ALLEGHENY INTERNATIONAL CREDIT CORPORATION vs. BIO-ENERGY OF LINCOLN, INC., & another. [Note 1]

DREBEN, J. At the end of January, 1982, Bio-Energy of Lincoln, Inc. (Bio), and another [Note 2] sold a piece of earthmoving equipment for $75,000. At the same time, Bio entered into a three-year "lease" with the buyer which required Bio to pay a monthly rental fee. Bio paid the rent for one month but failed to make the remaining payments. The plaintiff, Allegheny International Credit Corporation (Allegheny), the assignee of the buyer, brought this action against Bio and its president, Fred M. Dellorfano, Jr., who had guaranteed Bio's performance under the lease. The defendants in their answer complained against two third-party defendants. [Note 3]

Page 157

After some discovery, Allegheny filed a motion for summary judgment seeking the rental payments which, under the lease, could be accelerated upon default, and also seeking late charges and expenses. A judge of the Superior Court ordered summary judgment for Allegheny "in the sum of $99,876.88 under the lease agreement." The judge also ordered the case to be placed on a hearing list for the determination of reasonable attorney's fees and late charges. The amounts of such fees and charges were decided by another judge who, under Mass.R.Civ.P. 54(b), 365 Mass. 821 (1974), also determined, notwithstanding the pendency of the third-party complaint, that there was no just reason for delay and directed the entry of judgment. Judgment entered on December 11, 1984.

The defendants in their appeal raise numerous objections. We affirm the judgment insofar as it awarded the plaintiff $99,876.88 and remand for further proceedings to determine whether any additional amounts are due.

1. Stay Under the Bankruptcy Code. The defendants claim that the action should have been automatically stayed under 11 U.S.C. Section 362(a) (1982). [Note 4] This argument is based on their assertions that Bio, a general partner of a limited partnership, entered the sale and lease-back provisions on behalf of a corporation which is a limited partner of Bio and that the limited partner, which had filed a petition for relief under U.S.C. Title 11, may be required to indemnify Bio. The defendants, by a third-party complaint, have made the limited partner a third-party defendant in this action.

Page 158

The automatic stay provisions of the Bankruptcy Code apply only to a "proceeding against the [petitioning] debtor," see note 4, supra, and not against others. Thus the stay provisions have been held not to apply to proceedings against a codefendant of the debtor, see Pitts v. Unarco Indus., Inc., 698 F.2d 313, 314-315 (7th Cir.), cert. denied sub nom. Pitts v. GAF Corp., 464 U.S. 1003 (1983); Austin v. Unarco Indus., Inc., 705 F.2d 1, 4-5 (1st Cir.), cert. dismissed, 463 U.S. 1247 (1983); Royal Truck & Trailer, Inc. v. Armadora Maritima Salvadorena, S.A., de C.V., 10 Bankr. 488, 490-493 (N.D. Ill. 1981), against individual partners of the debtor, see In re Aboussie Bros. Constr. Co., 8 Bankr. 302, 303-304 (E.D. Mo. 1981); In re Bank Center, Ltd., 15 Bankr. 64, 65 (W.D. Pa. 1981), or against the guarantors of its debts, see In re Larmar Estates, Inc., 5 Bankr. 328, 330 (E.D. N.Y. 1980). See generally 2 Collier, Bankruptcy Section 362.04 (15th ed. 1985).

The case relied upon by the defendants, Seybolt v. Bio-Energy of Lincoln, Inc., 38 Bankr. 123 (D. Mass. 1984), is to be distinguished. In that case the creditor was an "insider" and alleged to have been actively involved in the day to day business operations of the petitioning debtor. Id. at 124. Also, it seems that the stay in that case was not based on the automatic stay provisions of the Bankruptcy Code but rather on a determination by the court that, in the circumstances, the stay should be granted.

Bio is not in the Bankruptcy Court, and its obligations and those of its president, Dellorfano, to the plaintiff are independent of any claims either of them may have against Bio's alleged limited partner, the debtor in the Bankruptcy Court. The motion judge properly refused to stay the proceedings. Compare Irving Levitt Co. v. Sudbury Management Associates, 19 Mass. App. Ct. 12, 15 (1984).

