American General Finance, Inc. v. Bassett (In re Bassett)
285 F.3d 882 (2002)
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Rule of Law:
A contract term is 'clear and conspicuous' under 11 U.S.C. § 524(c)(2) if it is written so that a reasonable person ought to have noticed it, a determination based on the totality of the circumstances including brevity and placement, not merely on typographical formatting such as capitalization.
Facts:
- Darlene Bassett purchased two chairs and two ottomans.
- She financed the purchase through a secured loan with American General Finance, Inc. (Finance).
- Months later, Bassett filed for Chapter 7 bankruptcy protection.
- Before her debts were discharged, Bassett signed a reaffirmation agreement with Finance to continue paying for the furniture.
- The reaffirmation agreement contained the required right-to-rescind statement in lower-case font.
- Located near the rescission statement was another required disclosure printed in all-caps.
- Bassett made several payments under the agreement but eventually defaulted.
- After she defaulted, Finance sent Bassett a series of collection letters.
Procedural Posture:
- Darlene Bassett moved to reopen her Chapter 7 bankruptcy case in the bankruptcy court to file a putative class action against Finance.
- The bankruptcy court granted Finance's motion for judgment on the pleadings, ruling that the reaffirmation agreement was enforceable.
- Bassett, as appellant, appealed the decision to the Bankruptcy Appellate Panel (BAP).
- The BAP reversed the bankruptcy court's decision, concluding the agreement was unenforceable.
- Finance, as appellant, appealed the BAP's ruling to the U.S. Court of Appeals for the Ninth Circuit.
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Issue:
Does a reaffirmation agreement's right-to-rescind statement fail the 'clear and conspicuous' requirement of 11 U.S.C. § 524(c)(2) because it is printed in lower-case type and located near another sentence printed in all-caps?
Opinions:
Majority - Kozinski, Circuit Judge
No. The reaffirmation agreement's right-to-rescind statement is clear and conspicuous. A term's conspicuousness is a matter of law determined by whether a reasonable person ought to have noticed it, not by a rigid, format-based test. The court adopted the definition of 'conspicuous' from the Uniform Commercial Code (UCC) § 1-201(10). The court reasoned that an over-reliance on capitalization is misplaced, as context is paramount. Here, several factors made the statement conspicuous: the entire agreement was very brief (less than a page), the right-to-rescind statement was the very first sentence in the body of the agreement, and no aspect of the formatting made it difficult to read. The presence of a nearby sentence in all-caps did not 'deemphasize' the rescission clause in such a short document; a reasonable person would not have been surprised to find the term.
Analysis:
This decision clarifies the 'clear and conspicuous' standard within bankruptcy law, shifting the focus from mechanical formatting rules (like using all-caps) to a more holistic, functional analysis based on what a reasonable person would notice. It serves as a caution to drafters that typographic choices are not a 'safe harbor' and that true clarity comes from factors like brevity and prominent placement. This ruling provides creditors with more flexibility in drafting effective disclosures but also underscores that the entire context of a document will be scrutinized by courts to ensure consumer protection.
