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In re Cherry

2012 WL 3252231 (2012)

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In re Cherry

United States Bankruptcy Court for the Northern District of Alabama

2012 WL 3252231 (2012)

Facts

Sevina Cherry (debtor) entered into a contract with Access Automotive, LLC (creditor) for the lease of a 2003 Buick Rendezvous. The contract called the parties lessor and lessee. The contract required a $1,000 down payment and 78 biweekly payments, with an option to purchase the vehicle at the end of the lease term for an agreed residual value of $350 plus a purchaser-option fee of $300. The contract indicated a substantial charge, but did not specify an exact figure, if Cherry ended the lease early. The contract also provided that Cherry could terminate the lease if she agreed to pay an early-termination fee of $495 and all outstanding payments due. The State of Alabama titled the vehicle to Access Automotive. In the matter before the court, Access Automotive argued that the contract was a lease agreement, and Cherry argued that it was a lease intended as security. The distinction was significant partly because under the Bankruptcy Code, a debtor had to continue making lease payments for retained lease equipment during a bankruptcy proceeding but not for retained financed equipment. If Cherry had the right to terminate the lease, the lease would not fit within Alabama’s exception for a document in the form of a lease creating a security interest. Access Automotive argued that Cherry had the right to terminate the lease, but Cherry argued that without a clear buyout provision, she did not have the right to terminate. Cherry moved for summary judgment, seeking a ruling that the contract was not a true lease but instead a purchase with a security interest under the intended-as-security doctrine.

Rule of Law

Issue

Holding and Reasoning (Caddell, J.)

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