Tillery, Matter of, 76-3800
| Decision Date | 28 April 1978 |
| Docket Number | No. 76-3800,76-3800 |
| Citation | 571 F.2d 1361,23 UCC Rep. 1335 |
| Parties | 23 UCC Rep.Serv. 1335 In the Matter of Spencer Jerome TILLERY, Bankrupt. BILL SWAD LEASING COMPANY, Appellant, v. Henry A. STIKES, Sr., Trustee, Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Edward B. McDermott, Mobile, Ala., for appellant.
E. Graham Gibbons, Mobile, Ala., Charles S. Street, Mobile, Ala., for appellee.
Appeal from the United States District Court for the Southern District of Alabama.
Before BROWN, Chief Judge, AINSWORTH and VANCE, Circuit Judges.
Affirmed on the basis of the Order of Bankruptcy Judge Will G. Caffey, Jr., dated February 17, 1976, which Order was affirmed by the District Court, Judge Virgil Pittman, on August 31, 1976, and is attached hereto.
AFFIRMED.
At Mobile in said District on the 17th day of February, 1976, before Will G. Caffey, Jr., Bankruptcy Judge:
This matter having come on for hearing upon the Complaint of Henry A Stikes, Sr., Trustee, against Bill Swad Leasing Company (Swad) seeking to sell, free and clear of any lien, security interest, or claim of said defendant, one (1) 1974 Lincoln Continental Mark IV automobile; summons and notice of trial having been regularly issued and served; and upon the answer and counterclaim of Swad seeking to recover possession of said vehicle; and the said Trustee and his attorney, E. Graham Gibbons, having appeared; and Edward B. McDermott, attorney for Swad, having appeared; and evidence having been presented;
Now, therefore, upon said Complaint, answer and counterclaim, and upon the evidence presented, the Court finds, concludes and orders as follows:
FINDINGS OF FACT
1. Spencer Jerome Tillery (Tillery) filed his voluntary petition in bankruptcy on July 18, 1975; and Henry A. Stikes, Sr. is the duly appointed, qualified and acting Trustee of this estate in bankruptcy.
2. At the time of the filing of his petition herein Tillery had in his possession the vehicle involved herein. The Trustee took possession of the vehicle from the bankrupt, and now has it in storage awaiting the determination of Swad's claim thereto.
3. On April 12, 1974 Tillery entered into a contract with Swad relating to this vehicle. The contract is evidenced by two documents, executed contemporaneously, and each referring to the other. One of these documents is entitled "Lease Agreement" and the other is entitled "Vehicle Lease Order". (Defendant's Exhibits 1 and 2).
Under the terms of the contract, Tillery purportedly "leased" from Swad the 1974 Lincoln Mark IV automobile described in the "Vehicle Lease Order" for an initial term of 36 months at a "rental rate" of $230.00 per month plus sales tax of $9.20 per month, or a total payment of $239.20 per month to be paid on the 15th day of each month.
The "Lease Agreement" provided: "This agreement is one of leasing only, and the Lessee shall not have or acquire any right, title, or interest in or to the vehicle except the right to use or operate it as provided herein."
Under the contract, the Lessee was required to maintain the vehicle in good operating condition; and to pay all costs of maintenance and operation. He was also required to provide complete insurance coverage, as specified on the reverse side of the "Vehicle Lease Order", including full comprehensive, fire, theft and collision damage coverages.
The Lessee was further required to pay all licenses and taxes on the vehicle, including specifically, State License, Sales Tax, Excise Tax, and Personal Property Tax.
At the end of the normal lease term, or extension thereof, or upon earlier termination of the agreement, the Lessee was required to return the vehicle to the Lessor's place of business in the same condition as when delivered, ordinary wear and tear excepted.
