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Contract – Conditional Sale – Landlord’s Lien – Tort/Negligence – Conversion Claim

Contract – Conditional Sale – Landlord’s Lien – Tort/Negligence – Conversion Claim

After plaintiff stopped recycling fiberglass, it transferred some of its recycling equipment to Ferguson Fibers in exchange for Ferguson’s promise to pay installments totaling $300,000. Even though plaintiff promised to give Ferguson a bill of sale only upon payment of the entire $300,000, plaintiff’s arrangement with Ferguson was a conditional sale and not a lease. Ferguson’s lease agreement with the defendant-landlord provided that in the event of default, the landlord would obtain a lien on any property left on the premises. Plaintiff failed to file a financing statement to cover the equipment. When Ferguson defaulted on its lease, the landlord’s seizure of the recycling equipment did not constitute a conversion of plaintiff’s property.

We affirm the trial court’s directed verdict in favor of the landlord.

Ferguson did not have an obligation to return the equipment to plaintiff at the completion of the contract. Rather, the contract between Ferguson and plaintiff contemplated that Ferguson would become the owner of the equipment upon completion of the installment payments. Because the obligation to redeliver or deliver over the property at the termination of the bailment on demand is an essential part of every bailment contract, we reject plaintiff’s argument that its arrangement with Ferguson was a bailment.

Plaintiff attempted to retain title to the equipment by agreeing to deliver a bill of sale only after Ferguson made the final scheduled payment. Also, plaintiff’s inclusion of the equipment on its tax returns evinces its intention to retain title. There were also communications between the two parties memorializing that plaintiff “will continue to be the owner of the equipment” and “after the full payment [Ferguson] will be the owner of the equipment.”

Nevertheless, plaintiff’s attempt to retain title is thwarted for two reasons.

First, Ferguson’s obligation was to pay the purchase price. Ferguson was under no obligation to return the equipment at the expiration of a given term. Indeed, the parties did not contemplate that the agreement would be terminated by any event other than full payment of the purchase price, at which point plaintiff would deliver the bill of sale to Ferguson. Because the transaction here could not be completed except by complete payment, the transaction is a conditional sale instead of a lease. G.S 25-2A-103(1)(j).

Second, the purchase price of the equipment indicates that the transaction was a sale instead of a lease. Ferguson was obligated to pay $300,000 for the equipment, which is its estimated market value. No additional amount of payment was required to “purchase” the equipment.

Instead, plaintiff agreed to deliver a bill of sale as soon as Ferguson completed the final payment. Thus, the Uniform Commercial Code and our case law instruct that this transaction was a conditional sale in which plaintiff’s retention of title was limited in effect to a security interest in the equipment. G.S. § 25-1- 203(b)(3).


KCK Resources, Inc. v. Schwarz Properties, L.L.C. (Lawyers Weekly No. 012-121-23, 10 pp.) (Chris Dillon, J.) Appealed from Davidson County Superior Court (Vance Bradford Long, J.) Calvin Cunningham for plaintiff; Richard Coughlin, Kip David Nelson and Craig Turner for defendant. North Carolina Court of Appeals (unpublished)

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