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ALDRICH v. UPSTATE AUTO WHOLESALE OF ITHACA

September 2, 1982

Deborah ALDRICH, Plaintiff,
v.
UPSTATE AUTO WHOLESALE OF ITHACA, INC., and First National Bank & Trust Co. of Ithaca, New York, Defendants; FIRST NATIONAL BANK & TRUST CO. OF ITHACA, NEW YORK, Third-party Plaintiff, v. BANCONSUMER SERVICE, INC., Third-party Defendant.



The opinion of the court was delivered by: MCCURN

MEMORANDUM -- DECISION AND ORDER

McCURN, District Judge.

 Plaintiff brings this action against the defendants Upstate Auto Wholesale of Ithaca, Inc. [Upstate Auto], and First National Bank & Trust Co. of Ithaca, New York [Ithaca Bank], under the Federal Truth-in-Lending Act [TILA], 15 U.S.C. § 1601, et seq., and Regulation Z, 12 C.F.R. Part 226.Ithaca Bank has cross-claimed against Upstate Auto in the event that Aldrich recovers on her claims. Ithaca Bank has also commenced a third-party action against Banconsumer Service, Inc. [Banconsumer], the supplier of the preprinted contract forms upon which the plaintiff alleges that there are credit disclosure errors.

 Presently pending before the Court are the plaintiff's motion for partial summary judgment, pursuant to Rule 56 Fed.R.Civ.P., Ithaca Bank's motion to dismiss the complaint, and Banconsumer's motions to dismiss the plaintiff's complaint and the third-party complaint under Rule 12 Fed.R.Civ.P.

 BACKGROUND

 This case arises out of three separate consumer credit transactions. Aldrich claims that contract disclosures do not comport with the TILA and applicable regulations.

 Aldrich's first claim involves her purchase, with Roland Countryman, of a 1975 Volkswagen from Upstate Auto on November 30, 1979. Upstate Auto arranged for an extension of credit under a motor vehicle retail installment plan. 15 U.S.C. § 1602(h); 12 C.F.R. § 226.2(h).Upstate Auto immediately assigned its rights under the contract to Ithaca Bank. 15 U.S.C. § 1602(f); 12 C.F.R. § 226.2(s).

 The contract discloses that in the event of the buyer's default, and the creditor's subsequent suit to recover payment, "[t]here will be an attorney's fee of 15% of the amount then due. . . ." levied against the buyer. Aldrich maintains that this is a misleading and inaccurate disclosure of the defendants' rights under New York law, which holds that a creditor may only recover attorney's fees on a quantum meruit basis up to 15% of the amount then due under N.Y.Pers.Prop.Law § 302(7). Plaintiff alleges that the disclosure violates 12 C.F.R. § 226.6(c), which directs that if a creditor supplies additional information, not required by the TILA, such information must not be stated in such a way as to mislead or confuse the consumer.

 Aldrich also maintains that the defendants made inaccurate disclosure of the "cash price" required by 12 C.F.R. § 226.2(n), by including a discount given by Upstate Auto as part of the "total down payment" in violation of 12 C.F.R. §§ 226.8(c)(1), 226.8(c)(2) and 226.8(c)(8)(ii).

 The final component of Aldrich's first claim concerns the contract's disclosure of the defendants' security interest in "replacements of" or "additions to" the vehicle. Plaintiff asserts that the defendants failed to disclose that the security interest in after-acquired property is limited to such property acquired within 10 days of the transaction under New York law, N.Y.U. C.C. § 9-204(2). Aldrich maintains that the failure to disclose this limitation is a violation of 15 U.S.C. § 1638(a)(10) and 12 C.F.R. § 226.8(b)(5).

 Plaintiff has settled with the original creditor, Upstate Auto, by stipulation of dismissal dated March 16, 1981. Aldrich claims that Ithaca Bank, as an assignee of the contract under 15 U.S.C. §§ 1614, 1641(a), is jointly and severally liable for the TILA violations that are apparent on the face of the contract assigned. *fn1"

 The second claim, asserted against Ithaca Bank only, concerns the purchase of a 1974 Chevrolet Malibu from Garage de France on April 13, 1980. The seller immediately assigned the contract to Ithaca Bank. The pre-printed portions of the form contract are identical to those involved in the November 30, 1979 contract. Aldrich asserts, as above, that the clause regarding attorney's fees available in consequence of the buyer's default violates 12 C.F.R. § 226.6(c). She also maintains that the description of the security interest taken by the creditor violates 15 U.S.C. § 1638(a)(10) and 12 C.F.R. § 226.8(b)(5).

 Aldrich's final claim concerns a Retail Installment Note for a direct loan from Ithaca Bank dated July 1, 1980. The Note states that in the event of a default and subsequent suit against the borrower, Ithaca Bank would be entitled to "reasonable attorney's fees, not in excess of 20%, plus court costs." Aldrich asserts that this language also misrepresents the creditor's rights under New York law in violation of 12 C.F.R. § 226.6(c).

 The plaintiff seeks to recover, on each transaction, the statutory penalty, costs and attorneys fees. 15 U.S.C. § 1640(a).

 DISCUSSION

 TILA and its accompanying regulations oblige extenders of consumer credit to provide for certain disclosures in order to aid consumers in making informed decisions regarding credit purchases, and facilitating consumers in effectively comparing the cost of credit. Mourning v. Family Publications, 411 U.S. 356, 93 S. Ct. ...


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