*1 Mickey L. Joseph ARD L. McGALLI Palace, Import McGalliard, d/b/a
Appellants, OF LEASING COMPANY
LIBERTY ALASKA, INC., Alaska Cor Appellee. poration,
No. of Alaska. April 3, 1975. Tucker, ap- Anchorage, for
Edward W. pellants. ap- Anchorage, for Johnston, L. James
pellee. OPINION ER- RABINOWITZ, J., and C. Before BOOCHEVER, WIN, and FITZGER- ALD, JJ. *2 FITZGERALD, value of trade fixtures. The Justice. setting up answered McGalliards numerous opinion that a third- In this we decide counterclaims, only defenses and one of is a lease party loan in the form of cloaked any significance appeal. has in this laws, usury purview of the within AS The claim that “lease” McGalliards seq.1 that the trans-
45.45.010et We hold was in a loan substance or forbearance of action in the instant case was usurious. money in vi- at a usurious rate of interest Joseph and During the summer of 1968 seq. 45.45.010et olation of AS Palace, Mickey McGalliard, Import d/b/a in his judge was uncertain The Ryland2 entered with Robert discussions Al- characterization of the transaction. gift and concerning of their relocation three-party though he concluded novelty relocation of store. To make integrated transac- arrangement was feasible, needed to store the McGalliards Liberty position in the of a with fixtures. acquisition trade finance the of financier, Liberty/Mc- spoke he of the also eventually arranged by financing sale. transaction as a conditional Galliard Leasing Liberty through Western Fixtures Liberty/McGalliard saw the Because he Company of Alaska. sale, transaction as a conditional the trial Liberty Following negotiations, honor, compelled felt he char- price of the Leasing, paid total Inc. it, longstanding legal a acterized fiction $17,836.88, fixtures, amounting, trade holding sales the reach conditional outside delivered di- The fixtures were Western. Judgment en- statutes. at rectly by to the McGalliards Western $11,- tered for in the amount of trans- complete the the new location. To 674.24, remaining payments under due a action, entered into then McGalliards agreement. The trade fixtures were Liberty. The arrangement with “lease” proceeds applied sold and the ordered monthly instrument called for written any the amount due with excess awarded $24,- of for a total payments of $686.72 now. McGalliards. McGalliards ex- provided for annual It further 721.92. appeal judgment. from the in consideration tensions thereafter $1,783.68. yearly payments of In its efforts to determine purported arrange un- a or paid $13,047.68 in whether lease sale The McGalliards loan, then ment agreement and involves a usurious der the terms payments. the essential relation further court must look to making in defaulted superior ship parties court and the substance Liberty brought suit payments transaction, due one isolated rather than to the balance to recover judgment noted aspect demanded have transaction. We 45.45.010 is a transaction AS there time of the clue or to become due where At the pay provided: is no rate interest contract specified. (a) Legal rate of rate interest. eight per year per (b) a cent six cent Interest at the rate of in the state is interest due; by express agreement money charged (1) is after it and no more on payment parties judgments (2) decrees in contract. a provided except judgment money, does now: decree then as it that a or 45.45.020 writing providing per- Higher prohibited. interest in rate No on a contract founded paid directly indirectly, payment may, a receive interest until son or any per year things action, exceeding money, goods, specified a six cent or or rate year greater exceeding per manner, bears a sum or value for cent and not money, upon specified in contract rate the contract the loan or use of interest at the judgment upon bargain, sale, or loan of out founded if rate set lands, merchandise, goods, chattels, (3) money wares, decree; the use received to prescribed beyond tenements, than is §§ a reasonable another and retained express chapter. implied without the owner’s 10-70 of this time upon (4) money consent; due the settle- purchased day previously had 2. The from the McGalliards of matured accounts ment Hyland. money ascertained; (5) trade fixtures from the balance posed ques- the following have looked courts other occasions that on tion : a transaction through the form of Bartrand, 491 In Metcalf substance. When a financed third repur- we held 1971), (Alaska P.2d 747 party, relationship between the nothing more than to be contract chase purchaser and the financier courts loan. Other usurious cloak vendee and vendor or that of borrower loans contracts usurious found have and lender ? *3 pri- where as in contracts well sale as think We the answer is when obvious In deter- money.3 lend purpose to mary is party is stated. The who sale purported lease a
mining whether
money
pur-
furnished the
with which the
loan, sev-
a usurious
arrangement involves
purchas-
is
chase
and to
made
whom the
by frequently relied on
are
eral indicia
obligates
er
repay
himself to
money
that
include,
limited
not
but are
These
courts.
charge
is a lender.
It follows that the
any of
of
intention
to,
following: (1)
which is
that
is
made for
loan
interest
a loan or extension
parties
create
at 337.
.
