Faustin and Georgia Montoya v. Postal Credit Union, 630 F.2d 745, 10th Cir. (1980)

630 F.
2d 745
Faustin and Georgia MONTOYA, Plaintiffs-Appellees,

v.
POSTAL CREDIT UNION, Defendant-Appellant.
No. 79-1198.
United States Court of Appeals,

Tenth Circuit.
Argued May 6, 1980.
Decided Aug. 18, 1980.
Rehearing Denied Oct. 17, 1980.
Herbert A. Delap of Shafroth & Toll, P.C., Denver, Colo., for defendantappellant.
Peter H. Klages of Legal Aid Soc. of Albuquerque, Inc., Albuquerque,
N.M. (Elena Spielman and Armando Torres, Albuquerque, N.M., with
him on the brief), for plaintiffs-appellees.
Before SETH, Chief Judge, BREITENSTEIN and DOYLE, Circuit
Judges.
SETH, Chief Judge.
The plaintiffs who are husband and wife brought this suit under the Consumer
Credit Protection Act, 15 U.S.C. 1601, et seq., against the Postal Credit
Union. The complaint alleges that certain required disclosures were not made as
to New Mexico law relating to security on after-acquired property.
The record shows that the plaintiffs had secured a loan from the Postal Credit
Union some five or six years before this suit. The loan was secured by a deed
of trust on plaintiffs' house. This loan was changed several times, but by reason
of nonpayment the defendant brought suit against plaintiffs in a state magistrate
court in Albuquerque, New Mexico to obtain possession. The Montoyas were
represented by the lawyer who represents them in this action. The case was set
for trial. The magistrate suggested that the matter be settled and the parties
agreed on a last-minute settlement. Thus the Credit Union agreed to dismiss the
suit, and the Montoyas agreed to drop their counterclaim. It was agreed that the
loan would again be rewritten to include with the then principal amount the
expense the Credit Union had incurred in the magistrate suit. The loan was then
in default. The security was the house and some personal property.
3
The stipulation for dismissal and the loan papers were prepared by the Credit
Union for signature on January 19th, but they were not signed by the Montoyas
until January 27th. The stipulation of dismissal was filed with the magistrate on
February 8th and the case was dismissed. On March 30th this suit was filed.
The asserted failure to disclose in the loan papers signed pursuant to the
settlement of the magistrate court suit was of a provision in New Mexico law,
derived from the Uniform Commercial Code, relating to after-acquired
property. This law provides in substance that a security interest including afteracquired property covers only such property acquired by the borrower within
ten days after the lender "gives value." (N.M.S.A. 55-9-204(4)(b)).
Thus the failure to disclose asserted by the plaintiffs in this action was of this
ten-day statutory limitation. The fact was disclosed that the security interest
covered after-acquired property, but the state law ten-day limitation was not.
The basic issue presented is whether this element of state law should have been
disclosed. It is apparent that after the ten-day period the after-acquired clause is
ineffective to cover newly acquired property. The disclosure statement here
concerned stated, "The Security Agreement secures future advances and covers
after acquired property." As to the after-acquired property clause under New
Mexico law, there are other provisions than the ten-day limitation which are
significant. There are also provisions in the law directed to different types of
property under the clause, and some case law.
I.
6
It is clear that under 15 U.S.C. 1639(a)(8) and Regulation Z (12 C.F.R.

226.8(b)(5)) the lender must disclose the fact that the security interest covers
after-acquired property. Regulation Z in part states that "(i)f after-acquired
property will be subject to the security interest . . . this fact shall be clearly set
forth." (12 C.F.R. 226.8(b)(5)). The question is whether this is the extent of
the obligation or whether state law variations as to the limits and effect of afteracquired property provisions under local law need also be described.
In Federal Reserve Board Letter 1053 the statement is made:
"As our previous letter indicates, a simple disclosure of the fact that after-acquired
8
8property may be subject to the security interest would be sufficient to comply with
the clear language of 226.8(b)(5), without an explanation of the various conditions
and limitations on such interests which may be imposed by the applicable State law.
However, the fact that the creditor need not disclose such limitations and conditions
does not mean that the creditor may affirmatively misstate the scope of the security
interest, in disregard of those limitations. If, in fact, the creditor discloses an interest
in 'all after-acquired property,' when the interest would actually attach only to
property acquired by the borrower within a certain period of time, such a disclosure
would be inaccurate and misleading in violation of Regulation Z." (Emphasis
supplied.)
9
Also in Federal Reserve Board Letter 983 the position is stated in part that:
10
"Staff's
response indicated that the description of the security interest must
accurately reflect the type of security interest that may be validly acquired under
State law, in order to comply with 226.8(b)(5). Letter 829 has been interpreted to
require that the 10-day limitation on after-acquired property be included in the
security interest disclosure under that section.
11
"Upon
further consideration of that letter, staff believes that, to the extent that it
would require a creditor to disclose limitations on after-acquired property, Letter 829
should be modified. In staff's opinion, it would be sufficient, in disclosing an afteracquired property clause under 226.8(b) (5), to state simply that the security
interest covered such property, without further describing the manner and conditions
under which the interest attaches. We believe that this would comply with the
relevant provisions in that section, which requires the creditor to clearly set forth the
fact that after-acquired property will be subject to the security interest." (Emphasis
supplied.)
12
Several cases including Johnson v. McCrackin-Sturman Ford, Inc., 527 F.2d

