C.F. Garcia Enters. v. Enter. Ford Tractor

253 Va. 104, 480 S.E.2d 497 (1997)

 

RULE:

Article 9 of Va. Uniform Commercial Code Ann. governs any transaction, "regardless of its form," which is intended to create a security interest in personal property. Va. U.C.C. § 8.9-102. In defining the term "security interest," Va. U.C.C. § 8.1-201(37) provides, in relevant part: whether a lease is intended as security is to be determined by the facts of each case; however, (a) the inclusion of an option to purchase does not of itself make the lease one intended for security, and (b) an agreement that upon compliance with the terms of the lease the lessee shall become or has the option to become the owner of the property for no additional consideration or for a nominal consideration does make the lease one intended for security.

FACTS:

The debtor leased a backhoe from the secured creditor. The secured creditor repossessed and sold the equipment without notice to the debtor. The debtor filed an action for breach of contract, conversion, and violation of Va. Uniform Commercial Code Ann. § 9 against the secured creditor. The Circuit Court of York County (Virginia) granted summary judgment to secured creditor and the case was appealed.

ISSUE:

Did the lower court err in granting summary judgment to the defendant secured creditor?

ANSWER:

Yes

CONCLUSION:

The Court reversed the lower court's judgment, concluding that the contract was a security agreement per Va. U.C.C. § 8.1-201(37) because the debtor had the option to purchase the equipment for nominal additional consideration upon compliance with the lease terms. The debtor's failure to give written notification to the secured creditor of its intent to purchase the backhoe was not a breach of the agreement. The debtor's untimely payments, however, did constitute a breach or default of the security agreement. That default did not preclude the debtor's ability to recover damages for the secured creditor's violation of Va. U.C.C. § 8.9-504. The debtor was entitled to and did not receive prior notice of a commercially reasonable sale of the backhoe and surplus funds realized from the sale. Thus, the debtor was entitled to recover damages for wrongful seizure and sale of the backhoe.

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