..Id.
ven-
between the
credit;4 (2) discussion
In McKeeman v. Commercial Credit
financing possibilities
vendee of
dor
Equipment Corp.,
F.Supp.
(D.Neb.
320
938
financing
by
seek
the vendee
efforts
1970), the
purported
found
court
that a
rela-
elsewhere;5
a close
existence
(3)
lease was in
fact
usurious loan. Mc-
6
financier;
and a
tionship between vendor
purchased
Keeman
silos and other farm
practice
normal business
proof
(4)
equipment
Equipment
from Norfolk Farm
shortly
a transaction
paper
after
assign
(NFEC)
Co.
for
he received a
price
consummated;7
relation of the
(5)
purchase price
statement for the full
his
paper
his
receives
the vendor
$42,819.66.
equipment
After the
was deliv
computation
selling price;8 and (6)
cash
ered,
Equip
NFEC sent Commercial Credit
a man-
charges in
(time-price)
the excess
Corp.
ment
statement
(CCEC)
usually com-
loan
ner which
paid
same amount.
statement
CCEC
and entered
puted.9
a “lease”
with Mc
equipment
Keeman
in the amount of
Washington in
$58,188.06.
assigned
The lease
all manu
Thomsen,
National Bank of Commerce v.
user,
facturer’s warranties to
required
406,
held
(1972),
P.2d 332
Wash.2d
495
80
taxes,
the user
pay
all
insurance and
pur-
“time
differential”
costs,
placed
all risk of loss on the
in-
chase
to be usurious
automobile
user. The court found that the lease in
reversing the trial
terest on
loan.
cluded a
one
dollar.
awas
holding
court’s
that the transaction
court
that
concluded
the lease form
merely
application
sale, Washington
device
avoid
fide conditional
bona
agency
relationship,
contemporaneous
Nat’l, Bank,
F.2d
as-
227
3.
Daniel v. First
See
signments,
Lloyd
ways.
(5th
Gutgsell,
1955) ;
and in various
175
See
353
Cir.
v.
Annot.,
Bank,
(1963) ;
353,
775,
Daniel v. First Nat’l
F.2d
balloon
value
time
fixtures.14 At that
value of the fixtures
McGalliards
dispute
is true there is some
*5
significantly greater
would have been
than
testimony as to what was intended con-
the salvage value.
such circum
Under
options
cerning renewal and the
under the
expect
stances
to
it would be unreasonable
According
testi-
lease.
the McGalliards’
to
a businessman to return the fixtures and
Ryland
that the
mony,
told them
lease was
acquisition
commence a new
scheme. See
property
formality
a mere
and that
U.C.C.Rep.
In re
Manufacturing,
Oak
6
completion
upon
become theirs
1273,
(rental
Serv.
(S.D.N.Y.1969)
1277
Ryland
term.
that he told
denied
payments
$1,309.08,
in excess of
$114.80
property
would be-
McGalliards
;
purchase
In
price
$1,195.00)
re Vail
upon
come theirs
of the lease.
termination
748,
lancourt,
U.C.C.Rep.Serv.
(D.
762
Nevertheless,
Ryland
both
and Robert J.
be
(choice
paying
to
Me.1970)
$147.25
Sparks,
Liberty Leasing
the owner of
come
lease for an
the owner
to
$204.80
Company,
leasing compa-
testified that
year
all).
no
held
choice at
ny
reacquiring
not
was
interested
price
equipment
comparison
option
at the
end of the month term.
A
of the
purchase
Sparks
price
that
it
the with
to
original
admitted as well
was
leads
practice
Liberty Leasing
aban-
similar
usual
conclusion. Several courts have
items
after
as an
nomi
don leased
focussed on
indicator of
10%
nally
price.
payment following
option
first annual
In re Herold Radio
renewal
expected
original
Corp.,
F.Supp.
(S.
term.
neither
& Electronics
option
judge
proceeded
paraphrase
shall become or has the
become
then
the rele-
property
45.05.020(37).
for no additional
vant
owner
section of AS
or for a nominal
considera-
consideration
determining
13. The third alternative
test
does make the lease one intended
tion
option price
whether an
is nominal
is com
security
....
parison
price
of the
with the value
clearly
record
that
The
indicates
exercising
of the
at the time for
The
considered
standard.
the U.C.C..
option.