257 (3d Cir.), discuss the weight to be given staff letters and memos which
interpret the statutes or regulations of the Board. The matter would seem to be
put at rest by the Court in Ford Motor Credit Co. v.Milhollin, --- U.S. ----, 100
S.Ct. 790, 63 L.Ed.2d 22. The Court there said: "Unless demonstrably
irrational, Federal Reserve Board staff opinions construing the Act or
Regulation should be dispositive for several reasons." The Court then describes
the several reasons why agency interpretation should be followed and in a
footnote at 100 S.Ct. 797 states:
13 be sure, the administrative interpretations proffered in this case were issued by

"To
the Federal Reserve staff rather than the Board. But to the extent that deference to
administrative views is bottomed on respect for agency expertise, it is unrealistic to
draw a radical distinction between opinions issued under the imprimatur of the
Board and those submitted as official staff memoranda. See Public Information
Letter No. 444 (1969-1974 Trans. Bind.) (CCH) Cons.Cred.Guide P 30,640 (1971).
At any rate, it is unnecessary to explore the Board/staff difference at length, because
Congress has conferred special status upon official staff interpretations. . . . "
14
Generally on the Board's rule-making power, see Mourning v. Family

Publications Service, Inc., 411 U.S. 356, 93 S.Ct. 1652, 36 L.Ed.2d 318. See
the "new Act," Pub.L. 96-221.
15
It is apparent that state law controls the consequences of the after-acquired

property provision as it does most, if not all, other aspects of a transaction such
as this. It is not a matter of state law definition, but instead a segment of the
body of state statutes and court opinions which relate to and govern credit
transactions. Once a requirement is made that state law consequences of a
described security interest must be included in the disclosures, it is difficult to
see how much should be so included. It would appear that a fairly complete
summary should be given, if any at all is required, in order that an
understandable description for a lay person may be provided.
16
Again, we are concerned with the description of the security interest. This is
what the Act and the regulation focus upon. The security interest was here
described as including an interest in after-acquired property and this was the
fact to be disclosed. The state law limitations on that security interest, and the
legal consequences under different circumstances, are quite a different matter.
There are many statutory provisions and case law relating to real property
mortgages, deeds of trust, and second deeds of trust. The enforcement remedies
and creditors' rights under these statutes and under the case law present a
comparable problem. There is just as much reason to include these elements of
New Mexico law as to include the ten-day limit on after-acquired property.
17
State laws are part of the contract whether or not they are referred to in the
agreement. Farmers Bank v. Fed. Reserve Bank, 262 U.S. 649, 43 S.Ct. 651, 67
L.Ed. 1157; Von Hoffman v. City of Quincy, 71 (4 Wall.) U.S. 535, 18 L.Ed.
403. Those for the borrowers' protection are thus included. "The law" is not
thereby "disclosed," but it cannot be there described in any reasonable way. In
Pennino v. Morris Kirschman & Co., Inc., 526 F.2d 367, 371 (5th Cir.), the
Fifth Circuit stated:
18 district court held that the Act does not require a creditor to narrate the law of
"The
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."
19
The Court in Ford Motor Credit Co. v. Milhollin, --- U.S. ----, 100 S.Ct. 790, 63
L.Ed.2d 22, considered the problem the creditor faces with too much
disclosure, and said of this in part: "Meaningful disclosure does not mean more
disclosure." (Emphasis supplied.) The Court also indicated that the balancing
between "informational overload" and complete disclosure is a function of the
Board and staff. Also, that the agency treatment of the acceleration clause
disclosure, the issue there concerned, was the exercise of such a function.
20
The balancing was done by the Act, the Board, and staff. When the line is
crossed, and we venture into the state law consequences of the after-acquired
property clause, it would seem that if an adequate job is to be done it would
necessarily create an "informational overload." See our recent cases Yazzie v.
Reynolds, 623 F.2d 638 (10th Cir.), and James v. Ford Motor Credit Co., --F.2d ---- (10th Cir. No. 78-1806), concerning insurance. The Act requires the
disclosure first of the dollars, the terms, the charges, and some of the
arithmetic. As the Court said in Milhollin, "the Federal Reserve has adopted
what may be termed a 'bottom-line' approach: that the most important
information in a credit purchase is that which explains differing net charges and
rates." Other important information, of course, includes a factual and accurate
description of the security. The legal variations and permutations relating to the
security need not be included. The disclosure here that the security included
after-acquired property was accurate and adequate under the Act.
II.
21
As a separate matter it is difficult to see how there is a case or controversy in

