Benedictine College v. Century Office Products

• Decision Date: 16 May 1994
• Docket Number: Civ. A. No. 92-2434-GTV.
• Citation: 853 F. Supp. 1315
• Parties: BENEDICTINE COLLEGE, INC., Plaintiff, v. CENTURY OFFICE PRODUCTS, INC., Nodaway Valley Bank, General Electric Capital Corp., Defendants.
• Court: U.S. District Court — District of Kansas

853 F. Supp. 1315

BENEDICTINE COLLEGE, INC., Plaintiff, v. CENTURY OFFICE PRODUCTS, INC., Nodaway Valley Bank, General Electric Capital Corp., Defendants.

Civ. A. No. 92-2434-GTV.

United States District Court, D. Kansas.

May 16, 1994.

COPYRIGHT MATERIAL OMITTED

Martin J. Asher, Duncan, Senecal, Bedner & Asher, Atchison, KS, for plaintiff.

Kenneth F. Crockett, Topeka, KS, for Century Office Products, Inc.

Mark D. Hinderks, Stinson, Mag & Fizzell, Overland Park, KS, Mark A. Shaiken, Stinson, Mag & Fizzell, Lisa C. Creighton, Sprint Communications Co., L.P. Law Dept., Kansas City, MO, for Nodaway Valley Bank.

Dennis R. Dow, Todd Ruskamp, Timothy E. Congrove, Shook, Hardy & Bacon, Kansas City, MO, for GE Capital.

MEMORANDUM AND ORDER

VAN BEBBER, District Judge.

This case is before the court on Defendant Nodaway Valley Bank's Motion for Summary Judgment (Doc. 18) and Defendant GE Capital Corporation's Motion for Summary Judgment (Doc. 45). Plaintiff Benedictine College has responded and opposes the motions. Defendant Century Office Products has not appeared in this action. For the reasons stated in this memorandum and order, the motions are granted.

This case involves Benedictine's claims that it is entitled to recision of two agreements for the lease of copying equipment entered into between Benedictine and defendant Century Office Products. Defendants Nodaway and GE Capital are the assignees of Century Office Products' rights under the two agreements and have asserted counterclaims against Benedictine for breach of the agreements.

In its motion for summary judgment, Nodaway argues that as a matter of law it is entitled to summary judgment on its counterclaim under the terms of the equipment lease. Benedictine argues in opposition that Nodaway is not entitled to summary judgment because genuine issues of material fact exist as to the applicability of its affirmative defenses to Nodaway's counterclaim. Similarly, GE Capital argues in its motion for summary judgment that it is entitled to summary judgment on its counterclaim for breach of contract based upon a "hell or high water clause" in the agreement. Benedictine has also opposed this motion.

I. SUMMARY JUDGMENT STANDARDS

In deciding a motion for summary judgment, the court must examine any evidence tending to show triable issues in the light most favorable to the nonmoving party. Bee v. Greaves, 744 F.2d 1387, 1396 (10th Cir.1984), cert. denied, 469 U.S. 1214, 105 S.Ct. 1187, 84 L.Ed.2d 334 (1985). A moving party is entitled to summary judgment only if the evidence indicates "there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). A genuine factual issue is one that "can reasonably be resolved only be a finder of fact because it may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986).

The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. This burden may be discharged by "showing" that there is an absence of evidence to support the nonmoving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). Once the moving party has properly supported its motion for summary judgment, the burden shifts to the nonmoving party, who "may not rest on mere allegations or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 256, 106 S.Ct. at 2514. Thus, the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment. Id.

II. FACTUAL BACKGROUND

The pertinent uncontroverted facts established by the parties in accordance with D.Kan. Rule 206(c) are as follows:¹

Nodaway is a banking corporation duly organized and existing under the laws of Missouri, and it has its principal place of business in Missouri. Benedictine is a not-for-profit education corporation duly organized and existing under the laws of Kansas, and its has its principal place of business in Kansas. GE Capital is a foreign corporation doing business in the State of Kansas.

Century Office Products is a corporation organized under the laws of Kansas, and it has its principal place of business in Kansas. Century Office Products is currently in bankruptcy, having filed a Chapter 11 bankruptcy petition on October 1, 1992.

