General Elec. Credit Corp. of Tennessee v. Ger-Beck Mach. Co., Inc., GER-BECK

• Decision Date: 09 January 1987
• Docket Number: No. 85-5713,GER-BECK,85-5713
• Parties: 2 UCC Rep.Serv.2d 769 GENERAL ELECTRIC CREDIT CORPORATION OF TENNESSEE v.MACHINE CO., INC., Fischer Industries, Inc., and American Tool, Inc., Defendants.MACHINE CO., INC., American Tool, Inc. and Fischer Industries, Inc., Third-party plaintiffs, v. GENERAL AUTOMATION, INC., Third-party defendant. Appeal ofMACHINE CO., INC.
• Court: U.S. Court of Appeals — Third Circuit

Page 1207

806 F.2d 1207

2 UCC Rep.Serv.2d 769

GENERAL ELECTRIC CREDIT CORPORATION OF TENNESSEE v. GER-BECK MACHINE CO., INC., Fischer Industries, Inc., and American Tool, Inc., Defendants.

GER-BECK MACHINE CO., INC., American Tool, Inc. and Fischer

Industries, Inc., Third-party plaintiffs, v. GENERAL AUTOMATION, INC., Third-party defendant.

Appeal of GER-BECK MACHINE CO., INC.

No. 85-5713.

United States Court of Appeals Third Circuit.

Argued Aug. 21, 1986.

Decided Dec. 8, 1986.

Rehearing Denied Jan. 9, 1987.

Raymond H. Shockley, Jr. (argued), Cahill, Wilinski & Cahill, Haddonfield, N.J., for appellant.

Miles H. Shore (argued), Saul Ewing Remick & Saul, Philadelphia, Pa., for appellee General Elec. Credit Corp. of Tennessee.

Before BECKER and MANSMANN, Circuit Judges, and TEITELBAUM, District Judge. ^*

OPINION OF THE COURT

MANSMANN, Circuit Judge.

This is an appeal from the district court's entry of judgment notwithstanding the verdict in favor of the plaintiff General Electric Credit Corporation ("GECC") in an action to recover from the defendant Ger- Beck Machine Co., Inc. ("Ger-Beck") amounts allegedly due and owing under a note for the purchase price plus interest of a metal lathe manufactured by American Tool, Inc. We agree with the district court's conclusion that the evidence establishes as a matter of New Jersey law that the transaction between GECC and Ger-Beck, while evidenced by an instrument denominated as a lease, was intended only as security for payment of the note. Since such a transaction is expressly excluded from coverage under Article 2 of the Uniform Commercial Code, the record cannot support the jury's finding that Ger-Beck's attempted revocation of acceptance of the lathe was effective against GECC. Therefore, we will affirm.

I.

In November of 1977 Ger-Beck sought to acquire a metal lathe for use in its business. Ger-Beck selected a lathe manufactured by American Tool, Inc. and sent a purchase order to the distributor of the lathe. Through an independent loan broker, Ger-Beck contacted GECC to arrange financing. In July 1978, GECC and Ger-Beck entered into an agreement whereby GECC would pay the purchase price of the lathe in return for Ger-Beck's note for the purchase price plus interest. Repayment terms were specified in a lease agreement whereby Ger-Beck agreed to make fixed monthly payments. It was further agreed that at the end of the lease period Ger-Beck would become the owner of the lathe for approximately 20 percent of its original price. Ger-Beck deposited this sum with GECC.

In 1978, immediately after the installation of the lathe in Ger-Beck's plant, Ger-Beck began experiencing problems with it and called upon American Tool to cure the defects. On the assurance of American that the defects could be remedied, Ger-Beck accepted the lathe. Upon notification of Ger-Beck's acceptance of the lathe, GECC paid the distributor the full purchase price.

American was unable to remedy the defects to Ger-Beck's satisfaction. In July 1980 Ger-Beck ceased making payments under the lease, and in August 1980 notified GECC for the first time that the lathe was not operating satisfactorily. GECC brought this diversity action on the note and on the lease. At trial GECC proceeded on the note only.

At trial Ger-Beck asserted the defense of breach of warranty amounting to a complete failure of consideration. The defendant also alleged a proper revocation of acceptance of the lathe, and counterclaimed for the return of the deposit and rental payments under a written lease agreement with the plaintiff. Both the defenses and the counterclaim assumed that the transaction between the plaintiff and the defendant was in the nature of a sale governed by Article 2 of the Uniform Commercial Code. See N.J.S.A. 12A:2-101 to 2-725.

The case was tried to a jury and at the close of the defendant's case, the plaintiff moved for a directed verdict asserting that its lease arrangement with Ger-Beck was strictly a financing transaction in which the lease was intended to provide only a security interest. Therefore Article 2 by its express terms did not govern the rights and duties of the parties. See N.J.S.A. 12A:2-102.

