Grace et al v. MRT Heavy Hauling

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
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06/10/06
Eldon W. Grace, et al. v. MRT Heavy Hauling
04-01199
Memorandum Opinion re: [1-1] Complaint NOS 454 Recover Money/Property .
Received on: 2005-10-13 09:17:37.000
2005-10-13 00:00:00.000
2005-10-21 00:00:00.000
James Burke
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1The complaint alleges and answer admits that this is a
core proceeding under 28 U.S.C. § 157. If this case were just
a turnover, the Court would agree. However, as discussed
below the case was tried as a contract action, but the parties
continued to treat the matter as core and have consented to
treat the matter as core. It is at least a “related-to”
action, so the Court has subject matter jurisdiction. See
Abramowitz v. Palmer, 999 F.2d 1274, 1277 (8th Cir. 1993)(28
U.S.C. § 1334(d) grants exclusive jurisdiction to the district
court over all property of the debtor and of the estate.
Jurisdiction extends to exempt property.) Compare Gardner v.
United States, 913 F.2d 1515, 1518 (10th Cir. 1990)(Bankruptcy
jurisdiction lapses when property leaves the estate and the
(continued...)
THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
ELDON W. GRACE
DIANNA J. GRACE
Debtor No. 7-04-14547 SA
ELDON W. GRACE
DIANA J. GRACE,
Plaintiffs,
v. Adv. No. 04-1199 S
MRT HEAVY HAULING,
Defendants.
MEMORANDUM OPINION ON COMPLAINT
FOR DAMAGES AND TO COMPEL TURNOVER OF PROPERTY
This matter is before the Court on the Complaint (doc 1)
of Eldon W. Grace and Diana J. Grace (“Plaintiffs”) praying
that Defendant MRT Heavy Hauling (“MRT” or “Defendant”) be
ordered to turn over a 1998 Peterbilt Model 379 (“Peterbilt”)
to Plaintiffs, and seeking damages for lost monthly income and
attorney’s fees and costs1. Complaint at 1. (Doc 1)
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1(...continued)
controversy is between third parties only, the outcome of
which is irrelevant to the estate.) This case involves a
contest between the debtor and a creditor to determine the
validity of claims against the Debtors’ exempt property. It
is therefore, in part, an action to determine validity,
extent, or priority of a lien under 28 U.S.C. § 157(b)(2)(K).
See Continental Nat’l Bank of Miami v. Sanchez (In re Toledo),
170 F.3d 1340, 1347 (11th Cir. 1999)(Section 157(b)(2)(K)
proceedings entail lien determinations on the estate’s or the
debtor’s property.) It is also, in part, an action affecting
the adjustment of the debtor-creditor relationship under 28
U.S.C. § 157(b)(2)(O).
2 At the conclusion of Plaintiff’s case in chief, MRT
moved to dismiss. The Court took the motion under advisement,
and now denies the motion. The Court finds that Plaintiffs
had established a prima facie case by the time they rested.
3 Because the Court concludes that this controversy was
essentially a dispute concerning the characterization of a
contract and not really a turnover action, the Court is not
(continued...)
Page -2-
Defendant opposed the requested relief and raised certain
affirmative defenses, including that the contract was a lease
rather than a contract for sale, that Plaintiffs had breached
the lease prior to the filing of the petition, and that
Plaintiffs had failed to assume the lease within sixty days of
the filing of the petition as required by 11 U.S.C. §
365(d)(1). Following a trial on the merits2, the Court finds
that in effect this adversary proceeding was a contest on the
character of the contract between the parties and what effect
the performance or non performance of the parties had on their
contractual relationship.3 The Court concludes that the
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3(...continued)
faced with the question of Plaintiffs’ standing as chapter 7
debtors to pursue relief under § 542. The Court notes,
however, that Plaintiffs claimed at least a portion of the
vehicle exempt, that the trustee abandoned the Peterbilt and
the related contract when she filed her no-asset report and
abandonment on August 31, 2004 (doc 13 in case no. 7-04-
14547), and that MRT did not object to Plaintiffs’ standing to
seek relief.
