Commercial Credit Equipment Corp. v. Parsons

• Decision Date: 03 December 1991
• Docket Number: Nos. WD,s. WD
• Citation: 820 S.W.2d 315,17 U.C.C.Rep.Serv.2d 307
• Parties: 17 UCC Rep.Serv.2d 307 COMMERCIAL CREDIT EQUIPMENT CORPORATION, Respondent-Appellant, v. Paul PARSONS, Appellant-Respondent. COMMERCIAL CREDIT EQUIPMENT CORPORATION, Appellant, v. Paul PARSONS, Respondent. 43850, WD 43902.
• Court: Missouri Court of Appeals

Page 315

820 S.W.2d 315

17 UCC Rep.Serv.2d 307

COMMERCIAL CREDIT EQUIPMENT CORPORATION, Respondent-Appellant, v. Paul PARSONS, Appellant-Respondent.

COMMERCIAL CREDIT EQUIPMENT CORPORATION, Appellant, v. Paul PARSONS, Respondent.

Nos. WD 43850, WD 43902.

Missouri Court of Appeals Western District.

Dec. 3, 1991.

Harold W. Fraser, Edina, for Paul Parsons.

Paul Rick Jackson, Kirksville, for Commercial Credit Equipment Corp.

Before SHANGLER, P.J., and LOWENSTEIN and BERREY, JJ.

SHANGLER, Presiding Judge.

The plaintiff Commercial Credit Equipment Corporation [CCEC] sued the defendant Paul Parsons for a deficiency after repossession and sale of the collateral under a lease agreement. The defendant pleaded that the disposition was not in a manner commercially reasonable, and counterclaimed for damages. The court found there was a deficiency and awarded the plaintiff CCEC the sum of $18,944.37 and interest as a separate judgment. The court found also that the disposition of the collateral by CCEC was not in a commercially reasonable manner, and awarded the defendant Parsons $10,000 damages as a separate judgment.

The plaintiff and defendant cross-appeal.

The judgment was accompanied by an opinion expressed as findings of fact and conclusions of law. The evidence found by the court, and otherwise compatible with its findings, was that in 1980 defendant Parsons, a row-crop farmer, purchased a 1975 Steiger Tiger II tractor. The transaction was financed through the Allis Chalmers Credit Corporation. Parsons became unable to meet the payments on the tractor, and in October of 1982 he arranged refinancing through the CCEC. The plaintiff CCEC purchased the tractor for $33,000, discharged the Parsons debt of $25,116.11 CCEC arranged with Selby Implement Company to recover the tractor from the Parsons farm for storage until the sale. Selby furnished CCEC with a condition report on May 13, 1985, to help establish a sale price. CCEC then advertised the tractor for sale in Farmers Hot Line for two consecutive weeks. CCEC also sent bid letters to sixteen area farm equipment dealers. CCEC mailed a copy of the list to Parsons and a certification that letters of invitation to bid on the tractor were mailed on June 7, 1985, to the listed dealers. Two bids were returned, one from Selby for $5100, and the other from Mid-South Tractor for $6600. The tractor was sold to Mid-South for $6600 on September 18, 1985. CCEC notified Parsons of the sale and that after the sales proceeds, less expenses, were applied to the delinquent account, a deficiency of $18,791.37 remained.

on the tractor to Allis Chalmers and paid the balance of the purchase price directly to Parsons. Parsons then signed an agreement with CCEC to lease the tractor for five years for annual payments of $9,195.12 per year. The 1982 and 1983 payments were made. No further payments were made except for a $322 fee to extend the due date of the 1984 payment for three months, from November 26, 1984, to February 26, 1985. Parsons did not remit by February 26, 1985, or at any time thereafter. CCEC thereafter notified Parsons by letter that the account was past due from February 26, 1985, and in default of payment, CCEC would act under the lease agreement. CCEC repossessed the tractor on May 8, 1985, and on that day sent Parsons a written Notice of Sale of the collateral at private sale on or after May 24, 1985. Parsons received the notice on May 13, 1985, but did not respond.

On April 29, 1985, before the tractor was repossessed by CCEC, Parsons purchased another Steiger Tiger II tractor, very similar to the one under the lease with CCEC. The purchase was from Selby Implement Co., the dealer that was storing the tractor repossessed by CCEC. The purchase price was $21,000. Parsons paid $5000 down and financed the balance.

The trial court found that the tractor was in field-ready condition when CCEC repossessed the implement from the Parsons farm. The court found also that while in possession of its agent, Selby, the windshield and back glass of the tractor were destroyed. This damage was not repaired prior to the private sale. The court found that the $6600 bid CCEC accepted for the sale of the tractor was its salvage or junk value. It accepted as fact the evidence of Parsons' expert that the tractor had a fair market value of $27,000 at the time it was repossessed. The court noted that in 1981 Parsons had installed a nearly new engine in the tractor at a cost of $8000. The engine was capable of 10,000 hours of service and only 3220 hours had been used. The court noted also that the tractor Parsons had purchased from Selby for $21,500 was virtually identical to the tractor repossessed and sold by CCEC for $6600. That tractor, purchased from Selby to replace the tractor repossessed by CCEC was sold five years later, in the spring of 1990, for $18,000.

