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Illegal Use of Equipment
A Florida intermediate-level appellate court has held that a lessee is not relieved of its payment obligations when it discovers that it cannot lawfully utilize the leased equipment in the manner it intended. De Lage Landen Financial Services, Inc. v Cricket's Termite Control, Inc., 942 So. 2d 1001 (Fla. 5th DCA 2006). While the writer is aware of similar results reached in other unreported Florida actions, this decision, the first reported decision in Florida, not only will provide assistance in dealing with similar scenarios but also exhibits the strength of standard lease clauses.
Factual Background
Cricket's Termite Control, Inc. ('Cricket's') entered into a lease with U.S. Bancorp for a Pro Lead PMC Computer Marketing System, which 'is essentially a computer and a program that randomly selects and dials the telephone numbers of potential customers and plays a pre-recorded message when a phone is answered.' The lease was assigned to De Lage Landen Financial Services, Inc. ('DLL'). More than two years after entering into the lease, Cricket's received notice from the Florida Department of Agriculture and Consumer Services of complaints received about telephone sales calls Cricket's had been making utilizing the leased equipment in violation of Florida Statute '501.059(7)(a), which prohibits calls involving 'an automated system for the selection or dialing of telephone numbers or the playing of a recorded message when a connection is completed to a number called.' The notice ordered Cricket's to cease making the calls and apprised Cricket's of the civil penalties for making calls in violation of this law. Upon receipt of this notice, Cricket's ceased using the leased equipment and stopped making lease payments to DLL.
As expected, DLL sued for breach of the lease. Cricket's sole defense was premised in its assertion that the lease was illegal in light of Florida Statute '501.059 and was, therefore, unenforceable.
Litigation History
At trial, Cricket's testified that the manufacturer of the leased equipment solicited it to purchase the system, told it that 'it had checked with its lawyers, and the System was 'perfectly legal,” and provided references to contact to ensure its legality. U.S. Bancorp told Cricket's that the manufacturer 'had other clients in Florida who were happy with the System, which 'led [Cricket's] to believe that it's legal.” By the time Cricket's received the notice from the state of Florida, the equipment manufacturer had gone out of business.
'Generally, '[a] contract which violates a provision of the constitution or a statute is void and illegal and will not be enforced in [Florida] courts.” On this basis, the trial court determined that the lease was void and unenforceable because its use violated Florida Statute '501.059. The appellate court disagreed. In doing so, the appellate court observed that '[a] contract is not void merely because a party used the contracted-for item illegally. 'If an agreement is capable of being performed in a legal manner, the mere fact that one of the parties to the agreement intended to perform it in an illegal manner will not preclude its enforcement.” The appellate court pointed out that Florida Statute '501.059 does not prohibit the use of automated telephone systems for non-solicitation purposes. Thus, even if the leased equipment is incapable of being used legally for its intended use, it could have been used in a legal manner for other purposes. On this basis, the appellate court held that the lease was enforceable.
The appellate court opined that the fact that the lease was a 'finance lease,' which normally is not subject to refusal by a finance lessee to pay the lessor an agreed payment, additionally supported its holding. Further bolstering the appellate court's holding was the 'hell-or-high-water' clause, which 'makes covenants in a finance lease irrevocable and independent ' Upon the lessee's acceptance of the goods, the lessee's promises to the lessor under the lease contract become irrevocable and independent.' Accordingly, it is the supplier of the equipment 'that may be ultimately accountable, and the logical source of recourse for the finance lessee.' Finally, the appellate court observed that the typical disclaimers routinely found in equipment leases addressing finance lease status, supplier/salesman not lessor's agent, and waiver of warranties are consistent with its holding.
Conclusion
This case is not only useful in addressing those circumstances where a lessee seeks to avoid its obligations due to its illegal use of leased equipment, but also the general, lessor-favorable acknowledgements of a lessor's rights under the UCC should be useful in most lease-enforcement actions.
Steven N. Lippman is a shareholder, and chair of the commercial leasing department and the equipment leasing group at the Ft. Lauderdale, FL, law firm Rothstein Rosenfeldt Adler. Phone: 954-315-7261; e-mail: [email protected].
A Florida intermediate-level appellate court has held that a lessee is not relieved of its payment obligations when it discovers that it cannot lawfully utilize the leased equipment in the manner it intended. De Lage Landen Financial Services, Inc. v Cricket's Termite Control, Inc., 942 So. 2d 1001 (Fla. 5th DCA 2006). While the writer is aware of similar results reached in other unreported Florida actions, this decision, the first reported decision in Florida, not only will provide assistance in dealing with similar scenarios but also exhibits the strength of standard lease clauses.
Factual Background
Cricket's Termite Control, Inc. ('Cricket's') entered into a lease with
As expected, DLL sued for breach of the lease. Cricket's sole defense was premised in its assertion that the lease was illegal in light of Florida Statute '501.059 and was, therefore, unenforceable.
Litigation History
At trial, Cricket's testified that the manufacturer of the leased equipment solicited it to purchase the system, told it that 'it had checked with its lawyers, and the System was 'perfectly legal,” and provided references to contact to ensure its legality.
'Generally, '[a] contract which violates a provision of the constitution or a statute is void and illegal and will not be enforced in [Florida] courts.” On this basis, the trial court determined that the lease was void and unenforceable because its use violated Florida Statute '501.059. The appellate court disagreed. In doing so, the appellate court observed that '[a] contract is not void merely because a party used the contracted-for item illegally. 'If an agreement is capable of being performed in a legal manner, the mere fact that one of the parties to the agreement intended to perform it in an illegal manner will not preclude its enforcement.” The appellate court pointed out that Florida Statute '501.059 does not prohibit the use of automated telephone systems for non-solicitation purposes. Thus, even if the leased equipment is incapable of being used legally for its intended use, it could have been used in a legal manner for other purposes. On this basis, the appellate court held that the lease was enforceable.
The appellate court opined that the fact that the lease was a 'finance lease,' which normally is not subject to refusal by a finance lessee to pay the lessor an agreed payment, additionally supported its holding. Further bolstering the appellate court's holding was the 'hell-or-high-water' clause, which 'makes covenants in a finance lease irrevocable and independent ' Upon the lessee's acceptance of the goods, the lessee's promises to the lessor under the lease contract become irrevocable and independent.' Accordingly, it is the supplier of the equipment 'that may be ultimately accountable, and the logical source of recourse for the finance lessee.' Finally, the appellate court observed that the typical disclaimers routinely found in equipment leases addressing finance lease status, supplier/salesman not lessor's agent, and waiver of warranties are consistent with its holding.
Conclusion
This case is not only useful in addressing those circumstances where a lessee seeks to avoid its obligations due to its illegal use of leased equipment, but also the general, lessor-favorable acknowledgements of a lessor's rights under the UCC should be useful in most lease-enforcement actions.
Steven N. Lippman is a shareholder, and chair of the commercial leasing department and the equipment leasing group at the Ft. Lauderdale, FL, law firm
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