tains broader than most was made as to the usury provisions statutes are limited criteria for whose such a distinction. regulation involving of interest rates problem distinguishing a true only. money or loan forbearance of lease from a loan arises secured most often provides: 45.45.020 AS in under the Uniform Commerical Code “security defining in- context of art. person may, directly indirectly, re-
No or par- resolving competing terests” and third money, goods, things in or in ac- ceive set ty claims. The cases in that area best tion, manner, any greater or other forth the relevant tests. or loan or use mon- sum value for the presents 45.05.020(37) Uniform ey, upon upon a bar- contract founded sale, wares, merchandise, (cid:127)Commercial Code’s definition a “securi- gain, or loan arrange- ty Concerning leasing interest”. lands, tenements, chattels, goods, ments, provides guidelines: following prescribed this than 10-70 of §§ chapter added). (emphasis intended [Wjhether lease is security by the to be determined applies expressly Alaska’s thus statute case; however, in- (A) of each facts vendor credit as condi- transactions such clusion of an does not tional sale contracts. In ex rel. State for one intended of itself make the lease Brothers, Inc.,3 the Turner v. Younker that security, (B) Supreme Iowa held that contracts Court upon compliance with the terms of the pur- sale propery fell within has lease the lessee shall become or usury view their statute which is vir- prop- option to the owner of become tually identical to AS 45.45.020.4 erty consideration for additional opinion, that Alaska the Iowa court noted does make a nominal consideration for only Virgin and the were the Islands security; intended the lease one jurisdictions containing which had statutes 1-201(37)] [UCC§ expansive equally language.5 In view Peco, Oregon statute, I coverage the broad of the Alaska dealt Tool & Die Co.6 Hartbauer Inc. v. agree majority holding with the that portion 1-201(37), with this of UCC § time-price judge’s on the doc- reliance language interacted it decided that holding trine as a the transaction basis for following manner: misplaced. not to be usurious was Under statute, provisions of glance first we have no discre- At Alaska’s confus- tion loans be somewhat to establish a distinction between above section they probably matter are stated ing, and conditional sale contracts as a because importance. How- policy. already determination has inverse That order en- ever, upon reading of legislature. been made careful ques- attempt distinguish first clear courts must still tire section it is posed actually leases are loans those which either to be answered may ob- conditional sale contracts from those the lessee (b) clause —whether con- are leases. no additional true Since tain the considera- time-price assumed that the doctrine a nominal court sideration (Iowa 1973). general discus- For 3. 210 N.W.2Í1 5. 210 N.W.2d *8 implications Bros. Younker of the sion of (1946) provides: 4. Iowa Code Ann. 535.4 § directly “Usury: opinion credit: Consumer see also person shall, indirectly, re- No or Revolving charge accounts fall any money thing, in ceive Creighton Usury Laws,” 419 L.Rev. 7 Iowa any manner, any greater or value sum (1974). money, upon for the loan contract (1972). upon any sale or real or P.2d 709-10 founded loan of 6. Or. personal property, chapter than is in this prescribed. so, rangement original the lease is intended se- supplier tion. with the who for If not, necessary purchase de- it is then would curity. equipment If used at a “by percent case” cost of original termine facts of each cash security price. Sparks whether the lease is intended as admitted that it was his determination, and, practice making that goods to abandon the leased to the upon payment an lessees fact that the contains their residual. is, purchase property not make That he “does would abandon the [of itself] ' security” (empha- they them if lease one intended renewed the lease for one ad- year percent original ditional added). sis purchase price. Ryland, Robert the sales- Thus, inquiry is whether the initial supplier man for (the Western Fixtures property could obtain McGalliards this case) employee Liberty and later an a nomi- no consideration or for additional Leasing,8 salvage testified that the value this test to applying nal consideration. repossessed equipment of such was between case, that the appears it first the instant percent of the initial invoice an provide leasing contract did not testimony costs. This combined could be allowed purchase. most, At the contract Liberty Leasing found to establish that lessee, year original after the three obtaining percent interested in pre- term, annually and the lease to renew supplier residual either from the or from rental sumably indefinitely yearly at a possible, the lessee if at all that the original percent amounting charge roughly approximated the mar- fair an presence of purchase price. While the Thus, ket value it leased fixtures. proof of itself is not in purchase may argued Liberty Leasing that treat- be transaction, may lend its absence secured goods any upon the ed the lessor would that a significant support argument them expiration disposed of a lease. Second, the ev- lease. transaction a true bring in the manner that would that there clearly indicate idence does not ordinarily greatest profit. would This that the lessee agreement was an ownership. reckoned an incident the owner opportunity become an have question percent original whether 10 consider- for no additional can nominal considera- cost be considered majority ation for a nominal sum. tion was not considered the trial court. McKeeman v. opinion on the case of relies opinion The trial in his oral stated Corp.7 In Equipment Credit Commercial testimony concerning that the the abandon- case, that at the lessee was told that “relatively confusing”, and ment issue was term, purchase he could end of the lease express finding relating to it. he made no original had an equipment characterizing There $42,819.66by paying dollar. one goods, he did state as a conditional sale of that the consideration but implied option to that the had an was nominal. “ bal- . certain little .a factual there are several I believe payment”. that he loon indication —an by the trial court be resolved issues to be nomi- thought have consideration to of Liber- the sole owner Sparks, this case. nal. had on occa- that he ty Leasing, testified be treated Assuming leased that this case can equipment he had sion reclaimed op- involving implied purchase he felt an term if as one year three at the end years, resale three I at the end of any had additional exercisable fixtures that the actually necessary re- it is never believe Sparks himself value. can equipment, that sum court to determine whether such lease and resold
claimed
ar-
Most courts
buy-back
as nominal.
implicit
be characterized
he
on an
but
relied
employee
Hyland
(D.Neb.1970).
