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WALTER E. HELLER & CO. v. CHOPP-WINCRAFT PRINTING

September 21, 1982

WALTER E. HELLER & COMPANY, Plaintiff,
v.
CHOPP-WINCRAFT PRINTING SPECIALTIES, INC., Defendant & Third Party Plaintiff, v. ROYAL ZENITH CORPORATION, (Dismissed July 23, 1982) Third Party Defendant.



The opinion of the court was delivered by: POLLACK

MEMORANDUM

Milton Pollack, District Judge.

 Plaintiff moves for summary judgment on its breach of contract action, alleging that defendant has defaulted in its obligation under a lease between the parties to pay rent for equipment. Defendant does not deny the default but argues that the transaction is a loan, not a lease, is usurious, and that even if it is a lease that plaintiff is bound by certain warranties concerning the equipment which defendant claims is faulty. For the reasons stated hereinafter, plaintiff's motion for summary judgment is granted.

 Jurisdiction is predicated on diversity, 28 U.S.C. § 1332. Plaintiff, Walter E. Heller & Company ("Heller") is a Delaware corporation maintaining its principal place of business in Illinois. Defendant Chopp-Wincraft Printing Specialties, Inc. ("Chopp-Wincraft") is a New York corporation with its principal place of business in New York corporation with its principal place of business in New York.

 Undisputed Facts

 In June of 1979, Chopp-Wincraft, a corporation in the printing business since 1916, agreed to purchase a Royal-Zenith planeta-variant offset press, model 645 and certain attachments from Royal Zenith Corporation ("Royal") *fn1" at a cost of $1,019,000. This included a base price of $983,000 plus a sales tax of $36,000. Royal and Chopp-Wincraft signed a purchase order with an attached schedule, dated June 4, 1979.

 Before any payments were made, Chopp-Wincraft realized and informed Royal that it could not finance the purchase of the press. Plaintiff Heller was contacted by a Granrich Capital Corporation ("Granrich") *fn2" and asked whether it would be interested in purchasing the press from Royal and leasing it to defendant. Plaintiff decided to become involved and subsequently paid a fee of decided to become involved and subsequently paid a fee of $88,348.48 to Granrich for its part in arranging the deal.

 On October 15, 1979, Chopp-Wincraft signed an Equipment lease pursuant to which Heller agreed to lease the press to Chopp-Wincraft for a term of 96 months at a monthly rental of $15,374. Heller accepted the lease in Chicago, Illinois "as of April 14, 1980".

 The lease, which except for two addenda was a standard form, provides, inter alia, that "LESSOR IS NEITHER THE MANUFACTURER OF THE EQUIPMENT NOR THE AGENT OF SUCH MANUFACTURER NOR A SUPPLIER AND LESSOR ITSELF MAKES NO EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS . . . CONCERNING THE EQUIPMENT INCLUDING WITHOUT LIMITATION THE QUALITY OR THE CONDITION OF EQUIPMENT ITS PERFORMANCE ITS MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE. In no event shall any defect in or unfitness of the equipment relieve Lessee of the obligation to pay rent or of any other obligation hereunder. . . ." (P3, emphasis in original). With respect to warranties the lease also provides that "Lessor, without assuming responsibility for compliance by supplier, will request the supplier to authorize Lesseee to enforce in Lessee's own name all warranties, agreements, or representations, if any, which may be made by the supplier to Lessee." (Id.) Paragraph 14 contains an acceleration clause of all payments due upon default. Paragraph 20 provides that the "Lease shall be governed by and construed in accordance with the laws of the State of Illinois." The parties also acknowledged "that this Lease is and is intended to be a lease and that the equipment is and at all times remains the sole and exclusive property of Lessor, and that Lessee shall have no right, title or interest in or thereto but only the right to use the same as herein provided." (P21).

 Two addenda dated October 15, 1979, and signed by both parties add a paragraph 25 "Purchase Option" giving the lessee the option to purchase the equipment at the end of the term at a price equal to the then fair market value, not to exceed 30% of the original cost of the equipment, and a paragraph 26, giving the lessor, "as the owner of the Equipment" the right to take depreciation deductions and investment tax credits.

 Also on October 15, 1979, Chopp-Wincraft signed a chattel mortgage security agreement pursuant to which defendant granted plaintiff a security interest in all its equipment.

 On January 11, 1979, Jack Winston, the then Secretary-Treasurer of Chopp-Wincraft, wrote plaintiff an authorization "to pay $90,000 to Royal Zenith Corporation as a Progress Payment on our lease". The letter noted that the balance would be due upon Chopp-Wincraft's acceptance of the equipment. Defendant delivered to plaintiff of a "Certificate of Inspection and Acceptance" dated March 10, 1980, and certifying that the equipment "is of a size, design, capacity and manufacture acceptable to Lessee for lease under the Lease, is suitable for Lessee's purposes, is in good working order, repair and condition and has been installed to the satisfaction of Lessee; . . . [Lessee] unconditionally accepts the Equipment for all purposes of the Lease, as of the date hereof." Plaintiff paid Royal the balance of the purchase price, $893,000.

 Chopp-Wincraft made its payments on the lease for almost two years but as of January 1982 has ceased payment. On March 31, 1982, Heller wrote Chopp-Wincraft advising it of its default and declaring the rent accelerated and due, and also demanding delivery over of the equipment pursuant to the chattel mortgage security agreement between the parties.

 Both plaintiff and defendant have accounted for this transaction as a lease in their financial statements and ...


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