McKeeman v. Commercial Credit Equipment Corp., Civ. No. 03086

CourtUnited States District Courts. 8th Circuit. United States District Court of Nebraska
Citation320 F. Supp. 938
Docket NumberCiv. No. 03086,03291.
PartiesRay S. McKEEMAN, Plaintiff, v. COMMERCIAL CREDIT EQUIPMENT CORP., a Corporation, Defendant. COMMERCIAL CREDIT EQUIPMENT CORP., a Corporation, Plaintiff, v. A. W. SCOBODA, d/b/a Norfolk Farm Equipment Company, Defendant and Third-Party Plaintiff, v. Ray S. McKEEMAN, Third-Party Defendant.
Decision Date03 September 1970

320 F. Supp. 938

Ray S. McKEEMAN, Plaintiff,

A. W. SCOBODA, d/b/a Norfolk Farm Equipment Company, Defendant and Third-Party Plaintiff,
Ray S. McKEEMAN, Third-Party Defendant.

Civ. Nos. 03086, 03291.

United States District Court, D. Nebraska.

September 3, 1970.

320 F. Supp. 939
320 F. Supp. 940
Hans J. Holtorf, Leland K. Kovarik, Jr., Gering, Neb., for Ray S. McKeeman

Peter E. Marchetti, Omaha, Neb., Richard P. Nelson, Lincoln, Neb., for Commercial Credit Equipment Corp.

Frederick M. Deutch, Norfolk, Neb., Malcolm D. Young, Omaha, Neb., for A. W. Scoboda d/b/a Norfolk Farm Equipment Company.

VAN PELT, District Judge.

This is an action for a declaratory judgment, originally filed in the District Court of Scotts Bluff County, Nebraska, in which plaintiff prays for a judgment construing an agreement entered into with Commercial Credit Equipment Corp. (hereinafter referred to as CCEC) as a usurious loan transaction, in violation of Nebraska law.1 Further, plaintiff asks the court to declare the rights of the parties under this agreement, and to restrain the defendant from collecting more than the principal of this alleged loan, and from repossessing any properties allegedly purchased by plaintiff, in connection with the agreement. On defendant's petition (filing #1) the case was removed to federal court (Civ. 03086). Plaintiff is a citizen of Scotts Bluff County, Nebraska, and defendant CCEC is a citizen of Maryland. The amount in controversy exceeds $10,000.

Plaintiff alleges that in 1963, he purchased certain silos and other farm equipment from Norfolk Farm Equipment Company (hereafter referred to as NFEC), receiving a statement for the full purchase price of $42,819.66. Plaintiff alleged that he paid $567.90 down, leaving a balance due of $42,251.76. Plaintiff further alleges that he entered into an agreement with CCEC in January, 1964, designated by CCEC as a "lease". By the terms of this agreement, plaintiff agreed to pay CCEC $58,188.06 as lease payments in eighty-four monthly installments.2

In its answer defendant denies that plaintiff had ever purchased the silos and related equipment from NFEC, but alleges instead that the equipment was purchased by CCEC. CCEC specifically denies that any part of these payments under the "lease" constitutes interest, and alleges that they are lease payments only.3

Subsequently, defendant was granted leave to file a counterclaim (filing #10) in which it alleges that plaintiff had failed to continue his rental payments and was in default of the lease. Defendant prays for $36,153.85 as liquidated damages. Defendant then filed a separate action (Civ. 03291) against NFEC for breach of a guarantee, alleging that

320 F. Supp. 941
NFEC had signed the written guarantee pursuant to which the full performance of McKeeman under the terms of the lease was assured, and prayed for $36,153.85 as a result of McKeeman's breach. In its answer, NFEC denies the guarantee alleging that defendant CCEC negligently and fraudulently induced the signing of the guarantee by representing that the "lease" entered into between McKeeman and CCEC was not a usurious loan. By amended third-party complaint, NFEC alleges that McKeeman and CCEC induced NFEC to sign the written guarantee, and that McKeeman promised to hold NFEC harmless from any liability on the guarantee. NFEC further alleges that the subsequent amendments of 1965 and 1967 between McKeeman and CCEC were unknown to it, prejudicial to its interests, and operate as a release on the guaranty as a matter of law

The cases were consolidated and set for trial to a jury. On the day the jury trial was to commence, the parties waived a jury and agreed to try the case to the court. Evidence was presented by all parties, briefs have been filed and the case is now ready for decision.

The overriding issue controlling disposition of this lawsuit is whether the agreement entered into between plaintiff McKeeman and defendant CCEC is a lease, as it purports to be, or whether it is in fact a loan in disguise at a rate of interest in excess of the statutory maximum of nine percent. For the reasons which follow, the court concludes in Civil No. 03086, that the document entitled a "lease" is in fact a loan at a rate of interest in excess of the Nebraska usury laws, and that plaintiff McKeeman is entitled to judgment in his favor.

The document itself, signed by both McKeeman and a representative of CCEC, is captioned "Lease". Its opening sentence is as follows:

"This Lease, between Commercial Credit Equipment Corp., Lessor, herein called CCEC, A Delaware Corporation with an office at 300 St. Paul Place, Baltimore, Maryland and Ray McKeeman, Lessee, herein called User, of Gering, Scottsbluff (sic) County, Nebraska."

