C.F. Garcia Enterprises v. Enterprise Ford Tractor, Inc.

In April 1989, C.F. Garcia Enterprises, Inc. (Garcia) (plaintiff) and Enterprise Ford Tractor, Inc. (Enterprise) (defendant) entered into a contract regarding a backhoe titled “Equipment Lease Agreement.” The contract provided for Enterprise to lease the backhoe to Garcia in exchange for Garcia’s payment of monthly rent due the first of each month through July 31, 1990, totaling $17,250. At the end of the lease, Garcia had the option to purchase the backhoe for $1 by notifying Enterprise in writing of its intent to do so. The contract contained an acceleration clause and a default provision. If Garcia failed to timely make any rental payment, Enterprise could demand the entire balance due or repossess the backhoe upon demand. Garcia made every monthly payment late. However, Enterprise neither accelerated the balance nor demanded surrender of the backhoe. Garcia mailed the final payment on August 3, 1990, which Enterprise cashed six days later. Garcia neither notified Enterprise of its intent to exercise the option to purchase the backhoe nor tendered the $1 purchase-price. On August 5, 1990, Enterprise repossessed the backhoe. Thereafter, without notifying Garcia, Enterprise repaired the backhoe and sold it for $13,000, less selling expenses. Garcia sued Enterprise for breach of contract, conversion, and violation of the Virginia Uniform Commercial Code (UCC). Enterprise moved for summary judgment and argued that Garcia failed to timely pay monthly rent, failed to notify Enterprise of its intent to purchase the backhoe, and failed to tender the $1 consideration. The trial court granted summary judgment to Enterprise. Garcia appealed and argued that Enterprise impermissibly repossessed the backhoe because Enterprise’s rights were governed by UCC Article 9, not UCC Article 2A. Specifically, Garcia argued that the contract constituted a security agreement instead of a lease because Garcia could purchase the backhoe for $1 at the end of the lease. Enterprise contended that the contract’s plain language created a lease and that Garcia’s failure to timely pay rent extinguished its option to purchase the backhoe.