Opinion
Case No. 99-10219, Chapter 7
October 29, 1999
ORDER GRANTING RELIEF FROM AUTOMATIC STAY
On October 14, 1999, two separate motions for relief from the automatic stay came before the court for hearing on objection by the debtors. The motions were brought by two creditors, Mr. Steve's Rent To Own and Appliance Furniture Rentall, seeking relief from the automatic stay imposed by 11 U.S.C. § 362 (a) to exercise their state law remedies pursuant to contracts with the debtors.
This is a chapter 7 case. The chapter 7 trustee has filed a no distribution report and did not object to the motions. The debtors are in monetary default under the terms of the contracts and ordinarily would have no standing to object to the motions. However, because they seek to redeem the property subject to the contracts with Mr. Steve's and Rentall, the court concludes they have standing to be heard.
The dispute is over whether the contracts between the debtors and Mr. Steve's and between the debtors and Rentall are in the nature of leases or are actually security agreements from which the debtors can redeem the collateral at fair market value under § 722.
State law determines whether or not an agreement is a true lease or a disguised security agreement. South Carolina Rentals, Inc. v. Arthur, 187 B.R. 502, 504 (D.S.C. 1995). Likewise, state law determines whether a contract is a consumer rental purchase agreement. In re Stellman, 237 B.R. 759, 761 (Bankr.D.Idaho 1999).
The debtors argue that Federal law is determinative of whether or not a contract is executory and subject to assumption or rejection under § 365. In this case, the issue is somewhat different, actually a determination of the nature of a contract denoted as a hybrid between a lease and a purchase. Be that as it may, in the context of § 365, Federal law looks to state law to determine whether a breach of a contract is material and excuses performance. See, e.g., In re Little Beaver Enterprises, Inc., case no. 95-10137 slip opinion (Bankr.D.Wyo. April 9, 1996). In this case, the result will be the same.
In 1996, Wyoming enacted the Consumer Rental Purchase Agreement Act, Wyoming Statutes §§ 40-19-101 through 40-19-120 (Michie 1999). That act sets out specific requirements for rental/purchase agreements and specifically states that rental/purchase agreements are not governed by the provisions of the Uniform Commercial Code relating to security interests. Wyo. Stat. § 40-19-105(a)(ii). As such, this case is distinguishable from the South Carolina Rentals, Inc. case cited by the debtors.
A review of the contracts at issue here reflects that the provisions satisfy the requirements of the CRPAA and are, therefore, rental purchase agreements, not true leases or installment sales contracts. The court agrees with courts holding similarly. See In re Stellman, 237 B.R. at 762, and cases cited therein.
The Bankruptcy Code makes no provision for redemption of property under a rental purchase agreement. The debtors are in default on the payments. Cause exists to modify the automatic stay.
IT IS, THEREFORE, ORDERED that Mr. Steve's Rent To Own and Appliance Furniture Rentall are granted relief from the automatic stay to exercise their state law remedies under the provisions of the contracts on the property more particularly described in their motions.