Page -3-
contract between the parties was a contract for sale and not
for lease and that MRT is estopped from asserting otherwise,
and that upon delivery to MRT, in a lump sum, of the unpaid
remaining monthly payments due MRT under the contract,
possession of the truck and the executed title should be
delivered to Plaintiffs, free and clear of any liens.
FACTUAL BACKGROUND
On October 31, 2001, Plaintiff Eldon W. Grace (“Grace”)
entered into a contract with MRT entitled “Vehicle Sublease”
(“Contract”). Ex. 1. The Contract refers to Grace as both
“Sublessee” (sic) and “Owner Operator”. Defendant agreed to
provide Grace with a vehicle (the Peterbilt), loads to haul,
and compensation for hauling the loads. Grace agreed to haul
MRT’s loads exclusively; comply with all applicable laws; make
monthly payments on the vehicle in accordance with an
amortization schedule attached to, and made a part of, the
Contract, Ex. 2; and provide and maintain liability insurance
on the vehicle. The Contract has no provision for early
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termination in favor of Grace, Contract, at 1 (“Terms of
Sublease”); however, Defendant is afforded the option to end
the Contract should Grace default.
At trial Grace testified that in March 2004, Grace told
Defendant that he was having financial difficulties, and
requested that the Contract be changed to lower the monthly
payment amounts. Defendant refused, and advised Grace to
secure refinancing for the rest of the payments. Grace
applied for refinancing at the USNM Federal Credit Union. The
credit union approved Grace’s application and contacted
Defendant for the payoff amount. Upon discovering that the
vehicle carried a debt burden greater than its value, the
credit union declined to provide refinancing. Unbeknownst to
Grace, Defendant had collateralized a loan with the vehicle.
Grace did not make the monthly payments required under the
Contract between May 2004 and November 1, 2004.
On June 18, 2004, Plaintiffs filed a bankruptcy petition
under Chapter 7 of the Bankruptcy Code.
According to Grace’s testimony at trial, Defendant
repossessed the Peterbilt sometime between June 26, 2004 and
June 28, 2004. At trial, Melissa Cole (“Cole”), Vice
President, MRT Heavy Hauling, testified on behalf of
Defendant that Defendant did not receive notice of the Chapter
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7 filing before repossessing the Peterbilt. Grace testified
that Defendant is currently using the Peterbilt, and is
earning a profit from this use.
Defendant claims that it repossessed the Peterbilt
because Grace was in default of the Contract prior to filing
the Chapter 7 petition. Defendant claims that Grace was in
default because he “had a suspended license and failed to make
payments for maintenance and fuel charges which was a material
breach under the contract.” (Def.’s Resp. at 2.) Cole
testified that Grace owed forty thousand dollars for fuel,
maintenance, and cash advances; she did not, however, offer
any proof in support of this amount, and was vague about the
precise total. Cole further testified that Grace was also in
default for failure to pay the monthly contract amounts in May
2004 and June 2004, and for failure to maintain insurance on
the Peterbilt as required by the Contract. Cole stated that
Grace never purchased insurance as required; however, a moment
later she stated that Grace had allowed the insurance to lapse
towards the beginning of the contract period. She also
testified that the Peterbilt was covered by Defendant’s
insurance, and that when Grace had an accident, Defendant’s
insurance paid for the repairs. Defendant’s insurance had a
ten thousand dollar deductible, which Defendant charged Grace.
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Cole testified that Defendant notified Grace of the
default both verbally and by letter on June 4, 2004,
requesting Grace to return the Peterbilt to Defendant by June
7, 2004. Grace did not return the Peterbilt. Cole testified
that Grace did not return the Peterbilt as requested because
he was hiding it from Defendant by painting over the MRT Heavy
Hauling logo on the Peterbilt, replacing it with “Eldon Grace
Heavy Hauling”, and that Grace was hauling loads that were not
provided by Defendant. Cole did not state whether Defendant
knew of this activity before or after repossessing the
Peterbilt.
Grace testified that his license had indeed been
suspended on two occasions, once for unpaid traffic fines, and
once for unpaid child support. When his license was suspended
for unpaid fines, Defendant paid the fines to restore his
license, and sent Grace out with a load the next day. Grace’s
second licence suspension was initiated by the State of Kansas
for non-payment of child support. Defendant, without
notifying Grace, had stopped making automatic child support
payments from Grace’s weekly pay in March 2004. When notified
by the State of Kansas, Grace paid the arrears in child
support in full, restoring his license. Grace also testified
that he made partial payments towards maintenance and fuel
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Page -7-
charges; Defendant deducted money to cover such expenses from
his weekly checks.
