Hamilton v. Ohio Savings Bank

[This opinion has been published in Ohio Official Reports at 

70 Ohio St.3d 137

.]




HAMILTON ET AL., APPELLANTS, v. OHIO SAVINGS BANK, F.K.A. OHIO SAVINGS
                               ASSOCIATION, APPELLEE.
            [Cite as Hamilton v. Ohio Savings Bank, 

1994-Ohio-526

.]
Banks—Residential mortgages—Bank's method of interest calculation results in
        incomplete amortization of mortgage within the stated term—Federal Truth
        in Lending Act violation alleged—Section 1640(e), Title 15, U.S. Code,
        construed and applied—Statute of limitations tolled until mortgagor
        discovered or had reasonable opportunity to discover the alleged fraud or
        nondisclosures that formed the basis for the Truth in Lending action.
      (No. 92-2302—Submitted April 26, 1994—Decided August 31, 1994.)
       APPEAL from the Court of Appeals for Cuyahoga County, No. 61908.
                                  __________________
        {¶ 1} Plaintiffs-appellants, Frances E. Hamilton, Barbara A. Seidel and
George L. Seidel, obtained residential mortgages from defendant-appellee, Ohio
Savings Bank, formerly known as Ohio Savings Association ("Ohio Savings").
Hamilton's mortgage was for the principal sum of $44,000 and was to be payable
in consecutive monthly installments of $364.79 with the "remaining balance, of
principal and interest, if any," payable at the end of the twenty-nine-year mortgage
term. The stated interest rate was 9.25 percent. The Seidel mortgage secured a
principal amount of $32,400 with monthly payments of $262.76 over a period of
twenty-nine years. Its stated interest rate was nine percent per annum. The
Hamilton mortgage was executed in September 1976 and the Seidel mortgage was
signed in August 1977.
        {¶ 2} Both mortgages contained the following language regarding interest
calculation:
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       "Such interest shall be computed monthly by (i) obtaining a daily interest
factor based upon a 360-day year, (ii) multiplying such factor by the actual number
of days in each calendar month, and (iii) applying the result against the unpaid
balance of this note outstanding on the last day of each month."
       "Regulation Z" consumer disclosure notices, pursuant to Section 226.1 et
seq., Title 12, C.F.R., were provided to both mortgagors. The record contains two
different Hamilton Regulation Z forms. One is attached to the appellee's motion
for summary judgment and is entitled "Joint Appendix Exhibit 'E'." On this form a
typewritten notation was included that stated "THE CONTRACT INTEREST
RATE IS 9.25% (365/360 method)." The second Regulation Z form is attached as
plaintiff's Exhibit 4 to the deposition of Judy Ledin. The same typewritten language
is included but it would appear that the "365/360" language was altered to read
"360/360." Given the state of these documents, it is difficult to ascertain exactly
what was done. The Seidel Regulation Z form does not indicate how interest will
be calculated.
       {¶ 3} Ultimately, another Ohio Savings mortgagor, John P. Clark, who
holds degrees in both mathematics and economics, discovered that when the
365/360 method of interest calculation is used, the stated interest rate was less than
that actually charged and paid to the bank. Based on this theory, the appellants
claim that the actual rate of interest on the Hamilton note became 9.37 percent
rather than 9.25 percent, and on the Seidel note, 9.12 percent rather than nine
percent. Additionally, because the bank had based the monthly payment on a
365/360 calculation, both notes carried monthly payments that were insufficient to
fully amortize the principal over the term of the loan. According to appellants, this
will result in outstanding balances at the end of the twenty-nine-year term on both
notes, necessitating final payments of $6,493 on the Hamilton note and $4,702.34
on the Seidel note.




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                               January Term, 1994




       {¶ 4} Hamilton and the Seidels filed suit on their own behalf and all others
similarly situated, claiming violations of the federal Truth in Lending Act, Section
1601 et seq., Title 15, U.S.Code, as well as common-law claims of fraud, unjust
enrichment, conversion and breach of contract. After protracted litigation, appellee
moved for summary judgment. The bank argued that the 365/360 method of
interest calculation was legal and fully disclosed; the understated monthly payment
was a mistake by the bank that actually inured to the benefit of appellants by
understating their monthly payments by roughly $3 to $4; and the appellants'
actions were time-barred. The trial court granted summary judgment for the bank
and the court of appeals affirmed, holding, inter alia, that appellants' Truth in
Lending claims were barred by the one-year statute of limitations found in Section
1640(e), Title 15, U.S.Code.
       {¶ 5} The matter is now before this court upon the allowance of a motion to
certify the record.
                               __________________
       Robert E. Sweeney Co., L.P.A., Robert E. Sweeney, Mark Wintering, Kevin
E. McDermott and J. William Petro; Weiss, Kwait & Associates and Steven M.
Weiss, for appellants.
       Arter & Hadden, Hugh M. Stanley, Jr., Irene C. Keyse-Walker and Beth
Whitmore; Marc W. Freimuth and Roy E. Lachman, for appellee.
       Kristen E. Manos, urging reversal for amici curiae, United States Public
Interest Research Group, Ohio Public Interest Research Group, and Consumer
Federation of America.
                               __________________
       MOYER, C.J.
       {¶ 6} The threshold issue is whether appellants' claims are time-barred,
thereby divesting the trial court of subject matter jurisdiction. Section 1640(e),
Title 15, U.S.Code provides: "Any action under this section may be brought in any




