Case Title: Kimco Leasing Co. v. Lake Hortonia Properties

Citation: 161 Vt. 425, 640 A.2d 18

Docket Number: 

State: vermont

Court: Vermont Supreme Court

Date: 1993-12-27T00:00:00Z

Document:
KIMCO_LEASING_CO_V_LAKE_HORTONIA_PROP.92-519; 161 Vt. 425; 640 A.2d 18

[Opinion Filed 27-Dec-1993]

[Motion for Reargument Denied 08-Mar-1994]

 NOTICE:  This opinion is subject to motions for reargument under V.R.A.P. 40
 as well as formal revision before publication in the Vermont Reports.
 Readers are requested to notify the Reporter of Decisions, Vermont Supreme
 Court, 109 State Street, Montpelier, Vermont 05609-0801 of any errors in
 order that corrections may be made before this opinion goes to press.


                                 No. 92-519


 Kimco Leasing Company                        Supreme Court

                                              On Appeal from
      v.                                      Rutland Superior Court


 Lake Hortonia Properties d/b/a               May Term, 1993
 The New You Fitness Center,
 Beverly S. Ellis, Ray R. Ellis,
 June May Camera and Jean Henska,
 jointly as individuals


 Arthur J. O'Dea, J.

 Matthew F. Valerio of Abatiell & Wysolmerski, Rutland, for plaintiff-
    appellee

 Carolyn Brown Anderson of Abell, Kenlan, Schwiebert & Hall, P.C., Rutland,
     for defendants-appellants



 PRESENT:  Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.


      GIBSON, J.   Defendants Lake Hortonia Properties d/b/a The New You
 Fitness Center and its guarantors appeal from a judgment for $33,987.61,
 plus costs and attorney's fees, in favor of plaintiff Kimco Leasing Company,
 which had sued to recover monies due under the terms of an equipment lease
 agreement.  In defense, defendants asserted that plaintiff had breached
 implied warranties of merchantability and fitness for a particular purpose
 under Article 2 of the Uniform Commercial Code (UCC) because the equipment
 was defective.  The court held that plaintiff was not the seller of the

 

 equipment, but rather the financier of defendants' purchase, and therefore,
 breach of warranty was not a defense to this action.  We affirm.
      The Fitness Center, a Vermont corporation, acquired toning tables and a
 sun room from Sun America Corporation through Sun America's offices in
 Florida.  Sun America arranged for Kimco Leasing Company, an Indiana
 corporation, to finance the transaction.  Kimco purchased the equipment and
 then "leased" it to the Fitness Center.  The lease agreement gave the
 Fitness Center an option to purchase the equipment at the end of the lease
 for about ten percent of the original purchase price.  Sun America shipped
 the equipment directly to the Fitness Center.
      The equipment did not work properly when it was first delivered, and
 Sun America sent mechanics to Vermont to fix it.  Despite repeated attempts
 to make repairs, the equipment continued to have problems that impeded its
 full use and enjoyment.  Because the Fitness Center was dissatisfied with
 the equipment, it eventually stopped making payments to Kimco.  Kimco served
 a notice of default and then brought this action.  The court ruled that
 Kimco was the financing party, not the vendor, and therefore, breach of
 warranty could not be asserted as a defense to the action.  The Fitness
 Center and its guarantors appeal.
      Initially, we note that the lease agreement provides that it shall be
 governed by Indiana law.  Provided the state chosen has a reasonable
 relation to the transaction, the parties may agree that the law of that
 state shall govern their agreement.  See 9A V.S.A. { 1-105(1).  The Fitness
 Center and its guarantors do not dispute the applicability of Indiana law,
 but argue that they are entitled to judgment as a matter of law under
 either Vermont or Indiana law.  Kimco maintains that Indiana law applies, as

 

 provided in the agreement.  Absent any dispute to the contrary, we agree
 and therefore apply Indiana law.
      The Fitness Center and its guarantors argue that (1) the lease of
 equipment was actually a sale of goods and is therefore subject to Article 2
 of the UCC; (2) the implied warranties of merchantability and fitness for a
 particular purpose, see Ind. Code Ann. {{ 26-1-2-314, 26-1-2-315 (Burns
 1992), applied to this sale because Kimco, or Kimco's agent Sun America, was
 a merchant with respect to the equipment; (3) the warranty disclaimers in
 the lease agreement were ineffective, see Ind. Code Ann. { 26-1-2-316 (Burns
 1992); and (4) Kimco breached the implied warranties.  Kimco does not
 dispute that the Fitness Center actually purchased the equipment but argues
 that (1) the lease agreement was intended as security for a debt and
 therefore Article 2 does not apply, see Ind. Code Ann. { 26-1-2-102 (Burns
 1992); (2) no agency relationship exists between Sun America and Kimco; and
 (3) Kimco properly disclaimed the implied warranties in the lease agreement.
      We do not decide whether the transaction constitutes a sale-and-
 security agreement or a true lease because the implied warranties of Article
 2 are not applicable under either theory advanced by the Fitness Center.
 Section 26-1-2-315 provides:
           Where the seller at the time of contracting has reason
           to know any particular purpose of which the goods are
           required and that the buyer is relying on the seller's
           skill or judgment to select or furnish suitable goods,
           there is, unless excluded or modified under IC 26-1-2-
           316, an implied warranty that the good be fit for such
           purpose.  (Emphasis added.)

 Kimco did not select the equipment that the Fitness Center purchased;
 rather, the equipment was selected by officers of the Fitness Center.  Since
 the Fitness Center did not rely on Kimco's judgment in selecting suitable

 

 goods, there was no implied warranty of fitness for a particular purpose on
 the part of Kimco.  Cf. Pacific American Leasing Corp. v. S.P.E. Bldg.
 Sys., 730 P.2d 273, 279 (Ariz. Ct. App. 1986) (lessor did not warrant goods
 for particular purpose when lessee/buyer selected goods and told lessor
 "exactly what to buy"); All-States Leasing Co. v. Bass, 538 P.2d 1177, 1183
 (Idaho 1975) (lessor did not warrant equipment for particular purpose where
 lessee inspected it and selected it based on manufacturer's literature and
 statements made by manufacturer's salesperson); Miller Auto Leasing Co. v.
 Weinstein,