Opinion
Nos. 78 B 491, 78 B 768, 78 B 769, 78 B 770, 78 B 778
February 8, 1979
Former Bankruptcy Act — Title to Property — Lease-Back Agreement — Usury
The receiver's motion for summary judgment as to forty-four lease back agreements covering vehicles leased by the debtor and in the receiver's possession was granted since these motor vehicle agreements were not truly leases but merely disguised loans at a rate of interest far in excess of New York's criminal usury law. See Sec. 70a at ¶ 2679 and Sec. 541(a) at ¶ 9501.
[Digest of Opinion]
The creditor, commenced this adversary proceeding, against these Chapter XI debtors and their receiver, for the reclamation of fifty-two vehicles, which were in the physical possession of the receiver. Its allegation was based on the premise that the debtor and receiver were in default under leases covering the vehicles in the amount of $203,123.64. The debtor and receiver alleged affirmative defenses, and counterclaim, that the motor vehicle leases were not truly leases but merely disguised loans at a rate of interest far in excess of New York's criminal usury law.The creditor was a wholly owned subsidiary of a bank, through which it functioned as a loan production office for vehicle leasing corporations. On August 12, 1977, the creditor made a loan to a New York corporation, in the total amount of $171,500 to enable it to acquire 49 motor vehicles from the debtors at $3,500 per vehicle. Upon acquiring the vehicles, the corporation leased them back to the debtor. Further, in conformity with the creditor's general practice, as collateral security, the corporation provided the creditor with a first lien of the forty-nine motor vehicles it had acquired from the debtors. The lease provided, that upon payment of all rentals and the $1.00 purchase option price, the creditor's "security interest . . . would be satisfied," and in bold, capital letters, the lease stated that New York law should govern.
Subsequent to this August 12 loan, five of the motor vehicles were either taken off the lease or substituted by the debtors with the corporations or the creditor's liens. In addition to the remaining forty-four vehicles, the creditor made eight separate loans to the corporations to enable the latter to purchase eight motor vehicles which the corporation leased to the debtors. This accounted for the total of fifty-two vehicles sought to be reclaimed by the creditor.
Both the debtors and the receiver have moved for summary judgment, with the creditor moving for: (1) dismissal of these affirmative defenses; (2) reclamation of the motor vehicles; (3) compensatory payment, as an administrative expense, for the use by the receiver of said vehicles from the date of his appointment as receiver and (4) reasonable attorney fees.
There are two areas of inquiry in a determination of a Rule 56 motion for summary judgment, i.e., whether: (1) there are any triable issues of fact and (2) on the basis of undisputed facts the "moving party is entitled to judgment as a matter of law." The court found that where the question posed for resolution is whether an ostensible lease is in reality a disguised loan or security interest, the insertion in such instrument of an option to purchase the "leased" equipment for a nominal consideration, at the end of the "lease" period, renders such instrument, as a matter of law, a disguised loan or security interest.
The creditor additionally contended that the vehicle of summary judgment was unavailable since the receiver and debtors relied on New York Penal Law Sec. 190.40, the state's criminal usury statute, which by its terms, required the receiver to prove the creditor "knowingly" charged interest at a rate exceeding 25% per annum — a question of fact. However, the court determined, that the inquiry was whether or not a usurious charge could be ascertained and established solely by reference to the face amount of the loan and the facial provisions here of the "lease" relating to rentals and security deposits. The court found, that since such charge can be so ascertained here, and such charge reflects a rate far in excess of 25% per annum, the court found no issues of fact precluding summary judgment.
The court then turned to the second avenue of inquiry, whether on the basis of undisputed fact the movant was entitled to judgment. The creditor's defense preclude summary judgment. It maintained in pertinent part, that the applicable usury statute is the Kentucky Revised Statute, which repealed, as to corporations, the Kentucky usury statute. The court determined, however, that unlike the cases cited by the creditor, the parties here specifically resolved, the governing law "by an explicit provision in their agreement. Hence, where, as here, the contracting parties executed the contract with the explicit "good faith" expectation that New York law would apply, where New York is substantially related to both the transaction, and the parties, the court saw no reason why, under these circumstances, the creditor, as the corporation's assignee" should be given more protection in interstate loan contracts than . . . is afforded in domestic transactions.
Further, the creditor asserted that the receiver "was in the same position as a trustee," and therefore, under New York law, before asserting a counterclaim on the ground of usury, must first tender both principal and lawful interest. Where the receiver is in possession of the security and is resisting a claim by the lender for reclamation of the security, however, the court found he is "in the same position as one pleading an affirmative defense to an action at law," on the ground of usury, and, it not being a right of action, is absolved from tendering principal and legal interest.
The last allegation was whether the defenses and counterclaims of the receiver were time barred. Since the "commencement of an action within two years subsequent to adjudication of bankruptcy is timely so long as the action itself was not barred as of the date of adjudication, "the instant defenses and counterclaims are not time barred.
Consequently, the receiver was entitled to judgment, as a matter of law, for the relief requested in its motion for summary judgment and for similar relief on the creditor's cross-motion for summary judgment.