Funding Systems Leasing Corp. v. King Louie Intern., Inc.

• Decision Date: 11 June 1979
• Docket Number: No. KCD,KCD
• Citation: 597 S.W.2d 624
• Parties: FUNDING SYSTEMS LEASING CORPORATION, Respondent, v. KING LOUIE INTERNATIONAL, INC., et al., Appellant. 28435.
• Court: Missouri Court of Appeals

Page 624

597 S.W.2d 624

FUNDING SYSTEMS LEASING CORPORATION, Respondent, v. KING LOUIE INTERNATIONAL, INC., et al., Appellant.

No. KCD 28435.

Missouri Court of Appeals, Western District.

June 11, 1979.

Roger W. Penner, Howard D. Lay, Reeder, Griffin, Dysart, Taylor & Penner, P. C., Kansas City, for appellant.

Thomas A. Schwindt, Berman, DeLeve, Kuchan & Chapman, Alvin D. Shapiro, Samuel J. Goldberg, Stinson, Mag & Fizzell, Kansas City, for respondent.

Before SWOFFORD, C. J., and PRITCHARD, DIXON, SHANGLER, WASSERSTROM, SOMERVILLE and CLARK, JJ.

WASSERSTROM, Judge.

This multiparty litigation presents the question of responsibility of the financing party under a lease-purchase agreement for the malfunctioning of the covered equipment. The trial court held the financing party here free of any legal responsibility for the malfunctioning, and the lessee-purchaser appeals.

In early 1970, King Louie International Incorporated ("King Louie") was the owner of radio station KBEA. It desired to automate the station in order to conserve the cost of manpower. After surveying different types of equipment on the market, King Louie decided in favor of equipment offered by International Good Music, Inc. ("IGM"). IGM presented an Equipment Proposal dated March 30, 1970, as supplemented on April 1, 1970, under which there were cash terms and also terms for a 60 month lease, at the end of which King Louie could acquire title for one dollar. The proposal also contained as one of its terms the following express warranty: "All equipment manufactured by IGM shall carry a full one year warranty after delivery." King Louie by letter dated April 6, 1970, accepted the lease terms and enclosed a check for the down payment. The order was acknowledged by IGM by letter dated April 10, 1970.

IGM did not have any facilities for carrying the financing of the lease agreement itself. Its general practice with respect to such lease-purchase arrangements was to utilize the services of a finance broker, International Financing Incorporated, which in turn did business with some 17 finance companies, each of which tended to specialize in a certain type of equipment and size of transactions. In this particular case, IGM submitted the contemplated King Louie transaction to International Financing on April 1, 1970, concurrently with the submission of its written Equipment Proposal to King Louie. In response to that approach from IGM, International Financing wrote to King Louie on April 15, 1970, requesting signature to various forms which International Financing would need to arrange the necessary financing. At about this same time, International Financing submitted the proposed transaction to Funding Systems Leasing Corporation ("Funding Systems").

Funding Systems submitted its standard lease-purchase forms to King Louie, and discussions then took place between it and Mr. Marvin Rich, attorney for King Louie, concerning certain objections which Rich made to the proposed terms. By letters dated April 24 and April 29, 1970, Funding Systems agreed to certain modifications demanded by Rich, and thereupon King Louie signed the Funding Systems documents, including a lease agreement dated May 7, 1970. The lease term was 60 months, called for monthly payments of $1097.91, and King Louie had an option to buy at the end of the term for one dollar.

This agreement also set out as one of its terms on the front page in capital letters and in red color the following:

"THAT THE LESSEE REPRESENTS THAT LESSEE HAS SELECTED THE EQUIPMENT LEASED HEREUNDER PRIOR TO HAVING REQUESTED THE LESSOR TO PURCHASE THE SAME FOR LEASING TO THE LESSEE, AND LESSEE AGREES THAT THE LESSOR HAS MADE AND MAKES NO REPRESENTATIONS OR WARRANTIES OF WHATSOEVER NATURE, DIRECTLY OR INDIRECTLY, EXPRESS OR IMPLIED, AS TO THE SUITABILITY, DURABILITY, FITNESS FOR USE, MERCHANTABILITY, CONDITION, QUALITY, OR OTHERWISE OF ANY SUCH UNIT. LESSEE SPECIFICALLY WAIVES ALL RIGHTS TO MAKE CLAIM AGAINST THE LESSOR HEREIN FOR BREACH OF ANY WARRANTY OF ANY KIND WHATSOEVER AND AS TO LESSOR, OR LESSOR'S ASSIGNEE, LESSEE LEASES THE EQUIPMENT 'AS IS'. LESSOR AND LESSOR'S ASSIGNEE SHALL NOT BE LIABLE TO LESSEE FOR ANY LOSS, DAMAGE OR EXPENSE OF ANY KIND OR NATURE CAUSED DIRECTLY OR INDIRECTLY BY ANY UNIT LEASED HEREUNDER OR THE USE OR MAINTENANCE THEREOF OR THE FAILURE OF OPERATION THEREOF, OR THE REPAIRS, SERVICE OR ADJUSTMENT THERETO, OR BY ANY DELAY OR FAILURE TO PROVIDE ANY THEREOF, OR BY ANY INTERRUPTION OF SERVICE OR LOSS OR USE THEREOF OR FOR

ANY LOSS OF BUSINESS OR DAMAGE WHATSOEVER AND HOWSOEVER CAUSED."

