Skip to main content



Hewlett-Packard Financial Services Company v. One2One, LLC

05-4045 (U.S. Dist. Ct. D. N.J. 2006) (Unpublished)

EQUIPMENT LEASES; UCC — Under a finance lease, as defined by the Uniform Commercial Code, once a lessee accepts the leased goods, its obligations under the lease become irrevocable and independent.

A financial services company provided financing and leasing solutions for businesses wishing to acquire equipment. A provider of printing services selected a printing press which it wished to purchase from a seller of printing press machinery. Instead of purchasing the press directly from the seller, the printing services provider structured the transaction as a finance lease with the financial services company. Pursuant to this transactional structure, after the printing services provider selected the equipment it wished to purchase from printing press seller, the printing press seller sold the equipment to the financial services company, which made the purchase with the intent of leasing it to the printing services provider. Once the printing services provider had accepted delivery of the printing equipment pursuant to the terms of the lease agreement, the financial services company paid the printing press seller the purchase price. In this lease, the president of the printing services provider guaranteed the company’s compliance with the terms and payment under the lease agreement.

The financial services company claimed that the printing services provider failed to make even the first payment due on the lease agreement. Under the terms of the lease, such a failure amounted to a default. As a result, the financial services company repossessed the equipment and accelerated the future rent payments due, as was its right under the terms of the lease. The financial services company filed a complaint against the printing services provider seeking to recover damages for breach of the lease agreement, against the president of the printing services provider as guarantor, and against both the company and individual for costs of collection and attorneys’ fees. The printing services provider made no answer to the complaint, and the financial services company subsequently filed a motion for summary judgment on its first two claims, seeking to sever its third claim, and seeking default judgment against the printing services provider and its president.

First, the District Court addressed the motion as to the printing services provider. The Court explained that in order for the financial services company to prevail on its claim against the printing services provider, the facts specified in the motion must show that the lease agreement was a valid contract, that the printing services provider breached the lease, and that the financial services company suffered damages.

With respect to the lease agreement, the Court explained that New Jersey Uniform Commercial Code (UCC) defined a finance lease. The Court found that the lease agreement entered into by the parties met the statutory definition of a finance lease, and that the president and the printing services provider were aware that the document they signed would be so construed.

With respect to the printing services provider’s default on its obligations, the Court explained that the UCC states that in the case of a finance lease that is not a consumer lease the lessee’s promises under the lease contract become irrevocable and independent upon the lessee’s acceptance of the goods. Once the lessee accepted the goods, then, it was obligated to perform its duties and covenants under the lease. Accordingly, because the financial services company claimed that the printing services provider defaulted on the payments it promised to make, and as the printing services provider presented nothing to counter this claim, the Court concluded that the printing services provider was in breach of its contract.

As the terms of the finance lease were unambiguous, the Court reasoned that the printing services provider’s failure to make rental payments when due clearly placed the company in default. Accordingly, the Court concluded that, as the parties agreed to the terms of a valid finance lease, and as the printing services provider breached the lease, the financial services company established the elements necessary to support its claim against the printing services provider. The financial services company’s motion for summary judgment was granted as to this the printing services provider.

Next, the Court addressed the motion as to the president of the printing services provider. The president’s guaranty provided that he would personally, irrevocably, and unconditionally guarantee payment and performance of, and agree to be jointly and severally liable for all terms and conditions of the lease until all obligations under the lease were satisfied. He also agreed to a provision that entitled the financial services company to proceed against him, and that waived any right he might have had to require otherwise. Thus, the Court concluded that because the printing services provider breached the lease agreement, and because the president, the guarantor, waived any affirmative defenses, summary judgment was appropriate as to the president and was granted.

Next, the Court considered the issue of damages. The financial services company sought to calculate damages in accordance with the stipulated damages provision of the lease agreement, arguing that such provisions were valid and enforceable under the UCC. The financial services company specifically sought the collection of past due rents; the acceleration of all payments provided for in the lease; and the collection of late fees as delineated in the lease.

In the event of late payment, the lease provided that the printing services provider would pay a one-time late charge. The Court explained that under the UCC, stipulated damages clauses are enforceable in an amount or by a formula that is reasonable in light of the then anticipated harm caused by the default or omission. Further, while a liquidated damages clause entitles the non-breaching party to a payment and, as such, is enforceable, a penalty is determined and fixed as punishment and will not be enforced. Under the UCC, the enforceability of a given stipulated damages clause is determined in the context of each case by applying a standard of reasonableness in light of the harm anticipated when the formula was agreed to. The Court then decided whether the one-time fee of the first missed payment was an amount that was reasonable in light of the then anticipated harm cased by the default. Reviewing case law, the Court found that liquidated damages provisions in a commercial contract between sophisticated parties are presumptively reasonable and the party challenging the clause bears the burden of proving its unreasonableness. The Court then reasoned that if courts found that a fee levied on each delinquent payment was reasonable, it followed that a fee assessed only on the amount of one delinquent payment was also reasonable. Furthermore, the Court reasoned that the printing services provider was a sophisticated commercial party that could have negotiated different terms if it truly believed that the provision was not reasonable. Accordingly, the Court concluded that the one-time late charge, as set forth in the lease agreement, and agreed to by the printing services provider, was a valid measure of liquidated damages and would be enforced. Similarly, the Court found that the increase in the contractual interest rate did not appear to be unreasonable under the circumstances. Accordingly, the Court held that the damages provided for in the lease agreement could be enforced.


MEISLIK & MEISLIK
66 Park Street • Montclair, New Jersey 07042
tel: 973-783-3000 • fax: 973-744-5757 • info@meislik.com