Earman Oil Co., Inc. v. Burroughs Corp.
| Decision Date | 19 September 1980 |
| Docket Number | No. 78-1785,78-1785 |
| Citation | 625 F.2d 1291 |
| Parties | 30 UCC Rep.Serv. 849 EARMAN OIL COMPANY, INC. and Courtesy House, Inc., Florida Corporations, Plaintiffs-Appellants, v. BURROUGHS CORPORATION, a Michigan Corporation, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Calvin B. Brown, Ralph L. Evans, Vero Beach, Fla., for plaintiffs-appellants.
Smith, O'Haire, Thatcher & Quinn, Sherman N. Smith, III, Thomas Thatcher, Vero Beach, Fla., for defendant-appellee.
Appeal from the United States District Court for the Southern District of Florida.
Before TUTTLE, BROWN and TATE, Circuit Judges.
Inappropriate for certification because of the unusual posture of the issues and their straightforward, settled nature, 1 this case takes us down the Florida law spur of Erie R. R. v. Tompkins. 2 A number of questions line the tracks. When is a lease not a lease? What effect should be given to the terms of a contract which was executory and was in a sense not carried out by the parties? How can disclaimers and limitations of liability be unconscionable as a matter of law? To find the answers, we look to Florida's general contract law and to its version of the Uniform Commercial Code, Fla.Stat. §§ 671.101 et seq. ("Code" or "U.C.C."). 3
A three-party transaction is the subject of this appeal. Earman Oil Company was the user of a Burroughs Model L 8800-100 computer. 4 The supplier of the computer was Burroughs Corporation. The computer was technically sold by Burroughs to the third party National Equipment Rental Limited (NER). Simultaneously, NER leased the computer to Earman. Burroughs sent the computer directly to Earman, which in turn made "rental" payments to NER.
This common arrangement leads to little trouble until the user feels that the computer has, so to speak, gone awry. Then there is litigation. 5 So it is here. Earman, having no recourse against NER, brought claims for breach of implied and express warranties and for tortious misrepresentation against Burroughs. Earman further narrowed these claims in the District Court. That Court rejected the narrowed claims. On appeal, we affirm.
This trouble began in 1975 when Earman and a Burroughs representative agreed that Earman needed a Burroughs computer. For financial reasons, Earman decided not to try to buy the computer outright, however. Instead, the computer was to be sold to a leasing company which would then lease to Earman. First, however, Burroughs had to locate an agreeable leasing company. So Burroughs asked Earman to sign a contract purporting to sell the computer and associated hardware directly to Earman. That "Equipment Sale Contract" (ESC) identified the computer by model type but not by serial number, and showed a price of approximately $26,155.
Five days later, Burroughs had located NER to act as leasing company and Earman signed a lease for the equipment previously designated in the ESC, with the exception of one immaterial item. At the end of the lease, Earman was to redeliver the computer to NER.
NER countersigned the lease seven days later and simultaneously executed a purchase order to Burroughs for the same model computer and associated hardware. The purchase order designated Earman as lessee. A few months later the leased computer was installed. Allegedly there was trouble from the start, which Burroughs attempted to remedy. Many attempts and two years later, Earman brought this suit against Burroughs.
The thrust of Earman's complaint was that Burroughs: (i) breached its oral express warranties; (ii) breached its implied warranties of fitness for a particular purpose and of merchantability; and (iii) tortiously misrepresented the qualities of its computer. In defense, Burroughs asserted that exculpatory provisions of the ESC, signed by Burroughs and Earman, protected Burroughs from liability.
Earman's counterattack was three-pronged. First, Earman argued that the real economic effect of the transactions involving NER was important in determining whether the previously executed ESC could be accorded any significance. If NER was a true lessor and was not acting solely as a financing agent, then the real economic effect of the three-party transaction was a sale by Burroughs to NER. Earman argued that this meant that the ESC must be treated as a nullity and that only the provisions of the purchase order in the sale to NER could be accorded significance. Second, Earman argued that the purchase order contained no effective exculpatory provisions. Asserting that it was a third party beneficiary of the purchase order, Earman concluded that by virtue of the purchase order it could recover against Burroughs on theories of express and implied warranty. Third, Earman contended that even if the restrictions of the ESC were applicable, they were unconscionable and therefore unenforceable.
