Allen v. Cohen
| Decision Date | 14 November 1962 |
| Docket Number | No. 10,Docket 27455.,10 |
| Citation | 310 F.2d 312 |
| Parties | Robert ALLEN and Helen Allen, Appellants, v. Ronald S. COHEN, Trustee in Bankruptcy of Melvin F. Cady, Appellee. |
| Court | U.S. Court of Appeals — Second Circuit |
George E. Burns, Buffalo, N. Y., for appellants Robert Allen and Helen Allen.
Sanford Silverberg, Buffalo, N. Y., for Ronald S. Cohen, trustee.
Before LUMBARD, Chief Judge, and FRIENDLY and KAUFMAN, Circuit Judges.
The Allens, appellants herein, operate a trailer court in the town of Boston, New York. Cady signed an agreement with them with respect to an "Elcona" trailer, in which he and his family thereafter lived in the court. After Cady became bankrupt, his trustee sought authority to sell the trailer free of any claims by the Allens. The trustee contended that the agreement constituted a conditional sale within § 61 of the New York Personal Property Law, McKinney's Consol.Laws, c. 41 and that since it was not filed as § 65 of that Law requires, the Allens' reservation of property was void as against an attaching creditor, as therein provided, and hence, by virtue of § 70, sub. c. of the Bankruptcy Act, as against the trustee. The Referee upheld this contention, and was in turn upheld by the District Court for the Western District of New York. We take a different view.
Section 61 of the New York Personal Property Law provides:
"`Conditional sale\' means (1) any contract for the sale of goods under which possession is delivered to the buyer and the property in the goods is to vest in the buyer at a subsequent time upon the payment of part or all of the price, or upon the performance of any other condition or the happening of any contingency; or (2) any contract for the bailment or leasing of goods by which the bailee or lessee contracts to pay as compensation a sum substantially equivalent to the value of the goods, and by which it is agreed that the bailee or lessee is bound to become, or has the option of becoming the owner of such goods upon full compliance with the terms of the contract."
The agreement here at issue was drawn up by the Allens on the standard lease form of the Buffalo Real Estate Board. It contains provisions usual in leases, although the language is not altogether consistent, the word "rent" being crossed out at one place and "payment" inserted, and Cady being designated as "purchaser" in one provision typed into the agreement though as "tenant" in others. The lease was for "the term of 24 Months (Only) to commence on the 21st day of November 1959, and to end on the 21st day of November, 1961, at eight o'clock in the forenoon." The rental or "payment" was to be $32.00 weekly. The instrument stated the demised premises to be: "House Trailer — Model 1959-2 bedroom Serial No. 608 Make Elcona 50/10 ft.", and then continued:
"Cash Price plus overall
charges, such as
rent, finance, insurence
and etc. ...................... $5800.00
_________
Payment for option
priviledges shall be .......... $ 250.00
_________
The downpayment of
said trailer shall be ......... $1934.00
_________
The weekly payment
shall be ...................... $ 32.00
_________
Applied toward the
downpayment per week
shall be ...................... $ 17.00
_________
Held as overall charges
per week, such as lot
rent finance insurence ........ $ 15.00"
__________
Another typed-in clause, under the heading "Option Agreement", said nothing about an option but provided that "The tenant must provide the owner of said trailer with 4 weeks notice of his intention to vacate same and all keys to the trailer must be turned into the office of The Allen Trailer Park and there will be no refund of money of any discription." Appended to the lease and cross-referenced to it was a paper entitled "Option Agreement Between The Allen Trailer Home Sales and Purchaser." This conferred on Cady an option to purchase the trailer "by adding enough to the initial deposit to make up the down payment (or to pay the trailer off in full) and in addition by satisfying the bank agreed upon by the parties hereto, that his credit standing is good enough that the said bank will finance the trailer and in addition by signing the conditional sales contract as offered by the bank."
Until August 1960 Cady made the weekly payments of $32; he had been previously credited with the $250 for "option priviledges". In addition the Allens collected 32¢ a week for Erie County sales tax, with which, they say, Cady was to be credited if he exercised his option. They have now returned this.
