Dillman & Associates, Inc. v. Capitol Leasing Co.
66 Ill. Dec. 39, 110 Ill. App. 3d 335, 442 N.E.2d 311 (1982)
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Rule of Law:
A commercial equipment lease that conspicuously and completely disclaims all warranties is not unconscionable when it is entered into between businesses of relatively equal sophistication and bargaining power, particularly when the lessee is responsible for selecting the equipment.
Facts:
- Dillman and Associates, Inc. selected a specific model of copying machine for its business needs.
- Dillman chose to lease the machine from Capitol Leasing Co. under a five-year form lease agreement, rather than purchasing it.
- The lease contained three separate, conspicuous disclaimers of all warranties, stating the equipment was leased 'AS IS' and that Dillman assumed all risks regarding its performance.
- The agreement specified that any claims regarding the copier's performance must be directed to the supplier, not to Capitol Leasing.
- After delivery, the copier performed poorly, requiring approximately 36-39 service calls over an 18-month period.
- Dillman repeatedly requested that Capitol Leasing repair or replace the machine, but Capitol Leasing took no action.
- On April 1, 1981, after the machine again failed, Dillman ceased making payments under the lease and stopped using the copier.
Procedural Posture:
- Dillman and Associates, Inc. (plaintiff) filed a complaint against Capitol Leasing Co. (defendant) in the Macon County circuit court (trial court).
- Dillman sought to have the lease declared unconscionable and also requested damages.
- Capitol Leasing filed a counterclaim seeking the entire remaining balance due under the lease plus attorney fees.
- Following a bench trial, the trial court held that the lease was unconscionable, ruled against Dillman on its damages claim, and denied Capitol Leasing's counterclaim.
- Capitol Leasing Co. (appellant) appealed the trial court's judgment to the appellate court, where Dillman and Associates, Inc. was the appellee.
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Issue:
Is a commercial equipment lease agreement, which contains conspicuous and comprehensive disclaimers of all express and implied warranties, unconscionable when entered into between two business entities?
Opinions:
Majority - Presiding Justice Green
No, the equipment lease agreement is not unconscionable. When a contract is between sophisticated business entities of substantially equal bargaining power, courts are reluctant to use the doctrine of unconscionability to rewrite its terms. Here, Dillman, a business entity, was under no compulsion to lease and was free to select the equipment that best suited its needs. The lease agreement contained conspicuous, legally binding disclaimers in three locations, making the allocation of risk clear. Capitol Leasing fulfilled its contractual obligation by purchasing and delivering the machine Dillman chose. The court should not take a paternalistic approach to relieve a business from the consequences of what is, at worst, a bad bargain.
Analysis:
This decision reinforces the principle of freedom of contract in commercial transactions between sophisticated parties, distinguishing them from consumer transactions where courts may offer more protection. It solidifies the position of finance lessors, clarifying that they can effectively disclaim all liability for equipment performance as long as the disclaimers are conspicuous and the lessee is a commercial entity that selected the goods. This precedent strengthens 'hell or high water' clauses in commercial leases, placing the risk of equipment failure squarely on the business lessee who chose the product and agreed to the terms.
