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11/27/84 UNITED LEASESHARES v. CITIZENS BANK &

filed: November 27, 1984.

UNITED LEASESHARES, INC., APPELLANT (PLAINTIFF-BELOW)
v.
CITIZENS BANK & TRUST COMPANY AND JIM BOONE VOLKSWAGEN, INC. APPELLEES (DEFENDANTS-BELOW), CITIZENS BANK & TRUST COMPANY, THIRD-PARTY PLAINTIFF V UNITED KENTUCKY BANK, N/K/A LIBERTY NATIONAL BANK & TRUST COMPANY, THIRD-PARTY DEFENDANT



APPEAL FROM THE CLARK SUPERIOR COURT NO. 2. The Honorable George A. Jacobs, Judge CAUSE NO 83-S2-122.

Robertson, J. Neal, P.j. And Ratliff, J. Concur.

Author: Robertson

ROBERTSON, J.

This is an appeal from a civil proceeding brought by United Leaseshares, Inc. (Leaseshares) to determine the priority of the parties to four Volkswagen Rabbits under the Uniform Commercial Code (UCC).The Clark Superior Court found against Leaseshares and in favor of the appellees, Citizens Bank and Trust Company (Citizens Bank), Jim Boone Volkswagen, Inc. (Boone) and United Kentucky Bank, (United), n/k/a Liberty National Bank and Trust Company, (Liberty).

The parties designated in this case are as follows: Citizens is an Indiana Bank with its main office in Jeffersonville. Leaseshares is a Louisville, Kentucky leasing company that buys equipment from vendors and then leases that equipment to its customers. United is a bank based in Louisville and is now merged with Liberty.

The historical facts are as follows: Boone had a car dealership in Jeffersonville, Indiana out of which he sold and rented new Volkswagens and used cars of all makes. At the time Boone went into business, he requested and received from Citizens a floor plan financing arrangement which created three different floor plans. One floor plan was for new cars, one was for used cars, and the other was for the rental fleet. In order to protect its position, Citizens withheld the certificate of origin on all new cars until Boone sold them at which time he could pick up the certificate. It also conducted various commodity checks to verify that Boone still possessed the financed automobiles. Citizens did not require that Boone pay off the cars prior to the time of placing them on the used and/or rental floor plan. Also, Citizens had a practice of allowing Boone to take cars off the floorplan, receive the certificates of origin and then, later, pay for the cars.The number of days Boone had to pay for the cars varied at different times.

On October 28, 1982, Boone placed four new Volkswagen Rabbits under its floor plan agreement with Citizens and Citizens obtained the certificates of origin. One day later, on October 29, 1982, Boone sold these same four Volkswagens to Leaseshares, and, simultaneously, leased them back from Leaseshares.

Leaseshares relied on Boone to obtain the certificates of origin and secure Indiana titles in its name. Boone did not pick up the certificates of origin from Citizens until late in the month of January, 1983. At that time, Boone picked up two of the certificates and secured titles in Leaseshares's name, but the other two certificates remained with Citizens. Simultaneously with its sale and lease back to Boone, Leaseshares had assigned these four leases to United, which also failed to obtain titles to the four Volkswagens until the end of January, 1983.

On February 19, 1983, James Boone, the president and owner of the Boone dealership, disappeared. At that time, Boone had not paid Citizens for the four Volkswagens. Both Leaseshares and Citizens demanded possession and suit was then instituted to determine who was entitled to the four Volkswagens. The trial court found that under the U.C.C., Citizens was entitled to the four automobiles. The court also found Leaseshares guilty of negligence and awarded six thousand two hundred and twenty one dollars ($6,221.00) to Citizens. The issues submitted on appeal are as follows:

1. Whether the trial court erred in finding the transaction between Boone and Leaseshares to be a mere security lease.

2. Whether the trial court properly applied the provisions of IND. CODE 26-1-9-307(1) to the facts of this case.

3. Whether the trial court properly applied the provisions of IND. CODE 26-1-9-306(2) to the facts of this case.

4. Whether the trial court properly applied the provisions of IND. CODE 26-1-9-301 to the facts of this case.

5. Whether the trial court erred in finding that Leaseshares had violated IND. CODE 32-2-1-7 and that the conveyance between Boone and Leaseshares to be fraudulent and void.

6. Whether the trial court erred in not finding that Leaseshares was entitled to at least two of the automobiles.

7. Whether the trial court erred in finding negligence on the part of Leaseshares and further by applying 9-1-2-1 and 9-1-4-1 to this security interest dispute.

8. Whether the trial court erred in refusing to grant summary judgment.

9. Whether the trial court erred in refusing to dismiss Citizen's counterclaim.

In this case, the trial court made findings of fact and Conclusions of law. Thus, we must determine whether the findings are adequate to support the trial court's decision. Shrum v. Patton, (1983) Ind.App., 442 N.E.2d 366. We will not set aside the findings or judgment unless they are clearly erroneous, and due regard shall be given to the opportunity of the trial court to Judge the crecibility of the witnesses.IND. RULES OF TRIAL PROCEDURE, Trial Rule 52(A).

In order to determine which party prevails in this case, we must first determine whether the agreement between Boone and Leaseshares was a true sale and leaseback or merely a security arrangement. "The primary issue to be decided in determining whether a lease is 'intended as security' is whether it is in effect a conditional sale in which 'lessor' retains an interest in the 'leased' goods as security for the purchase price". Matter of Marhoeffer Packing Co., Inc., (1982) 674 F.2d 1139, 1142. By defining a "security interest" in section 26-1-1-201(37) of the Code as including a lease intended as security the drafters intended such a disguised security interest to be governed by the same rules that apply to other security interests. In this respect, section 1-201(37) represents the drafter's refusal to recognize form over substance. Id.; See, U.C.C. Art. 9. I.C. 26-1-1-201(37) reads in pertinent part as follows:

"Security interest" means an interest in personal property or fixtures which secures payment or performance of an obligation. . . Unless a lease or consignment is intended as a security, reservation of title thereunder is not a 'security interest'. . . 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.

Section 1-201(37) states that the facts of each case must be examined individually in order to determine whether a lease is intended for security, however, the statute only gives the option to purchase as an example of what facts may be relevant. Other facts that courts have found relevant include the following:

1. The total amount of rent the lessee is required to pay;

2. Whether the lessee acquires any equity in the leased property;

3. The useful life of the leased goods;

4. The nature of the lessor's business; and

5. The payment of taxes, insurance and other charges normally ...


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