The sole question is whether the agreement comes within the definition of conditional sale in § 61 of N.Y.Personal Property Law, quoted above, which is a verbatim enactment of § 1 of the Uniform Conditional Sales Act. Since the agreement calls itself a lease, the first inquiry is whether it meets the test as to leases laid down by § 61(2). On its face it does not. Section 61(2) requires that the lessee contract "to pay as compensation a sum substantially equivalent to the value of the goods".1 Admittedly the "value of the goods" was $5800. The Allens say that Cady contracted to pay only $378, viz., the $250 for "option priviledges" and the $32 for four weeks that would be required once he gave notice of intention to vacate. If we were to think otherwise and read the lease as obligating Cady to pay the rent for the balance of the term less any avails obtained by the Allens after repossession, this obligation was at most for "the term of 24 Months (Only) * * *," and the maximum payments to which Cady was committed on any view would thus be some $3578. Even though this entire sum were deemed "compensation" for the leasing of the trailer,2 it would be only 62% of "the value of the goods." This was surely not "a sum substantially equivalent" to $5800, and the referee's unexplained finding to the contrary was clearly erroneous.
It has been uniformly held elsewhere, in accordance with the plain language of the statute, that a lease with an option to purchase is not within the Uniform Conditional Sales Act where, as here, the aggregate payments required of the lessee are not substantially equivalent to the purchase price. Automatic Voting Machine Corp. v. Maricopa County, 50 Ariz. 211, 70 P.2d 447, 116 A.L.R. 320 (1937); Oberan v. Western Machinery Co., 65 Ariz., 103, 174 P.2d 745 (1946); Western Material Co. v. Deltener, 64 S.D. 62, 264 N.W. 207 (1935). See also Breece Veneer & Panel Co. v. C. I. R., 232 F.2d 319 (7 Cir., 1956). Similarly, a bankruptcy court applying New York law has held an agreement with a purchase option to fall outside § 61 for the reason that the total required payments "would be about 53% below the List Price", so that the case was unlike those "in which it was demonstrated that an agreement called a lease was actually a conditional sales contract, for the reason that the total of all so-called rental payments equalled the selling price * * *" In re Tompkins Bus Corp., 22 F.Supp. 322, 324 (E.D.N.Y.1938). The leading New York case under § 61, New York World-Telegram Corp. v. McGoldrick, 298 N.Y. 11, 21, 23, 80 N.E.2d 61, 65, 66 (1948), concerned an agreement where, as the majority found, "the tenant became obligated to pay for the entire cost of the personal property within ten years and well within the first term of the lease". In holding that this came within the statute, Judge Thacher relied on the fact that "before the termination of the lease * * * the entire option price * * * would have necessarily been paid, and the lessee, within the definition of a conditional sale, would have had the option to become the owner without further payments." Accord, United States v. Voges, 125 F.Supp. 916 (E.D.N.Y.1959). And Judge Fuld's dissent stated that "a lease of personalty containing an option to purchase is not treated as a conditional sale if the price largely exceeds the aggregate rentals payable thereunder," and took issue only with the majority's factual conclusion that the lessee was actually obliged to make payments large enough to pay the entire purchase price during the term of the lease. 298 N.Y. at 25-26, 80 N.E.2d at 67-68.
The Referee cited and relied on American Can Co. v. United States Canning Corp., 12 Misc.2d 750, 170 N.Y.S.2d 727 (1958), which held § 61(2) to comprehend a lease renewable annually by the Lessee, with a purchase option whereby past rentals would be credited against the purchase price, although the rentals would not be "substantially equivalent to the value of the goods" unless the lessee twice exercised its right of renewal.3 But that decision was reversed by the Appellate Term on grounds that made it unnecessary for the reviewing court to consider the correctness of this holding. 15 Misc.2d 549, 180 N.Y.S.2d 983 (1958), aff'd without opinion, 9 A.D.2d 746, 193 N.Y.S.2d 986 (1959). Federal courts have not been reduced to such stultification in applying state law that, in determining how New York would construe one of the Uniform Acts, they must shut their eyes to the language of the statute, its construction by appellate courts of other states, and relevant statements by the New York Court of Appeals, and adopt a contrary interpretation because of such a decision by a Municipal Court judge. See West v. American Tel. & Tel. Co., 311 U.S. 223, 237, 61 S.Ct. 179, 85 L.Ed. 139 (1940); ...
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