Siemens Credit Corp. v. Newlands
1994 U.S. Dist. LEXIS 15153, 905 F. Supp. 757, 28 U.C.C. Rep. Serv. 2d (West) 1256 (1994)
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Rule of Law:
Under the Uniform Commercial Code, a three-party lease is a 'finance lease' when the lessor acts purely as a financier, does not select or manufacture the goods, and acquires them solely to facilitate the lease. In such a lease, the lessee's obligation to make payments is absolute and independent of any recourse the lessee must seek from the supplier for equipment defects or breaches of warranty.
Facts:
- Allan E. Newlands, owner of Matrix Marketing Strategists, required advanced printing equipment for his business.
- Newlands negotiated the purchase with sales representatives from the equipment manufacturer, Siemens Information Systems, Inc. (SISI).
- Newlands told SISI representatives he wanted to lease and finance the equipment through the same company to ensure he would not be obligated to pay a lender for defective equipment.
- SISI representatives assured Newlands the equipment would meet his needs and that financing would be handled by "our (Siemens) credit company," representing that the manufacturer and lender were part of the same entity.
- On March 22, 1991, Newlands entered into an Equipment Purchase Agreement with SISI.
- On May 13, 1991, Newlands entered into a Master Equipment Lease Agreement with a separate entity, Siemens Credit Corporation (Siemens Credit).
- As part of the transaction, Newlands assigned his right to purchase the equipment to Siemens Credit, which then bought the equipment from SISI and leased it to Newlands.
- After delivery, the equipment allegedly never functioned properly, causing Newlands to suffer significant business losses and subsequently stop making lease payments to Siemens Credit.
Procedural Posture:
- Plaintiff Siemens Credit Corporation sued Defendant Allan E. Newlands in the United States District Court for the Northern District of California to recover defaulted lease payments.
- Defendant Newlands asserted affirmative defenses including breach of warranty, fraud, and unconscionability.
- Plaintiff Siemens Credit Corporation filed a motion for summary judgment, asking the court to rule in its favor without a full trial.
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Issue:
Is a three-party equipment lease a 'finance lease' under the UCC, thereby making the lessee's obligation to pay the lessor independent of any claims the lessee has against the equipment supplier for defects?
Opinions:
Majority - Fern M. Smith, District Judge
Yes. A three-party equipment lease is a 'finance lease' under the UCC, making the lessee's obligation to pay the lessor independent of any claims the lessee has against the equipment supplier for defects. The court found that the transaction met all statutory requirements for a finance lease under Florida law: (1) the lessor, Siemens Credit, did not select, manufacture, or supply the goods; (2) Siemens Credit acquired the goods solely in connection with the lease; and (3) the lessee, Newlands, received a copy of the purchase contract. In a finance lease, the lessee looks exclusively to the supplier for all warranties and representations. The lease agreement contained conspicuous disclaimers of warranties by Siemens Credit, and the fact that the lessor and supplier were affiliated companies did not alter the lease's status. Any misrepresentations were made by SISI's employees, not Siemens Credit's, and the contract was not found to be unconscionable as its terms and risk allocation were commercially reasonable.
Analysis:
This case provides a clear judicial application of the UCC Article 2A provisions governing 'finance leases.' The ruling reinforces the independence of the lessee's payment obligation to the financier, often called a 'hell or high water' clause, insulating the lender from disputes over the quality or performance of the underlying asset. The decision clarifies that even corporate affiliation between the supplier and the financier does not, by itself, defeat the finance lease structure. This precedent is significant for commercial lenders as it affirms their protection from product liability and warranty claims, thereby shifting the risk of equipment performance entirely onto the lessee and the equipment supplier.
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