2. Assignment of guaranty. Dellorfano argues that the assignment by the buyer of the lease and of his guaranty discharged his obligation. The lease document which Dellorfano subscribed as guarantor belies this claim. The lease contains specific

Page 159

language, quoted in the margin, [Note 5] permitting assignment and setting forth the rights of the assignee. Nothing in the papers filed in opposition to the plaintiff's motion for summary judgment raises a material issue of fact as to the validity of the assignment. The vague claim in the defendants' brief that the guarantor's risk may have been materially increased is not supported by any specific facts in the record and is not even asserted in any affidavit.

That Dellorfano did not specifically assent to the assignment to Allegheny is of no consequence. Not only did he consent in advance to the assignment by reason of his signature on the face of the lease which contained the provision previously quoted, see Merrimack Valley Natl. Bank v. Baird, 372 Mass. 721, 725 (1977), but, in the absence of special circumstances, such consent is unnecessary. See Healthco, Inc. v. Zambelis, 2 Mass. App. Ct. 914 (1975); 3 Williston, Contracts Section 412, at 34 (3d ed. 1960); 4 Corbin, Contracts Section 868, at 469 (1951). No special circumstances have been raised by the record.

3. Violation of usury laws. The most troublesome claim made by the defendants is that the transaction is in reality a loan and is a violation of G. L. c. 271, Section 49. [Note 6] That statute, set forth in part in the margin, [Note 7] requires that any person who

Page 160

charges more than twenty percent a year as interest and expenses on a loan must notify the Attorney General. No such notification took place here, and it appears that the payments provided for in the lease exceed a twenty percent interest rate. [Note 8]

The plaintiff argues that the lease is a true lease and therefore that the provisions of G. L. c. 271, Section 49, are inapplicable. Whether a transaction is a lease or a loan is often a close question. See generally, White & Summers, Uniform Commercial Code Section 22-3 (2d ed. 1980). See also G. L. c. 106, Section 9-408, and Official Reasons for 1972 Adoption of that section. The

Page 161

determination cannot, we think, be settled on the bare record before us.

The documents and affidavits, construed in the light most favorable to the parties opposing summary judgment, i.e., the defendants, Hub Associates v. Goode, 357 Mass. 449, 451 (1970), and taken in the context of the broader negotiations of which this transaction is claimed to have been a part, do not satisfy the plaintiff's burden of showing that "there is no genuine issue of material fact" as to whether the lease was a true lease. Community Natl. Bank v. Dawes, 369 Mass. 550, 554 (1976).

Although, taken by itself, the lease does not appear to be a loan, an addendum of even date contains provisions which look in that direction. The addendum ties the payments to the prime rate at a Pittsburgh bank on the "[p]rincipal balance outstanding" [Note 9] and also provides that the lessor will discontinue billing once the cost of the equipment to the lessor "is fully amortized." [Note 10]

Moreover, it is clear from the affidavits of both parties that Bio at the time of entering the lease was actively trying to borrow money. The affidavit of Dellorfano [Note 11] states that in January,

Page 162

1982, he began negotiations on behalf of Bio to obtain a loan from Allegheny of $1.7 million and that he entered into the sale and lease-back transaction as an interim financing mechanism.

Appended to an affidavit filed on behalf of Allegheny by one John Bartling is a contract dated January 25, 1982, under which, Bartling averred, Bio hired a consulting company to arrange for a $1.7 million loan to Bio. Bartling was the president of the consulting firm hired by Bio and was also president of the corporation which bought its equipment. The quest for much greater financing through Bartling's consulting firm at the same time Bartling, through another of his firms, was negotiating the sale and lease-back transaction lends substance to the defendants' claim that the leasing arrangement may have been a loan. [Note 12]

The principal amount of the loan, if it is one, is also subject to some question. The sale price of the equipment which Bio leased back from the buyer was $75,000. Bio requested that $9,750 be paid to the consulting company of which Bartling was president and the remaining $65,250 to Bio.