The termination provisions of the agreement are set out in haec verba:
"Lessee may terminate this lease with respect to any vehicle at any time after six (6) months from the date of delivery of the same by giving Lessor thirty (30) days notice in writing, provided that Lessee shall bear any loss or receive any gain which results from final disposition of a vehicle. When a vehicle is returned to Lessor upon such termination or any other termination or expiration hereof, Lessor shall promptly obtain and accept the a. If the lease is terminated prior to the end of the initial term, the Termination Value shall be the Depreciated Value at the end of the initial term as specified in Lessee's Order, plus the product of the Premature Termination Factor times the number of months from the effective date of termination to the end of the initial term, plus the unamortized portion of any annual prepaid license fees and applicable taxes paid by the Lessor.
highest available cash offer at wholesale for the vehicle and notify Lessee in writing of the gain or loss computed pursuant to this paragraph. All payments due Lessor as a result of any termination shall be due as soon as the amount of the payment is ascertained. The gain or loss on any final disposition shall be the difference between the offer received and the Termination Value of the vehicle, as defined below:
b. If the lease is terminated at the end of the initial term the Termination Value Shall be the Depreciated Value as specified in the Lessee's Order, plus the unamortized portion of any annual prepaid license fees and applicable taxes paid by the Lessor.
c. If the lease is terminated during any extended term, the Termination Value shall be the Depreciated Value at the end of the initial term less the product of the monthly Depreciation Reserve for the extended term as specified on Lessee's Order times the number of months that have elapsed since the beginning of the extended term, plus the unamortized portion of any annual prepaid license fees and applicable taxes paid by Lessor.
d. If any vehicle is lost or stolen or so damaged that it cannot in Lessor's judgment be economically repaired, the lease with respect to such vehicle shall terminate effective thirty (30) days from the date of notice by Lessee to Lessor of the loss, theft or damage. Lessee shall pay Lessor the Termination Value of such vehicle computed as provided in the applicable sub-paragraph above, on the effective date of termination, less the proceeds from any insurance settlement paid the Lessor."
The "Depreciated Value at End of Initial Term" is shown on the "Vehicle Lease Order" to be $3,570.00; and the "Premature Termination Factor" is shown on the same document to be $166.68. The "Depreciation Reserve" for an extended term is not shown on the order form.
The Lessee was required to indemnify and hold harmless the Lessor from any damage, loss, theft, or destruction of the vehicle; as well as against any claims arising out of the use and operation of the vehicle.
The default provisions of the agreement provided that if the Lessee failed to pay any monthly payment when due, or defaulted in the performance of any of the other terms and conditions, or if the motor vehicle was levied upon or encumbered, or in the event of Lessee's bankruptcy, the Lessor could take immediate possession of the vehicle; and upon termination pursuant to these default provisions, the Lessee would be responsible for the payment of all amounts due under the lease agreement through the date of such termination, together with the loss (if any) resulting from the sale of the vehicle pursuant to the provisions of the above quoted termination provisions (with the gain, if any, to be applied to the payment of amounts due under these default provisions), together with liquidated damages in the amount of $100.00, and, in addition, any specific damages which the Lessor may have sustained as a result of the default, including costs of repossession and attorneys' fees.
The Lessee was required to make a "Security Deposit" of $1,000.00 which was forfeited if the Lessee failed to accept delivery of the vehicle, and which otherwise stood as security for and could be applied to the payment of any sums due to the Lessor under the agreement.
The agreement provided that it would be interpreted under and governed by the law of the state in which Lessor maintained its principal place of business. Although no 4. The evidence does not reflect the filing of a UCC Financing Statement relating to this transaction in Alabama, nor the reservation of any lien on a title certificate issued in Ohio.
evidence was introduced in this regard, the contract was entered into in Ohio and the business address of Swad was listed as 465 South Hamilton Road, Columbus, Ohio; and presumably this was its principal place of business.
A. The question presented for determination is whether the contract between Swad and Tillery constituted a true or "pure" lease, or whether it was, in fact, a lease intended for security. If it was a "pure" lease then the vehicle belongs to Swad and the Trustee has no interest therein other than being compensated for whatever expenses he has incurred in connection with the protection and preservation of Swad's property. However, if it was a lease intended for security, the Trustee is entitled to prevail as the holder of Tillery's beneficial title therein because no financing statement was filed by Swad to perfect its security interest as required by the Uniform Commercial Code and/or no lien in its favor was entered upon any certificate of title.
B. Although the contract is to be interpreted and governed by the law of Ohio as declared therein; its effectiveness and rights thereunder are, in part, controlled by the laws of Alabama.
See: Title 7A, Code of Ala., Sec. 1-105, Sec. 9-102 and Sec. 9-103
And, of course in this proceeding the rights of the parties are further controlled by the Bankruptcy Act itself.
Article 9 of the Uniform Commercial Code, adopted in both Alabama and Ohio, provides that it applies so far as concerns any personal property within the jurisdiction...
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