In Re Brown

128 B.R. 815 (1989)

In re Carolyn BROWN, Debtor.

Bankruptcy No. BK88-09488.

United States Bankruptcy Court, N.D. Alabama, W.D.

March 1, 1989.

Phillip Lisenby, Tuscaloosa, Ala., for debtor Carolyn Brown.

Jane K. Dishuck, Tuscaloosa, Ala., Standing Trustee.

Donna Smalley, Tuscaloosa, Ala., for Colortyme, Inc.

MEMORANDUM OF DECISION

GEORGE S. WRIGHT, Chief Judge.

The above-styled case came before the Court on the Creditor's [hereinafter Colortyme] Statement of Claim and Motion to Terminate Section 362 Stay and Objection to Confirmation. The Motion To Terminate Stay and Objection to Confirmation was heard at the Confirmation Hearing on November 3, 1988.

This Court ruled in the Confirmation Order that the agreement entered into between the creditor and debtor was a disguised credit sale and not a "true lease". This Court also reserved, under paragraph 7 of the Confirmation Order, jurisdiction to make additional findings of fact and conclusions of law in the event of an appeal^[1]. An appeal having been taken by the creditor, this Court now exercises its retained jurisdiction and makes the following findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.

FINDINGS OF FACT

The debtor entered into an agreement with Colortyme whereby Colortyme was to deliver to her home a Whirlpool washer that the debtor could retain as long as monthly payments of $51.00 or weekly payments of $14.00 were tendered to Colortyme. The agreement by the debtor and Colortyme was set out in a pre-printed document, supplied by Colortyme, styled "Rental Agreement". The Rental Agreement^[2] disclosed whether the merchandise was new or used; the amount and timing of payments to be made by the debtor; charges other than rental payments; the total number of rental payments and the total amount required to be paid in order to acquire ownership of the merchandise; that the debtor was not the owner of the merchandise until the remittance of all required payments, and that liability for loss or damage of the merchandise is to be borne by the debtor. The rental period was established as either 75 weeks or 17 months.

Additional provisions in the Rental Agreement dealt with termination of the agreement, renewal of the agreement, and ownership by the debtor upon renewal and remittance of the 75th week or 17th month payment. These various provisions are important to the overall effect of the agreement and are discussed in more detail as follows:

a) Termination: The debtor had the option of terminating the agreement at any time by surrendering the merchandise to Colortyme and paying any then due rental payments. The debtor would be charged no penalty for termination. Colortyme had the option of terminating the agreement only upon the debtor's failure to make a rental payment or upon the debtor's undertaking to dispose^[3] of the merchandise.

b) Renewal: The debtor could renew the agreement by simply remitting successive rental payments.

c) Ownership by the Debtor: The debtor could obtain ownership of the merchandise by renewing the agreement for 75 successive weeks or 17 successive months. No additional consideration was due Colortyme at the end of the 75th week or 17th month in order for the debtor to become the owner of the merchandise.

d) Taxes: Although the pre-printed agreement used by Colortyme contains a provision for sales tax, that particular provision was scratched out or blackened through in the agreement with Carolyn Brown. There is no indication that such taxes were charged to the debtor in the case at bar.

This Court must now decide whether the Rental Agreement is a "true lease" or a "disguised credit sale".

CONCLUSIONS OF LAW

Applicability of Alabama Code Section 7-1-201(37)

This Court has on numerous occasions^[4] addressed the true lease v. disguised credit sale question. On each occasion, the Court has determined that rental agreements of the type in the case at bar are disguised credit sales and not true leases. Each of the prior decisions by this Court have consistently held that Alabama Code Section 7-1-201(37) is dispositive of the issue. This Court's decision in In re Betty Jean Graham, BK85-3532 (Bkrtcy.N.D. Ala. May 2nd 1986, supplemented by May 16th, 1986 Additional Findings of Fact and Conclusions of Law) was based upon the applicability of Alabama Code Section 7-1-201(37) and was subsequently affirmed on appeal by District Judge James H. Hancock.^[5] Following the prior reasoning of this Court and the affirmance by Judge Hancock, it remains the opinion of this Court that rental agreements of the type present in the case at bar are controlled by Alabama Code Section 7-1-201(37).

Applicability of Alabama Code Section 8-25-1 et seq.

Colortyme asserts that Alabama Code Section 8-25-1 et seq. is controlling since the Rental Agreement in question conforms to the requirements set out in Section 8-25-2 and thereby renders the Uniform Commercial Code inapplicable. Such contention is without merit.

Alabama Code Section 8-25-1 et seq. is commonly referred to as the Rental-Purchase Agreements Act and was adopted by the Alabama legislature in 1986. Section 8-25-1 et seq. is a disclosure statute. Its purpose is to regulate the disclosure of pertinent information to the consumer. It does not exclusively regulate rental-purchase agreements nor does it bar application of the Uniform Commercial Code via Alabama Code Section 7-1-201(37). For further arguments and reasoning surrounding the applicability and interplay of Sections 8-25-1 et seq. and 7-1-201(37) see this Court's opinion in the consolidated cases of In re Burton, 88-00888, Norwood, 88-02452, Ward, 88-02672, Washington, 86-09928, Woods, 88-01782, 128 B.R. 820.

This memorandum shall constitute findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052.

APPENDIX

NOTES

[1] The confirmation order dated November 3, 1988 provided: "(7) The Court reserves jurisdiction to make additional findings of fact and conclusions of law in the event of an appeal."

[2] Appendix A is a copy of the agreement entered into by Colortyme and the debtor.

[3] The rental agreement stated that the debtor agreed to keep the merchandise in his/her possession at the residence listed on the rental agreement and that the merchandise would not be removed from the residence without the prior approval of Colortyme. The rental agreement further provided that the lessee had no right to sell, mortgage, pawn, pledge, encumber, or otherwise dispose of the merchandise.

[4] In re Central Foundry Co., 48 B.R. 895 (Bkrtcy. N.D.Ala.1985); In re Betty Jean Graham, (Bkrtcy.N.D.Ala. May 2nd, 1986, supplemented by May 16th Additional Findings of Fact and Conclusions of Law, aff'd, CV86-H-1055-W Sept. 11th, 1986; In re Burton, 128 B.R. 807 (Bkrtcy.N.D.Ala.1989).

[5] In re Betty Jean Graham, CV86-H-1055-W (Unpublished) Sept. 11th, 1986.