The trial court denied the motion for a directed verdict. The jury returned a verdict for Ger-Beck, finding on special interrogatories that the transaction between GECC and Ger-Beck was a sale and not merely a financing arrangement. GECC renewed its motion under Fed.R.Civ.P. 50(b) and requested judgment n.o.v. The trial court ultimately ruled that Article 2 did not apply to the transaction as a matter of law and therefore sustained the plaintiff's motion and entered judgment accordingly.

II.

A judgment n.o.v. should be granted only if there is no evidence on which a jury could properly find a verdict for the party opposing the motion. Powell v. J.T. Posey Co., 766 F.2d 131 (3d Cir.1985). An appellate court should apply the same standard as the trial court in determining the propriety of a judgment n.o.v. Id. at 134, quoting Dudley v. South Jersey Metal, Inc., 555 F.2d 96 (3d Cir.1977).

On appeal, Ger-Beck does not press its breach of warranty defense. It argues only that the evidence supports the jury's finding that it made an effective revocation of acceptance.

In this diversity action we must apply the law of the forum state. We may affirm the judgment n.o.v. only if, as a matter of New Jersey law, there is no evidence from which a jury could find that Ger-Beck's revocation of acceptance of the lathe was effective against GECC.

Revocation of acceptance is a remedy available in transactions governed by Article 2 of the Uniform Commercial Code. See N.J.S.A. 12A:2-608. The focal issue in this case is framed by the provision of the Code which by its express terms excludes from the coverage of Article 2 "any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction...." N.J.S.A. 12A:2-102. The verdict for the defendant depended on the threshold finding that the transaction between the plaintiff and the defendant was not intended to operate only as a financing transaction. The plaintiff argues that as a matter of law the lease agreement was intended only as a security transaction to which Article 2 remedies are inapplicable.

By the undisputed facts, the plaintiff provided nothing in this three-way transaction except the money to finance Ger-Beck's acquisition of the lathe from the supplier. We would, of course, be bound by a definitive statement by the New Jersey Supreme Court as to whether a party who merely finances a three-way equipment lease-purchase transaction may be treated as a seller for the purpose of a revocation of acceptance. Since no such authority exists, we must predict how New Jersey's highest court would decide this issue. McGowan v. University of Scranton, 759 F.2d 287 (3d Cir.1985). Decisions of intermediate appellate courts are evidence of state law, id. at 291, and must be given significant weight in the absence of any indication that the highest state court would rule otherwise. Ciccarelli v. Carey Canadian Coal Mines, Ltd., 757 F.2d 548 (3d Cir.1985).

In entering judgment n.o.v., the district court relied on the decision of the New Jersey Superior Court Appellate Division in Miller Auto Leasing Co. v. Weinstein, 193 N.J.Super. 328, 473 A.2d 996 (App.Div.1984), aff'g 189 N.J.Super. 543, 461 A.2d 174 (Law Div.1983), cert. denied, 97 N.J. 676, 483 A.2d 192 (1984). In Miller, the plaintiff was a lessor who did not ordinarily manufacture or sell the equipment which was the subject matter of the lease. Rather, upon request by the lessee, the lessor purchased equipment from a supplier and in turn leased it to the lessee. The lessor had no contact with the equipment; the lessee did not rely in any way on the lessor's expertise when selecting the equipment. In fact, the lessor's only function was to supply the financing for the transaction. A jury had found a breach of warranty resulting in a complete failure of consideration. The New Jersey court found that the lessor was strictly a financier and that as a matter of law it was not a "seller" for purposes of Article 2 warranties. The court granted a motion for judgment n.o.v.

It is uncontested that the facts here are indistinguishable from those in Miller. The defendant concedes on appeal that under Miller the plaintiff lessor is not a seller for purposes of imposing warranties. The defendant argues, however, that GECC is nevertheless a seller for purposes of revocation of acceptance by the buyer and that, therefore, the jury's finding that Ger-Beck properly revoked acceptance of the lathe should not be ignored.

We have no indication that the New Jersey Supreme Court would disapprove the decision in Miller. ¹ Nor have we found a case from any jurisdiction where U.C.C. buyer's remedies have been enforced on behalf of a nominal lessee who will ultimately acquire ownership of the leased property and against a finance lessor who had no connection with the lessee's choice of equipment to be leased and who had no relationship by agency or assignment with the actual supplier of the equipment. On the contrary, courts have held that in such situations a buyer/lessee's remedy is properly against the actual supplier. See e.g., Chatlos Systems, Inc. v. National Cash Register Corp., 479 F.Supp. 738 (D.N.J.1979); Citicorp Leasing, Inc. v. Allied Institutional, Distrib., Inc., 454 F.Supp. 511 (W.D.Okla.1977).

Furthermore, we find that the language of Miller offers no suggestion that the New Jersey courts would find the transaction between a buyer and a financing agent who only contributed money in a three-corner transaction to be governed by Article 2 for any purpose. To the contrary, the court indicated by way of a footnote that the Miller case should be given a broad reading as holding that the transaction at issue was as a matter of law...