Opinion
No. 03-81225
January 6, 2004
Gregg W. Bittner, Peoria, Illinois, for Gregory A. and Cindy K. Jones, Debtors
Danny L. Schroeder, Peoria, Illinois, for Snap-on Credit
OPINION
The Debtor, Gregory A. Jones (DEBTOR), seeks to redeem tools from Snap-on Credit, LLC (SNAP-ON) pursuant to the right of redemption provided by 11 U.S.C. § 722. SNAP-ON objects on the grounds that the tools were not intended to be used for personal, family or household purposes.
FINDINGS OF FACT
The DEBTOR purchased tools on credit from SNAP-ON as early as May 2000. However, the evidence at trial pertained to four subsequent purchases that took place between February, 2001 and November, 2002. As of February, 2001, the DEBTOR was employed as a mechanic at a Sears' auto repair shop. A local SNAP-ON franchise dealer, Curtis Grow, visited the Sears' shop on a regular basis for the purpose of selling tools and met the DEBTOR there on one such visit. Sears provided certain basic tools for use by its mechanics, but it was common for the mechanics to purchase their own tools for use at work.
Debtor's Exhibit 1 reflects a "new loan" in the amount of $6,458.66, posted to the DEBTOR'S credit account on May 4, 2000. It also reflects three prior payments made in April, 2000. The particulars of the relationship between the DEBTOR and SNAP-ON prior to February 11, 2001 were not explained at trial. The DEBTOR'S redemption motion focuses on the four purchases that occurred between February, 2001 and November, 2002 and the evidence was not sufficient for the Court to draw any conclusions about purchases that occurred before February, 2001.
On February 11, 2001, the DEBTOR signed a Retail Installment Contract evidencing his purchase, on credit, of various tools from SNAP-ON. The cash sales price of the tools was $2,543.90; the precomputed finance charge was $866.09; and the total of payments was $3,438.24, based upon 156 weekly payments of $22.04. The contract provided that the DEBTOR granted SNAP-ON a security interest in the tools being purchased and that the balance was further secured by a security interest in "each other item of tools, goods and equipment, previously purchased or hereafter acquired, from a Snap-on Dealer." Near the top of its front page, the contract provides as follows:
BUYER REPRESENTS AND WARRANTS THAT THE PROPERTY PURCHASED HEREUNDER IS TO BE USED PRIMARILY FOR COMMERCIAL OR BUSINESS PURPOSES AND NOT PRIMARILY FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES.
The contract was signed at Sears and the tools were delivered to the DEBTOR at Sears. Mr. Grow understood and believed that the DEBTOR intended to use the tools in his employment at Sears and that the tools would be kept at the Sears' location. The DEBTOR did not say anything to Mr. Grow that indicated a contrary intention.
Mr. Grow testified that, as a general rule, he would not allow a buyer to finance the purchase of tools on a SNAP-ON credit account unless the tools were to be used for a business or commercial purpose. On March 6, 2001, SNAP-ON filed a UCC-1 financing statement in the office of the Illinois Secretary of State in order to perfect its security interest in the tools purchased by the DEBTOR. The financing statement, by its terms, covered all SNAP-ON tools and equipment of the DEBTOR, whether now owned or hereafter acquired.
On July 16, 2001, the DEBTOR signed a second contract with SNAP-ON labeled "Add-On Rider," evidencing his purchase of four new items of equipment and the transfer of five other items to the same credit account from a different account, with a total cash sale price of $1,053.93. Mr. Grow testified that an Add-On Rider consolidates any prior credit account balances into the new contract amount, which is then reamortized, so that the purchaser only has to make a single contract payment. The principal amount of the consolidated debt, as evidenced on the face of the July 16, 2001 Add-On Rider, was $3,387.99; the precomputed finance charge was $1,564.49; and the total of payments was $4,952.48, based upon 208 weekly payments of $23.81 each. The printed form of the Add-On Rider is identical to the original Retail Installment Contract and contains the same security interest language and the same warranty of commercial or business purpose.
The third purchase by the DEBTOR occurred on November 2, 2001, when he signed another Add-On Rider for the purchase of a color graphing scanner that he hoped he would be able to use at his job. He was able to reduce the purchase price of the scanner from $2,595.00 to $1,246.38 by trading in seven items previously purchased from SNAP-ON. The reduced purchase price of the scanner was consolidated with the prior unpaid balance. The new, consolidated amount financed was $5,365.80; with precomputed interest of $3,097.20; the total of payments of $8,463.00 was payable over 260 weeks at $32.55 per week.
The contract provides that the value of trade-ins is applied on a pro rata basis to the cash price of all items being purchased.
The DEBTOR'S last purchase from SNAP-ON was made on November 18, 2002, when he purchased a motorized balancer, pliers and a wheel weight kit. Although these items had a combined cash purchase price of $3,963.14, the DEBTOR traded in the scanner, receiving a credit of $2,000.00. The prior balance was consolidated into this third Add-On Rider. The consolidated amount financed was $7,167.67; the finance charge was $4,137.13; and the total of payments of $11,304.80 was payable over 260 weeks at $43.48 per week.
