This matter was tried before me on July 27, 2010 and August 27, 2010. Plaintiff, Ford Motor Credit Company, hereinafter Ford Credit, commenced this matter by filing a summons and complaint against the defendant seeking to enforce a lease, and requesting $4,270.11, allegedly owed pursuant to the lease. Plaintiff asserted that it is the holder of the lease. After initial discussions with the court and defendant, plaintiff withdrew its complaint. Nevertheless, defendant proceeded to trial on her counterclaim seeking reimbursement of six monthly lease payments, which plaintiff alleged was pre-paid to Ford Credit prior to the lease-end date.

In summary, defendant leased a 2006 Ford Expedition, primarily for personal use, on December 12, 2005, for a period of 36 months. The lease-end date was December 12, 2008. The lease named Vanguard Auto Group doing business as Popular Ford as the lessor, and defendant as the lessee. The court notes that the lease further named CAB East LLC as the assignee of Popular Ford, and Ford Motor Credit as the authorized agent of CAB East LLC.

Defendant testified, and plaintiff does not dispute, that she made all payments through the [*2]lease-end date, totaling $31,983.12, to Ford Credit. On June 19, 2008, the vehicle was towed at defendant's request to Popular Ford, an authorized Ford repair shop in Brooklyn, to resolve a problem with a red engine light. Popular Ford never notified the defendant whether the vehicle was repaired. Within the next two to three weeks, Popular Ford went out of business and the vehicle was never returned to defendant for her use through the end of the lease. Consequently, defendant seeks reimbursement from Ford Credit in the amount of $5,330.42, for payments which defendant made but did not have use of the vehicle.

Ford Credit acknowledged receipt of all defendant's payments under the lease. Ford Credit also acknowledged that it took possession of and sold the subject vehicle for $16,100 after Popular Ford went out of business. The court notes that the record is devoid of facts that indicate the nature of the sale. Plaintiff alleged that it is a holder in due course and therefore protected from any defenses defendant may assert. Plaintiff further alleged that its only role in the transaction was to receive the lease payments. On these grounds, plaintiff maintained that it is not responsible for returning any money to the defendant. However, the court finds that plaintiff's position on either basis is misplaced.

Article 3 of the Uniform Commercial Code defines negotiable instruments and sets forth the requirements for a holder in due course (UCC 3-104, 3-302). In relevant part, UCC 3-104 provides that in order for any writing to be a negotiable instrument within Article 3, it must:

(a) be signed by the maker or drawer; and

(b) contain an unconditional promise or order to pay a sum certain in money and no other promise, order, obligation or power given by the maker or drawer except as authorized by this Article; and

(c) be payable on demand or at a definite time; and

(d) be payable to order or to bearer (UCC 3-104 [1]).

Here, the lease does not constitute a negotiable instrument for several reasons including, inter alia, it does not contain a promise to pay a sum certain in money and no other promise, and the document is not made payable to order or to bearer (UCC 3-104 [b], [d]). Since the lease agreement here is clearly not a negotiable instrument under UCC 3-104, plaintiff cannot claim to be a holder in due course under UCC 3-302, which requires the holder to take an Article 3 "instrument" (UCC 3-302 [1]).

Furthermore, although plaintiff claims to be a "holder," in reality, plaintiff is the principle creditor. The lease agreement at issue bears the Ford Credit emblem and name, and names CAB East LLC, Popular Ford's assignee under the terms of lease, as the "holder." However, Ford Credit not only received the payments but maintained sole control over the manner and details of the lease agreement. Paragraph 18 provides that the vehicle may not be used outside the State of New York for more than thirty days without Ford Credit's consent. This paragraph also reserves Ford Credit's control over the assignment or subleasing of the lease. Paragraph 21 states only Ford Credit has the right to recover any insurance proceeds due to loss of the vehicle. Paragraph 27 of the lease provides that Ford Credit may cancel the lease in the event of default. Paragraph [*3]28 states that only Ford Credit may grant an opportunity to cure any default.

Paragraph 30 states that if Ford Credit is not the holder of the lease, the holder appoints Ford Credit its authorized agent. However, this court finds that paragraph 30 of the lease is a mere subterfuge. Plaintiff's witness, Alex Wise, the Business Development Manager for Ford Credit, testified on August 27 that CAB East LLC is a wholly owned subsidiary of Ford Motor Credit. Additionally, the certificate of formation for CAB East LLC indicates that Ford Motor Credit is the "sole member" of the LLC. When asked the reason for this practice, the witness stated simply that plaintiff gains certain tax and other advantages by this arrangement. Nevertheless, Ford Motor Credit simply is and has always been the owner of this lease.

Where a lease provides that in the event of default or early termination, the defendant will be liable for the difference between the lease-end purchase price of the vehicle and the proceeds of its sale, the lease generally has been considered a secured transaction governed by Article 9 of the Uniform Commercial Code (Ford Motor Credit Co., Inc. v Racwell Const., Inc., 24 AD3d 500, 501 [2d Dept 2005]; see also Kohler v Ford Motor Credit Corp., 93 AD2d 205, 208 [1983]). However, other courts have determined that it is a misconception that Article 9 of the Uniform Commercial Code controls in light of the enactment of Article 9 of the Personal Property Law (see Ford Motor Credit v Esposito, 8 Misc 3d 230, 232-33 [2005]). In any event, this court does not reach the issue of the applicability of Article 9 of the Uniform Commercial Code or the Personal Property Law because the record is devoid of facts to support that the lease was terminated early or foreclosed upon by Ford Credit.

Quite simply, plaintiff enjoyed the full benefit of the lease and defendant did not. Plaintiff received full payment for the vehicle under the lease from defendant, and $16,100 after re-sale, totaling $48, 083.12. On the other hand, defendant pre-paid the balance of the lease but did not have use of the vehicle for six of the thirty-six months of the lease term. Further, defendant was deprived of the use of her vehicle through no fault of her own. Moreover, even after plaintiff gained possession of the vehicle prior to the end of the lease, it did not offer defendant use of the vehicle. Rather, it sold the vehicle.

Paragraph 22 of the lease provides: "Termination. This lease will terminate (and)[sic] upon (a) the end of the term of the lease, (b) the return of the vehicle to Lessor, and (c) payment by You of all amounts due under the lease..." This court finds that just as plaintiff was entitled to full payment and defendant's compliance with the lease under this subsection, defendant was entitled to plaintiff's full compliance with the terms of the lease. It would be unjust and inequitable not to similarly interpret this contract of adhesion to permit defendant the same protection. Plaintiff should not be unjustly enriched by being permitted to keep the payments for the period which defendant admittedly did not have use of the vehicle. (see also UCC 2-A-508 [1] [b] providing for appropriate and just refund of payment to lessee for impairment of lease by lessor). Accordingly, defendant shall be entitled to a partial refund of her lease payments for plaintiff's lack of full compliance, which was due to no fault of the defendant. [*4]

The Clerk of the Court shall enter a judgment in favor of the defendant in the amount of

$5,330.42. This constitutes the decision and order of the court.

Dated: September 14, 2010

________________________

Reginald A. Boddie

J.C.C.