Brokers Leasing Corp. v. Standard Pipeline Coating Co.
| Citation | 602 S.W.2d 278 |
| Decision Date | 14 April 1980 |
| Docket Number | No. 20150,20150 |
| Parties | BROKERS LEASING CORPORATION, Appellant, v. STANDARD PIPELINE COATING COMPANY, Appellee. |
| Court | Court of Appeals of Texas. Court of Civil Appeals of Texas |
Eben D. Warner, III, Odessa, for appellant.
Daniel J. Sheehan, Jr., Dallas, for appellee.
Before AKIN, ROBERTSON and HUMPHREYS, JJ.
Brokers Leasing Corporation appeals from a judgment awarding Standard Pipeline Coating Company, appellee, $5,000 attorney's fees and $19,059.04 as a penalty for charging usurious interest. Brokers argues that the court erred in finding that $9,529.52 was charged as interest and that there was an intent to charge interest. The primary issue is whether the contract between the parties was a conditional sales contract or a lease. We hold that the agreement was a lease and therefore the contract cannot be usurious. Accordingly, we reverse and render.
Brokers entered into an agreement with Standard in 1975 for the lease of two air compressors. The contract charges monthly rental payments of $567.87, an initial payment of $1,135.74, (the first and last month rental payments) and a $27.04 tax. This $567.87 monthly payment is broken down in the Lease Order, which was admitted into evidence. These figures are:
Price of Vehicle $23,000
Leasing Charge $ 1,000
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Total $24,000
Termination
Value $ 2,234.94
Monthly Depreciation Reserve $371.08
Monthly Interest Charge $128.92
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Monthly Leasing Charge $ 40.83
Sales Tax $ 27.04
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Total Monthly Payment $567.87
After Standard defaulted in its payments, Brokers sued for the unpaid balance due of $23,850.54, plus attorney's fees. Standard counterclaimed for twice the amount of interest contracted for and reasonable attorney's fees under Tex.Rev.Civ.Stat.Ann. art 5069-1.06 (Vernon 1971), 1 alleging that the lease is really a conditional sales contract. Judgment was for Standard against Brokers for the penalty and that Brokers take nothing with respect to its suit against Standard on the lease.
The first question presented is whether the purported lease is actually a sales agreement which is subject to the usury law. Standard contends that several provisions of the contract reveal the true nature Standard relies on several cases which address the question of whether a contract is in reality a lease. Two Texas cases are Tom Benson Chevway Rental & Leasing Inc. v. Allen, 571 S.W.2d 346 (Tex.Civ.App. El Paso 1978, writ ref'd n. r. e.), cert. denied, 442 U.S. 930, 99 S.Ct. 2861, 61 L.Ed.2d 298 (1979); Davis Brothers v. Misco Leasing, Inc., 508 S.W.2d 908 (Tex.Civ.App. Amarillo 1974, no writ). Although neither case concerned usury, one addressed the contention that an agreement designated as a lease was really a credit sale under the Truth-in-Lending Act, 15 U.S.C. §§ 1601-1681t (1970) and the other addressed the question of whether a security interest was created under the Uniform Commercial Code. The court in Allen was concerned with the definition of a credit sale in the Truth in Lending Regulations, 12 C.F.R. § 226.2 (1978). It found the agreement to be a credit sale because the "lessee" had the option of becoming the owner of a car at the end of the term of the agreement for only $1.00 and the contract provided for payments for use of the car in a sum equal to or greater than the value of the car. In Davis Brothers the court was concerned with the definition of "security interest" in Tex.Bus. & Com.Code § 1.201(37) (Tex.UCC) (Vernon 1968). The court considered the amount of the rentals and the amount of the option price to determine whether a lease was actually a secured transaction in which a party may have a security interest in the leased property. These two cases are not controlling here because they do not concern the question of whether a contract which purports to be a lease is actually a conditional sale subject to the usury laws. They do reveal, however, the importance of a lessee's option to purchase the leased property at the end of the term in determining whether a contract is a lease.
of the transaction to be a sale. In support of this contention, it argues that the lessee bears the risk of loss for destruction of the equipment, pays all the taxes on the equipment, is to indemnify the lessor for any injury to person or property caused by the equipment, and is to keep insurance to fulfill its obligations. The lessor makes no warranties, and the lease is irrevocable for its full term. Moreover, the contract gives the lessee the option to purchase the equipment at any time for a fair and equitable purchase price, or at the end of the term for $2,234.94, which the parties agree to be "the fair market value of the equipment at the end of contract."
Two other Texas cases have passed upon the usury question and are authority to hold that the contract here is a lease. In Southwest Park Outpatient Surgery Ltd. v. Chandler Leasing Division, 572 S.W.2d 53, 55 (Tex.Civ.App. Houston (1st Dist.) 1978, no writ) the court answered in the negative that lessee's claim that a contract to lease equipment was actually a conditional sale and therefore usurious. The court determined that although the contract did contain an option to purchase the equipment at the end of the lease term, the lessee was not obligated to purchase the equipment and the monthly installments were not applied against the sale price. The court also relied on the fact that the option to purchase was for the fair market value of the property.
The Houston court cites Security Life Insurance Co. v. Executive Car Leasing Co., 433 S.W.2d 915, 917-918 (Tex.Civ.App. Texarkana 1968, writ ref'd n. r. e.),...
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