Consumer Lease Network, Inc. v. Puckett (In Re Puckett)

60 B.R. 223, 3 U.C.C. Rep. Serv. 2d (West) 734, 1986 Bankr. LEXIS 6242
CourtUnited States Bankruptcy Court, M.D. Tennessee
DecidedApril 18, 1986
DocketBankruptcy 385-01792, 385-02105, 385-02106, 385-02497 and 385-02396
StatusPublished
Cited by30 cases

This text of 60 B.R. 223 (Consumer Lease Network, Inc. v. Puckett (In Re Puckett)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, M.D. Tennessee primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Consumer Lease Network, Inc. v. Puckett (In Re Puckett), 60 B.R. 223, 3 U.C.C. Rep. Serv. 2d (West) 734, 1986 Bankr. LEXIS 6242 (Tenn. 1986).

Opinion

MEMORANDUM

KEITH M. LUNDIN, Bankruptcy Judge.

The issue in these consolidated proceedings is whether agreements are true leases or disguised sales and security interests. I find that the agreements are security agreements and the transactions are sales not leases.

The following constitute findings of fact and conclusions of law. Bankruptcy Rule 7052. This is a core proceeding. 28 U.S. C.S. § 157(b)(2)(M) (Law.Co-op.1986).

I. PROCEDURE

Consumer Lease Network (“CLN”) has moved to compel these Chapter 13 debtors to accept or reject “leases” and CLN objects to confirmation of each debtor’s plan. CLN asserts the plans do not cure defaults and fail to provide adequate assurances of future payments — conditions imposed by 11 *225 U.S.C.S. § 365(b) (Law.Co-op.1986) if a debtor is to assume a lease or executory contract that is in default. Each proceeding presents the same controlling issue: whether the agreements between the debtors and CLN are leases or security agreements.

The court also heard testimony in Waterbed World, Inc. v. Puckett, Case No. 385-01792, involving the same sale versus lease question. Waterbed World, using CLN’s printed form, but without CLN’s participation, consummated two transactions with Nancy Sue Puckett. These transactions are the-subject of motions substantially similar to those filed in CLN v. Puckett. 1

II. THE CLN TRANSACTIONS

Each debtor signed an agreement with CLN entitled “Lease Agreement and Consumer Leasing Disclosure Statement.” 2 Paragraph 1 provides that “CLN leases to Lessee and Lessee leases from CLN, the property hereinafter described ...” Each agreement is for a term of 18 months. Payments are due monthly. The agreement allows the “lessee,” with CLN’s approval, to defer any monthly installment by paying a deferral charge. The “lessee” pays sales tax, provides insurance, performs all maintenance and indemnifies CLN in various ways. The “lessees” may terminate the arrangement by returning the collateral to CLN 3 or exercising an option to purchase. 4 Upon termination, the “lessees” are liable to CLN for all matured monthly payments, late charges, deferral and insurance charges and any damage to the property.

CLN disclaims all warranties but assigns manufacturers’ warranties to the “lessee”. It does not carry liability insurance for any damages which may be caused by the goods. CLN does not file U.C.C.-l financing statements.

CLN operates in Tennessee and three or four other states. 5 It does business with approximately 300 retail dealers. It has six employees, all located in Nashville. CLN enters into 1,700 to 1,800 “lease *226 agreements” per year. It currently maintains 2,700 to 2,800 open accounts. Since its inception, CLN has administered approximately 5,000 contracts.

Each debtor testified credibly and without substantial contradiction concerning the transactions with CLN. 6

A. VINSON

Vinnie and John Vinson 7 contracted with CLN on November 16, 1983. The transaction was arranged by the John F. Lawhon Furniture Company. The Vinsons went to the Lawhon store on November 15, 1983 intending to purchase furniture. They were attracted by a sale advertisement. A Lawhon salesman assisted in the selection of furniture, then introduced the debtors to another Lawhon employee who handled financing. The debtor told the credit person she had no credit cards and only two lines of credit in Nashville. He told the debtor “there was other ways [they] could get approved.” Testimony of Vinnie Vinson, Sept. 26, 1985, Transcript at 183. This “other way” to “get approved” was not described. They were simply told that “they have [sic] other ways of line of credit that we could buy our furniture.” Id. at 184. The Vinsons filled out an application form 8 and left a $200 deposit. .

The following day, the Vinsons were notified by phone that their application had been approved and they could pick up the furniture. The Vinsons returned to the Lawhon store and signed a CLN contract. Ms. Vinson testified that when she saw the contract she wanted to make sure that her money was going toward buying the furniture. A Lawhon employee reassured her that she was purchasing the furniture. He explained “something about so much going towards this and so much for going toward buying it. And at the end of that time the amount left over paid in cash.” Id. at 186-87.

Approximately 12 months later, Ms. Vinson became unable to make the monthly payment. She telephoned CLN and told *227 them to pick up the furniture. She was informed that instead of returning the furniture she could pay a deferral charge until she was able to make the regular payments. Ms. Vinson paid between $32 and $35 per month to defer payments for approximately four months, 9 then again fell behind. She spoke again to CLN and was told by a Mr. Allen that she could further defer payment for $28. She made one $28 payment in June of 1985.

B. HARLAN

Milton R. Harlan contracted with CLN on June 13, 1985. 'The transaction was arranged by Catalina Waterbed (“Catalina”). Harlan was attracted to Catalina by a radio advertisement offering “free” satin sheets, two king size pillow cases, a mattress pad and a comforter with the purchase of a waterbed. Harlan selected a waterbed and told the Catalina salesperson. that he would buy the bed if he could obtain credit. He filled out a credit application. The next day Harlan called the store and was told that his credit application had been rejected but that he should “just come on in anyway and there was a way he could fix it where I could purchase this bed.” Testimony of Milton R. Harlan, Sept. 27, 1985, Transcript at 8.

Harlan returned to the store, signed a CLN agreement and gave Catalina the down payment. Harlan testified that he did not read the contract before he signed it, he had never dealt with a lease company before and he was led to believe that he was buying the bed by the amount of the down payment and the monthly payments and the fact that he subsequently received a payment book. Id. at 9, 17.

C. HAMPTON

Barbara Hampton contracted with CLN on October 27, 1984. The transaction was arranged through Wonderful Waterbeds. On her first visit to Wonderful Waterbeds, she chose a waterbed and filled out a credit application. An employee of Wonderful Waterbeds later informed her that the credit application had been rejected btfj; that “there was this new plan and that I qualified for it. It would make my credit better.” Testimony of Barbara Hampton, Sept. 27, 1985, Transcript at 51.

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Bluebook (online)
60 B.R. 223, 3 U.C.C. Rep. Serv. 2d (West) 734, 1986 Bankr. LEXIS 6242, Counsel Stack Legal Research, https://law.counselstack.com/opinion/consumer-lease-network-inc-v-puckett-in-re-puckett-tnmb-1986.