In re Otasco, Inc., Bankruptcy No. 88-03410-W
Citation | 111 BR 976 |
Decision Date | 27 March 1990 |
Docket Number | Bankruptcy No. 88-03410-W,Adv. No. 89-0204-W. |
Parties | In re OTASCO, INC., Debtor. WHEELS, INC., Plaintiff, v. OTASCO, INC., a Nevada corporation, Defendant. |
Court | United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Northern District of Oklahoma |
Brian J. Rayment, Joyce and Pollard, Tulsa, Okl., for plaintiff; Kevin T. Keating and James D. Harrington, McDermott, Will & Emery, Chicago, Ill., of counsel.
Sam Bratton, II, Doerner, Stuart, Saunders, Daniel & Anderson, Tulsa, Okl., for defendant.
Wheels, Inc. brought an adversary proceeding for declaratory judgment against Otasco, Inc. to determine priority of conflicting interests in certain motor vehicles or their proceeds. The issue is whether a written agreement concerning these vehicles and purporting to be a lease, should be treated as an unperfected security agreement. The matter has been submitted for decision on stipulations, briefs and oral argument. Upon consideration thereof, the Court finds, concludes and orders as follows.
Wheels, Inc. ("Wheels") Pre-trial Order p. 2, ¶ II(1).
Otasco, Inc. ("Otasco") Pre-trial Order p. 2, ¶ II(2).
"On February 2, 1984, Wheels entered into an agreement with Otasco (the `Agreement'), which governed the terms under which Otasco, from time to time, would obtain motor vehicles from Wheels," Pre-trial Order p. 3, ¶ II(6). A copy of the Agreement is admitted as exhibit 1 appended to the pre-trial order.
The Agreement is designated "Lease" and identifies Wheels as "Lessor" and Otasco as "Lessee." ¶ 14 of the "Lease" is entitled "Ownership" and recites in pertinent part as follows: "It is expressly agreed that the Lessee by virtue of this lease acquires no ownership, title, property, right, interest, (or any option therefor) in any leased motor vehicle save as herein provided. . . ."
The Agreement provides that "Lessee hereby leases one motor vehicle for delivery as specified by Lessee and other motor vehicles as may hereafter be ordered by Lessee . . . with the Lessee to have possession and right to use said motor vehicles . . .," Agreement ¶ 1, subject to minimal use restrictions, Agreement ¶ 4. The Agreement imposes all burdens and expenses of licensing, registration, taxes, fees, fines and penalties, maintenance and replacement, insurance, and liability for use in connection with the operation of leased vehicles on the Lessee, ¶¶ 4, 5, 7, 8, 11. Lessee may mark the vehicles with its own insignia, Agreement ¶ 9. The Agreement imposes no duties on Lessor except delivery of each vehicle at the inception of the lease, and acceptance, disposition and accounting of and for each vehicle at termination of the lease, as discussed below.
The Agreement provides that "each motor vehicle shall be leased for an initial term of 12 months from the date of the delivery of such vehicle to Lessee and thereafter for successive 12 month renewal terms; provided that Lessee shall have the right to cancel any vehicle at any time after the end of the first 12 months of the initial lease term for such vehicle by giving written notice of such cancellation to the Lessor . . .," Agreement ¶ 12. No provision in the Agreement permits the Lessor to cancel once a vehicle has been leased; but "either Lessee or Lessor may terminate the obligation to lease additional or replacement vehicles at any time upon written notice to the other party," Agreement ¶ 12. The parties expected continuation beyond the initial 12-month term (as admitted in oral argument). There is no express limit to the possible number of "successive 12 month renewal terms," Agreement ¶ 12; nor is there any express option to purchase at any particular time.
The Agreement provides that "The monthly rental for each motor vehicle shall be computed on the basis of the rider hereto attached marked `Rental Schedule' and made a part hereof, and is intended to include the Reserve accrued for the estimated depreciation of the leased vehicle," Agreement ¶ 2. The "Rental Schedule" reads in its entirety as follows:
The Agreement further provides as follows:
It is stipulated that "The `amount accrued for the Reserve of said motor vehicle' referred to in Paragraph 3 of the Agreement is calculated on the Rental Schedule under the heading `Amortization Account,'" Pre-trial Order p. 5, ¶ II(11).
The "stipulated cost" referred to above is not expressly defined anywhere in the agreement. However, the Agreement provides that Agreement ¶ 2.
At the end of the lease term, "the Lessor will render efficient service in sale or disposal of the leased motor vehicle to obtain the largest net return for the Lessee," Agreement ¶ 6.
On November 6, 1988, Otasco filed its petition for relief under 11 U.S.C. Chapter 11. "Otasco is operating its business and remains in possession of its property as debtor and debtor in possession," Pre-trial Order p. 2, ¶ II(3).
On July 11, 1989, Wheels filed its complaint herein seeking declaratory judgment that the Agreement is a true lease which Otasco must assume or reject; or, in the alternative, that Wheels has a perfected security interest in the "leased" vehicles. Otasco answered, and asserts that the Agreement is not a true lease, is intended as security, and that Wheels' security interest has not been perfected.
The matter was set for trial on December 11, 1989. However, on that date, the parties filed their "Agreed Pre-Trial Order," reciting stipulated facts, stating that "no other facts are in dispute" and no further evidence would be offered, and announcing that "the parties intend to file cross-motions for summary judgment on the legal issues involved," Pre-trial Order p. 7, ¶ IV. The Court thereupon ordered that briefs, if any, must be filed on or before December 18, 1989, and scheduled oral argument for December 19, 1989.
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