Cole testified that Defendant has a number of contracts
with drivers, that each contract is different, and that Max
Tafoya, her father and President of MRT Heavy Hauling
(“Tafoya”), determined the type of contract each driver was
offered based on the driver’s intentions and any agreements he
made with the drivers. Cole was not privy to the discussions
between Tafoya and Grace, and thus could not testify what
Tafoya’s intentions or understandings were. Grace, who was
part of those discussions, testified that he and Tafoya agreed
that Grace had a lease-to-own contract. Because he believed
that at the end of the Contract he would own the Peterbilt,
Grace spent four thousand dollars personalizing the interior
of the Peterbilt. The Court can also find that Defendant
intended that Grace would own the Peterbilt at the end of the
contract; suggesting he refinance it would otherwise not make
sense.
DISCUSSION
I. Whether the Peterbilt should be turned over to Plaintiffs
At issue is whether Defendant’s repossession of the
Peterbilt was in violation of the automatic stay pursuant to
11 U.S.C. § 362(a)(1). “According to the automatic stay
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Page -8-
provisions of section 362, all proceedings against a debtor
are stayed upon the debtor’s filing of a petition of
bankruptcy. It is well established that any action taken in
violation of the stay is void and without effect.” Ellis v.
Consolidated Diesel Elec. Corp., 894 F.2d 371, 372 (10th Cir.
1990). None of the exceptions to the automatic stay apply to
this case. See 11 U.S.C. § 362(b).
Here, Defendant repossessed the Peterbilt post-petition
in violation of the automatic stay. Therefore the action is
void. While Defendant argues that it did not receive notice
of the bankruptcy filing until after it had repossessed the
Peterbilt, and there is not evidence to the contrary, the
argument is moot because “any action taken in violation of the
stay is void and without effect.” Ellis, 894 F.2d at 372.
Therefore, although MRT is not liable for damages for its
unknowing violation of the stay, the Peterbilt should be
turned over to Plaintiffs.
II. Whether the Contract is a lease or a contract for sale
The Court must next decide whether Plaintiffs may keep
the Peterbilt, and if so, under what conditions. To this end,
the Court next examines the status of the Contract. The
determination of whether the Contract is a true lease or a
disguised secured transaction is governed by state law. See
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Page -9-
e.g., In re Edison Brothers Stores, Inc., 207 B.R. 801, 807
(Bankr. D. De. 1997).
Both parties have made their arguments under New
Mexico law. The Uniform Commercial Code (‘UCC’), as
adopted by New Mexico, defines lease as “a transfer
of the right to possession and use of goods for a
term in return for consideration, but a sale, or
retention or creation of a security interest is not
a lease.” A security interest is defined as “an
interest in personal property or fixtures which
secures payment or performance of an obligation.”
Whether a transaction is a lease or a security
agreement is “determined by the facts of each case.”
The statute . . . sets out a two-part objective test
that delineates factors which, if present, establish
that an agreement is a security agreement no matter
what the parties call it . . . . [H]ereinafter, the
objective test will be referred to as the “economic
realities test.” The first prong of the economic
realities test asks whether the agreement is
terminable by the lessee during the term of the
lease . . . . If the agreement is not terminable by
the lessee during the lease term, then the first
factor of the test has been established . . . . The
part of the economic realities test meets one of the
following four factors [listed in the New Mexico
statute]:
(a) the original term of the lease is equal to or
greater than the remaining economic life of the
goods;
(b) the lessee is bound to renew the lease for the
remaining economic life of the goods or is bound to
become the owner of the goods;
(c) the lessee has an option to renew the lease for
the remaining economic life of the goods for no
additional consideration or nominal additional
consideration upon compliance with the lease
agreement; or
(d) the lessee has an option to become the owner of
the goods for no additional consideration or nominal
additional consideration upon compliance with the
lease agreement.
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Page -10-
In re Our Secret, Ltd., 282 B.R. 697, 702-703 (Bankr. D. N.M.
