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June 26, 1986


Kevin Thomas Duffy, D.J.

The opinion of the court was delivered by: DUFFY


Plaintiff, Leasing Service Corporation ("LSC"), brings this breach of contract action against defendants, Simpkins Metal Buildings, Inc. ("SMB"), as lessee, and B.R. Simpkins, President of SMB, and Jesse E. Loveless, as guarantors, for the deficiency which exists following SMB's default under an equipment lease and the subsequent public sale of the repossessed equipment. Having considered the testimony and exhibits introduced at a one-day non-jury trial as well as, in accordance with the request of defense counsel, the papers previously submitted on plaintiff's summary judgment motion, I shall now set forth my findings of fact and conclusions of law.


 On June 26, 1981, Frontier Crane & Machinery, Inc. ("Frontier") and SMB entered into an Equipment Lease Agreement (the "Lease") whereby Frontier agreed to lease a new truck crane with a lattice boom extension to SMB. Plaintiff's Exh. 1. SMB and Frontier also signed a Purchase Option Letter which essentially gave SMB the option to purchase the crane for $5,600 at the end of the lease provided SMB had at no time been in default. Plaintiff's Exh. 4. This same day, Frontier assigned the Lease to LSC. Plaintiff's Exh. 2. LSC is engaged in the business of, inter alia, leasing construction equipment either by directly leasing the equipment to a lessee or by acquiring pre-existing contracts in the form of chattel papers. Also on June 26, 1981, defendants Simpkins and Loveless executed a Guaranty of SMB's obligations to LSC. Plaintiff's Exh. 8.

 Payments were made under the Lease through September 13, 1982. The payment made on September 13th was due on July 1, 1982. On September 10, 1982, LSC and SMB entered into the first of two extension agreements which changed the payment schedule of the original lease. Plaintiff's Exh. 5. Associated with this extension was an extension charge of $1,295 and an accrued late charge on the payments that were not made when due of $481. Plaintiff's Exh. 9. Three payments were made pursuant to this first extension agreement.

 On January 1, 1983, a second extension agreement was entered into between the parties which again changed the payment schedule. Plaintiff's Exh. 6. Associated with this second extension was an extension charge of $6,306.64 and a delinquency charge of $304.25. *fn1" Plaintiff's Exh. 9. Also on January 1, 1983, a Purchase Option Letter was sent from SMB to LSC which changed the terms of the June 26, 1981 purchase option agreement between SMB and Frontier by changing the purchase price from $5,600.00 to $20,454.89. Plaintiff's Exh. 7.

 On January 31, 1983, SMB paid $8,244 which apparently covered the extension and delinquency charges of the second extension as well as a portion of payments which had previously been due. The first payment under the second extension agreement, however, which was due April 1, 1983, was never made. Consequently, as the account was in default, the equipment was repossessed and, on May 25, 1983, sold at a public auction in Odessa, Texas. The auction was publicized in advance and all interested parties, including SMB, Frontier, Simpkins, and Loveless, were given written notice that the public sale was going to take place. Plaintiff's Exh. 10. At the auction, LSC purchased the equipment for $100,000. Plaintiff's Exh. 11.

 Taking into account appropriate deductions for (1) closing out the transaction prior to its scheduled termination, Plaintiff's Exh. 13, and (2) the net auction proceeds, Plaintiff's Exh. 12, LSC calculated that a deficiency of $184,434.71 exists. In addition, in accordance with the terms of the Lease, LSC is seeking attorneys' fees in the amount of $36,886.94, which represents 20 percent of the deficiency.


 Preliminarily, I note that the portions of the Lease and Guaranty which (1) appointed an agent to accept service of process in New York on behalf of defendants, and (2) provided that venue and jurisdiction over any cause of action arising out of the contracts were properly laid in New York, are valid and enforceable. See National Equipment Rental, Ltd. v. Szukhent, 375 U.S. 311, 316, 11 L. Ed. 2d 354, 84 S. Ct. 411 (1964). Thus the trial of the instant action before me in the Southern District of New York was proper.

 Defendants advance three arguments in an effort to avoid liability or at least reduce the amount of damages. First, they claim that the Lease is unenforceable because it charges interest rates which are impermissably high. Second, they allege that the contract is unconscionable. Finally, they argue that, if LSC is entitled to any damages at all, they must be reduced by any proceeds LSC obtained from the crane after the auction. For the reasons set forth below, defendants' arguments are rejected as being without merit.

 I. Impermissably High Interest Rates

 Defendants argue that the Equipment Lease Agreement is not a lease at all. Rather, defendants contend, it is either a secured loan or an installment sales contract and, accordingly, it charges interest rates which are impermissably high. *fn2"

 In support of their argument that the transaction is not a lease but a secured loan, defendants cite only Woods-Tucker Leasing Corp. of Georgia v. Hutcheson-Ingram Development Co., 626 F.2d 401 (5th Cir. 1980). This case, however, is inapposite as it involved a sale-leaseback transaction. Specifically, defendant Hutcheson-Ingram Development Company ("Hutcheson-Ingram"), a real estate developer, needed money to complete an apartment project. It therefore approached Woods-Tucker Leasing Corporation of Georgia ("Woods-Tucker") for a loan. Woods-Tucker wanted collateral for the loan and Hutcheson-Ingram, which was also engaged in the business of citrus farming, offered some of the equipment it used in this business as collateral. Woods-Tucker then indicated that the transaction would have to be structured as a "sale-leaseback" wherein Woods-Tucker would purchase the equipment from Hutcheson-Ingram for $85,000 and then lease it back to Hutcheson-Ingram which had the option to buy back the equipment at the end of the lease for a nominal price. The Fifth Circuit found that this "sale-leaseback" transaction was in reality a secured loan and, accordingly, subject to the Texas usury laws. The transaction in Woods-Tucker, however, was very different from the transaction between LSC and SMB. Unlike the situation ...

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