{ "id": 1675825, "name": "Jerry Mike BELL v. ITEK LEASING CORPORATION", "name_abbreviation": "Bell v. Itek Leasing Corp.", "decision_date": "1977-07-11", "docket_number": "77-84", "first_page": "22", "last_page": "26-B", "citations": [ { "type": "official", "cite": "262 Ark. 22" }, { "type": "parallel", "cite": "555 S.W.2d 1" } ], "court": { "name_abbreviation": "Ark.", "id": 8808, "name": "Arkansas Supreme Court" }, "jurisdiction": { "id": 34, "name_long": "Arkansas", "name": "Ark." }, "cites_to": [ { "cite": "534 P. 2d 528", "category": "reporters:state_regional", "reporter": "P.2d", "case_ids": [ 10468489 ], "year": 1975, "opinion_index": 0, "case_paths": [ "/p2d/534/0528-01" ] }, { "cite": "320 F. Supp. 938", "category": "reporters:federal", "reporter": "F. Supp.", "case_ids": [ 5546534 ], "year": 1970, "opinion_index": 0, "case_paths": [ "/f-supp/320/0938-01" ] }, { "cite": "9 F. 2d 54", "category": "reporters:federal", "reporter": "F.2d", "case_ids": [ 1658811 ], "year": 1925, "opinion_index": 0, "case_paths": [ "/f2d/9/0054-01" ] }, { "cite": "247 Ark. 226", "category": "reporters:state", "reporter": "Ark.", "case_ids": [ 1600723 ], "weight": 2, "year": 1969, "opinion_index": 0, "case_paths": [ "/ark/247/0226-01" ] }, { "cite": "244 Ark. 943", "category": "reporters:state", "reporter": "Ark.", "case_ids": [ 8724790 ], "weight": 2, "year": 1968, "opinion_index": 0, "case_paths": [ "/ark/244/0943-01" ] }, { "cite": "220 Ark. 565", "category": "reporters:state", "reporter": "Ark.", "case_ids": [ 1660191 ], "weight": 2, "year": 1952, "opinion_index": 1, "case_paths": [ "/ark/220/0565-01" ] }, { "cite": "38 S.W. 2d 552", "category": "reporters:state_regional", "reporter": "S.W.2d", "year": 1931, "opinion_index": 1 }, { "cite": "183 Ark. 750", "category": "reporters:state", "reporter": "Ark.", "case_ids": [ 1441762 ], "year": 1931, "opinion_index": 1, "case_paths": [ "/ark/183/0750-01" ] } ], "analysis": { "cardinality": 666, "char_count": 10949, "ocr_confidence": 0.858, "pagerank": { "raw": 5.709975888797331e-07, "percentile": 0.9497993898485974 }, "sha256": "2b443c70388223fe1b8ff3d074966796f6f46b6d77389d3bb23a34d166f57ae3", "simhash": "1:812e1342c297b518", "word_count": 1885 }, "last_updated": "2023-07-14T19:27:42.068781+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [], "parties": [ "Jerry Mike BELL v. ITEK LEASING CORPORATION" ], "opinions": [ { "text": "George Rose Smith, Justice.\nIn this case, essentially one of first impression in Arkansas, the single issue is whether a contract by which Itek Leasing Corporation purported to lease certain printing equipment to Jerry Mike Bell for a term of five years was in actuality an installment-sale contract carrying such an excessive interest rate as to be void for usury under Arkansas law. We are unanimously of the opinion, contrary to the trial court\u2019s conclusion, that the overwhelming preponderance of the proof shows the purported lease to have been in fact a credit sale that is void for usury. We therefore reverse the decree on direct appeal and do not reach the cross appeal.\nIn 1968 we examined in detail a transaction that was argued on the one hand to be a sale and on the other to be a lease. Sawyer v. Pioneer Leasing Corp., 244 Ark. 943, 428 S.W. 2d 46 (1968). There the distinction was important only with regard to the existence of an implied warranty; the issue of usury was not presented. Nevertheless, in language that we adhere to, we made prophetic observations that have proved to be peculiarly pertinent to the present case:\n[W]e think it well to point out that agreements of this nature will be examined closely by this court. It is possible that similar agreements could be used to cloak usurious charges, i.e., a transaction which was actually a sale could be set up as a lease in order to enable charges to be made that would, under a credit sale, constitute usury.\nOur prediction in that case has come true.\nIn 1973, five years after the Sawyer decision, the plaintiff Bell and a salesman for Micro-Graphics (a North Little Rock company) completed at Bell\u2019s home in Fort Smith the controverted contract for the \u201cleasing\u201d by Bell of certain printing equipment. The salesman filled out the printed form, and Bell signed it. Apparently the contract was next signed about six weeks later by the defendant, Itek Leasing Corporation, whose mailing address is Rochester, New York. The contract recites that it is to be governed by New York law, but there is no contention that Arkansas law is not controlling under Ark. Stat. Ann. \u00a7 27-2504 (Supp. 1975), as construed in Deposit Guaranty Nat. Bk. v. River Valley Co., 247 Ark. 226, 444 S.W. 2d 880 (1969).