2002) (citations omitted). If the two pronged economic
realities test is met, the lease is construed as a secured
transaction as a matter of law. Under this objective test,
the parties’ intentions are moot. Id. at 702.
Here, the Contract meets the first prong of the economic
realities test because Grace could not terminate it.
Therefore, the Court must next determine whether the Contract
also meets the second prong of the economic realities test by
meeting any of the four factors listed in the New Mexico
statute. See In re Our Secret, Ltd., 282 B.R. at 703.
Here, only the fourth factor, (d), is applicable. Factor
(a) does not apply because the Court lacks evidence to
conclude with certainty whether “the original term of the
lease is equal to or greater than the remaining economic life
of the goods.” Id. Indeed, the fact that Grace wants to
complete payments on the Peterbilt so that he can continue to
use it makes it clear that factor (a) is not applicable.
Factor (b) does not apply because Grace is not “bound to renew
the lease for the remaining economic life of the goods [n]or
is [he] bound to become the owner of the goods.” Id. Factor
(c) does not apply because Grace does not have “an option to
renew the lease for the remaining economic life of the goods
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Page -11-
for no additional consideration or nominal additional
consideration upon compliance with the lease agreement.” Id.
Factor (d) applies because, according to Grace’s unrebutted
testimony, he and Tafoya agreed that upon completing his
obligations under the Contract, he would be the owner of the
Peterbilt. The amortization schedule attached to the
Contract, which is what one would expect in a purchase
contract rather than a lease, and the Contract referring to
him as the Owner Operator support Grace’s testimony that he
had a lease-to-own contract, and that at the end of the
Contract term, November 1, 2004, he would own the Peterbilt
for no additional consideration. And Grace’s investing his
own money to personalize the Peterbilt, coupled with hefty
payments of $69,000 in principle and $10,569.72 in interest,
attests to the consistency of Grace’s conduct in treating the
Contract as a sale.
MRT correctly argues that there is conflicting evidence
about the nature of the Contract, both inside the Contract and
elsewhere. For example, the Contract has numerous references
to a “sublease”, “sublessee” and “lessor”. And much of the
Contract is also structured as a lease. But the very purpose
of the economic realities test is to see through the specific
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Page -12-
words used to determine was the economic reality of the
transaction is.
In addition, although it is true that Plaintiffs’ used
the term “Leaseholder: ....” in amended schedule B, all those
schedules were prepared under the direction of their counsel,
and Plaintiffs’ should not be expected to correct their
counsel’s minor mischaracterizations. More important, an
overall view of the schedules shows that they treated the
Contract as a purchase contract rather than a true lease.
They claimed $11,000 in equity in the Peterbilt on Schedule C
(out of a $40,000 value). The statement of intention, signed
June 30, 2004 and filed July 22, 2004, recites that “Debtor
will retain collateral and continue to make regular payments.”
Doc 8. The Peterbilt was listed as personal property in
Schedule B and amended Schedule B in category 23 and not as
subject to a lease or executory contract (although the
Contract is clearly the latter) in schedule G. And the debt
to MRT is listed in Schedule D (secured debt), albeit still
using the term “truck lease” (understandable in view of the
title of the Contract, “Vehicle Sublease”).
The Contract is ambiguous. While Defendant argued that
the only issues relevant to interpreting the Contract are
found within the four corners of the Contract, the Supreme
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Page -13-
Court of New Mexico “abandoned the ‘plain-meaning’ or ‘four-
corners’ standard [of contract interpretation], under which
ambiguity is determined by the court without consideration of
any evidence outside the contract itself to explain the
purposes or context of the contract . . . . Without a full
examination of the circumstances surrounding the making of the
agreement, ambiguity or lack thereof often cannot properly be
discerned.” Mark V, Inc. v. Mellekas, 114 N.M. 778, 781, 845
P.2d 1232, 1235 (1993). Here, the Court considers Grace’s
explicit testimony that he and Tafoya agreed that Grace was
entering into a lease-to-own contract. Defendant did not
present evidence to show that Tafoya did not agree with Grace
that his contract would be a lease-to-own agreement. Cole
testified that she has no knowledge of what Tafoya lead Grace
to believe. “The [Adverse Inference Rule] provides that when
a party has relevant evidence within his control which he
fails to produce, that failure gives rise to an inference that
the evidence is unfavorable to him.” Int’l. Union, United
Auto., Aerospace and Agric. Implement Workers of Am. (UAW) v.
