Leasing Service Corp. v. Crane
| Decision Date | 30 October 1986 |
| Docket Number | Nos. 85-1679,85-1755,s. 85-1679 |
| Citation | 804 F.2d 828 |
| Parties | 3 UCC Rep.Serv.2d 329 LEASING SERVICE CORPORATION, Appellee, v. Fred Lee CRANE, William Donald Crane and Crane Brothers Well Drilling, Appellants. LEASING SERVICE CORPORATION, Appellant, v. Fred Lee CRANE, William Donald Crane and Crane Brothers Well Drilling, Appellees. |
| Court | U.S. Court of Appeals — Fourth Circuit |
Monty C. Beck and Orville D. Coward, Jr. (Coward, Dillard, Cabler, Sossoman & Hicks, P.A., Sylva, N.C., on brief), for appellants/cross-appellees.
Joseph P. McGuire (McGuire, Wood, Worley & Bissette, P.A., Asheville, N.C., on brief), for appellee/cross-appellant.
Before PHILLIPS, CHAPMAN and WILKINSON, Circuit Judges.
This is an appeal and cross-appeal from a judgment rendered in a diversity action involving a disputed lease of drilling equipment. After defendants Fred and Donald Crane (the Cranes) leased a drill rig from a supplier, the lessor-supplier assigned the lease to plaintiff Leasing Service Corporation (Leasing Corp.). When the Cranes fell behind in their payments under the lease, Leasing Corp. sued in diversity, seeking damages for breach and repossession of the rig under provisions of the lease. The Cranes counterclaimed seeking damages for breach of contract, slander of title, and statutory unfair trade practices. In a bench trial, the district court dismissed all of the Cranes' counterclaims and awarded repossession of the rig and damages, limited by a side agreement, to Leasing Corp.
On the Cranes' appeal, we affirm dismissal of their counterclaims, and Leasing Corp.'s right to repossession and to an award of damages. On Leasing Corp.'s cross-appeal, we hold that the district court erred in enforcing the side agreement to limit Leasing Corp.'s damages and we remand for an award of the full damages to which Leasing Corp. was entitled for breach of the lease.
At the critical times, the Cranes were partners in Defendant Crane Bros. Well Drilling (Crane Bros.). On November 1, 1978, the Cranes negotiated for the lease of a Driltech drill rig with Francis Beall and Terry Blackmon. Beall was the general manager of Nesbit Equipment--Charlotte Division of L.B. Smith, Inc. (Nesbit or L.B. Smith, Inc.). Blackmon was a Nesbit sales employee.
The Driltech drill rig consisted of two separate pieces of equipment--the drilling apparatus itself manufactured by Driltech, Inc. and a truck manufactured by Crane Carrier Company upon which the drill rig was mounted. Driltech, Inc. purchases trucks from Crane Carrier Company and attaches its drilling rigs to the trucks. The truck and drill rig are then sold as a single unit. The truck serves both as a method to move the drill rig from one job site to another as well as a drilling platform. In this case, Driltech, Inc. sold the drill and truck as a single unit and the two pieces of equipment have not been separated since the original assembly.
During the November 1, 1978, meeting between the Cranes and the Nesbit representatives, at 1:00 a.m., following hours of protracted negotiation, Fred Crane awakened his wife and requested that she review a proposed lease agreement and prepare an additional handwritten agreement. Neither Fred nor Donald Crane are able to read or write. Mrs. Crane crossed out language in the printed lease agreement granting the lessor a security interest in all other assets belonging to the Cranes. She then prepared a handwritten document containing, inter alia, the following provision:
If Crane Bros. can not honor the contract, Nesbit Equipment will take the Drilltech [sic] D40K well drilling machine back and release Crane Bros. from all obligations of the contract.
Beall and the Cranes then signed the Equipment Lease Agreement, which provided that the total rent would be $295,500.00 payable over 60 months, Schedules A and B to the Equipment Lease Agreement, which contained a description of the equipment, and an itemization of payments and charges thereunder, a purchase option agreement granting to the defendants the right to purchase the drill rig for $68,800.00 providing the Lessee was not then in default, and the handwritten agreement. The Cranes contended at trial that contemporaneously with the signing of these documents, Beall agreed that the defendants would receive free and clear title to the Crane Carrier truck in exchange for services to be rendered in the future to Nesbit. Beall denied any such agreement.