The defendants claim that $9,750 should be viewed as part of the cost of the loan. The amount of the consulting firm's retainer as set forth in the consulting contract was $7,500. Since the defendants' affidavits do not contest the existence of that contract or question what it was for (services for a $1.7 million loan), a material question of fact is only raised as to whether the excess over $7,500, i.e. $2,250, was a charge relating to the "lease."

Page 163

We thus conclude that the affidavits raise genuine issues of fact both as to whether the sale lease-back transaction was a loan, and if so, what amount was lent. These questions, however, do not preclude the entry of a partial summary judgment for the plaintiff. It is true that the total amount of the judgment entered by the lower court, i.e., $114,363.39, exceeds the twenty percent figure permitted by G. L. c. 271, Section 49. It is also true that the statute, as construed in Begelfer v. Najarian, 381 Mass. 177, 189 n.16 (1980), requires that all fees and expenses be included in determining the interest rate being charged. Nevertheless, Begelfer at 187, citing 14 Williston, Contracts Section 1630A, at 26 (3d ed. 1972), also indictates that "[u]nless no other conclusion is possible from the words of a statute it should not be held to make agreements contravening it totally void."

We think that here, as in Begelfer, a balancing of the relevant factors [Note 13] makes it inequitable to allow the defendants, who have received a substantial sum of money, to defer still longer the payment of amounts which unquestionably are due or to receive a windfall. It was thus proper, even if the transaction is ultimately found to be a loan, for the judge to enter judgment in the amount borrowed which remained unpaid at an interest rate not exceeding the maximum lawful rate. As the computations set forth in the margin indicate, the sum of $99,876.88 does not exceed that figure. [Note 14]

4. Remaining claims. The remaining claims of the defendants are without merit.

Page 164

(a) The fact that a mechanic's lien may have been placed on the earthmoving equipment does not, as the defendants assert, make the lienholder a necessary party. No challenge is here made to the lien, and this action does not preclude the lienholder from asserting whatever rights he may have.

(b) As indicated earlier, the defendants filed third-party actions against the limited partners of Bio. They urge that it was improper under Mass.R.Civ.P. 54(b) to determine that there is no just reason for delay. There is here no abuse of discretion (1) where the plaintiff had a clear right to payment of at least $99,876.88; (2) where the liability, if any, of the third-party defendants is independent of the obligations of the defendants; and (3) where an uncontroverted affidavit filed on behalf of the plaintiff indicates the precarious financial position of the defendants. See Curtiss-Wright Corp. v. General Elec. Co., 446 U.S. 1, 12 (1980).

(c) The claim that the legal fees awarded were unreasonable is without basis. We see no abuse of discretion in the amount awarded. Whether the plaintiff will receive such sum will, however, depend on whether the transaction falls within the usury statute.

5. Remedy. The portion of the judgment entered December 11, 1984, which awards the plaintiff $99,876.88 is affirmed, and is considered certified under Mass.R.Civ.P. 54(b). No prejudgment interest is to be awarded, as such interest would be duplicative. See Computer Syss. Engr., Inc. v. Qantel Corp., 740 F.2d 59, 71 (1st. Cir. 1984). The plaintiff is to have costs under Mass.R.A.P. 26, as amended, 378 Mass. 925 (1979).

Because of the genuine material issues whether the transaction was a loan governed by G. L. c. 271, Section 49, and, if so, whether the $2,250 should be considered as part of the amount of such loan, the judgment is vacated insofar as it awards in excess of $99,876.88, and the matter is remanded for further proceedings consistent with this opinion. On remand, if the transaction is determined to be a loan to which G. L. c. 271, Section 49, applies, interest (which for the purposes of the statute, includes all fees and late charges) in excess of the maximum lawful rate may not be awarded. If, on remand, the transaction

Page 165

is determined not to be a loan to which the statute is applicable, the entire original judgment entered December 11, 1984, is to stand.

So ordered.