Szabo Food Service, Inc. v. Balentine's, Inc.

HEDRICK, Judge. The key inquiry in the instant case is. the determination of the nature of the 14 August 1969 agreement which exists between Szabo and Balentine’s. Upon resolution of this matter, reference must then be made to N. C. G.S. 105-804 (a) and G.S. 105-306 (c) (2), the 1972 amended version of G.S. 105-304 (a), [656] which controls the effect that this legal arrangement has on who must list the personal property for ad valorem tax purposes. Initially, it is imperative that we recognize that just because the parties clothe their agreement in lease terminology or label the arrangement a bailment, does not preclude the possibility that we are dealing with a different type of transaction. Puffer v. Lucas, 112 N.C. 378, 17 S.E. 174. Although the present agreement between Szabo and Balentine’s, particularly in reference to the equipment in question, in form purports to be a bailment or lease, we are compelled to pierce this subterfuge and find that in substance the parties have actually entered into a conditional sales agreement. See, White and Summers, Uniform Commercial Code, § 22-3, pp. 762-763; Henson, Secured Transactions, § 3-12, pp. 28-29. The critical fact present in the agreement between plaintiff and defendant is that Balentine’s will become owner of the restaurant equipment, furniture, and fixtures at the end of the term of the agreement without being required to pay any additional consideration. G.S. 25-1-201(37) of the Uniform Commercial Code in pertinent part states: “. . . 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.” Therefore, the agreement entered into between Balentine’s and Szabo constituted not a leasing or bailment arrangement, but rather provided Szabo with a security interest in the cafeteria equipment and is in reality a conditional sale of these items. See, In Re Brothers Coach Corp., 9 U.C.C. Rep. Serv. 502 (E.D. N. Y. 1971); Nickell v. Lambrecht, 29 Mich. App. 191, 185 N.W. 2d 155 (1970); In Re Dennis Mitchell Industries, Inc., 280 F. Supp. 433 (E.D. Pa. 1968). Both G.S. 105-304 (a) and its 1972 amended version, G.S. 105-306 (c) (2), declare that the vendee of personal property under a conditional sale in which the vendor retains the title as security shall be considered the owner of the property provided (“if” in the 1972 version) the vendee has possession of such property or the right to use the property. Thus, as a result of Balentine’s being presently in possession of the cafeteria equipment and our finding that the transaction between Szabo and Balentine’s qualifies as a conditional sale, it follows that the trial court erred in concluding as a matter of law that Szabo [657] was the proper party to list the personal property; and the judgment is Reversed. Chief Judge Brock and Judge Baley concur.