Opinion
No. 05-03-01240-CV
Opinion Filed July 20, 2004.
On Appeal from the 191st District Court, Dallas County, Texas, Trial Court Cause No. 00-08729-J.
Affirm.
Before Chief Justice THOMAS and Justices, BRIDGES and O'NEILL.
MEMORANDUM OPINION
Ray LeBron d/b/a LeBron Electronics (LeBron) asserts the trial court erred in granting judgment to Citicorp Vendor Finance, Inc. (Citicorp) for LeBron's default on an equipment-finance lease, asserting the transaction was unconscionable as a matter of law and that the transaction was a disguised loan with a security interest, which was usurious. Because the dispositive issues are clearly settled under law, we issue a memorandum opinion. Tex.R.App.P. 47.4. We affirm the trial court's judgment.
Finance Lease or Credit Transaction
In 1999, LeBron executed two equipment finance leases with a predecessor to Citicorp, to lease videoconference and copy equipment for use in his business. Other than price, the terms of both leases are the same. After six months, LeBron quit paying the monthly rental but kept the equipment. Citicorp sued, and LeBron counterclaimed for, among other things, usury and alleged violations of the Deceptive Trade Practices Act (DTPA). In accordance with the jury verdict, the trial court awarded Citicorp some $40,000 in damages on the lease for the videoconference equipment and no damages with respect to the copier. In his third and fourth issues, LeBron asserts the transactions created security interests. As credit transactions, he asserts, they were usurious.
Finance leases are governed by chapter 2A of the Texas Business Commerce Code, as defined in section 2A.103. Tex. Bus. Com. Code Ann. § 2A.103(a)(7) (Vernon 1994). Section 1.201(37)(B) of the business and commerce code sorts through factors indicating a transaction creates a security agreement, not a lease. Id. § 1.201(37)(B) (Vernon 1994) (now at § 1.203 (Vernon Supp. 2004)). To qualify as a security agreement, the transaction must not be subject to termination by the lessee and must meet at least one of four listed factors. Id.
The leases fail to meet any of four factors indicating a security agreement. Concerning the first factor, the jury determined that the economic life of the goods would outlast the term of the lease. We apply well established standards to determine legal and factual sufficiency and conclude that the first factor was not met. The testimony at trial was both legally and factually sufficient to support the predicate to the jury finding, i.e., that at the time of contracting the value at the end of the lease was expected to be greater than zero.
Concerning the second factor, the language of the document shows that at the end of the leases LeBron was not bound to renew them or become owner of the goods, but that he could send the equipment back. Third, LeBron did not have an option to renew the leases for essentially no consideration. Absent notice by LeBron, the lease would renew at the regular monthly rate. Fourth, the purchase price at the end of the lease was not zero or nominal. LeBron had an option to purchase at the end of the initial 48-month lease term for "its then fair market value," as determined by Citicorp. Additional consideration is not nominal if the price is stated to be the fair market value of the goods determined at the time the option to purchase is performed. § 1.201(37)(D)(ii) (Vernon 1994). We conclude that none of the four factors indicating a security agreement is met.
Because these are lease agreements, not credit transactions involving interest, the usury statute does not apply. Potomac Leasing Co. v. Housing Authority, 743 S.W.2d 712, 713 (Tex. App.-El Paso 1987, writ denied). Accordingly, we resolve LeBron's third and fourth issues against him.
Unconscionability
In his first issue, LeBron asserts that, as a matter of law, the lease agreements are unconscionable. Whether a contract is unconscionable is a question of law for the court to decide. Tex. Bus. Com. Code Ann. § 2.302, cmt. 3 (parallel provision at § 2A.108); Arthur's Garage, Inc. v. Racal-Chubb Sec. Sys. Inc., 997 S.W.2d 803, 815 (Tex. App.-Dallas 1999, no pet.).
In his second issue, LeBron refers to an affirmative jury finding under the DTPA definition of "unconscionable action or course of action." Although the jury found that Citicorp had committed an unspecified "unconscionable action or course of action," it did not find LeBron incurred any damages as a result. The jury's fact finding does not answer the legal question LeBron presents on appeal, whether the transaction itself, embodied in the lease agreement, is unconscionable.
The question whether a finance lease is unconscionable is governed by section 2A.108 of the business and commerce code. This section is taken almost verbatim from section 2.203, governing unconscionability in the sale of goods. Tex. Bus. Com. Code Ann. § 2A.108 cmt. (Vernon Supp. 2004). "[T]he basic test for unconscionability is whether, given the parties' general commercial background and the commercial needs of the particular trade or case, the clause involved is so one-sided that it is unconscionable under the circumstances existing when the parties made the contract. The principle is one of preventing oppression and unfair surprise and not of disturbing allocation of risks because of superior bargaining power." In re FirstMerit Bank, N.A., 52 S.W.3d 749, 757 (Tex. 2001) (citing § 2.203 cmt. 1).
LeBron complains of numerous clauses, all of which are cited in article 2A as permitted in leases such as this: non-cancellation (non-consumer lease; § 2A.407); permissive filing of protective financing statement (§ 2A.101 cmt.); disclaimer of warranties by lessor (§ 2A.214). He complains generally that his waiver of certain remedies under chapter 2A was unconscionable, but does not point to any authority prohibiting such waiver. LeBron's principle complaint appears to be, essentially, that Citicorp realized an excessive profit. In other words, LeBron made a bad bargain (monthly rental of $841 for 48 months, on videoconference equipment for which Citicorp paid $31,900). Also LeBron complains in particular that the terms and fees applying upon default were excessive, i.e., interest due on past-due amounts at 1-1/3% per month, 10% fee on past-due amounts to offset expenses of collection, application of security deposit against amounts due after default.
As the comment to section 2.203 instructs, the principle underlying unconscionability is to prevent unfair surprise and not to disturb the allocation of risks because of superior bargaining power. LeBron's reliance on Tri-Continental Leasing Corp. v. Richard W. Burns, 710 S.W.2d 604 (Tex. App.-Houston [1st Dist.] 1985, writ ref'd n.r.e.) is misplaced. That case was decided before chapter 2A was enacted to govern finance leases, and the equipment was found to be so defective the contract failed for consideration. LeBron does not assert a failure of consideration. Neither does he cite authority and record evidence to establish that this allegedly bad bargain between commercial parties was so one-sided that it constitutes an unconscionable lease agreement. See Arthur's Garage, 997 S.W.2d at 815-816. Thus, we resolve LeBron's first and second issues against him.
Accordingly, we AFFIRM the trial court's judgment.