The document continues:

"1. CCEC hereby leases to User, upon the terms and conditions herein contained, the following described property, hereinafter called Units."

A description of the property follows. Paragraph sixteen describes the miscellaneous provisions of the agreement:

"16.1 This agreement is, and is intended to be a lease, and User does not acquire hereby any right, title or interest whatsoever, legal or equitable, in or to any of the Units, or to the proceeds of the sale of any Units, except its interest as lessee hereunder.
"16.2 CCEC warrants that, if User performs its obligations under this lease, User shall peaceably and quietly hold, possess and use the Units during the entire lease term, free from any interference or hindrance.
"16.3 The relationship between CCEC and User shall always and only be that of lessor and lessee. User shall never at any time during the term of this Lease for any purpose whatsoever be or become the agent of CCEC, and CCEC shall not be responsible for the acts or omissions of User, or its agents.
"16.4 CCEC's rights and remedies with respect to any of the terms and conditions of this Lease shall be cumulative and not exclusive, and shall be in addition to all other rights and remedies in its favor.
"16.5 CCEC's failure to enforce strictly any provisions of this Lease shall not be construed as a waiver thereof or as excusing User from future performance.
"16.6 The invalidity of any portion of this Lease shall not affect the remaining valid portions thereof.
"16.7 User specifically agrees that Units shall at all times and for all purposes be considered personal property,
320 F. Supp. 942
notwithstanding the manner or mode of attachment to real estate.
"16.8 All notices shall be binding upon the parties hereto if sent to the address set forth herein (unless a subsequent address has been furnished, by certified mail, by one party to the other).
"16.9 This Lease constitutes the entire agreement between the parties hereto. Any change or modification to this Lease must be in writing and signed by the parties hereto."

The document consists of additional perfunctory sections attempting to clarify its nature, some of which are discussed infra.

At trial, evidence was introduced indicating that both McKeeman and NFEC, as well as other farmers and implement dealers, were advised by CCEC representatives that title to the structures erected on the farmers' land could be purchased upon termination of the "lease" by the User for one dollar. The evidence was in two forms. Oral testimony was received from McKeeman, Mr. Scoboda, owner of NFEC, and Miss Valarie Marlowe, Mr. Scoboda's secretary, as to statements relating to obtaining title made by representatives of CCEC. Additionally, a tape recording of a speech given at a conference of farmers and dealers by one of CCEC's representatives in 1964 was introduced. Defendant contends that introduction of this evidence was error. For reasons which follow, the court disagrees and holds that the evidence was admissible for the purpose for which it was received.


Plaintiff McKeeman testified at trial that he had several conversations with the sales representative from NFEC, and a conversation with a field representative from CCEC. These conversations focused upon the "lease" in question, and it was represented to McKeeman that title to the equipment could be obtained at the expiration of the lease by paying one dollar. Mr. Scoboda, owner of NFEC, from whom the equipment was purchased, testified that he had been told by agents of CCEC that at the end of the lease term, the property could be purchased for one dollar. Mr. Scoboda's secretary testified that she had overheard several conversations between Mr. Scoboda and representatives of CCEC to that same effect.

Defendant objected to the introduction of this testimony on the ground, inter alia, that it was in violation of the Parol Evidence Rule.4 Defendant in its brief has argued adamantly that the agreement entered into between McKeeman and itself is self-explanatory and constitutes the entire contract. Since there is no mention of paying a dollar and receiving title upon the expiration of the lease, and in light of sections 16.1-16.9, supra, any such evidence is in direct contrast to the written "lease" and therefore inadmissible.

The rule in Nebraska has long been established that courts will, in cases involving usury allegations, look through the form of the transaction to its substance, for it is the intent rather than the form of the transaction which is deemed controlling. Lloyd v. Gutgsell, 175 Neb. 775, 124 N.W.2d 198 (1963); General Motors Acceptance Corp. v. Mackrill, 175 Neb. 631, 122 N.W.2d 742 (1963); Commonwealth Co. v. Fauver, 169 Neb. 795, 101 N.W.2d 150 (1960); State ex rel. Beck v. Associates Discount Corp., 162 Neb. 683, 77 N.W.2d 215 (1956); State ex rel. Spillman v. Central Purchasing Co., 118 Neb. 383, 225 N.W. 46 (1929). See also 45 Am.Jur.2d, Interest and Usury, § 355 (1969). The reason

320 F. Supp. 943
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    ...upon the precise issue now before us, holding the parol evidence to be admissible, see McKeeman v. Commercial Credit Equipment Corp., 320 F.Supp. 938 (D.C.Neb., Finally, we cannot sustain the argument that the contract is governed by the law of Tennessee, as the instrument recites, rather t......
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    ...It follows that the charge which is made for that loan is interest . . .. Id. at 337. In McKeeman v. Commercial Credit Equipment Corp., 320 F.Supp. 938 (D.Neb.1970), the court found that a purported lease was in fact a usurious loan. McKeeman purchased silos and other farm equipment from No......
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