BNO Leasing Corp. v. Hollins & Hollins, Inc.

• Decision Date: 13 March 1984
• Docket Number: No. 83,83
• Citation: 448 So.2d 1329
• Court: Court of Appeal of Louisiana — District of US
• Parties: BNO LEASING CORPORATION v. HOLLINS & HOLLINS, INC. et al. CA 646.

Page 1329

448 So.2d 1329

BNO LEASING CORPORATION v. HOLLINS & HOLLINS, INC. et al.

No. 83 CA 646.

Court of Appeal of Louisiana, Fifth Circuit.

March 13, 1984.

Writ Denied May 25, 1984.

Rodney J. Madere, Metairie, for plaintiff-appellant.

Paul C. Richard, Jr., Norco, for defendant-appellee.

Before KLIEBERT, BOWES and GRISBAUM, JJ.

KLIEBERT, Judge.

This is a devolutive appeal by BNO Leasing Corporation, plaintiff, from a judgment dismissing its suit for "termination payments" under an alleged lease of equipment entered into with Hollins and Hollins, Inc., defendant corporation, and Percy Hollins, individually, as continuing guarantor. The trial judge concluded Percy Hollins believed he was executing a "straight lease" agreement rather than one providing for "termination payments" and hence declared the agreement unenforceable for lack of consent. On appeal, plaintiff contends the trial judge erred in reaching this conclusion. Although not for the same reasons stated by the trial judge, we affirm his decision to dismiss plaintiff's claim.

Percy Hollins was a stockholder and president of the corporate defendant. He made inquiries at Orleans Coastal Equipment (hereafter supplier) relative to acquiring certain equipment and was referred by them to BNO. The defendant corporation and BNO then entered into an agreement, prepared and confected by BNO, dated October 26, 1981, referred to as a "lease", relative to a (1) John Deere 450 Dozer, (2) Worthington 165 Air Compressor, and (3) John Deere Model 350 Dozer Wide Track. Under the agreement, BNO is said to have acquired from supplier the enumerated equipment for $49,130.00 plus $2,766.02 sales tax or a total of $51,896.02. Title to the equipment remained in BNO but defendant corporation had possession and use of the equipment and was obligated to pay to BNO thirty-six monthly installments of $1,909.52 or a total of $68,742.72 and "a termination value" in the event of default or at the expiration date of the lease. The agreement contains many other provisions which are extremely difficult to read or comprehend because printed on the front and back of extremely thin and transparent paper.

Under date of October 22, 1981 (four days before the date of the above described agreement) Percy Hollins individually executed an instrument referred to as a "Continuing Guaranty" which provided that in consideration of plaintiff entering into the agreement with the defendant corporation he was giving to plaintiff his continuing guaranty to the principal amount of $51,896.02 plus interest, attorney fees, costs, etc., which might be incurred by the plaintiff.

After having made payments under the agreement over an eight month period, totalling $11,457.12, BNO contended the defendant corporation was in default for failure to timely make two of the installment payments. Thereafter, BNO requested and defendant corporation made no objection to BNO taking possession of the equipment. At BNO's request, at the time it took possession of the equipment the sales manager for Orleans Coastal Equipment (the original supplier) appraised the equipment at $34,000.00. Thereafter, BNO effected private sales of the equipment and received a total of $28,000.00 for same.

In August 1982, plaintiff brought suit against defendant corporation and Percy Hollins individually, as the continuing guarantor, for $12,708.92 plus 1 1/2% monthly interest and 25% attorney fees. Originally, the defendants filed a general denial. Subsequently, the answer was amended to assert a lack of consent due to a misunderstanding as to the provisions of the agreement.

In his reasons for judgment, the trial judge accepted Percy Hollins' testimony that he believed he had entered into a "straight lease" (one in which he merely paid a monthly rental for the use of the equipment) rather than one in which the plaintiff could recover a "deficiency" in the event of a default. Although we also accept the testimony, we believe the trial judge erred in his ruling because Hollins testified he never read the agreement before signing it. Under the law, Hollins was not compelled to read the agreement, but since he chose not to exercise the right to read the agreement, he cannot now complain about a misunderstanding because the law holds him to the agreement the same as though he exercised his right to read it. Tweedel v. Brasseaux, 433 So.2d 133 (La.1983). Nevertheless, for the reasons which follow, we believe the trial court properly dismissed the plaintiff's claim.