The court applied § 400.9-504, RSMo Supp.1991, of the Uniform Commercial Code to the transaction and determined that CCEC failed to dispose of the tractor in a commercially reasonable manner. The court nevertheless awarded CCEC a judgment of $18,944.37 for the deficiency, and to Parsons a separate judgment of $10,000 as damages.

I APPEAL OF PLAINTIFF CCEC

CCEC argues on appeal that the transaction with Parsons was a true lease and not a security agreement, so that Article 9 of the Uniform Commercial Code does not apply. CCEC argues that even if Article 9 applies to the transaction, the finding that the resale of the tractor was not conducted in a commercially reasonable manner was against the weight of the evidence and erroneous. CCEC argues also that the counterclaim was not proven, and so the $10,000 judgment for Parsons may not stand.

A True Lease or Security Agreement

Section 400.9-102(2) provides that Article 9 "applies to security interests created by contract ... and lease[s] ... intended as security." Section 400.1-201(37) defines security interest to mean

... an interest in personal property or fixtures which secures payment or performance of an obligation.... Unless a lease or consignment is intended as security, reservation of title thereunder is not a "security interest" but a consignment is in any event subject to the provisions on consignment sales (section 400.2-326.) Whether a lease is intended as security is to be determined by the facts of each case; however, (a) the inclusion of an option to purchase does not of itself make the lease one intended for security, and (b) an agreement that upon compliance with the terms of the lease the lessee shall become or has the option to become the owner of the property for no additional consideration or for a nominal consideration does make the lease one intended for security.

To sustain the argument that the transaction with Parsons was a true lease not subject to Article 9, CCEC cites elements of the writing that reserve "title at all times in CCEC," declare the agreement is intended to be a lease, and that "the relationship between CCEC and [Parsons] shall always and only be that of lessor and lessee." By the very definition of § 400.1-201(37), however, the retention of title by the lessor in a lease intended as security is not a true lease, but comes within the operation of Article 9. See § 400.9-102(2). Indeed, it is the very sense of security interest definition § 400.1-201(37) that an agreement in terms of lease may hide a secured transaction, so that the bare language does not always suffice to disclose the intention of the parties. 1 R. Anderson, Anderson on the Uniform Commercial Code, § 1-201:256 (3d ed. 1981). The order of inquiry as to whether the agreement is a true lease or intended for security is implicit from § 400.1-201(37). If the agreement provides that the lessee may become the owner of the property "for no additional consideration or for nominal consideration," then, presumptively, the lease is intended for security. If not, then, whether the lease is intended for security, is to be determined "by the facts of each case." Peco, Inc. v. Hartbauer Tool & Die Co., 262 Or. 573, 500 P.2d 708, 709 (Or. banc 1972); See also Lendal Leasing v. Farmer's Wayside Stores, 720 S.W.2d 376, 379 (Mo.App.1986). The lease between CCEC and Parsons contains neither an option to purchase nor an agreement that the lessee may become the owner of the tractor upon compliance with the terms of the lease. There is nothing express in the lease, therefore, that constitutes the agreement as one intended for security. Accordingly, the direction of § 400.1-201(37) governs: "Whether [the] lease is intended as security is to be determined by the facts in each case." Davis Bros. v. Misco Leasing, Inc., 508 S.W.2d 908, 911 (Tex.Cir.App.1974).

In such instances, the true character and intention of the agreement is determined not from random phrases or formal designations--such as "lease," "lessor," "lessee," but from the economic reality of the agreement, whatever the disguise of the terminology. Clune Equip. Leasing Corp. v. Spangler, 615 S.W.2d 106, 107-08[1-3] (Mo.App.1981). In that determination of ambiguity, parol evidence may be used to show that the garb of lease notwithstanding, the transaction was intended as security. Colonial Leasing Co. v. Larsen Bros. Constr. Co., 731 P.2d 483, 487[9, 10] (Utah 1986). See also Lendal Leasing, Ltd. v. Farmer's Wayside Stores, 720 S.W.2d at 379. And, indeed, Parsons' oral testimony as to what the signatories intended by the terms of agreement was received, but without probative effect. His evidence, that he was "led to believe" that at the end of the five year term he could purchase the tractor "if the price was acceptable"--but with "no idea" whether it would be for "some sort of scrap value or fair market value"--was simply inconclusive for inference of either lease or sale.

There are regular factors that bear on whether the terms of an agreement are meant as a true lease or for security. Among them are that (1) the lessee...