\nThe contract recites that the equipment\u2019s price (an odd word to use in a lease) is $12,670. The \u201clessee\u201d makes an \u201cinitial payment\u201d of $1,498.05 and agrees to make 60 additional monthly payments of $299.61 each. Itek made no effort to explain how the amount of the monthly payments was arrived at, but if they are actually remittances upon a credit sale of the equipment for the recited price less the down payment, then the contract provides an interest return to the seller at the rate of 19.31% a year. Under our Constitution such a contract is void.\nWe do not discuss at length either the facts or the controlling rule of law, for in this case both are beyond dispute. A \u201clease\u201d is a security interest under the Uniform Commercial Code (or at common law) if \u201cthe deal is in every respect a secured installment sale except that the parties clothe it in lease terminology.\u201d White & Summers, Uniform Commercial Code, \u00a7 22-3 (1972); Burroughs Adding Mach. Co. v. Bogdon, 9 F. 2d 54 (8th Cir. 1925); McKeeman v. Commercial Credit Equipment Corp., 320 F. Supp. 938 (E.D. Neb. 1970); McGalliard v. Liberty Leasing Co. of Alaska, 534 P. 2d 528 (Alaska, 1975).\nUpon the facts, five important points are plainly established by the proof or plainly to be inferred from the proof:\nFirst: The defendant, Itek Leasing Corporation, is in \u00abact a finance company. Although the main items that were covered by the contract were an \u201cItek Mark IV Platemaster\u201d and an \u201cItek Duplicator,\u201d the leasing company does not, in the words of its own witness, manufacture any equipment of any nature. It is a service company that has outstanding about 1,300 leases representing (an investment of) about eighteen million dollars. It is fair to infer that Itek Leasing Corporation finances the sale of Itek products.\nSecond: The printed form of lease puts all the risk upon the lessee, not upon the lessor. The lessee must pay the taxes and insurance upon the leased property and incurs, in the most detailed language, every risk of loss or damage to the leased property.\nThird: The contract provides the same remedies upon the lessee\u2019s default in the payment of rent, even at the end of the first month, that would be available to a conditional seller or to a mortgagee upon a similar delinquency. That is, the lessor can declare all the remaining payments to be due, can repossess the property, can sell it, and can hold the lessee personally liable for any deficiency. Thus the lessee may be held responsible for rent not even due for another four years or more if the property does not sell for enough to pay all future rents. We can recall having seen no bona fide lease containing such a remedy.\nFourth: The contract expressly provides that the lessee will, upon the lessor\u2019s request, join the lessor \u201cin executing financing statements pursuant to the Uniform Commercial Code and in the execution of such other instruments or assurances as Lessor deems necessary or advisable for . . . the protection of. . . the interest of the Lessor in the Equipment.\u201d The Uniform Commercial Code, which the contract itself cites, provides that a lease is not a security interest and therefore not within the purview of the Code unless it is intended as a security. Ark. Stat. Ann. \u00a7\u00a7 85-1-201 (37) and 85-9-102 (2) (Add. 1961). Here the contract not only required Bell to execute a financing statement upon request; such a statement was in fact demanded and filed. Itek Leasing is not in a position to contend that it had no thought that the lease was actually a security device.\nFifth: The authorities, supra, put great emphasis on the amount (in percentages) that the \u201clessee\u201d must pay to acquire title after all the payments have been made. If the amount is nominal (10% is a figure frequently so described), then the transaction is patently a sale in lease\u2019s clothing; for why would a bona fide lessor relinquish a valuable chattel for next to nothing? That question arises here. Itek Leasing\u2019s witness, testifying in its own behalf, said that his company, about 30 days before the expiration of the five-year term, would have offered Bell the option (had he made all the preceding payments) of buying the equipment for 10% of its original contract price. During those five years. Bell would have paid a total of more than $17,500 for the \u201crental\u201d of equipment that had an initial value of $12,670 and which, according to the indications in the record, would still have been worth $10,000 at the expiration of the 5-year lease. Obviously Bell would have had no real choice except to pay another $1 ,- 267 to protect, to salvage, an investment of more than $17,000 in equipment still worth some $10,000.