On appeal from Superior Court of New Jersey, Law Division, Bergen County.
Pressler, Dreier and Bilder. The opinion of the court was delivered by Dreier, J.A.D.
In this action to enforce a lease of a 1969 Mercedes 280SE convertible, a partial summary judgment by default*fn1 was entered against defendants, lessee Whittington, Singer, Davis & Company, Inc. and guarantor, Steven Singer, requiring them to return the car to plaintiff BLJ Leasing Corporation, and to pay it $2,595, representing the conceded unpaid rentals. Defendants appeal both from the partial summary judgment and the denial of their applications to compel depositions of plaintiff and the transfer of title to the automobile to them. They also appeal a further order of November 14, 1984 again directing delivery of the automobile three days later at a specific location, and providing that if "defendant [Singer] fails to appear at that time with the automobile . . . a Warrant for his incarceration shall immediately issue," and that "the plaintiff may report the vehicle as stolen to local Bergen County law enforcement." In a pre-hearing motion we permitted a stay of the order to redeliver the vehicle conditioned upon the posting of a $24,000 bond. The bond was not posted.
A review of the earlier history of this matter reveals a complete failure on the part of defendant Singer to comply with
orders of this court. Also, in an unrelated matrimonial action an arrest warrant was issued as a result of which Singer will not enter the State for the purpose of either depositions or trial. Ordinarily under these circumstances we would have left Singer where we found him and refused to entertain this appeal. The record, however, reveals an apparent misunderstanding by the trial court of the basis of the cause of action asserted, requiring us to correct the default judgment, without in any way excusing the conduct of defendant, although he may incidentally benefit from this modification.
The defendant corporation originally owned the subject automobile and, whether for tax advantages, to obtain ready cash or for some other purpose entered into a sale-leaseback arrangement with plaintiff pursuant to an agreement dated February 1, 1981 requiring 48 equal monthly payments of $291 for the lease of the vehicle and granting an option on the part of the lessee to repurchase the same from the lessor at the end of the lease for $1. The amount paid by the lessor for the vehicle (which the lessor claims has an appraised value of $21,500) was $7,500, although defendants contend that after deductions for various payments, fees and security deposits, they received only $6,888 in cash. Putting aside these contentions, we note that if the transaction is to be viewed as a loan even of the larger sum of $7,500 the payments would reflect an effective simple interest rate of 37% per annum. Plaintiff has contended both here and before the trial judge that the transaction was a bona fide lease of the vehicle, not a loan secured by the car. In entering default, the trial judge accepted this position.
Plaintiff's counsel, although claiming the transaction to be one in which the car was merely security, did not bring to the attention of the court the full text of the provisions of N.J.S.A. 12A:1-201(37). Rather plaintiff argued the effect of various tests applied by courts in interpretation of that section to determine whether the party's intention was to have a lease or a security transaction and how a court should determine whether
a particular option price at the end of a lease is "nominal." In the case before us the trial court could properly make no finding other than that the $1 purchase option at the end of the four year lease was "nominal." Although it is true that N.J.S.A. 12A:1-201(37) in defining a "security interest" focuses upon the intention of the parties to determine whether a lease is in fact a security transaction, this section establishes certain standards. It reads in 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. (Emphasis added)
The final subsection quoted should have settled the question as to whether the contract was a true lease or a security agreement. It establishes the "lease" as a security agreement as a matter of law.*fn2 Unfortunately, this provision was ...