Court Opinion

ID: 9863740
Source: CourtListenerOpinion
Date Created: 2023-09-25 05:53:27.803777+00
Date Added: 2024-06-11T12:04:14.271060
License: Public Domain

BAKES, Justice
(dissenting) :
In my opinion the “lease agreement” involved in this transaction is in reality an artfully disguised financing arrangement rather than a lease as the majority have held. Some additional facts will help the analysis of this transaction.
In April of 1965, the defendant Ivie was about to purchase the piece of equipment in question in his own name from the Stevens Motor Company of Hailey, Idaho, for $26,000. At the suggestion of both the Stevens Motor Company and the plaintiff, Transportation Equipment Rentals, Inc., he decided to “rent” the equipment through the plaintiff. The plaintiff’s proposal was that the defendant Ivie would pay $3,000 of the $26,000 purchase price to the Stevens Motor Company, and the plaintiff Transportation Equipment Rentals, Inc., would pay the balance, i. e., $23,000. Plaintiff would receive the title to the equipment from the Stevens Motor Company and in turn would “lease’ it to the defendant Ivie under the “lease agreement” in question. The lease called for sixty monthly payments of $506 each. The agreement, which was a printed form, had a typed modification which provided that:
“In the event the prime interest rate shall be increased or decreased by The Bank of America N.T. & S.A., of San Francisco, the Lessor shall increase or decrease the monthly rental by Jiooth of 1% (one-one hundreth of one percent) of the original value for each j4 of 1% increase or decrease in the prime interest rate. Such increase or decrease in rental to be effective on the first day of the month following such increase or decrease in the prime interest.”
Of each monthly payment, $345 was to be credited to a depreciation reserve account. At the termination of the lease the equipment was to be sold, and to the extent that the amount credited to the depreciation reserve did not total the $23,000 paid out by the lessor originally, the amount received by the sale of the equipment at the end of the lease would be applied to make up the difference. If the equipment sold for more than the difference between the depreciation reserve and the $23,000 original cost to the lessor, that excess was to be returned to the lessee. However, if the amount received on the sale of the equipment was not sufficient to make up the difference between the depreciation reserve and the amount originally invested by the lessor, a deficiency would be entered against the lessee. That was the situation in this case, and it resulted in a deficiency judgment being entered against the defendant for $5,960.
It is evident from the foregoing that the entire economic risk in the equipment regarding absolescence, wear and tear, or other loss ordinarily associated with ownership was with the defendant Ivie. The lessor under the lease would receive back the original $23,000 investment, together with what appears to be a usurious amount of interest which under the lease would fluctuate up and down with the market, but in this case it only fluctuated upward. The name which the parties attach to their financial transaction is not controlling in determining whether or not it is a true lease or a financing arrangement. Gilmore, Security Interest in Personal Prop*226erty, Vol. I, § 3.4-3.8. In my opinion it was a hybrid transaction which bore more of the characteristics of a financing arrangement than an ownership-lease arrangement. Thus it is subject to the usury laws.
I would reverse the judgment of the trial court and remand to determine the extent of the usurious interest reserved by this disguised financing arrangement.