\nIn reversing the decree we think it fair to say that Itek Leasing is not shown to have deliberately sought to circumvent our usury law by a transparently fraudulent scheme. Rather to the contrary, it seems to have used a printed contract form that may be valid in New York and other jurisdictions, and to have presented its case with candor. In Arkansas, however, the terms of this contract unquestionably run counter to our constitutional provision against usury, which we have consistently and vigorously enforced for many years.\nReversed and remanded for further proceedings.", "type": "majority", "author": "George Rose Smith, Justice." }, { "text": "Supplemental opinion on denial of rehearing delivered September 19, 1977\n(In Banc)\nGeorge Rose Smith, Justice.\nThe appellee, in its petition for rehearing and supporting brief, continues to argue in effect that the so-called lease should be construed according to its form rather than its substance. It is settled, however, that if a transaction, such as a purported sale, is actually a mere device to cover the exaction of usurious interest, the form of the transaction is immaterial. Home Bldg. & Sav. Assn. v. Shotwell, 183 Ark. 750, 38 S.W. 2d 552 (1931). In the case at bar the transaction between the appellant and the appellee was plainly a credit sale, even though the finance company attempted to disguise its role as that of a lessor.\nOn rehearing counsel for the appellee for the first time call our attention to a 1973 amendment to the Uniform Commercial Code, contained in Act 116 of 1973. Ark. Stat. Ann. \u00a7 85-9-408 (Supp. 1975). The new section provides that a consignor or lessor of goods may file a financing statement, but the filing shall not of itself be a factor in determining whether the consignment or lease is intended as security. The intent of the amendment is to permit a lessor, for example, to file a financing statement as a precautionary measure, even while contending that the lease is a true lease for which no financing statement is actually required.\nThe 1973 Act does not affect our decision in this case, for two reasons. First, by its terms the statute did not take effect until January 1, 1974, which was after this financing statement had been accepted and presumably filed. Second, in Arkansas whether a transaction is usurious is a question arising under the Constitution, Art. 19, \u00a7 13, and is therefore for the courts rather than for the legislature. As we noted in Strickler v. State Auto Finance Co., 220 Ark. 565, 249 S.W. 2d 307 (1952): \u201c[T]he lawmakers are powerless to declare that a usurious charge is not to be so considered by the courts.\u201d\nCounsel also question the statement in our original opinion that the equipment, \u201caccording to the indications in the record, would still have been worth $10,000 at the expiration of the 5-year lease.\u201d At the close of the trial, counsel for the appellant, in asking that the appellee be required to give security to protect the appellant pending the appeal, stated without contradiction that at a pretrial conference it had been decided by attorneys for both sides and by the court that a reasonable value of the property was $10,000. The appellee in fact filed a bond in that amount. There is also a showing that as of September 10, 1975, when only 55% of the purchase price was still unpaid, the appellee itself offered to execute a bill of sale to the appellant for $8,950, which was 70% of the original purchase price. Hence according to the record the $10,000 figure, at least as of the date of the trial, appears to be a fair one. The actual figure, however, is not of much importance, the point being that in any event the value at the termination of the lease would apparently be far in excess of the 10% payment by which the \u201clessee\u201d could acquire the property.\nRehearing denied.", "type": "rehearing", "author": "George Rose Smith, Justice." } ], "attorneys": [ "Robert S. Blatt, for appellant.", "Bethell, Callaway & Robertson, by: Bruce H. Bethell, for appellee." ], "corrections": "", "head_matter": "Jerry Mike BELL v. ITEK LEASING CORPORATION\n77-84\n555 S.W. 2d 1\nOpinion delivered July 11, 1977\n(In Banc)\n[Rehearing denied September 19, 1977.]\nRobert S. Blatt, for appellant.\nBethell, Callaway & Robertson, by: Bruce H. Bethell, for appellee." }, "file_name": "0022-01", "first_page_order": 52, "last_page_order": 58 }