C.I.C. Corporation, Inc. v. Flappy’s Inc.

A-4905-97T5 (N.J. Super. App. Div. 1999) (Unpublished)
  • Opinion Date: February 19, 1999

CONTRACTS; LEASES; DAMAGES—An agreement to lease space for the placement of entertainment equipment is not an equipment lease governed by the UCC. Damages for a lost future stream of payments must be reduced to present value.

A vending machine company and a bar entered into an agreement which read, in part, “[t]he Proprietor hereby leases and grants to the Operator, at and within the business establishment conducted by Proprietor at [the address] the sole, exclusive privilege and right to install, maintain and operate ... C.D. Player - 75$ per wk minimum guaranteed to operator… .” Apparently, this agreement authorized the vending company to place certain vending machines at the bar including a C.D. Player, “commonly known to earlier generations as a juke box” and the two were to share the money generated by the use of the juke box. The operator was to receive the first $75 per week and anything above that amount was to be split equally with the bar. The bar repudiated the contract and refused to permit the operator to place its machines at the premises. The operator sued for the $75 minimum weekly payment. The bar contended that the contract was an equipment lease, subject to the UCC, that under the UCC the operator was not entitled to future damages on a repudiated lease, and that the lost volume theory of damages was not applicable to a lease governed by the UCC. The bar also contended that the lease provisions were unconscionable and, therefore, in violation of the UCC. The Appellate Division held that the contract was not a lease because under UCC Article 2A, a lease is “a transfer of the right to possession and use of goods for a term in return for consideration. .” Although the juke box equipment would have been placed at the bar, the operator retained significant control of the equipment because it retained the keys to the equipment and exclusive access to the coin box. Moreover, the agreement called for a split of the money generated by the use of the juke box, with the operator receiving the first $75. To the Court, therefore, the agreement more closely resembled a joint venture agreement. Further, the bar’s reliance on the use of the word “lease” in the agreement was misplaced because, as used in the agreement, it constituted the bar leasing space to the operator, and not the operator leasing equipment to the bar. A lease of space is not a lease of “goods.” The Court also upheld the lower court’s calculation of damages based on the “lost volume of business.” Because the vending machine operator had many pieces of equipment in its warehouse, it therefore had no obligation to find a replacement customer for the particular juke box that it would have placed at the bar. The Appellate Division, however, raised one issue sua sponte. In its view, the damage award should have been reduced to its present value because the total amount owed represented a stream of income over a period of five years. The Appellate Division did note, however, that the lower court did not award pre-judgment interest to the operator, possibly because the lower court deemed the denial of pre-judgment interest an offset to the award of the gross amount due the operator. Consequently, on remand, the lower court was asked to reduce the judgment to its present value, using an appropriate discount rate, and reconsider whether the operator should have been awarded pre-judgment interest.