, however, it is helpful to briefly summarize the nature of the TILA violations in three of the cases, Williams, Smith and Singletary. In each of these three cases the Special *362Master made a finding adopted by the district court that the notes violated the TILA because Public Finance’s standard form loan agreements failed to disclose that there is a ten-day limitation on the attachment of security interests in after-acquired property. As enacted in Georgia, the UCC in § 9-204(4)(b) provides that no security interest attaches under an after-acquired property clause to consumer goods unless the debtor acquires them within ten days of the loan transaction. Public Finance’s loan agreements contain an after-acquired property clause but they do not explain the provision of UCC § 9-204(4)(b). It might be thought that this omission, which is not in any sense a falsehood, would not violate the TILA. The contract’s only deficiency is its failure to recite a particular limitation imposed by state law.
In Pennino v. Morris Kirschman & Co., Inc., 526 F.2d 367, 371 (5th Cir. 1976), we held:
The district court held that the Act does not require a creditor to narrate the law of the forum state, but requires simply a meaningful disclosure of the credit terms he intends to charge. We agree with the district court on this point and find no violation of the Truth-in-Lending Act or Regulation Z. The role of the Federal courts under the Act does not include enforcement of state laws of the type asserted.
526 F.2d at 371.
A panel of this court subsequently held, in Pollack v. General Finance Corp., 535 F.2d 295 (5th Cir. 1976), that the failure to disclose the UCC’s ten-day limit on after-acquired property clauses does violate the TILA. The Pollack opinion did not cite Pennino. The court noted that the Pollack disclosure statement was “perhaps not false,” but nevertheless found it violative of the TILA. The basic theories of Pennino, and Pollack are not reconcilable. A lender relying on Pennino could not determine that the failure to disclose the UCC’s ten-day limitation would be found illegal in Pollack.- Under the law in this circuit as declared in Pollack, Public Finance’s loan contracts did violate the TILA; Under Pennino I don’t see how it could. The violations found are based on judicial precedent that is not internally consistent, and, in any event, are extremely technical. Such a factually arcane and logically dubious “violation” is certainly not the stuff of which credit “wolves” ought to be made.
There is no magic in the small loan business. It operates on the same economic principles that govern any other industry in a free society. Government regulation of consumer loans increases the cost of borrowing money or decreases its availability. As stiff penalties are more and more frequently imposed by courts for even the most technical violations of state and federal law, loan companies inevitably must offset such losses or go out of business. Either the cost of loans must increase or lenders must limit their availability to better credit risks. It is naive to believe that strict enforcement of technicalities will benefit the necessitous borrower. The consumer loan business thrives at maximum rates set by law because the market will bear their high cost. State and federal legislatures have chosen to regulate the consumer loan business, and it is the duty of courts to enforce those regulations ungrudgingly. But the interpretation of state and federal consumer credit laws cannot be distilled into terms so simple as the wolves and the sheep. Courts are not assigned the task of heaping coals on the heads of lenders. Indeed, the facts of life demonstrate that unreasonably severe application of technicalities to lenders only increases the cost of borrowing to those who can least afford it.