Crest Inv. Trust, Inc. v. Atlantic Mobile Corp.

• Decision Date: 05 February 1969
• Docket Number: No. 88,88
• Citation: 250 A.2d 246,252 Md. 286
• Parties: , 6 UCC Rep.Serv. 206 CREST INVESTMENT TRUST, INC. v. The ATLANTIC MOBILE CORPORATION.
• Court: Maryland Court of Appeals

Page 286

252 Md. 286

250 A.2d 246, 6 UCC Rep.Serv. 206

CREST INVESTMENT TRUST, INC. v. The ATLANTIC MOBILE CORPORATION.

No. 88.

Court of Appeals of Maryland.

Feb. 5, 1969.

Sidney Kaplan, Baltimore, for appellant.

Charles L. Shuman, Baltimore (John G. Noppinger, on the brief), Baltimore, for appellee.

Before HAMMOND, C. J., and McWILLIAMS, FINAN, SINGLEY and SMITH, JJ.

HAMMOND, Chief Judge.

Atlantic Mobile Corporation, which sells and leases trailers throughout the County, and Crest Investment Trust, Inc., which lends money, are each claiming the same office trailer. Atlantic on March 12, 1964, entrusted the trailer to Pinedale Construction Co. under a written lease agreement, containing an option to purchase, which was never recorded or filed, and Pinedale on April 29, 1964, borrowed money from Crest, giving it a security agreement which listed as part collateral the trailer in question. On May 1, Crest duly filed a financing statement covering inter alia 'new or used * * * trailers or semitrailers of all makes and models.' Pinedale did not meet the terms of its security agreement with Crest, and Atlantic repossessed the trailer. Crest sued Atlantic in the Circuit Court for Baltimore County for conversion of the trailer. Judge Menchine held (1) that the issue and outcome of the litigation were controlled by Code (1964 Repl.Vol.), Art. 95B (the Uniform Commercial Code), § 1-201(37), reading in applicable part as follows:

"Security interest', means 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' * * *. 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,'

and (2) that the lease agreement between Atlantic and Pinedale was a lease and not a security instrument because it required payment by Pinedale at the last time it could exercise its option of $1,960 on a $3,400 trailer and that 'this is hardly within the statutory phrase 'for no additional consideration or a nominal consideration." He gave judgment for Atlantic and we think the judgment must be affirmed.

There are relatively few cases directly in point. The pertinent law is well summarized in an opinion of a Referee in Bankruptcy of the United States District Court for the Western District of Michigan in the case of In re Alpha Creamery Co., Inc., 4 UCC Reporting Service 794, finding that a lease of a typewriter accounting machine was a true lease which did not require filing. The referee said:

'If the purchase option was exercised after the first year and just before the lease expired, the purchase price would be $4,690.00 less 70% of lease rental plus the deposit of $234.50 or a total credit of $3,208.10. The lease rental for 36 months of $118.00 per month amounted to $4,248.00. The difference between the option purchase price and the rental and deposit credit at the end of the three year term is $4,690.00 less $3,208.10 or $1,481.90, which sum is approximately 32% of the list price of $4,690.00.' (4 U.C.C.Rep.Serv. 795)

He then set forth the considerations and factors which determine whether a lease in form is a lease in fact or a security instrument, as these:

'1. The facts in each case control to show intention of the parties to create a security interest.

2. Reservation of title in a lease or option to purchase appurtenant to or included in the lease does not in and of itself make the lease a security agreement.

3. Lease agreement which permits the lessee to become the owner at the end of the term of the lease for a nominal or for no additional consideration is deemed intended as a security agreement as a matter of law.

4. The percentage that option purchase price bears to the list price, especially if it is less than 25%, is to be considered as showing the intent of the parties to make a lease as security.

5. Where the terms of the lease and option to purchase are such that the only sensible course for the lessee at the end of the lease term is to exercise the option and become the owner of the goods, the lease was intended to create a security interest.

6. The character of a transaction as a true lease is indicated by:

(a) Provision specifying purchase option price which is approximately the market value at the time of the exercise of the option.

(b) Rental charges indicating an intention to compensate lessor for loss of value over the term of the lease due to aging, wear and obsolescence.

(c) Rentals which are not excessive and option purchase price which is not too low.

(d) Facts showing that the lessee is acquiring no equity in leased article during the term of lease.'

The conclusion of the referee was:

'In this case the option price was more than nominal, the lessee acquired no equity during the lease term, the option purchase price at the termination of the lease term was approximately an additional 32% of the list price indicating that the parties did not intend that the lease with option to purchase created a security interest in the personal property described in the lease.

'The lease with option to...