In order to clarify the legal issues and especially the unconscionability claim, the District Court held a pre-trial hearing. There, the Court first held as a matter of law though not fact that the ESC's restrictions were not unconscionable. Second, as a matter of law, the Court held that the exculpatory language of the ESC governed the relationship between Earman and Burroughs. That conclusion was based on two alternative grounds: (i) That the real economic effect of the transaction was a sale between Earman and Burroughs with NER having only a financing interest in the equipment; or (ii) if NER had more than a financing interest, the restrictions of the ESC were nonetheless applicable to Earman's suit as a matter of contract interpretation. Either way, Earman's claims would be subject to defenses based upon the ESC's disclaimers, 6 damage limitations, 7 and integration provisions. 8
Upon the Court's ruling, Earman was granted a recess in order to consider the situation. Earman's position at the hearing and its interpretation of the issues and facts in the pre-trial stipulation were largely dependent on a favorable ruling with respect to the ESC. 9 Given the adverse resolution of that issue and the unconscionability issue, Earman decided during the recess not to proceed to trial on the remaining factual issues. Without asking the District Court to proceed to trial on unresolved factual issues, Earman requested the entry of final judgment, which was duly granted.
Earman then brought this appeal. Essentially the same three issues considered by the District Court in its pre-trial ruling are contested by Earman. 10 Thus we are asked to determine the real economic effect of the transaction, to decide whether the ESC's exculpatory provisions apply, and to find whether those provisions are unconscionable.
We do not decide whether further factfinding might permit Earman to prevail. Earman's case below was predicated on a favorable resolution of the issues of law. Except for an ambiguous reference in the conclusion of its appellate brief, 11 Earman does not now seek reversal for lack of factfinding. Furthermore, the factual aspects of Earman's claims were not properly raised in the District Court. To the extent that any are now being raised for the first time on appeal, we will not consider them. Fishing Fleet, Inc. v. Trident Insurance Co., 598 F.2d 925, 926 n. 1 (5th Cir. 1979). We now proceed to the legal issues properly placed before us by Earman.
Earman first urges us to decide whether or not the three-party transaction had the real economic effect of a sale by Burroughs to Earman. In form, the transaction consisted of a sale to NER followed by a lease of the equipment to Earman. Thus, in form there was no completed sale of the equipment directly to Earman.
Earman's primary position is that the subsequent sale to NER had real economic substance. Therefore the lease by NER to Earman was not a financing arrangement nor a subterfuge for taking a security interest in the equipment. If a "true" leasing arrangement was involved, then Earman argues that the NER purchase agreement with Burroughs is of greater significance while the earlier executed ESC between Burroughs and Earman becomes insignificant.
If, on the other hand, NER's lease was not a true lease but rather a financing arrangement, Earman acknowledges that there is more precedent for giving effect to the ESC. Nonetheless, Earman asserts that its position is distinguishable and that the ESC should not apply. 12
We need not resolve the issue of the transaction's character in order to decide this appeal, however. We find that either resolution of the issue leads to the same disposition of the appeal. We first assume that the lease was a true lease.
If the lease was a true lease, Earman argues that the only sale of the equipment was from Burroughs to NER. That contract is set out by NER's purchase order. The purchase order expressly designates Earman as intended lessee. Because Earman is so designated it is persuasively argued that Earman is a third party beneficiary with the right to enforce the provisions of the purchase order. American Empire Insurance Co. of South Dakota v. Fidelity & Deposit Co. of Maryland, 408 F.2d 72 (5th Cir. 1969); Weimar v. Yacht Club Point Estates, Inc., 223 So.2d 100 (Fla.App.1969).
As third party beneficiary, Earman first argues that it is entitled to enforce the implied warranty rights of NER against Burroughs. Earman recognizes, however, that its implied warranty theory is made difficult by two terms of the NER-Burroughs contract, as set out on NER's purchase order form. One term, left partially uncompleted, was rubber-stamped onto the purchase order by Burroughs:
By the below signature of buyer, or his authorized representative, the sale of this equipment shall be governed by the terms and conditions contained in agreement Form No. , the receipt of copies of which are hereby acknowledged by the buyer. Further, the buyers purchase order printed terms and conditions herein are null and void. The period...
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