Security Life Ins. Co. v. Executive Car Leasing Co.

• Decision Date: 08 October 1968
• Docket Number: No. 7908,7908
• Citation: 433 S.W.2d 915
• Parties: SECURITY LIFE INSURANCE COMPANY, Appellant, v. EXECUTIVE CAR LEASING COMPANY, Appellee. . Texarkana
• Court: Texas Court of Appeals

Page 915

433 S.W.2d 915

SECURITY LIFE INSURANCE COMPANY, Appellant, v. EXECUTIVE CAR LEASING COMPANY, Appellee.

No. 7908.

Court of Civil Appeals of Texas.

Texarkana.

Oct. 8, 1968.

Rehearing Denied Nov. 5, 1968.

Bruce Youngblood, Harless, Bailey & Youngblood, Dallas, for appellant.

Wayne A. Melton, Melton, Morgan & Curtis, Dallas, for appellee.

CHADICK, Chief Justice.

This litigation was instituted by Executive Car Leasing Company of Dallas as a suit to collect a balance due under the terms of a car rental contract. An answer and cross-action was filed by Security Life Insurance Company. At the conclusion of the suit judgment favorable to the leasing company was rendered.

In December, 1962, the parties entered into a written contract labeled 'Automobile Lease Agreement.' The terms of the instrument put Security Life Insurance Company in possession of a new 1963 Buick Riviera automobile. Security Life accepted and retained possession of the car for one year and ten months, and at surrender of possession of Executive Car, the vehicle was sold for $2,476.32. On the basis of Executive Car's calculations and interpretation of the contract Security Life was indebted to it in the sum of $933.73. Security Life denied owing such amount and defended on the theory (advanced in both its answer and cross-action), that the written agreement was a conditional sales contract in the guise and form of a lease; and that under the contract's terms Security Life was required to and did pay illegal and usurious interest to Executive Car and prayed judgment accordingly.

The intention of the parties determines the nature of the contract, that is, whether the agreement is a lease or a conditional sale. Purity Creamery Co. v. Hays, 4 S.W.2d 1056 (Tex.Civ.App. Waco 1928, no writ); 50 Tex.Jur.2d Sales, § 69; 8 Tex.Jur.2d Bailment, § 2; and 7 Tex. Law Review 329. Numerous approaches or tests have been employed by courts in an effort to determine the parties' intentions in making agreements similar to this under examination. The cases employing the tests fall generally into three broad classifications: (1) When an option to purchase is embodied in the agreement the option is usually regarded as indicative of an intent to make the transaction a conditional sale rather than a lease; (2) When the contract obligates the lessee to buy a chattel, or pay an amount equal to its value, the transaction is frequently considered to have the character of and held to be a sale; (3) When the lessee has an option at the end of the rental term to buy the chattel and apply installments on the purchase price, the amount of the installment is considered a decisive factor; if the installments are unreasonable as rent, or if they substantially exceed the original value of the chattel, the transaction is held to have the characteristics of a sale rather than a lease. Security Life's argument and authorities cited seem to indicate that it relies on cases and the reasoning of the second category. The following quotation from Security Life's brief contains the essence of its argument, to-wit:

'A true lease is a bailment, but the agreement in this case has the characteristics of a conditional sale (financed at excessive interest rates). In effect, it is a contract which requires the 'lessee' to buy the car. The amount of 'rental' which it requires the 'lessee' to pay is as much as the value of the article 'rented', and courts uniformly hold such a transaction to be, in reality, a conditional sale rather than a lease, First National Bank of Ft. Smith v. Phillips, 261 F.2d 588 (5th Cir., 1958). The 'lease' agreement absolutely binds the 'lessee' to pay the 'lessor' a 'capitalized cost' of $5,050.00, plus additional amounts for so long as the $5,050.00 remains unpaid. $5,050.00 was equivalent to the market value of the car at the time the 'lease' was signed. * * * The additional amounts to be paid under it are the equivalents of interest payments.'

The parties stipulated the facts in the trial court and the trial judge heard the case without intervention of a jury. On several occasions in oral argument counsel for the parties referred to the contractual instrument as a standard form in the car rental industry . The instrument is shown in the record by a poorly reproduced copy which does not lend itself to further reproduction, but be this as it may, the instrument is much too long to be copied as a part of this opinion. The agreement provided for an initial twelve month minimum rental term. Security Life was obligated to pay monthly rentals of $148.00 during the twelve month term in any event, and as long thereafter as the car remained in its possession. Out of each monthly rental payment $87.40 was to be credited to a depreciation reserve account. Capitalized cost of the automobile was agreed to be $5,050.00. Title to the automobile at all times remained in Executive Car, with no obligation to sell to Security Life, and the agreement accorded Security Life neither a title nor option to purchase. Security Life was at liberty to terminate the lease at any time by returning the automobile to Executive Car, although such surrender would not extinguish liability for payment of monthly rentals for the primary twelve months term, nor for payment of any sum due under other provisions of the contract. The contract contained a formula for determining Security Life's liability to Executive Car that would or might accrue in addition to the obligation to pay monthly rentals. It was contracted that on surrender of the car it would be sold and the sale proceeds combined with the total of the accumulated reserve account. The total of the two items would be balanced with the agreed capitalized cost of the vehicle. If the capitalized cost was the greater, Security Life agreed to pay the difference. If the capitalized cost of the vehicle was the lesser, Executive Car was obligated to refund the difference to Security Life. This formula assured Executive Car a recovery of the capitalized cost of the automobile and made Security Life's total liability under the contract depend upon the amount of accumulated reserve and the vehicle's sale price.

Though it is of little moment, the instrument describes the transaction as a lease, but of more than passing significance the stipulated facts show that the parties treated it as a lease in their internal accounting procedures. There is no evidence that employees of the parties approached each other on any basis other than in an effort to effect a rental agreement. The absence from the written contract of any obligation on the part of Security Life as lessee to buy the vehicle from Executive Car, or on the part of Executive Car, as lessor to sell the vehicle to Security Life, or to transfer title to Security Life or its nominee at any time under any circumstances, regardless of the period of time the lease was permitted to run or the amount of rentals paid, is very persuasive that the parties did not intend the agreement to be a sale or a conditional sale of the Buick automobile by one to the other.

The contract specifically provides that the vehicle would be sold upon its surrender to Executive Car. Sale of the vehicle was a practical method of...