The purchase prices of the pliers and the wheel weight kit were $69.50 and $98.64, respectively.
At some point between the first and third purchase, the DEBTOR'S employment at Sears ceased and he went to work for a local auto dealership. It is not clear from the DEBTOR'S testimony exactly when this occurred. The DEBTOR was employed at the dealership detailing cars. He purchased the scanner on November 2, 2001, with the idea that he would get a "promotion" and be able to use the scanner as a mechanic. Unfortunately, he never received the promotion.
When the DEBTOR traded in the scanner on the motorized balancer, pliers and wheel weight kit, the DEBTOR advised Mr. Grow that he intended to use these items at home on his personal vehicles. Mr. Grow acknowledged that he understood this to be the DEBTOR'S intention at the time of the purchase. Contrary to his general policy that credit accounts are only used for business purchases, Mr. Grow permitted this transaction to be processed as an Add-On Rider to the DEBTOR'S existing commercial credit account only because the DEBTOR was trading in the scanner, a relatively expensive piece of commercial equipment that was already financed on the credit account. The DEBTOR contends that he intended to use all of the tools and equipment purchased from SNAP-ON primarily at home to work on his own vehicles, even though he does not dispute that the only time he told Mr. Grow of this intent was with respect to the November 18, 2002 purchase.
Mr. Grow testified that he regularly sells used tools as well as new tools. In preparation for the hearing, he visited the DEBTOR'S house for the purpose of appraising the tools. He prepared a written inventory and appraisal of the tools that was introduced into evidence as Defendant's Amended Exhibit E. Mr. Grow testified that the tools and equipment sought to be redeemed by the DEBTOR have a fair market value, at wholesale, of $5,446.50. Included in this amount is the motorized balancer, listed as having a value of $2,277.00. The pliers and wheel weight kit purchased with the balancer are not listed on Defendant's Amended Exhibit E and, presumably, are not part of the redemption request.
The DEBTOR'S position is that the redemption price for the tools he seeks to redeem is $751.43. This figure is not based upon an appraisal. As reflected on Debtor's Exhibit 3, it appears that the DEBTOR arrived at this figure by taking the total sales price of the items purchased, subtracting the payments made on the account after February 27, 2001, subtracting the amounts credited for returned items, subtracting the cost of the wheel balancer as an item not to be redeemed, and reducing the result by 30% for "markup" and an additional 20% because the tools are used. The DEBTOR also contends that SNAP-ON'S records show that the credit account was paid off as of February 27, 2001, and that the tools purchased prior thereto are owned free and clear by the DEBTOR.
ANALYSIS
The Court will first address the DEBTOR'S contention that some of the tools were paid off and are no longer subject to SNAP-ON'S security interest. The DEBTOR relies upon Debtor's Exhibit 1, represented to be a document obtained from SNAP-ON listing purchases and payments made on the DEBTOR'S credit account, which appears to show a $0.00 balance as of February 27, 2001, after a principal adjustment. Mr. Grow could not confirm the source of this document, but opined that the "principal adjustment" appeared to indicate an account transfer transaction, not a payoff. Debtor's Exhibit 1 clearly shows a new balance of $2,572.15 as of February 27, 2001, the identical amount of the cash purchase price of the tools purchased two weeks earlier under the contract dated February 11, 2001. The first payment on that contract was not due until February 25, 2001, in the amount of $22.04. Debtor's Exhibit 1 reflects that between February 11, 2001 and February 27, 2001, the DEBTOR made no payments to SNAP-ON. There is no evidence in the record to support the contention that the contract balance of $2,572.15 was paid off within sixteen days after it was incurred. The DEBTOR made no claim, in his testimony, of ever having made such a large payment to SNAP-ON and this "early payoff" theory is disingenuous at best. The Court concludes that the tools purchased by the DEBTOR on the February 11, 2001 contract were not fully paid for as of February 27, 2001 and that SNAP-ON held a perfected security interest in all of the tools and equipment as of the DEBTOR'S bankruptcy filing on March 12, 2003. See, In re Sherman, 126 B.R. 684 (Bankr. E.D.N.C. 1987).
Each Add-On Rider provides that the "payments will be allocated first to any financecharge in the order it is incurred, and then to the payment of each purchase in the order in which the purchase was made. . . ." Debtor's Exhibit 1 reflects that, after February 11, 2001, the DEBTOR made payments totaling $2,532.80. Even if all of those payments were credited against the February 11, 2001 contract, they still were insufficient to pay in Sill its total credit sale price of $3,438.24.
Section 722 of the Bankruptcy Code provides as follows:
An individual debtor may, whether or not the debtor has waived the right to redeem under this section, redeem tangible personal property intended primarily for personal, family, or household use, from a lien securing a dischargeable consumer debt, if such property is exempted under section 522 of this title or has been abandoned under section 554 of this title, by paying the holder of such lien the amount of the allowed secured claim of such holder that is secured by such lien.