Lease Assigned to Nodaway

On May 1, 1991, Benedictine entered into a lease purchase agreement with Century Office Products under which it was to receive thirteen Sharp and Toshiba duplicating machines in return for a promise to make sixty-one monthly payments in the amount of $1,600.00 each and a final payment in the amount of $10,466.64. One of the provisions of the agreement provided that Century Office Products could assign all of its rights under the contract and that such an assignment would be free from all defenses, setoffs, or counterclaims of any kind or character which Benedictine might have against Century Office Products.

On May 1, 1991, Benedictine executed a delivery and acceptance certificate for the copying equipment. Also on that same date, Century Office Products assigned all of its rights under the agreement to Mid-Continent Leasing. Subsequent to the May 1st assignment, Mid-Continent assigned its interest under the agreement to Nodaway.

Nodaway paid $76,807.76 for Mid-Continent's interest in the agreement. Nodaway asserts that it took the assignment in good faith and without any notice that the agreement had been dishonored, overdue, or that any defenses or claims to the agreement existed. On May 8, 1991, Benedictine was given written notice of the assignment to Nodaway which required that payments under the agreement be made directly to Nodaway.

From June, 1991, until October, 1992, Nodaway received monthly payments of $1,600.00 each from Benedictine as required under the terms of the agreement. Beginning in November, 1992, Benedictine stopped making the monthly payments to Nodaway. The agreement provides that the failure to make monthly payments constitutes a default, and upon default the remaining payments may be accelerated. The agreement also provides that upon default, interest at the rate of eighteen percent per year will be charged on the amount due and owing under the agreement and that Benedictine must pay reasonable attorney fees and costs expended in collecting amounts due under the terms of the agreement.

Lease Assigned to GE Capital

On August 19, 1992, Benedictine executed another equipment lease with Century Office Products for certain office equipment described in it. Pursuant to the terms of the lease, Benedictine agreed to pay monthly payments in the amount of $1,850 for a total of sixty months. Paragraph three of the lease provides that "all of Lessee's obligations under this Lease shall be paid and performed by Lessee irrespective of any setoff, counterclaim, recoupment, defense or other right which Lessee may have against Lessor, the supplier of the equipment or any other person." Paragraph six of the lease further provides that "no breach or default by Lessor hereunder shall excuse performance by Lessee of any provision hereof, it being understood that in the event of such default or breach by Lessor, Lessee shall pursue any rights on account hereof solely against Lessor and shall not assert against Holder any defense, counterclaim or setoff which Lessee may have against Lessor."

On August 21, 1992, and August 24, 1992, representatives of GE Capital contacted representatives of Benedictine and inquired whether Benedictine had received the equipment which was the subject of the Lease, and whether Benedictine understood the terms of the Lease.

On August 24, 1992, Century Office Products assigned to GE Capital all of its rights under the lease. In exchange for the assignment, GE Capital paid Century Office Products $83,146.00. Benedictine received notice of the assignment of the lease to GE Capital. Prior to the execution of the lease, Benedictine had no communications with GE Capital regarding any problems or complaints with Century Office Products.

Benedictine has not made any payments to GE Capital under the lease. On November 20, 1992, GE Capital provided notice of default to Benedictine.

In this lawsuit, Benedictine is seeking to rescind both lease agreements described above. Nodaway's counterclaim seeks payment of the accelerated amount of $77,666.64 due under the terms of the lease. GE Capital's counterclaim alleges that $128,150.37 is due under the terms of that lease.

III. NODAWAY'S MOTION FOR SUMMARY JUDGMENT

The uncontroverted facts establish that Benedictine failed to make the payments due under its lease agreement beginning in November of 1991, and that the other events necessary to effectuate the agreement and its assignment to Nodaway have occurred. At issue here is whether Benedictine has alleged any affirmative defense that will operate to bar Nodaway's recovery on its claim for breach of contract. Nodaway contends that it is entitled to summary judgment on its counterclaim based on two alternative theories: First, Nodaway argues that the agreement is a negotiable instrument and that Nodaway is a holder in due course subject only to the defenses of lack of authority, illegality, and fraud in the essence. Second, Nodaway contends that under a waiver of defenses clause included in the terms of the agreement, it is accorded the same status as a holder in due course. The court considers Nodaway's second argument concerning the waiver of defenses clause dispositive and will address it here.

The construction of a written instrument and its legal effect are questions of law. CAT Aircraft Leasing, Inc. v. Cessna Aircraft Co., No. 87-1022-C, 1990 WL 171010, *8 (D.Kan. Oct. 3, 1990) (citing...