## Facts

- Inez Gallegos purchased a 1969 Dodge pickup truck from Mel Stokes, the manager of an auto-sales business in Albuquerque, New Mexico (doing business as Big “A” Auto Parts and Hopper Motor Company).
- The cash price was $1,395. Gallegos made a down payment by trading in a 1965 Chevrolet station wagon (valued at $150) and turning over jewelry (valued at $200), leaving $1,045 to be financed.
- A $45 charge for license, certificate of title, and registration was handled separately and was not included in the stated cash price.
- Stokes prepared the security agreement and related papers, providing for 24 monthly payments of $59.46 beginning September 5, 1975, and stating an APR of 27.40% and a total finance charge of $321.56.
- Gallegos testified she bought the truck primarily as her transportation and to carry her family and possessions; she also mentioned a hope to make money selling fresh produce, though she had no existing business at the time.
- Gallegos missed the first installment. The truck was repossessed; her down payment was not returned; and no deficiency judgment was sought.
- Gallegos sued alleging violations of the Truth in Lending Act (TILA) and Regulation Z, along with state-law claims. The district court entered judgment for Gallegos on the TILA disclosure violations and awarded statutory damages of $643.12, attorney’s fees of $300, and costs.
- The district court found the disclosure figures were wrong and that the correct total finance charge and APR should have been $292.60 and 24.93%, respectively.
- Stokes appealed, challenging only the TILA portions of the judgment.

## Issues

1. Whether Stokes could argue on appeal that the transaction was “commercial” and therefore outside TILA, even though the point was not clearly pleaded as an affirmative defense.
2. Whether the truck purchase was primarily for personal, family, or household purposes (covered by TILA) or primarily for business/commercial purposes (exempt).
3. Whether Stokes avoided TILA liability under the “unintentional and good faith error” defense by showing the violation occurred despite procedures reasonably designed to prevent such errors.

## Decision

- The Tenth Circuit affirmed the district court’s judgment for Gallegos.
- The court held the “commercial use” contention was properly considered because the issue was tried by implied consent when evidence on purpose and use was introduced without objection (Fed. R. Civ. P. 15(b)).
- The court upheld the finding that the transaction was a consumer credit transaction covered by TILA, and that the contrary claim failed under clear-error review of the trial court’s factual findings.
- The court held Stokes could not invoke TILA’s good-faith/unintentional-error defense because he did not show a checking method or other preventative process; he calculated the figures once and did not recompute or review them.
- The statutory damages, attorney’s fees, and costs awarded by the district court remained in place.

## Legal Principles

- TILA applies to consumer credit transactions—credit primarily for personal, family, or household purposes—and does not apply to credit primarily for business or commercial purposes.
- Whether a transaction is primarily consumer or commercial is a fact question; appellate review of the trial court’s finding is for clear error.
- A creditor’s use of TILA disclosure forms and attempt to comply may support the view that the creditor treated the deal as consumer credit, though the controlling question remains the transaction’s primary purpose.
- A materially incorrect disclosure of required credit terms (including finance charge and APR) triggers civil liability under 15 U.S.C. § 1640.
- Under 15 U.S.C. § 1640(c), a creditor avoids liability for an unintentional error only by proving both good faith and that the violation occurred despite procedures reasonably designed to avoid such mistakes; a one-time calculation with no review or internal check is insufficient.
- Under Fed. R. Civ. P. 15(b), an unpleaded issue may be treated as part of the case if it is tried by the parties’ implied consent.

## Conclusion

The Tenth Circuit affirmed TILA liability arising from misstated finance charge and APR disclosures in Gallegos’s truck installment purchase, holding the trial court properly treated the sale as primarily for personal and household purposes and rejecting Stokes’s good-faith error defense because he lacked a meaningful review or checking process to prevent disclosure mistakes.


Gallegos v. Stokes, 593 F.2d 372 (1979)