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Dillman Assoc., Inc. v. Capitol Leas. Co.

OPINION FILED NOVEMBER 15, 1982.

DILLMAN AND ASSOCIATES, INC., D/B/A DILLMAN ACCOUNTING, PLAINTIFF AND COUNTERDEFENDANT-APPELLEE,

v.

CAPITOL LEASING CO., DEFENDANT AND COUNTERPLAINTIFF-APPELLANT.



Appeal from the Circuit Court of Macon County; the Hon. James A. Hendrian, Judge, presiding.

PRESIDING JUSTICE GREEN DELIVERED THE OPINION OF THE COURT:

This case concerns the question of whether an equipment lease entered into between two business entities, under which the lessor completely disclaims all responsibility for performance of the leased equipment, is unconscionable. On April 23, 1981, plaintiff filed a complaint in the Macon County circuit court, alleging that a copying machine it had leased from defendant was not performing adequately and that the lease agreement, which completely relieved defendant of all responsibility for performance of the machine, was unconscionable. In addition to its prayer that it be relieved of its obligations under the lease because of the lease's alleged unconscionability, Dillman and Associates also requested damages stemming from the copier's alleged nonmerchantability. Defendant filed a counterclaim on August 16, 1981, in which it asked for an award of the entire balance remaining due under the lease, plus attorney fees. At the conclusion of a bench trial on January 5, 1982, the court held that the lease was unconscionable, but ruled against plaintiff on its claim for damages flowing from the copier's alleged nonmerchantability. The court also denied defendant's counterclaim.

The lease at issue is a form contract, and all portions thereof, except for the names and addresses of the parties, the description of the equipment, term of the lease, number and amount of lease payments, and the date of the lease, are preprinted. The term of the lease is five years, and the copier is to be returned to defendant at the end of that time. The lease contains three express disclaimers of warranty. The first appears on the face of the lease, immediately below the description of the copier and reads:

"THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED OF MERCHANTABILITY, FITNESS, OR OTHERWISE WHICH EXTEND BEYOND THE ABOVE DESCRIPTION OF THE EQUIPMENT. LESSOR ASSUMES NO RESPONSIBILITY FOR PERFORMANCE OR MAINTENANCE. EQUIPMENT WILL BE INSURED BY LESSEE."

The second disclaimer, which also appears on the front of the lease, provides:

"* * * Lessee acknowledges and agrees (1) that each unit is of a size, design, capacity and manufacture selected by Lessee, (2) that Lessee is satisfied that the same is suitable for its purpose, (3) that LESSOR IS NOT A MANUFACTURER THEREOF NOR A DEALER IN PROPERTY OF SUCH KIND, and (4) that LESSOR HAS NOT MADE, AND DOES NOT HEREBY MAKE, ANY REPRESENTATION OR WARRANTY OR COVENANT WITH RESPECT TO THE MERCHANTABILITY, CONDITION, QUALITY, DURABILITY OR SUITABILITY OF ANY SUCH UNIT IN ANY RESPECT OR IN CONNECTION WITH OR FOR THE PURPOSES AND USES OF LESSEE, OR ANY OTHER REPRESENTATION OR WARRANTY OR COVENANT OF ANY KIND OF CHARACTER, EXPRESS OR IMPLIED, WITH RESPECT THERETO. * * * AS BETWEEN LESSOR AND LESSEE, THE EQUIPMENT SHALL BE ACCEPTED AND LEASED BY LESSEE `AS IS' AND IF ANY FAULTS PREVAIL LESSEE AGREES TO SETTLE ALL SUCH CLAIMS DIRECTLY WITH THE SUPPLIER AND WILL NOT ASSERT ANY SUCH CLAIMS AGAINST LESSOR OR LESSOR'S ASSIGNEE."

The third and final disclaimer, which appears on the reverse of the lease reads:

"NO REPRESENTATION REGARDING THE EQUIPMENT HEREIN LEASED HAS BEEN MADE BY CAPITOL LEASING COMPANY. LESSEE HAS SELECTED THE PROPERTY TO BE LEASED AND IT IS ORDERED BY CAPITOL LEASING COMPANY FOR THIS LESSEE AND AT LESSEE'S ENTIRE DIRECTION AND RISK."

The face of the lease also contains statements in bold capitals that the terms on the reverse of the lease constitute a part of the agreement and that the lease is noncancelable. Additional salient provisions, printed on the reverse of the lease, are that the lessee is responsible for any and all taxes on the leased equipment, the lease is irrevocable, and that the lessor has no responsibility for maintenance of the equipment. In the event of problems with the equipment, the lessor is to assign to lessee its rights against the supplier of the equipment for breach of warranties for the sole purpose of enabling lessee to pursue claims against the supplier relative to such defects. Finally, in the event of breach of the lessee's obligations under the lease, the lessor may declare due the entire unpaid rental for the remaining term of the lease and repossess the leased equipment without legal process. The lessor may thereafter lease the repossessed equipment to a third party on terms of its choice or sell the equipment to the highest bidder at a public or private sale. The proceeds of the sale or second lease, less attorney fees and expenses related thereto, are to be deducted from the sum of the total unpaid lease installments, 15% of the lessor's original investment in the leased equipment (representing the lessor's loss of residual or salvage value of the equipment), and any other sums due under the lease, to arrive at the deficiency for which the lessee is responsible. The lessee is also liable for the amount of attorney fees incurred in attempting to collect a deficiency.

The plaintiff's sole witness at trial was its executive director, Ronald L. Christopher. Christopher, who began work with Dillman and Associates in July 1979, testified as to the generally unsatisfactory performance of the leased copier during the time that he had been employed there. The machine had to be repaired a total of 16 to 19 times between July 15, 1979, and December 30, 1979, and 20 service calls were necessary to keep it functioning during 1980. Although Dillman and Associates had a preventive maintenance agreement for the copier with Printing Equipment & Products, Inc., of Decatur, some of the repairs fell outside the scope of this agreement, and on four occasions plaintiff received bills of more than $100 for such repairs. During this time, plaintiff repeatedly requested that defendant replace or repair the machine, but defendant took no action in this regard. Christopher brought three briefcases full of illegible copies produced by the machine into court with him. On April 1, 1981, the machine again began to produce illegible copies. Since that is the heaviest period in plaintiff's income tax return preparation business, the machine was simply set aside and replaced with another leased copier on a temporary basis. This copier was subsequently replaced with a third machine. The third copier had required only one service call up to the time of the trial. After April 1, 1981, the plaintiff made no further payments on the copier which it leased from defendant.

The defendant presented no evidence.

Before addressing the question of whether the lease at issue is unconscionable, we must first consider plaintiff's contention that this appeal should be dismissed on the ground of mootness. The plaintiff asserts that defendant has not perfected an appeal from the trial court's denial of its counterclaim. Therefore, plaintiff argues, the trial court's decision on defendant's counterclaim, which is now a final judgment by virtue of defendant's failure to appeal it, effectively bars defendant from ever receiving any damages on account of breach of the lease. Therefore, plaintiff asserts that the dispute before us is moot.

The written judgment entered by the trial court contains rulings on count I of plaintiff's complaint (the unconscionability claim), count II of plaintiff's complaint (the nonmerchantability claim), and defendant's counterclaim in separately numbered paragraphs. Defendant's notice of appeal states:

"CAPITOL LEASING CO. * * * hereby appeal[s] * * * from the Judgment entered in favor of DILLMAN AND ASSOCIATES, INC., Plaintiff-Counter Defendant, and against Defendant-Counter Claimant, CAPITOL LEASING CO., in terminating the lease without ...


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