In re McDaniel, Bankruptcy No. 590-50005-11.
| Decision Date | 22 May 1991 |
| Docket Number | Bankruptcy No. 590-50005-11. |
| Parties | In re Daniel D. McDANIEL and Julia Brown McDaniel d/b/a McDaniel Cattle Co., XQZ Ranch, Pacheco Ranch and McDaniel Petroleum Co., Debtors. |
| Court | U.S. Bankruptcy Court — Northern District of Texas |
Robert R. Truitt, Jr., Robert R. Truitt, Jr., P.C., Midland, Tex., for the McDaniels.
Gary Terrell, McWhorter, Cobb & Johnson, Lubbock, Tex., for Paccom.
Daniel D. McDaniel and Julia B. McDaniel (McDaniels) objected to the claim of Paccom Leasing Corporation (Paccom). The court allows Paccom's claim for $160,000.00.
On January 4, 1990 the McDaniels filed for relief under Chapter 11 of the Bankruptcy Code. The court confirmed their plan of reorganization by order entered September 4, 1990, and retained jurisdiction to determine objections to claims.
Paccom is an Oregon based equipment leasing company. Paccom's claim is based upon the McDaniels' guaranties of a lease under which Paccom leased equipment to Yoemen Enterprises of Colorado, Inc., d/b/a Quality Steaks (Quality Steaks). Quality Steaks used the equipment at its plant in Denver, Colorado. The McDaniels are Texas residents. They signed the guaranties in Texas. Mr. McDaniel was a director of Quality Steaks at the time the guaranties were signed. The "Master Equipment Lease Agreement" (Master Lease) dated August 20, 1986 concerned a Boldt column dumper with related equipment (Dumper), and other equipment. The lease was for a 72 month term at $2,443.08 per month. The McDaniels signed a personal guaranty of the lease on August 25, 1986 (Personal Guaranty). Subsequently, the parties entered into "Lease Schedule No. 1" (Schedule 1) dated October 28, 1986 which concerned a Kartridge Pack Chub Machine (Chub) and the monthly payments for that equipment. The McDaniels signed an "Addendum to Personal Guaranty" which described Schedule 1. Finally, the parties entered into "Lease Schedule No. II" (Schedule 2) dated April 13, 1987. It described additional equipment and the monthly payments for that equipment. The McDaniels signed an "Addendum to Personal Guaranty" describing Schedule 2.1
Quality Steaks defaulted on the lease and, in early May, 1989, Paccom took possession of the equipment. The Chub was sold in place on May 4, 1989 to a third party for $34,500.00. On the same date the Dumper was sold to a third party for $3,600.00. The balance of the equipment was moved to storage where it remains in spite of Paccom's attempts to sell it at private sale.
Paccom did not give the McDaniels notice of Quality Steaks' default, did not make demand upon the McDaniels to cure the default, and did not notify the McDaniels that Paccom intended to accelerate the obligation and retake possession of the equipment. The McDaniels received no prior notice of the May 4, 1989 sales. The first time the McDaniels heard of these actions was on receipt of a letter from Paccom dated June 7, 1989 entitled "Notice of Private Sale". The notice described the equipment in the Master Lease, Schedule 1, and Schedule 2 (including the Dumper and the Chub). The notice stated that the items would be sold at private sale on or about June 28, 1989. The only sales were the two made before the date of the notice.
The parties stipulated that Paccom's claim is for $257,380.00 less credits for the sale of the equipment and the fair market value of the equipment on hand. Paccom agreed to give credits for $34,500.00 (the sale price of the Chub), $3,600.00 (the sale price of the Dumper) and $59,280.00 which is Paccom's valuation of the equipment on hand, leaving a net claim of $160,000.00.
The parties agreed that the lease is a security agreement because Quality Steaks retained the right to purchase the equipment at the end of the lease for $1. The parties also agreed that the McDaniels are "debtors" as that term is used in the Uniform Commercial Code as adopted by both Texas and Oregon.
The McDaniels asserted that the Chub and the Dumper were sold for inadequate prices, that the equipment remaining has a substantially higher fair market value than Paccom's asserted value, that the equipment was in Paccom's possession for an unreasonable length of time resulting in Paccom's accepting it in cancellation of the debt, and that they have no liability to Paccom because they were not given notice prior to the May 4, 1989 sales. As authority for their position, the Debtors cited Tannenbaum v. Economics Laboratory, Inc., 628 S.W.2d 769 (Tex.1982).
Paccom asserted that under Oregon law the sale without notice to the McDaniels resulted in a presumption that the equipment was worth the amount of the debt, which presumption could be rebutted, and that Paccom rebutted that presumption thereby allowing it to recover the balance due on the lease. Paccom cited All-States Leasing Co. v. Ochs, 42 Or.App. 319, 600 P.2d 899 (1979) to support its position.
The McDaniels averred that the lease transaction should be construed in accordance with Texas law since the McDaniels are Texas residents and they signed the guaranties in Texas. Paccom argued that Oregon law applied because both the Master Lease and the Personal Guaranty provided that the laws of the State of Oregon governed potential disputes. Neither party suggested that the court apply Colorado law.
The Uniform Commercial Code (U.C.C.) was adopted in Oregon as § 71.1010 et seq. of the Oregon Revised Statutes. Or.Rev.Stat. § 71.1050 (1989) states:
When a transaction bears a reasonable relation to this state and also to another state or nation the parties may agree that the law either of this state or of such other state or nation shall govern their rights and duties.
Texas adopted the identical provision in § 1.105 of its version of the U.C.C.Tex.Bus. & Com.Code Ann. (Vernon 1968).
The Master Lease provided that its terms would be construed in accordance with Oregon law. Paccom's headquarters are in Oregon and the Master Lease was not effective until Paccom approved it at its office in Portland, Oregon. Disputes under the Master Lease (except for bankruptcy matters) were to be submitted to arbitration under Oregon law in Portland. The lease did not specify where the rental payments were to be made. Any notices under the lease were to go to Quality Steaks in Denver, Colorado, and to Paccom in Portland, Oregon.
The Personal Guaranty, subtitled "Absolute, Unconditional, and Continuing Guaranty Agreement", gave Paccom's address in Portland and called for any notices to be sent to the Debtors at P.O. Box 1138, Cameron, TX 76520. Pertinent provisions of the guaranty read:
The McDaniels focus on the Personal Guaranty and assert that it does not bear a "reasonable relation" to Oregon, pointing out that they are residents of Texas, that they signed the guaranty in Texas, and that they filed their bankruptcy case in Texas. However, the Personal Guaranty is only one part of this transaction. The McDaniels guaranteed Quality Steaks' payments and performance under the Master Lease. Thus, the court must look to both documents in order to determine whether the transaction bears a "reasonable relation" to Oregon law. After a thorough consideration of the provisions of the Master Lease described above, the court finds that Oregon law bears a "reasonable relation" to this transaction and that the choice of law provisions in the lease and guaranty should be honored. See Admiral Ins. Co. v. Brinkcraft Development, Ltd., 921 F.2d 591 (5th Cir.1991) ().
All witnesses agreed that the equipment in question was highly specialized and that there was no ready market for it. Mr. McDaniel was the only witness on valuation presented by the McDaniels. He stated that when he and "some other people" set up Quality Steaks they found that used equipment cost almost as much as new equipment. Therefore, he thought the equipment should have sold for a price somewhere near its original cost. He stated that the...
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