Tri-Continental Leasing Corp. v. Law Office of Richard W. Burns

• Decision Date: 19 December 1985
• Docket Number: No. 01-85-00361-CV,TRI-CONTINENTAL,01-85-00361-CV
• Citation: 710 S.W.2d 604
• Parties: LEASING CORP., Appellant, v. LAW OFFICE OF RICHARD W. BURNS, Appellee. (1st Dist.)
• Court: Texas Court of Appeals

Page 604

710 S.W.2d 604

TRI-CONTINENTAL LEASING CORP., Appellant, v. LAW OFFICE OF RICHARD W. BURNS, Appellee.

No. 01-85-00361-CV.

Court of Appeals of Texas Houston (1st Dist.).

Dec. 19, 1985.

Rehearing Denied May 8, 1986.

Stephen E. Price, Freedman & Hull, Houston, for appellant.

Scott, William H., Jr., Beeton, Timothy A., Houston, for appellee.

Before EVANS, C.J., and DUGGAN and LEVY, JJ.

OPINION

EVANS, Chief Justice.

Tri-Continental Leasing Corporation appeals from a take-nothing judgment entered against it in a suit to recover rentals allegedly due under a written lease of a copying machine. We affirm the trial court's judgment.

The basic facts are undisputed. The appellee, Richard W. Burns, was approached by an office equipment vendor, Business Equipment of Houston, Inc. in March 1982. The vendor's salesman, Clint Enloe, represented to Burns that he had a copying machine worth $5,000 that he would sell for $4,200. Enloe told Burns that if he wanted to acquire the machine under a lease transaction, he could write off the cost for tax purposes. Enloe produced a printed lease form, bearing the heading "Tri-Continental Leasing Corporation, Vendor Service Division," which designated Tri-Continental as the lessor of the equipment. The blank spaces in the printed form were filled in by handwriting to show a 36-month lease term, rent payable in monthly installments of $189.40 each, and an advance payment of $568.47 for the first and last two months rent payments. The lease was dated March 30, 1982, and provided that it would not become effective until accepted by a duly authorized officer of Tri-Continental.

On April 5, 1982, before Tri-Continental's officer executed the lease, the vendor's salesman, Enloe, had the copying machine delivered to Burns' offices. At that time, Burns executed a "Delivery and Acceptance Receipt," acknowledging "full inspection" of the machine and that it was "in good condition." Tri-Continental executed the lease agreement on April 7, 1982.

Soon after delivery, the machine malfunctioned and could not be repaired. The machine continuously jammed and tore up the paper. It also leaked a fluid and emitted nauseous odors, making Burns' secretary ill on several occasions. Enloe visited Burns' office three or four times in an attempt to fix the machine. On April 21, 1983, Burns paid $312.70 to the vendor for work performed by Enloe in an effort to repair the machine. In spite of these efforts, the machine continued to malfunction, and Enloe finally told Burns that the machine could not be fixed. On May 3, 1982, before the due date of the next lease payment, Burns advised Enloe by letter that he was terminating the lease and asked that the machine be removed from his office. In June or July of 1982, Burns had conversations with Tri-Continental's office, and he again asked that the machine be picked up at his office. In September and October 1982, he wrote to Tri-Continental's attorneys making similar requests. Finally, in January or February of 1983, Tri-Continental did repossess the copier and sold it for approximately $500. Tri-Continental brought this action in November 1982, asserting that it had declared the balance of all lease payments due, so that Burns owed it a total sum of $6,770.05, plus interest and attorney's fees.

By answer and counterclaim, Burns asserted that Tri-Continental and Business Equipment of Houston, Inc. were, in effect, one and the same. He alleged that they had conspired to defraud him through false representations that the machine was in working condition and that Business Equipment, as Tri-Continental's exclusive dealership agent, would repair any defects. He alleged that both Tri-Continental and Business Equipment knew or should have known that the equipment would not perform as represented, that there was an entire failure of consideration, and that notwithstanding the lessor's written disclaimers of responsibility, which were unconscionable and against public policy, Tri-Continental and Business Equipment were bound by their implied warranty that the equipment was suitable for its intended use.

