Waldron v. Best TV and Stereo Rentals, Inc.
| Decision Date | 28 December 1979 |
| Docket Number | Civ. No. T-79-1105. |
| Citation | 485 F. Supp. 718 |
| Parties | Denzil WALDRON v. BEST T.V. AND STEREO RENTALS, INC. |
| Court | U.S. District Court — District of Maryland |
Mark J. Davis, Baltimore, Md., for plaintiff.
Andrew Jay Graham and Edward F. Patz, Baltimore, Md., for defendant.
Plaintiff's complaint herein seeks recovery from defendant of statutory damages, reasonable attorney's fees and costs, based upon defendant's alleged failure to comply with the Truth-in-Lending Act, 15 U.S.C. § 1601 et seq. (the Act), and Regulation Z, 12 C.F.R. Part 226, with respect to a printed-form agreement between plaintiff and defendant entitled "Rental Agreement with Option to Purchase," covering a television set, hereinafter referred to as "the agreement." A copy of the agreement is attached to this opinion as Exhibit A. Jurisdiction exists under 15 U.S.C. § 1640(e).1
Plaintiff contends that the agreement is essentially a "credit sale" and that defendant violated the Act and Regulation Z by failing to make the disclosures required by § 121(a) of the Act, 15 U.S.C. § 1631(a), and § 226.6 of Regulation Z.
Defendant contends that the agreement is not a credit sale within the meaning of the Act, and has moved to dismiss the complaint.
Section 103(g) of the Act, 15 U.S.C. § 1602(g), defines a credit sale as:
. . . any sale with respect to which credit is extended or arranged by the seller. The term includes any contract in the form of a bailment or lease if the bailee or lessee contracts to pay as compensation for use a sum substantially equivalent to or in excess of the aggregate value of the property and services involved and it is agreed that the bailee or lessee will become, or for no other or a nominal consideration has the option to become, the owner of the property upon full compliance with his obligations under the contract.
Defendant argues that because plaintiff had a right to terminate the agreement at any time after making the first week's payment of $16.80, there was no contract to pay a "sum substantially equivalent to or in excess of the aggregate value of the property . . . involved." In support of this argument defendant cites several district court cases in which similar contracts were held to be outside the scope of § 1602(g) because the respective "lessees" were not unconditionally obligated to pay a sum at least as much as the value of the property, but had the right to terminate the contract shortly after its execution.2
It is true that in the case at bar plaintiff had a right to terminate the agreement under the provisions specified therein; those provisions included the return of the television set in the condition it was when the agreement was made, wear and tear excepted, and the loss of plaintiff's equity in the set. See clause entitled "Termination by Renter" in the agreement (Exhibit A). The right of the "Owner" to terminate is set out in the next paragraph of the agreement. Despite the presence of the termination clauses, the agreement was essentially a contract for the credit sale of the TV set to plaintiff for a sum substantially greater than the cash sale value of the set. By its express terms, the contract was to remain in force unless (a) the plaintiff exercised her right to terminate the contract and forfeit the equities she had built up in the set by her weekly payments, or (b) plaintiff was guilty of such a breach of the contract as would activate the "Owner's" right to terminate. Such termination clauses do not change the essential nature of the contract as a credit sale. See generally, 3A Corbin on Contracts, § 647, at 102-07 (1960 ed.). Moreover, the fact that defendant included in its printed-form agreement a statement that "this is a week-to-week rental agreement with option to purchase" does not change the essential nature of the agreement, which is contained in the several paragraphs stating the actual rights and obligations of the parties.
The legislative history of the Act includes the statement:
The definition of credit sale is also limited to include leases only if they are, in essence, disguised sale arrangements. The language covering disguised leases is nearly identical to the language used in the Uniform Conditional Sales Act and in many State retail installment sales acts to distinguish between "true" leases and other leases.
1968 U.S.Code Cong. & Admin.News, at p. 1980.
In drawing a distinction between disguised sales and true leases, courts should look to precedents in the commercial law of the state which governs the contract, in this case Maryland law. Maryland has adopted the Uniform Commercial Code (UCC), of which § 1-201(37) (Md.Com.Law Code Ann. § 1-201(37)) provides in pertinent part:
. . . Whether a lease is intended as security is to be determined by the facts of each case; however, (a) the inclusion of an option to purchase does not of itself make the lease one intended for security, and (b) an agreement that upon compliance with the terms of the lease the lessee shall become or has the option to become the owner of the property for no additional consideration or for a nominal consideration does make the lease one intended for security.
In United Rental Equipment Co. v. Potts & Callahan, 231 Md. 552, 191 A.2d 570 (1963), the court had before it a contract governed by the law of Pennsylvania, which had adopted the UCC. In that case the "lessee" of equipment was given both an option to terminate at will and an option to purchase at the end of the lease period. Arguing that the agreement was a lease rather than a conditional sales contract, United Rental contended that because the lease was terminable at the lessee's option, there was no contract for the sale of the property. The Court of Appeals, however, held that the agreement was in fact a conditional sales contract, notwithstanding the lessee's option to terminate. The opinion, by Judge Hammond, to which there was no dissent, went on to say:
. . . That the agreement would be regarded as a security instrument (conditional contract of sale), required to be recorded under Code (1957), Art. 21, Sec. 66, if Maryland law controlled, is indicated by Beckwith Machinery Co. v. Matthews, supra 190 Md. 182, 57 A.2d 796 (1947), and Alban Tractor Co. v. State Tax Commission, 219 Md. 593, 150 A.2d 456.
231 Md. at 559, 191 A.2d at 574.
Although United Rental was decided under Pennsylvania law, the pertinent provision in the Pennsylvania statute was the same...
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