11 U.S.C. § 722. The right of redemption is available for property that constitutes consumer goods. Property held primarily for business purposes cannot be redeemed. In re Runski, 102 F.3d 744 (4th Cir. 1996). The statute contemplates that property may be held or used partly for a consumer purpose and partly for a business purpose. In that event, it is only if the property is intended "primarily" for personal, family, or household use that redemption is available.
The only witnesses to testify at trial were the DEBTOR and Mr. Grow. The Court found Mr. Grow to be a credible witness, whose testimony was forthright. The DEBTOR, on the other hand, was, at times, vague and non-responsive, blatantly self-serving, and his testimony on direct examination was elicited almost entirely through the use of leading questions. On one occasion, the DEBTOR admitted that he was simply agreeing with what his attorney said. Overall, the Court found his testimony suffered from a lack of credibility in key areas.
SNAP-ON interposed no objection on this basis.
The DEBTOR maintains that the tools and equipment that he purchased from SNAP-ON were all purchased by him for use primarily at home so that he could repair and maintain his personal vehicles. SNAP-ON argues to the contrary and relies on the contract warranty that the items were being purchased for business or commercial purposes, as well as on the fact that the DEBTOR was working as an auto mechanic and used, or hoped to use, the tools in that employment.
The evidence is undisputed that the tools purchased by the DEBTOR pursuant to the first contract on February 11, 2001, were delivered to him at Sears, his place of employment, were stored by him in his tool boxes in the Sears' shop, and were used by him in his job as a mechanic. The DEBTOR claims that after a while he removed the tools to his house but he was unable to recall when that occurred and was unable to recall how long he worked for Sears or when he left.
The list of tools covered by the first Add-On Rider dated July 16, 2001, includes five items transferred from a prior account. There is no dispute that these five items were used by the DEBTOR at Sears. With respect to the other four items on that list, the DEBTOR did not specifically testify that these items were not used at his work. He only testified generally that some of the tools were used at work but he failed to identify any specific tools that were not used at his workplace other than the wheel balancer.
The scanner, purchased by the DEBTOR by the second Add-On Rider, is admitted to have been purchased for a business purpose. However, the scanner was later traded in and is not part of the redemption motion. The motorized wheel balancer that was purchased pursuant to the Add-On Rider dated November 18, 2002, was purchased by the DEBTOR for use at home, a fact known to Mr. Grow.
Considering all of the evidence, the Court concludes that the only tool or piece of equipment purchased by the DEBTOR from SNAP-ON that was intended primarily for personal, family, or household use is the motorized wheel balancer. All of the other items were intended primarily for a business or commercial purpose and, as such, are not subject to redemption under Section 722.
As a consumer transaction, this sale would be subject to the Retail Installment Sales Act of Illinois. 815 ILCS 405/1 et seq. Section 22 of that Act, governing the allocation of payments made by a debtor to consolidated retail installment contracts, provides for a pro rata allocation based on the cash sales prices of the various purchases. As previously noted, the parties' contract directs a different allocation, providing that payments are credited first to finance charges, then to items in their order of purchase. Under either formula for allocation, SNAP-ON'S purchase money security interest in the wheel balancer would not be extinguished because the DEBTOR made minimal payments after acquiring that piece of equipment. Moreover, as previously noted, SNAP-ON was granted both a purchase money security interest and a nonpurchase money security interest in the equipment sold to the DEBTOR. The DEBTOR has not claimed an exemption in any of the equipment nor has he sought to avoid SNAP-ON'S lien. Accordingly, no issue arises as to the proper allocation of the payments made by the DEBTOR and the amount of SNAP-ON'S claim secured by the wheel balancer is determined by its fair market value.
The only competent evidence of value submittedat trial is Mr. Grow's appraisal. The DEBTOR'S attempt to establish a lower value using Debtor's Exhibit 3 must be rejected. The methodology is unsupported and inconsistent with recognized standards for valuation, such as an expert appraisal. Furthermore, its application is flawed. The DEBTOR uses a figure of $5,862.59 as the "brand new sales price" for all items purchased by the DEBTOR when, in fact, the items covered by the four contracts were actually purchased for $10,309.69, including the scanner and balancer. The DEBTOR'S methodology also appears to overlook the fact that the DEBTOR still owed the contract price on items traded in. The debt was not being cancelled for traded items. Rather, in accordance with the contract, he received a credit for the item's value as a used tool or piece of equipment, in an amount considerably less than what he owed at the time of the trade.
In conclusion, the Court finds that the DEBTOR has the right to redeem only the motorized wheel balancer. Its redemption price is that set forth in Mr. Grow's appraisal, $2,277.00. All of the other items may not be redeemed pursuant to Section 722.
This decision does not affect whatever rights, if any, the DEBTOR may have under state law to redeem the tools.
This Opinion constitutes this Court's findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052. A separate Order will be entered.
ORDER
For the reasons stated in an Opinion filed this day, IT IS HEREBY ORDERED that the DEBTORS' Motion to Redeem is granted in part and denied in part; the DEBTORS may redeem the motorized wheel balancer for $2,277.00, payable in full within thirty days, but they do not have the right, under 11 U.S.C. § 722, to redeem any other tools or equipment from SNAP-ON, LLC.