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LEASING SERV. CORP. v. DIAMOND TIMBER

January 28, 1983

LEASING SERVICE CORPORATION, Plaintiff,
v.
DIAMOND TIMBER, INC., DON DURHAM and LU K. FRASER, Defendants



The opinion of the court was delivered by: MOTLEY

In this diversity action, plaintiff, Leasing Service Corporation, assignee of an equipment lease contract, brought suit against defendants Diamond Timber, Inc., the lessee of the equipment, and Don Durham and Lu K. Fraser, the guarantors of the obligations of Diamond Timber, for a deficiency arising after default and public sale of the repossessed equipment.

 Plaintiff, asserting that there are no triable issues of fact in this case, has moved for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. *fn1" For the reasons set forth below, the court grants plaintiff's motion.

 Facts

 The following facts are not in dispute. On June 5, 1979, defendant-lessee entered into an Equipment Lease Agreement with Cascade Loggers Supply, Inc. (Cascade) for a Lima model log loader machine. The total rent was $222,173.80. As part of the financing arrangement, on the same date, Cascade assigned the lease to plaintiff. *fn2" Defendants Durham and Fraser, officers of Diamond Timber, executed a guaranty of Diamond Timber's obligations to plaintiff.

 Diamond Timber took possession of the equipment and executed a Delivery/Installation Certificate in which it acknowledged complete and satisfactory delivery of the equipment. The loader machine burned the next day and Cascade thereupon offered to repair the machinery at its expense and attempted to do so. On January 3, 1980, defendantlessee executed an Extension Agreement which was accepted by plaintiff. The Extension Agreement gave Diamond Timber a three month payment extension to allow for the time that the machinery was being repaired. The Extension Agreement also provided that ". . . the undersigned [defendant-lessee] warrant that the above indebtedness is a valid, binding and existing obligation of the undersigned, due and payable without any defense, counterclaim or offset whatsoever."

 Diamond Timber made six rental payments after the date of the Extension Agreement. It failed to make any payments after the September, 1980 payment (which plaintiff received on June 3, 1981), thereby leaving an unpaid balance of $178,747.41.

 Plaintiff thereafter repossessed the equipment and a public sale was scheduled at the premises of Cascade in Chehalis, Washington for October 28, 1981. At this sale, plaintiff bid $62,700.00 for the equipment. It then made a deficiency calculation which included late charges, attorneys' fees and taxes, minus the net auction proceeds. Plaintiff subsequently commenced this action for an alleged deficiency of $248,518.18.

 Defendants assert that the equipment was defective at delivery and burned shortly thereafter due to faulty wiring. They claim that after Cascade repaired the equipment, it entered into an oral agreement with defendants whereby Cascade agreed to accept the machinery back if the repairs proved ineffective. According to defendants, Cascade refused to honor this agreement.

 Discussion

 In a motion for summary judgment, the court must determine whether there is a genuine issue of fact to be tried. Heyman v. Commerce & Industry Insurance Co., 524 F.2d 1317, 1319-20 (2d Cir. 1975). The burden is on the moving party to demonstrate the absence of any material fact in dispute. 524 F.2d at 1320. The party opposing the motion for summary judgment is to be given the benefit of all reasonable doubts in determining whether a genuine factual issue exists. First National Bank of Cincinnati v. Pepper, 454 F.2d 626, 629 (2d Cir. 1972). Applying this standard, the court concludes that plaintiff has met its burden of proving that there is no genuine factual issue to be tried in this case and that it is therefore "entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c).

 In a diversity action, under the rule of Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941), the court is to apply the choice of law rules of New York, the forum state. Under the New York choice of law rules, either the intent of the parties determines the law to be applied, Fleischmann Distilling Corp. v. Distillers Co. Limited., 395 F. Supp. 221, 229 (S.D.N.Y. 1975), or the law of the state with the most significant contacts with the matter in dispute governs. Haag v. Barnes, 9 N.Y. 2d 554, 559, 216 N.Y.S.2d 65, 68, 175 N.E.2d 441 (1961). Where the parties have included a choice of law provision in their agreement, effect is to be given their choice provided that the state chosen bears a reasonable relationship to the agreement. Fleischmann Distilling Corp. v. Distillers Co. Ltd., supra, 395 F. Supp. at 229. The party's intent is not regarded as conclusive, however, for the greater emphasis is placed upon the law of the place which has the most significant contacts with the matter in dispute. Haag v. Barnes, supra, 9 N.Y.2d at 559.

 The Lease Agreement in the present case provides that the agreement shall be determined by the "law of the state . . . of Lessee or Lessor [said assignee hereinafter called Lessor] or the original lessor." Since either Washington law or New York law could therefore apply, the court will apply the "significant contacts" test to determine which law governs. Haag v. Barnes, supra, 9 N.Y.2d at 559. Washington, without question, has the greater number of significant contacts with the matter in dispute. Diamond Timber is a Washington Corporation and Durham and Fraser are citizens of Washington. The equipment was supplied by a Washington corporation, defendants signed the lease and the guaranties in Washington, and the sale of the equipment took place in Washington. The only New York contact with the dispute is that plaintiff, the assignee, is a New York corporation. This is not sufficient to overcome the intensity of contact that exists with Washington, nor is it sufficient to satisfy the "reasonable relation" test. See Leasing Service Corp. v. Energy Construction Co., No. 80 Civ. 2653 (S.D.N.Y. Dec. 3, 1980). The court will therefore apply the law of Washington to this case. *fn3"

 In opposing plaintiff's motion for summary judgment, defendants assert several affirmative defenses and argue that under Washington law: (1) notwithstanding contractual language to the contrary, a written agreement may be modified by a subsequent oral agreement, which occurred here; (2) where specific contractual provisions contravene public policy, they are subject to limitation or invalidation. Here, because the terms of the written agreement prevent defendants from asserting valid defenses, the agreements are ...


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