Court Opinion

ID: 8903637
Source: CourtListenerOpinion
Date Created: 2022-11-27 01:30:38.173566+00
Date Added: 2024-06-11T17:08:01.475005
License: Public Domain

KOELSCH, Circuit Judge,
concurring in part, dissenting in part:
I concur in much of Judge Sneed’s able effort to introduce a degree of coherence into the rapidly developing (and judicially uncharted) field of bank “lease financing.” Shorn of the “language of commerce,” I understand the majority to sanction two forms of lease transactions that may permissibly be engaged in by national banks under section 24 (Seventh) of the National Bank Act (12 U.S.C. § 24 (Seventh)): either the bank as lessor recovers all of its investment and profit in the form of rental payments from the lessee over a lease term spanning the substantial economic life of the chattel, or at the expiration of a lease term less than that of the approximate economic life of the asset, looks to the lessee to guarantee any “residual value,” that is, the bank’s investment and profit less the sum of rentals collected over the term of the lease. (Parenthetically, I read the majority opinion as invalidating short-term lease transactions which make no provision for the lessee’s guarantee of the chattel’s residual value — the so-called “closed-end lease” ■ — except where “the residual value of the leased property at the expiration of the lease contributes insubstantially to the bank’s recovery of its advances plus interest.” (Majority opinion at 1384, my emphasis.))
The majority approves the former transaction (typically employed, in banker’s jargon, in the financing of so-called “big ticket” items) because the lessor-bank, having recovered its investment over the term of the lease, assumes no risk not incidental to one aspect of the “business of banking”: the “loaning of money on personal property” (12 U.S.C. § 24 (Seventh)), albeit cast in the form of a lease. Accordingly, I concur in that part of the majority opinion holding that such transactions constitute the “business of banking” within the meaning of the statute. The bank recovers its advances *1385plus interest in the form of rentals over the term of the lease, and the record indicates that as a matter of practice in such arrangements, the bank bears no risk of having to recover its investment by regaining possession of the chattel for the purpose of further realizing on its security.1 I agree with the majority that such transactions are functionally indistinguishable from purchase money loans secured by a lien-like interest in the chattel.
The majority upholds the use of short-term leases, however — typically employed in the “financing” of motor vehicles and like consumer items — on the ground that in such transactions the bank looks to the credit-worthiness of the lessee to guarantee the anticipated resale value of personal property leased for a term less than that of its approximate economic life, thus freeing the bank of any obligation to realize further on the chattel by repeated leasings or comparable means of recovering its investment. The majority appears to reach this result by analogizing the bank’s recovery and disposition of the chattel at the expiration of the lease to /‘the orderly liquidation of the bank’s security . . . .” (Majority opinion at 1383.)
I agree, of course, with the proposition that a “lessor”-national bank may properly engage in functions incident to the orderly liquidation of its security. That is a traditional incident of the “business of banking” necessitated when any borrower defaults on a loan. But I do not regard that rule as in any way relevant to the present inquiry. In my view, the short-term lease arrangement entered into between the bank and the lessee contemplates at the outset that the bank will inevitably gain or regain possession of the subject matter of the so-called lease and that the amount reserved as rent does not reflect the full value (or price) of the chattel plus interest. In such cases, the transaction is not, in my view, to be deemed one which constitutes the “business of banking” within the meaning of the statute. For in every such instance the fact is manifest that the bank itself will ultimately become the owner of the chattel.
In such a short-term lease transaction, it matters not whether the bank secures the guarantee of the lessee as to the residual value of the chattel at the- expiration of the lease or must itself bear the risk of a downward fluctuation in value. On whomever the risk of a downward market falls, the bank as lessor must — if the lessee himself does not agree to purchase the property2 —look to the market in the first instance in order to realize the full value of its investment. The majority concedes as much (at 1381) in noting that “[sjhould the lessee not purchase the item . . . the lessor bank will dispose of it by sale or by way of a new lease.” The bank is thus drawn ineluctably into the business of disposing of used chattels — not in pursuit of the lender’s traditional remedy of foreclosure and sale incident to the borrower’s default — but pursuant to the terms of the lease agreement itself. In my view, the resultant preordained participation of national banks in the market disposition of personal property is neither a part of the “business of banking” nor an incident thereto. I accordingly dissent from that part of the majority opinion holding short-term lease financing by national banks to be within the purview of 12 U.S.C. § 24 (Seventh).

. Except, of course, in those distinguishable instances where the “lessee” defaults on its rental obligation under the terms of the lease agreement. See the discussion in the text, infra at p. 1385.

. As the record in this case indicates, among the advantages offered the consumer by the motor vehicle lease transaction — as advertised by the defendant banks — are driving “top-of-the-line” new cars, no trade-in problems and few repairs. Such advantages would seem to accrue only where the consumer contemplates a relatively short term (24 to 36 month) use of the vehicle and suggest that, realistically, the parties to the transaction envision from the outset that the bank will itself dispose of the vehicle at the expiration of the lease by either offering it to the franchise dealer who generated the lease or wholesaling it to another dealer for resale.