Beall never revealed to his employer or any Leasing Corp. representative that he had signed the handwritten agreement. The evidence established that Beall had no actual authority to enter into any such agreement on behalf of Nesbit or Leasing Corp. His actual authority was only to sign any lease agreement and accompanying documents. The extent of his actual authority was concededly not known to the Cranes. On November 7, 1978, when Nesbit assigned the lease to Leasing Corp. the handwritten document was not included among the other attachments and schedules to the lease. It is not disputed that the Cranes knew that the lease was to be assigned immediately; the agreement expressly so stated. The first notice any Leasing Corp. representative had concerning the written agreement was approximately one year after execution of the lease when Fred Crane showed a copy of the document to the regional vice president of Leasing Corp.'s sister corporation, Credit Alliance Corporation.
The assignment agreement between Nesbit and Leasing Corp. warranted to the assignee that the equipment lease agreement contained or described the entire agreement and all instruments made or given in connection with the lease. The Equipment Lease Agreement provided, inter alia, that upon assignment the lessee agreed not to assert against any assignee any defense, setoff, recoupment, claim or counterclaim which the lessee might have against Nesbit, that all equipment which was added to or became attached to the equipment thereunder would immediately become the property of the lessor and subject to the lease, that title to the equipment would at all times remain in lessor and the lessee would protect and defend the title of lessor, that the lessor had certain rights and remedies upon default by the lessee, and that the lessor and lessee waived any and all right to trial by jury in any action or proceeding relating to the subject matter of the lease. The Delivery/Installation Certificate also provided that the lessee waived any claims against the assignee and recognized the assignee's right to enforce the lease free from any defenses, offsets or counterclaims.
After the lease agreement and the assignment had been executed, the Cranes obtained a North Carolina certificate of title to the truck. They did this by submitting an application and the Original Manufacturer's Statement of Origin (MSO) for the truck to the North Carolina Division of Motor Vehicles. This MSO showed that the truck was manufactured by Crane Carrier Company and was assigned to Driltech, Inc. on February 17, 1978; that Driltech, Inc. assigned the original MSO to L.B. Smith, Inc. on June 9, 1978; and that L.B. Smith assigned it to the Cranes on January 5, 1979. The Cranes applied for a certificate of title the same day, and their certificate was issued on February 1, 1979. The certificate of title, which was for the truck only, showed no liens or encumbrances, a problem traceable to Blackmon who, without authority, had delivered the MSO to the Cranes with no lien indicated.
Shortly thereafter, Leasing Corp. asked Nesbit about the location of its certificate of title on the drilling rig leased to the Cranes. Sometime later, Leasing Corp. determined that the Cranes had obtained title to the truck and that the plaintiff's lien was unrecorded. Repeated attempts to have the Cranes note the plaintiff's lien on the Cranes' certificate proved fruitless.
Accordingly, on January 7, 1980, Leasing Corp. filed its own application for title to the truck based upon a duplicate MSO. This duplicate MSO showed assignments from Crane Carrier Company to Driltech, Inc. on February 2, 1978, from Driltech, Inc. to L.B. Smith, Inc. on May 29, 1980, and from L.B. Smith to Leasing Corp. on June 24, 1980. Leasing Corp. applied for a certificate of title the same day with the North Carolina Division of Motor Vehicles and was issued a certificate on July 21, 1980. The parties were able to obtain dual certificates because of slight variations in the way the serial number was listed in their different applications.
When representatives of the North Carolina Division of Motor Vehicles became aware that two titles had been issued on the same vehicle they investigated the matter and concluded that the Cranes had the original and superior title to the truck and that Leasing Corp.'s title should be recalled. Leasing Corp.'s title, however, was not recalled.
The Cranes made payments to Leasing Corp., as assignee of the lease, regularly until October 1983. When the Cranes made their November payment, they were then two months in arrears. Thereafter, the Cranes failed to make any payment under the lease until February 1984. In February 1984, the Cranes paid Leasing Corp. $2,500.00 instead of their usual payment of $4,160.00. Fred Crane had earlier spoken to Laurence Kimmel, Leasing Corp.'s operations manager, advising him that the Cranes were unable to make their regular payments and requesting that a new payment schedule be arranged. Kimmel agreed that the Cranes could make payments of $2,500.00 until they were financially able to resume their regular payments. However, on March 20, 1984, Leasing Corp. declared the Cranes in default and accelerated the entire unpaid balance of rent.
Fred Crane thereupon telephoned Kimmel who advised him that the "home office" would not accept a reduced payment schedule and had demanded that the lease be declared in default. The Cranes then...
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