Cole v. Lovett
672 F.Supp. 947, 1987 U.S. Dist. LEXIS 9945 (1987)
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Rule of Law:
A consumer credit transaction involving a security interest in a principal dwelling can be rescinded under the Truth-in-Lending Act if the creditor fails to disclose the security interest or provide proper notice of the right to rescind, and a home solicitation sale can be cancelled under the Mississippi Home Sales Solicitation Act if the seller fails to provide required notice, leading to forfeiture of payment obligations and ownership of goods by the buyer if the seller does not demand their return.
Facts:
- On November 9, 1982, Capitol Roofing representatives Tony Stepp and Ken Smith visited Norman and Judy Cole at their home, proposing vinyl siding for $4900.
- That evening, the Coles signed a work order contract and several other documents presented by Stepp, including a disclosure statement, loan application, notice of right to cancel, and a deed of trust, but they only actually saw the work order contract and believed other papers were for credit and insurance.
- The Coles were not informed they were granting a security interest (deed of trust) in their home and received only a carbon copy of the work order contract and the disclosure statement, but no copies of the other signed documents, including the deed of trust.
- Early on November 10, Judy Cole called Capitol Roofing to cancel, stating they wished to obtain more estimates, but Stepp replied the papers had been processed, workers would be out soon, and there was nothing he could do.
- Later that day, Capitol Roofing's crew began installing siding at the Coles' home; Judy Cole did not stop them, believing she and Norman were bound by the signed contract.
- After the siding was completed on November 27, Capitol Roofing assigned the contract to United Companies Mortgage of Mississippi (UCM), but UCM's standard procedure of contacting customers to verify disclosures was not followed for the Coles.
- Approximately one year after the transaction, the Coles discovered the deed of trust on their home when they applied for credit for interior improvements.
- After making eleven payments and experiencing continuing problems with the siding, the Coles discontinued further payment, and their attorney formally notified Capitol Roofing and UCM on December 19, 1984, of their intent to rescind and cancel under TILA and MHSSA.
Procedural Posture:
- Norman and Judy Cole filed a complaint against J.L. Lovett, doing business as Capitol Roofing and Insulation Company (Capitol Roofing), United Companies Mortgage of Mississippi (UCM), and James T. Breland (trustee of the deed of trust) in the U.S. District Court for the Southern District of Mississippi.
- The complaint alleged violations of the Truth-in-Lending Act (TILA) and the Mississippi Home Sales Solicitation Act (MHSSA), and breach of express and implied warranties by Capitol Roofing.
- UCM filed a counterclaim alleging the Coles' default under the contract.
- The case proceeded to a non-jury trial where the court heard testimony from witnesses and reviewed exhibits admitted in evidence.
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Issue:
1. Does a creditor's failure to disclose that a security interest is being acquired in a consumer's principal dwelling, or failure to provide proper notice of the right to rescind, constitute a material violation of the Truth-in-Lending Act, entitling the consumers to rescind the transaction? 2. Does a home improvement contract, initiated by a seller referral rather than buyer request, qualify as a "home solicitation sale" under the Mississippi Home Sales Solicitation Act, entitling buyers to cancel if the seller fails to provide statutorily required notice of cancellation rights?
Opinions:
Majority - TOM S. LEE, District Judge
Yes, Capitol Roofing's failure to disclose the security interest in the Coles' home and its failure to provide proper notice of the right to rescind constituted material violations of the Truth-in-Lending Act, entitling the Coles to rescind the transaction. Additionally, yes, the transaction qualified as a "home solicitation sale" under the Mississippi Home Sales Solicitation Act, and Capitol Roofing's failure to provide the required notice of cancellation rights entitled the Coles to cancel the sale. The court found that Capitol Roofing materially violated TILA by failing to disclose to Norman and Judy Cole that a security interest (deed of trust) was being acquired in their principal dwelling, crediting the Coles' testimony that they were unaware of its existence and never saw the document itself. Citing Williamson v. Lafferty and Smith v. Capital Roofing Co. of Jackson, Inc., the court underscored that the granting of a deed of trust is a critical factor requiring clear disclosure. Furthermore, Capitol Roofing failed to provide the Coles with two copies of the notice of their right to rescind. While the Coles signed an acknowledgment of receipt, the court determined they effectively rebutted the statutory rebuttable presumption of delivery, as they were unaware of this right. These TILA violations entitled the Coles to rescind, voiding the security interest and entitling them to the return of payments. The court rejected the 'bona fide error' defense as these were not clerical errors. The court also found Capitol Roofing violated the MHSSA. It determined the transaction was a "home solicitation sale" because Capitol Roofing initiated the contact based on a neighbor's referral, not at the Coles' request. As Capitol Roofing failed to provide the statutorily required notice of cancellation rights, the Coles properly and timely exercised their right to cancel. Under MHSSA, because Capitol Roofing or UCM failed to demand the return of the siding within a reasonable time after cancellation, the siding became the Coles' property without obligation to pay for it, and defendants forfeited any cancellation fee due to their noncompliance. The court explicitly declined to condition rescission upon the Coles' payment for the siding, emphasizing the "Caveat Vendor" principle and Capitol Roofing's actions to circumvent the Coles' rights, such as beginning work before the cancellation period expired.
Analysis:
This case significantly reinforces the strict enforcement of consumer protection statutes, particularly TILA and MHSSA, demonstrating that courts will prioritize consumer rights when creditors and sellers fail to meet their disclosure and notice obligations. It establishes that a seller's proactive measures to undermine a consumer's right to rescind or cancel, such as initiating work prematurely or failing to explain crucial documentation, will weigh heavily against the seller. The application of the "Caveat Vendor" principle highlights the heightened responsibility placed on merchants in home solicitation sales to ensure full compliance, as non-compliance can lead to severe consequences for the seller, including forfeiture of the contract, voiding of security interests, return of all payments, and loss of the goods or services provided.
