United Leasing & Financial Services, Inc. v. R. F. Optical, Inc.

• Decision Date: 23 June 1981
• Docket Number: No. 80-1559,80-1559
• Citation: 103 Wis.2d 488,309 N.W.2d 23
• Court: Wisconsin Court of Appeals
• Parties: UNITED LEASING & FINANCIAL SERVICES, INC., a Wisconsin corporation, Plaintiff-Respondent, v. R. F. OPTICAL, INC., a Wisconsin corporation, and Harold W. Rosenthal, andHerbert Friedlen, individually and Harold W. Rosenthal, and Herbert Friedlen,d/b/a Vision Centers of Wisconsin, Defendants-Appellants.

Page 23

309 N.W.2d 23

103 Wis.2d 488

UNITED LEASING & FINANCIAL SERVICES, INC., a Wisconsin

corporation, Plaintiff-Respondent, v. R. F. OPTICAL, INC., a Wisconsin corporation, and Harold W.

Rosenthal, andHerbert Friedlen, individually and Harold W.

Rosenthal, and Herbert Friedlen,d/b/a Vision Centers of

Wisconsin, Defendants-Appellants.

No. 80-1559.

Court of Appeals of Wisconsin.

Submitted on Briefs May 13, 1981.

Opinion Released June 23, 1981.

Opinion Filed June 23, 1981.

Dennis L. Fisher and Thomas J. Nichols of Hoyt, Greene & Meissner, S. C., Milwaukee, for defendants-appellants.

William A. Wentzel and John R. Nelson of Philipp & Sletteland, S. C., Milwaukee, for plaintiff-respondent.

Before DECKER, C. J., MOSER, P. J., and CANNON, J.

CANNON, Judge.

This is an action to recover damages for breach of two business equipment leases. Defendants challenge the enforceability of and calculation of damages under the default clause of the leases. The trial court enforced the agreements and awarded the plaintiff accrued and future rents due to the end of the lease term, less the sales price of the equipment and rents paid by the purchaser, together with interest and attorney fees. We affirm the trial court's decision to enforce the agreement, however, we conclude that the accelerated rents must be discounted to present value.

The default clause provides in part:

(b) If Lessee should fail to pay Lessor any rent, additional rent, or any other sums due Lessor as herein provided when the same is due and payable, Lessee shall pay interest thereon from such date at the rate of 18% if a corporation or, if not, 12% per annum. If such default continues for more than ten (10) days, or if Lessee should fail to observe, keep or perform any other provision of this Lease or any other lease, loan or credit agreement between the parties, or if default is declared under subparagraph (a), or if a petition or proceeding under any chapter of the Bankruptcy Act, as amended, or for the appointment of a receiver of any part of the property of Lessee or any other proceedings for the relief of debtors, be filed by or against Lessee or its property, or if Lessee should make a general assignment for the benefit of creditors, suspend business, become insolvent or commence any act amounting to a business failure, or if an attachment or execution be levied or tax or other lien be filed against any of Lessee's property or against Equipment, or the condition of Lessee's affairs shall so change as to, in the Lessor's opinion, materially increase the business risk involved, then Lessor, at its option and in addition to and without prejudice to any other remedies, shall have the right to exercise any one or more of the following remedies:

(i) declare the entire amount of rent hereunder immediately due and payable as to any or all items of Equipment without notice or demand to Lessee, (ii) sue for and recover all rents, and other payments, then accured (sic ) or thereafter accruing, with respect to any or all items of Equipment, and/or proceed to enforce performance by Lessee of its covenants hereunder, (iii) enter upon the premises where Equipment is located and without court order or other process of law, repossess and remove Equipment either with or without notice to Lessee (damages occasioned by such taking are hereby expressly waived by Lessee), and thereupon Lessee's right to possession and use of Equipment shall terminate, but such repossession shall not constitute termination of this Lease unless Lessor expressly so notifies Lessee in writing, (iv) sell or lease any or all items of Equipment at public or private sale or lease for cash or credit, to such persons and upon such terms as Lessor shall elect, free and clear of any rights of Lessee and recover from Lessee all costs of taking possession, storing, repairing and selling or leasing Equipment, including reasonable attorneys' fees, and the unpaid balance of the total rent for the initial or renewal rental term of this Lease attributable to the terms of Equipment sold or leased less the net proceeds of such sale, if sold, or if leased, the rent under such lease attributable to the period remaining under the Lease; (v) terminate this Lease as to any and all items of Equipment and/or cause Lessee, at its expense, to promptly return the Equipment to Lessor as Lessor may direct or (vi) pursue any other remedy at law or in equity.

(c) No right or remedy conferred upon or reserved to Lessor by this Lease shall be exclusive of any other right or remedy herein or by law provided; all rights and remedies conferred upon Lessor by this Lease or by law shall be cumulative and in addition to every other right and remedy available to Lessor and may be exercised simultaneously.

Defendants raise the following issues on appeal:

1. Is a stipulated damages provision in a lease of personal property which provides that in the event of a default or a change in lessee's affairs which materially increases the business risk, the lessor may exercise cumulative remedies, including repossession and sale of the leased property, acceleration of all future rents, and a judgment for the deficiency between the sales price obtained for the repossessed property and the sum of the total rents unenforceable as a penalty clause;

2. May a lessor of personal property, in the event of a default, repossess and sell the leased property without effecting a termination of the lease, and thereupon accelerate all future rents due under the lease and obtain a judgment not only for rents accrued prior to the repossession but also for the deficiency between the total accelerated future rents and the price obtained upon sale of the repossessed property; and

3. If a stipulated damages provision in a lease of personal property which provides for cumulative remedies including acceleration of future rents is generally enforceable, is it a fair and proper measure of damages for the lessor to recover the entire balance of accelerated future rent payments without discounting those payments to present value?

In assessing a stipulated damage provision in a contract, the critical inquiry is whether the provision constitutes a penalty. Sun Printing & Publishing Association v. Moore, 183 U.S. 642, 661-74, 22 S.Ct. 240, 248-53, 46 L.Ed. 366 (1902); McConnell v. L. C. L. Transit Co., 42 Wis.2d 429, 438, 167 N.W.2d 226, 230 (1969). This presents a question of law for the court, McConnell, supra, which we determine independently on appeal. Pleasure Time, Inc. v. Kuss, 78 Wis.2d 373, 379, 254 N.W.2d 463, 467 (1977).

The elementary rule of contract damages is that a party is entitled to be placed in the same position as if the breach had not occurred. Bridgkort Racquet Club, Inc. v. University Bank, 85 Wis.2d 706, 714, 271 N.W.2d 165, 170 (Ct.App.1978).

Where parties to a contract choose to fix the damages recoverable on...