Nat’l Labor Relations Bd., 459 F.2d 1329, 1336 (D.C. Cir.
1972). Here, MRT clearly had relevant evidence that it failed
to produce when it did not put Tafoya on the witness stand to
either refute or corroborate Grace’s testimony. Therefore the
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Court infers that the evidence Tafoya would have presented is
unfavorable to MRT’s position that the Contract is merely a
lease that confers no ownership interest in Plaintiffs.
Therefore, because the Contract does meet both prongs of
the economic realities test, the Court determines that the
Contract is indeed a disguised security agreement. Because
the contract is not a lease, there was no obligation under 11
U.S.C. § 365(d) to assume the Contract within sixty days of
the filing of the petition, even assuming Plaintiffs rather
than the trustee had the standing to do so.
In addition to this economic realities test, the Court
finds that because Grace relied on Tafoya’s representation
that the Contract was a lease-to-own agreement, the principle
of equitable estoppel is applicable here. “The party seeking
enforcement of equitable estoppel must show (1) lack of
knowledge of the true facts in question, and (2) detrimental
reliance on the other party’s conduct.” Gonzales v. Pub.
Employees Ret. Bd., 114 N.M. 420, 427, 839 P.2d 630, 637 (Ct.
App.), cert. denied, 114 N.M. 227, 836 P.2d 1248 (1992)(citing
Green v. New Mexico Human Servs. Dep’t, Income Support Div.,
107 N.M. 628, 629-30, 762 P.2d 915, 916-17 (Ct. App. 1988)).
“In addition, the New Mexico Supreme Court has recently
amplified these elements, specifying that the party seeking to
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assert the doctrine must also demonstrate that its reliance
was reasonable.” Id. (citing Taxation and Revenue Dep’t. v.
Bien Mur Indian Mkt. Ctr., 108 N.M. 228, 231, 770 P.2d 873,
876 (1989)). Here, Grace did not know that MRT would assert
that the contract terms would not be what Tafoya lead him to
believe. Grace’s reliance was reasonable because he knew that
Tafoya for MRT had made such lease-to-own contracts with other
drivers, because the amortization schedule attached to and
made part of the Contract was consistent with a lease-to-own
agreement, and because the Contract referred to Grace as the
Owner Operator. Therefore the Court finds that Defendant is
equitably estopped from asserting that the Contract is merely
a lease and not a lease-to-own agreement.
III. Whether Plaintiffs’ contract rights were lost by any
events of default
The Court next needs to determine whether Grace was in
default of the Contract in order to determine whether
Plaintiffs’ rights, including their potential ownership
interest, still exists or whether it was forfeited by a
default. Defendant argues that Grace was in default before he
filed the bankruptcy petition because a) Grace did not provide
the insurance on the Peterbilt as required by the Contract; b)
Grace’s licence was suspended; c) Grace did not pay for
maintenance and fuel; d) Grace did not make the monthly
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Page -16-
payments as required by the Contract; and e) Grace was hauling
loads not provided by Defendant in violation of the Contract.
The Contract has “default” and “remedies” paragraphs:
DEFAULT: Each of the following events is an “Event
of Default”: (i) Lessee’s failure to pay when due
any of the monthly rentals or any other amounts due
hereunder or to provide or maintain the insurance
required hereby; (ii) any of Sublessee’s warranties
or representations shall be or become breached or
untrue; (iii) Sublessee shall fail, after fifteen
days notice thereof, to correct any failure in the
due performance and observance of any of the other
coventants [sic] and obligations of sublessee
hereunder; (iv) sublessee shall default under any
other agreement with Lessee.
LESSEE REMEDIES: If an event of default shall occur,
lessor shall have no further obligation to lease
vehicle to sublessee and, at the option of lessee,
all rights of sublessee hereunder and in and to the
vehicle shall forthwith terminate. Upon such
termination Sublessee agrees that Lessee may,
without notice to sublessee, either take possession
of vehicle (with or without legal process) or
require sublessee to return vehicle to lessee at
such location as lessee shall designate. Sublessee
authorizes lessee and lessee’s agents to enter any
premises where the vehicle may be found for the
purpose of repossessing the vehicle.