F.Supp.
testified that he was
Leasing
to 1972.
from 1970
*9
agree
that nominal
be
tures to
consideration
the McGalliards would have been
and,
just a
significantly greater
more than
few dollars
there-
than disassembled sal-
fore,
vage
it
is a relative term.9
sev-
value. But the trial
made no
issue,
finding
eral alternative tests
for de-
are advocated
which on the basis
fining
presented ques-
what constitutes nominal considera-
the
submitted,
evidence
the context of
leases.
tion of
closed-end
fact to be resolved
The
him.
majority
compares
option price
further
the
Peco,
In
Inc. v.
Die
Hartbauer Tool &
original
price
with the
utiliz-
Co.,10
sum-
Oregon
the
percent
10a
ratio
es
as a basis for con-
major
marized
three
tests:
the
alternative
cluding
price
such a
to be
al-
nominal
frequently
more
test is a
The
used
though,
cited,
the
based on
authorities
such
comparison
option price
the
the
with
percentage
present
appear
would
a bor-
value of
the
ex
property
the
at
time for
der line case.
option.
Washington
the
In re
ercising
475,
No.
Processing, U.C.C.Rep.
passage
Bank.
As
the
quoted
noted in
above
202,891-WB (S.D.Calif.,
3, 1966);
Peco, Inc., majori-
from the
the
decision
June
Inc.,
Services,
In re
ty
Medical
the
Universal
courts that have considered the
U.C.C.Rep.
(E.D.
prefer
option price
question
comparing
Bank No. 70-456
Pa.,
Alpha
In
1970);
December
re
at
goods
to the fair market value of
Co.,
Creamery
supra;
re
Manu
In Oak
option
the time
be exercised.
If
Inc.,
See, also,
re
supra.
In
facturing,
price
fair market val-
approximates
Cartridge Corp.,
F.Supp.
time,
Crown
at that
the consid-
ue
(S.D.N.Y.1962) (deciding same
The
eration will not
deemed nominal.
prior
statute)
[2]
The courts
Oregon
court
Peco,
Inc.
also
adopted
is nomi
“[sjuch
also hold that
consideration
felt that
this
The court
standard.
price
option
if
nal
leaves the
comparison
whether the lessee
shows
exercise
acquiring
prop-
no “sensible alternative”
value
paying actual
pur
option
completing
or if
erty
substantially
price”.12
lower
at
relevant
frequently used test—the
gates
the lease.11
option price
there has also
lancourt, supra.
or with the
Alpha Creamery Co., supra; In Vail-
re
chase is the
Washington
majority
a footnote
tests is
total rentals
with the
“only
opinion’s
been
too abbreviated.
Processing,
(Footnote 13)
[3]
sensible course”.
comparison
original list
discussion
In some cases
comparison of
required under
supra;
the most
re
In re
price
rele-
In
original cash
test
There
items
equipment. The
it
with
versal Medical
necessary
five
at
federal
years was 'for 10
actual
courts,
nominality
end of the
price of certain
district court
Services, Inc.13 also found
market value of the
court
compare
price
referring to the
stated:
payable
the consideration.
term
percent of
in In re
laboratory
order
leased
price
term
Uni-
end
“nominal”,
interchange-
frequently use
proper-
option price
to the value of the
some
one dollar or
ably with the sum of
option.
ty
exercising
at the
time for
.
. but
piddling amount
option price
nomi-
finding
In
that the
determining whether
yardstick
real
with
were left
nal because the McGalliards
or substantial
nominal
placed
alternative,
reliance
no sensible
on whether
hinge
appear to
fix-
that the value of
on
assertion
Co.,
Peco,
Id. at 710.
11.
Tool & Die
9.
Inc. v. Hartbauer
(1972) ;
re
262 Or.
siderations in loan, I as a regarded
lease was to be in accord-
remand for his determination criteria.
ance with these WINEGARDNER, Anchorage
Roy dba E. Petitioner, Company, Motel AREA BOROUGH ANCHORAGE
GREATER EQUALIZA- OF BOARD Respondent. TION,
No. Court Alaska. 26, 1975.
March Rehearing on
As Corrected May