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contractjurisdictionattorneystatuteappealleasebankruptcypartnershipcorporation
contracttrialleasebankruptcypartnership

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Woods-Tucker Leasing Corp. of Georgia v. Hutcheson-Ingram Development Co., 642 F.2d 744, 30 UCC Rep.Serv. 1505

Facts

The debtor, Hutcheson-Ingram, a Texas partnership, sold farm equipment to Woods-Tucker, a Mississippi corporation, for $85,000 and simultaneously leased it back for three years at a rental of $3,000 per month. The lease specified that it would be governed by Mississippi law, and there was an oral agreement allowing Hutcheson-Ingram to repurchase the equipment for $8,500 at the end of the lease. The bankruptcy court found that the transaction was intended to create a security interest rather than a true sale-leaseback, which led to the question of applicable usury laws.

In the written instruments executed between the parties, the Texas partnership (Hutcheson-Ingram) sold farm equipment to the Mississippi-based purchaser (Woods-Tucker) for $85,000 (although the evidence accepted by the trier of fact is that its value was some $197,000); Woods-Tucker simultaneously leased it back to Hutcheson-Ingram for three years at a rental of some $3,000 per month, for total (re)payments of $114,061.

Issue

Whether a bankruptcy court in Texas should honor a party's contractual choice of Mississippi law regarding the usury statute applicable to a transaction involving Texas-located property.

The choice of law issue arises in the context of a federal bankruptcy proceeding in Texas.

Rule

Under the Uniform Commercial Code, parties may choose the law governing their transaction as long as the chosen jurisdiction has a reasonable relation to the transaction and the choice does not constitute a contrivance to evade applicable usury laws.

UCC s 1-105(1) (1972 version), adopted by the legislatures of both Texas and Mississippi provides with respect to transactions regulated by the UCC: Except as provided hereafter in this section, (no Code exceptions are applicable), when a transaction bears a reasonable relation to this state and also to another state or nation the parties may agree that the law either of this state or of such other state or nation shall govern their rights and duties.

Analysis

The court analyzed the significant contacts between the transaction and Mississippi, including the lender's home office being in Mississippi and the approval of documents there. It concluded that these contacts were real and occurred in the normal course of the transaction, thus establishing a reasonable relation between the transaction and Mississippi, which warranted honoring the parties' choice of law.

Our examination of the Texas cases persuades us that the listed Mississippi contacts unless they constitute a contrivance to evade the usury laws of Texas, see Part III infra are sufficient to constitute a “reasonable relation” between the state of Mississippi and this transaction within the meaning of Section 1-105(1), so as to validate the parties' contractual choice of that state's law to apply to the transaction.

Conclusion

The Court of Appeals affirmed the district court's decision, holding that the law of Mississippi should apply to the transaction, including its usury laws, and that the bankruptcy court's award of attorney's fees was to be reconsidered under Mississippi law.

We therefore conclude, as did the panel in Fahs v. Martin, supra, that the application of an independent federal choice of law rule and of the forum state's choice of law rule would lead to the same result, and thus “we do not determine which road the trial court should have travelled to arrive at the common destination.”

Who won?

Woods-Tucker prevailed in the case because the court upheld their choice of Mississippi law, which allowed for a higher interest rate than Texas law would permit.

The district court thus correctly held that Mississippi bears a “reasonable relation” to this transaction and that the party choice of Mississippi law should therefore be given effect.

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