The Court interprets these provisions to specify certain major
types of default, subparagraphs (i) and (ii), as so important
to MRT that they justify MRT’s immediately ending the Contract
and repossessing the Peterbilt, according to the Lessee
Remedies provisions. Subparagraph (iv) appears to be a cross
default provision, applicable in the event that MRT and Grace
had entered into any other agreements besides the Contract.
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Any other breaches of the Contract require a fifteen-day
notice and cure period from MRT to Grace.
a) Whether not providing insurance on the Peterbilt was an
event of default
Cole testified that because Grace did not have insurance
on the Peterbilt, Defendant’s insurance covered the Peterbilt
and paid for the damages when Grace was in an accident, and
that Defendant charged Grace the ten thousand dollar
deductible for this accident. Because Defendant took these
actions instead of holding Grace in default of the Contract
for failure to carry the requisite insurance, the Court finds
that Defendant waived the insurance requirement of the
Contract. Therefore Grace was not in default with regard to
insurance coverage.
b) Whether a suspended licence was an event of default
Grace testified that his license had indeed been
suspended on two occasions, once for unpaid traffic fines, and
once for unpaid child support. When the license was suspended
for unpaid fines, Defendant paid the fines to restore his
license, and sent Grace out with a load the next day. The
Court finds that by paying the fines and sending Grace out
with a load the next day, Defendant waived its right to hold
Grace in default for this license suspension. Exhibit 3 shows
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that this was the only suspension on the record as of the date
Defendant demanded the return of the Peterbilt.
Grace’s second licence suspension was initiated by the
state of Kansas for non-payment of child support. Exhibit 3
shows this suspension took place on June 15, 2004. Defendant,
without notifying Grace, stopped making automatic child
support payments from Grace’s weekly pay in March 2004. When
notified by the State of Kansas, Grace paid the arrears in
child support in full, restoring his license. Because
Defendant’s actions contributed to this license suspension,
Defendant effectively waived its right to hold Grace in
default for this license suspension. Therefore, Grace was not
in default with respect to the license suspensions.
c) Whether Grace paid for maintenance and fuel
Defendant claims that Grace did not pay for maintenance
and fuel. However Grace testified that he had been making
partial payments towards fuel and maintenance charges insofar
as Defendant withheld money for these charges from his weekly
checks. Other than to assert that Grace did not pay,
Defendant did not provide any evidence to show lack of
payment. The Court lacks evidence to determine whether Grace
did or did not make these payments, and therefore finds that
Grace was not in default with regard to this issue.
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4A voluntary act which renders the obligor unable or
apparently unable to perform without breach is a repudiation
of the contract. Restatement (Second) of Contracts § 250
(1981).
5Furthermore, one party’s repudiation of a duty to perform
discharges the other party’s remaining duties to render
performance. Restatement (Second) of Contracts § 253 (1981).
Page -19-
d) Whether not making the monthly payments was an event of
default
Grace did not make payments from May 2004 until the end
of the Contract term. While on the face of it this appears to
be a clear event of default, circumstances indicate otherwise.
On Defendant’s suggestion, Grace secured approval for
refinancing through the credit union in order to catch up on
delinquent payments and pay off the remainder of the Contract;
however, the credit union declined to go through with the
refinancing because Defendant had encumbered the Peterbilt
beyond what the credit union was willing to lend4. By taking
a loan on the Peterbilt that resulted in the Peterbilt’s debt
burden exceeding its value, Defendant effectively refused to
accept the payment Grace tendered. In other words, Grace
tendered payment for the entire outstanding balance, which
Defendant refused to accept. Therefore, the Court finds that
Grace is not in default with respect to the monthly payments5.
e) Whether hauling loads not provided by Defendant was an
event of default
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The evidence is clear that Grace was hauling loads that
MRT had not provided him, in violation of the Contract’s
requirement that “Sublessee shall use the vehicle only in the
conduct of Lessee’s business....” It is unclear whether
Defendant discovered this fact before or after it repossessed
the Peterbilt. Had MRT discovered this before the
repossession, the Contract bound Defendant to give Grace
notice of it, allowing him fifteen days to correct the
problem, since a contract breach of hauling loads for himself
does not fall under subsections (i), (ii) or (iv) of the
default paragraph. There is no evidence that Defendant gave
such notice. Even if Defendant discovered this default after
repossessing the Peterbilt, it was still bound to give Grace
fifteen days to cure the problem, and it did not. And in any
event, such notice would have been moot because Grace was no
longer in possession of the Peterbilt, and therefore no longer
in a position to cure the problem. Therefore, the Court finds
that Grace was not in default with respect to this issue.