Although the lease is structured with legally charged language of a lease, it does have the characteristic of a sale and a lease. Further, readily apparent, on a mere reading of the agreement, is that the design purpose of the agreement was to structure something other than the usual seller, buyer, financier relationship between the supplier, the defendant corporation, Percy Hollins and BNO in order to avoid prohibited or restricted provisions of consumer protection legislation involving the usual seller, buyer, financier relationship created by a sale and mortgage. Past efforts to structure such an agreement have on many occasions been struck down by our courts where the agreement, regardless of the terms used to confect it, was a prohibited common law conditional sale, Barber Asphalt Paving Co. v. St. Louis Cypress Co., 121 La. 152, 46 So. 193 (1908), or an effort to collect future rentals even though the lease was terminated and possession of the property returned to the lessor, 327 Bourbon Street, Inc. v. Pepe, Incorporated, 257 La. 577, 243 So.2d 262 (1971) or a creditor's effort to collect a deficiency resulting from a private, rather than a judicial, sale in violation of the Deficiency Judgment Act. LSA-R.S. 13:4106, 4107.

In concluding that the particular agreement at issue in Pastorek v. Lanier Systems Company, 249 So.2d 224 (4th Cir.1971), though couched in terms of a lease, was a prohibited conditional sale, Judge (now Justice) Lemmon said at page 226:

"... While these parties have attempted to structure their relationships in particular ways, by designating roles through the use of legally charged language, we are bound to find the relationships as they exist and not simply as they have been described. Words will have import and can be binding only when they describe relationships which actually exist, but not when they are merely labels which are used to alter or disguise actual relationships. This does not conflict with, but actually supports, the principle that agreements legally entered into have the effect of law on those who form them, the question here being what agreements actually were entered into." Article 1901-CC

Thus, the relationship of the parties as they legally exist rather than that designated by the legally charged language in the agreement are to be applied in deciding whether BNO is entitled to the payment sought under the following termination provisions of the agreement:

29. DEFAULT BY LESSEE: If any one of the following events (each of which is called an "Event of Default") shall occur: (a) Lessee shall default in payment of any rental or other payment required hereunder when due and such default shall continue for 10 days; or (b) Lessee shall default in the payment when due of any indebtedness of Lessee to Lessor arising independently of this Lease and such default shall continue for 10 days; or (c) Lessee shall breach any warranty hereunder; or (d) Lessee shall default in the performance of any other agreement hereunder and such default shall continue for 10 days after written notice thereof to Lessee by Lessor; or (e) Lessee shall become insolvent or make an assignment for the benefit of creditors; or (f) Lessee shall apply for or consent to the appointment of a receiver, trustee, conservator or liquidator of Lessee or of all or a substantial part of its assets, or such receiver, trustee, conservator or liquidator shall be appointed without the application or consent of Lessee; or (g) any petition is filed by or against Lessee under the Bankruptcy Act, as amended, or under any other insolvency law provided for relief of debtors; then immediately and to the extent permitted by law Lessor shall have the right to exercise any one or more of the remedies hereinafter provided.

30. REMEDIES: If an Event of Default shall occur and be continuing, Lessor may give Lessee notice in writing that this Lease is in default and:

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b. Terminate this Lease forthwith (whereupon Lessee's right to use the Equipment shall absolutely cease, but Lessee shall remain liable as hereinafter provided and cause Lessee at its expense promptly to return the Equipment to the possession of Lessor at Lessor's current address, or Lessor may enter upon the premises where any or all items of the Equipment are located and take immediate possession of and remove the same by summary proceedings or otherwise, and thereafter hold, possess, and enjoy the same free from any right of Lessee, its successors or assigns. Lessee shall, without further demand, forthwith pay to Lessor an amount equal to unpaid rent due and payable for periods up to and including the rental period during which Lessor has declared this Lease to be in default, plus, as liquidated damages for loss of a bargain and not as a penalty, an amount equal to the Termination Value of the Equipment as calculated pursuant to the Table attached hereto as of the period during which...