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United States district court, or in any other court of competent jurisdiction, within
one year from the date of the occurrence of the violation. ***"
       {¶ 7} The determinative question is what is meant by "occurrence of the
violation." There is a divergence of views among the federal courts regarding the
application of that phrase. At least three approaches have been used to determine
when the statutory period commences. The first maintains that Congress clearly
intended that the statute of limitations begins to run at the execution of the contract
and should be strictly enforced. Stevens v. Rock Springs Natl. Bank (C.A.10, 1974),

497 F.2d 307

. The second view is based on the notion that nondisclosure of the
actual interest rates represents a continuing violation of the contract and the
limitations period should be fluid and liberally applied. See Postow v. OBA Fed.
S. & L. Assn. (C.A.D.C.1980), 

627 F.2d 1370

 (adopting "continuing violation"
theory in limited situations). The final theory is that offered by the Sixth Circuit in
Jones v. TransOhio Savings Assn. (C.A.6, 1984), 

747 F.2d 1037

. The Jones court
reasoned that to strictly enforce the one-year statute of limitations would run
counter to the expressed purpose of the Act and its remedial nature. Therefore, the
court held that under certain circumstances the statute might equitably be tolled.
See, also, King v. California (C.A.9, 1986), 

784 F.2d 910

 (expressly adopting the
Sixth Circuit's reasoning).
       {¶ 8} We adopt the third application of the statute because under the
appropriate circumstances, tolling the statute of limitations will effectuate the
purpose of Congress in adopting the Truth in Lending Act. Section 1601(a), Title
15, U.S.Code provides: "*** It is the purpose of this subchapter to assure a
meaningful disclosure of credit terms so that the consumer will be able to compare
more readily the various credit terms available to him and avoid the uninformed
use of credit, and to protect the consumer against inaccurate and unfair credit billing
and credit card practices."




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                                January Term, 1994




       {¶ 9} The Act was designed as a consumer protection statute aimed at
permitting informed choices and guarding against divergent and possibly
fraudulent practices. King, supra, 784 F.2d at 915. Its provisions are remedial in
nature and should be liberally construed. 

Jones, supra,

747 F.2d at 1040

. As stated
by the Sixth Circuit: "*** Only if Congress clearly manifests its intent to limit the
federal court's jurisdiction will it be precluded from addressing allegations of
fraudulent concealment which by their very nature, and if true, serve to make
compliance with the limitations period imposed by Congress an impossibility." 

Id. at 1041

.
       {¶ 10} Therefore, we conclude that in the case before us, the statute of
limitations began to run at the time the mortgages were executed. However, the
time within which appellants are required to bring an action against the bank may
be tolled until they discovered or had reasonable opportunity to discover the alleged
fraud or nondisclosures that formed the basis for their Truth in Lending action. This
determination necessarily involves questions of fact that preclude summary
judgment. On remand, the trial court should determine when the appellants could
reasonably have discovered the divergent terms of the mortgage, note and
disclosure forms, and whether they filed this action within one year from that date.
       {¶ 11} As to appellants' common-law claims, we are likewise persuaded
that summary judgment was inappropriate. The record is contradictory as to what
was disclosed to whom. On one document, the 365/360 method is disclosed; on
another it is not. Summary judgment may not be granted when reasonable minds
could come to differing conclusions. Civ.R. 56(C). Whether the method of interest
calculation and the incomplete amortization of the loan within the stated term were
disclosed is a question of fact.             Whether these items amounted to
misrepresentations, fraudulent conduct, or merely harmless mistakes, is also an
issue best left to the finder of fact, thereby precluding summary judgment.




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          {¶ 12} For the foregoing reasons, the judgment of the court of appeals is
reversed, and this matter is remanded to the trial court for further proceedings
consistent with this opinion.
                                                                   Judgment reversed
                                                                 and cause remanded.
          A.W. SWEENEY, DOUGLAS, WRIGHT, RESNICK, WOLFF and PFEIFER, JJ.,
concur.
          WILLIAM H. WOLFF, JR., J., of the Second Appellate District, sitting for F.E.
SWEENEY, J.
                                 __________________




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