After a non-jury trial, the court found that Burns and Business Equipment, the "assignee" of Tri-Continental, executed the lease agreement on March 20, 1982, and that Tri-Continental ratified the agreement on April 7, 1982; that the copying machine was delivered to Burns by Business Equipment on April 5, 1982; that on the following day, April 6, 1982, the machine malfunctioned, and despite repeated attempts at repair by Business Equipment, the machine never performed as intended; that Burns notified Tri-Continental of his intent to rescind the lease as early as June 1982, but that neither Business Equipment nor Tri-Continental made any attempt to repossess it until January or February 1983. The court further found that the solicitation of the lease agreement by Tri-Continental or its "assignee," Business Equipment, constituted an offer to Burns, which Burns accepted; but that despite such offer and acceptance, there was no consideration due to the fact that the copier never performed its intended function, and as a result, Burns rescinded the contract. The court also found that Tri-Continental had not made a reasonable effort to mitigate damages, and that the terms of the lease agreement were onerous, overreaching, and against public policy.

On these findings, the trial court entered a take-nothing judgment with respect to Tri-Continental's action against Burns, and against Burns on his counter-claim against Tri-Continental. Only Tri-Continental appeals.

In its first 12 points of error, Tri-Continental challenges the sufficiency of the evidence supporting the trial court's findings. Because these are "no evidence" points, we consider only the evidence, and reasonable inferences to be drawn therefrom, that supports the trial court's judgment, and we reject all evidence and inferences to the contrary. Glover v. Texas General Indemnity Co., 619 S.W.2d 400 (Tex.1981).

There is legally sufficient evidence to support the trial court's findings that the copying machine never performed its intended function, that this constituted a complete failure of consideration, and that the contract was rescinded for that reason.

But Tri-Continental contends that these findings must be disregarded, as a matter of law, because of the express disclaimers contained in its written lease. Tri-Continental points to provisions in the lease that provide, in effect, that the lessor has made no representations or warranties "of any kind or nature, directly or indirectly, express or implied, after any manner whatsoever, including the suitability of such equipment, its durability, its fitness for any particular purpose, its merchantability, its condition, ... (and) that the equipment is leased 'as-is.' " The lease further provides that if the equipment does not operate "as represented or warranted by the vendor" or is "unsatisfactory for any reason," the lessee's only claim is against the vendor and that the lessee will nevertheless pay the lessor all the rents payable under the lease.

In a prior case, this Court has upheld written disclaimer provisions in an equipment lease that contained language similar to that in Tri-Continental's lease. Southwest Park Out-patient Surgery, Ltd. v. Chandler Leasing Division, 572 S.W.2d 53 (Tex.Civ.App.-Houston [1st Dist.] 1978, no writ). In that case, an appeal from a summary judgment in favor of the equipment lessor, we held that despite summary judgment evidence showing that the defective equipment did not meet its intended function, the lessee remained liable to the lessor for the stipulated rental payments.

There is a substantial distinction between the situation in Chandler and that presented here. In Chandler, we were not faced with a finding that the lease terms were unconscionable, but only with summary judgment proof showing the defective nature of the equipment. Here, the trial court not only found the equipment to be so defective that it failed to perform its intended function, but also, in effect, that the disclaimer provisions in the lease agreement were unconscionable. Although Tri-Continental generally challenges this finding by a point of error, it does not point out in its argument in what manner the evidence is insufficient to support this finding.

In deciding whether a contract is unconscionable, a court is entitled to look at "the entire atmosphere in which the agreement was made, the alternatives, if any, which were available to the parties at the time of the making of the contract; [and] the non-bargaining ability of one party." Wade v. Austin, 524 S.W.2d 79, 86 (Tex.Civ.App.--Texarkana 1975, no writ).

Unconscionable conduct is statutorily defined as "an act or practice which, to a person's detriment: (A) takes advantage of the lack of knowledge, ability, experience, or capacity of a person to a grossly unfair degree; or (B) results in a gross disparity between the value received and consideration paid, in a transaction involving transfer of consideration." Tex.Bus. & Com.Code Ann. sec. 17.45(5) (Vernon Supp.1986).

Here, it is undisputed that Burns was unfamiliar with the operation of the copying machine. Until he actually tried to use it in his office, he could not determine whether it was in good working condition. Obviously, Enloe, the vendor's salesman, was in a superior position to know whether the machine would perform its intended function. The trial court could reasonably have decided that Enloe, being in a superior position of knowledge, took advantage of Burns to a "grossly unfair degree" by representing that the machine would perform its intended function, and that Tri-Continental authorized or ratified the salesman's conduct. See Chastain v. Koonce, 28 Tex.Sup.Ct.J. 509 (June 19, 1985). Thus, there is some evidence to support the first test of section 17.45(5).

It is also undisputed that the machine...