Immediately following the quoted provisions there also appears the following: "Lessor, Lessor's Successor or Lessor's Assignee shall have no obligation to install, erect, test, adjust or service the equipment. * * * No defect or unfitness of the equipment shall relieve Lessee of the obligation to pay rent or of any other obligation under this Lease * * *." Closely following that, there appears in capital letters and heavy black type: "THIS IS A NON-CANCELLABLE LEASE FOR THE TERM INDICATED ABOVE."

Another of the leasing documents signed by King Louie was a financing statement which was duly filed by Funding Systems with the Secretary of State of Missouri on May 18, 1970. Thereupon Funding Systems made payment by its check dated May 27, 1970, to IGM for the balance of the purchase price due in the amount of $44,520.91. Delivery of the equipment was then made by IGM to King Louie in late May or early June, 1970. (By mistake a small part of the equipment had previously been delivered by IGM to ISC, whose subsidiary Intermedia had entered into a contract in 1969 for the purchase of KBEA from King Louie, contingent upon approval of the Federal Communications Commission.) Sometime soon thereafter, Funding Systems assigned the lease-purchase obligation to Chase Manhattan Bank.

The equipment malfunctioned from the very beginning and failed to perform the purpose of automating the station as intended. IGM however responded promptly to complaints from King Louie and sent engineers to Kansas City who worked diligently at attempting to correct the equipment. Difficulty continued to the point that Rich wrote a letter dated July 15, 1970, addressed jointly to Funding Systems, Chase Manhattan and IGM stating that King Louie "has recently leased some equipment from International Good Music Company through Funding Systems Leasing Corp. This letter is to advise again that the equipment has never functioned properly and continues to malfunction, has never been accepted by the lessee and the lessee will not make any payments in connection with said equipment until the equipment is in the proper condition to carry out the functions for which it was leased."

Sometime in July, 1970, the Federal Communications Commission finally approved the purchase of KBEA by Intermedia who then completed that purchase from King Louie. Thereafter Intermedia made payments under the lease agreement to Chase Manhattan, while IGM continued with its efforts to remedy the defects in the leased equipment. Those efforts were so ineffectual that after a year and a half Intermedia wrote a letter to Chase Manhattan dated December 17, 1971, stating, "This letter is to advise that the payment paid by KBEA Radio on or about December 1, 1971 and due December 7, 1971 will be the last payment made by Intermedia, Inc. d/b/a KBEA Radio until International Good Music gets the automated equipment in satisfactory working condition. * * * This equipment was bought from International Good Music * * * by a lease-purchase arrangement with Funding Systems Leasing Corporation * * *." Despite that letter, IGM continued to attempt to remedy the defects until the summer of 1972 when Intermedia finally gave up, ceased any attempt to use the equipment, and stored it away.

After Intermedia refused to make any further payments, Funding Systems commenced the present suit against King Louie, praying damages for the lease installments unpaid, together with interest, attorneys fees, certain incidental expenses and costs. King Louie filed answer and also a counterclaim based on alleged misrepresentations and breach of warranties, praying rescission of the contract and damages in the sum of $71,958.20. Intermedia intervened in the litigation and filed a counterclaim against Funding Systems alleging the same grounds and asking the same relief as King Louie. King Louie also filed a third-party petition on behalf of itself and Intermedia against IGM alleging misrepresentations, breach of warranties, claiming rescission and praying damages in the sum of $71,958.20 and for any judgment which might be entered against it in favor of Funding Systems. In response to the claims against it, Funding Systems filed a crossclaim against IGM praying indemnity for any judgment which might be entered against it in favor of King Louie or Intermedia, and further seeking damages against IGM for breach of warranty.

The trial court entered judgment in favor of Funding Systems against King Louie in the sum of $63,485.50; in favor of Funding Systems on the counterclaims of King Louie and Intermedia; against Funding Systems on its claims against IGM; in favor of King Louie against IGM in the sum of $22,862.86; and against Intermedia on its claim against Funding Systems. From that judgment, the sole appeal has been taken by King Louie.

King Louie relies upon the following points: (1) that the trial court erred in finding that Funding Systems was a mere financing agency and not responsible as a merchant under the Uniform Commercial Code; (2) that the court erred in failing to find the lease unconscionable; and (3) that the court erred in limiting King Louie's recovery to only those amounts theretofore paid by King Louie.

For King Louie to prevail against Funding Systems, it must establish both of its points 1 and 2. Otherwise stated, the judgment must be affirmed if the trial court's...