REMAINING PAYMENTS
At the outset of and throughout the case Plaintiffs
made it clear that they considered themselves obligated to
make the remaining payments and would do so to recover the
Peterbilt. Grace conceded that he owed six to seven monthly
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6“[A] firmly rooted principle of contract law [is] that,
in the case of a bilateral contract for an exchange of
performances, one party’s repudiation of its duty to perform
discharges the other party’s remaining duties of performance
under the contract.” Gilmore v. Duderstadt, 125 N.M. 330,
336, 961 P.2d 175, 181 (Ct. App. 1998)(Citations omitted.)
See also Famiglietta v. Ivie-Miller Enterprises, Inc., 126
N.M. 69, 73, 966 P.2d 777, 782 (Ct. App.), cert. denied, 126
N.M. 532, 972 P.2d 351 (1998)(If a defendant commits a
material breach which remains uncured, Plaintiff is not
required to perform its remaining obligations under a
contract.)
Page -21-
payments on the Peterbilt, and that he had stopped paying when
he lost possession of the Peterbilt and MRT began using the
Peterbilt for its own purposes. Cole testified that Grace
owed contract payments for the months of May and June when the
truck was repossessed. In addition, Grace would also have
owed payments for the months of July through October,
according to the Contract amortization schedule. Ex. 2.
Thus, Grace is still obligated to MRT for six payments of
$2,210.27 each, for a total of $13,261.62. Although Grace was
not in default for failure to make the payments because MRT
had made full performance impossible by encumbering the
vehicle and then later by repossessing it6, Grace has now
obtained the reversal of the conditions that made it
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7Specific performance is an available remedy in the case
of anticipatory breach of a contract. See Restatement
(Second) of Contracts, § 253 cmt. b and § 359(2) (1981).
Page -22-
impossible for him to perform7. He therefore now owes MRT the
sum of $13,261.62.
DAMAGES
Plaintiffs put on no evidence of any damages, and
therefore the request for damages will be denied. Under New
Mexico law, attorney fees are awardable only by contract,
statute or rule of court. See, e.g., Aboud v. Adams, 84 N.M.
683, 691-92, 507 P.2d 430, 438-39 (1973). The Contract does
not provide for attorney fees for Plaintiffs, nor have
Plaintiffs cited any statutory authority or court rule. Nor
is the Court aware of any such statute or rule. Therefore,
the request for attorney fees and costs is also denied.
CONCLUSION
The Court finds that Defendant repossessed the Peterbilt
in violation of the automatic stay; that the Contract was an
agreement for sale and purchase and not merely a lease; that
Defendant should be equitably estopped from asserting that the
Contract was merely a lease and not a lease-to-own agreement;
and that Grace was not given the contractual right to cure the
curable defaults and was prevented from paying off the
Peterbilt. The Court finds that Plaintiffs owe six payments
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Page -23-
of $2,210.27 each to MRT, for a total of $13,261.62, to
complete the Contract payment obligation. Upon tender by
Plaintiffs of that amount to MRT within twenty days from the
entry of this memorandum opinion and accompanying judgment,
MRT shall deliver the Peterbilt to Grace free and clear of
liens and in the condition it was when MRT repossessed the
Peterbilt in June 2004.
A judgment reflecting this Memorandum Opinion will enter.
Honorable James S. Starzynski
United States Bankruptcy Judge
I hereby certify that on October 13, 2005, a true and correct
copy of the foregoing was electronically transmitted, faxed,
delivered, or mailed to the listed counsel and/or parties.
Ronald E Holmes
112 Edith Blvd NE
Albuquerque, NM 87102-3524
Dianna J. Grace
03 Sais
Los Lunas, NM 87031
Eldon W. Grace
03 Sais
Los Lunas, NM 87031
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