those circumstances where the issue and the facts create nothing more than a
difference of opinion on a theoretical matter. It has become something of a
contest between the creditors and the attorneys for the purchasers-debtors as to
these abstract questions. Questions which present no practical consequences as
to the particular transaction and no issue as to them have arisen and in many
instances cannot arise. The litigation over such questions is extensive and
expensive and settles no practical differences but, again, only theoretical
questions. This obviously is not a point relating to damages as we have held
that actual damages need not be incurred, but instead is an indication of an
absence of a justiciable controversy. No one will argue against the enforcement
of the disclosure of the elements the Court mentioned in Milhollin, a fact
description of the security, and also such other elements under the Act which
become a matter of real dispute between the parties and put the risk on the
seller-lender. The matter of comparison shopping is obviously an important
factor, but realistically it is difficult to see how the presence or absence of the
ten-day limitation here concerned can be of any consequence in that context.
22
The reference to the "bottom-line" by the Supreme Court in Milhollin becomes

very significant. The courts are not prepared to give advisory opinions even
though there may be a prize awarded one of the litigants.
23
The case is REVERSED and REMANDED.
24
DOYLE, Circuit Judge, concurring.
25
I concur generally in part I of the opinion. I am persuaded by the Federal

Reserve Board letters which are cited in Part I of the opinion and the court
authorities which are cited, particularly the decision of the Supreme Court in
Ford Motor Credit Co. v. Milhollin, --- U.S. ----, 100 S.Ct. 790, 63 L.Ed.2d 22
(1980).
26
As I view part II of the opinion, it is unnecessary to a decision in the case. That

part of the opinion criticizes the filing of litigation challenging the suit on the
basis that it is not a case or controversy. It says that the point raised is not a
point relating to damages. The opinion acknowledges that actual damages need
not be incurred. We have recognized this in an earlier opinion, Little Redhouse
and Brady Tah., etc. v. Quality Ford Sales, Inc., etc. and Thomas E. Redd, 523
F.2d 1 (10th Cir. 1975).
27
The Congress has, in effect, authorized a lawsuit by a person who has not
suffered actual damages, but this does not mean that the present plaintiff has no
stake in the outcome of the case, and in the present case it is my opinion that
the plaintiff does have requisite interest.

Faustin and Georgia Montoya v. Postal Credit Union, 630 F.2d 745, 10th Cir. (1980)

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630 F.

Faustin and Georgia MONTOYA, Plaintiffs-Appellees,

United States Court of Appeals,

It is clear that under 15 U.S.C. 1639(a)(8) and Regulation Z (12 C.F.R.

In Federal Reserve Board Letter 1053 the statement is made:

Several cases including Johnson v. McCrackin-Sturman Ford, Inc., 527 F.2d

13 be sure, the administrative interpretations proffered in this case were issued by

Generally on the Board's rule-making power, see Mourning v. Family

It is apparent that state law controls the consequences of the after-acquired

As a separate matter it is difficult to see how there is a case or controversy in

The reference to the "bottom-line" by the Supreme Court in Milhollin becomes

The case is REVERSED and REMANDED.

DOYLE, Circuit Judge, concurring.

I concur generally in part I of the opinion. I am persuaded by the Federal

As I view part II of the opinion, it is unnecessary to a decision in the case. That

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