General Electric Credit Corp. v. Ger-Beck Machine Co.

806 F.2d 1207, 2 U.C.C. Rep. Serv. 2d (West) 769

• Court: Court of Appeals for the Third Circuit
• Decided: December 8, 1986
• Docket: No. 85-5713
• Status: Published

Opinions

OPINION OF THE COURT

MANSMANN, Circuit Judge.

This is an appeal from the district court’s entry of judgment notwithstanding the verdict in favor of the plaintiff General Electric Credit Corporation (“GECC”) in an action to recover from the defendant Ger-Beck Machine Co., Inc. (“Ger-Beck”) amounts allegedly due and owing under a note for the purchase price plus interest of a metal lathe manufactured by American Tool, Inc. We agree with the district court’s conclusion that the evidence establishes as a matter of New Jersey law that the transaction between GECC and Ger-Beck, while evidenced by an instrument denominated as a lease, was intended only as security for payment of the note. Since such a transaction is expressly excluded from coverage under Article 2 of the Uniform Commercial Code, the record cannot support the jury’s finding that Ger-Beck’s attempted revocation of acceptance of the lathe was effective against GECC. Therefore, we will affirm.

I.

In November of 1977 Ger-Beck sought to acquire a metal lathe for use in its business. Ger-Beck selected a lathe manufactured by American Tool, Inc. and sent a purchase order to the distributor of the lathe. Through an independent loan broker, Ger-Beck contacted GECC to arrange financing. In July 1978, GECC and Ger-Beck entered into an agreement whereby GECC would pay the purchase price of the lathe in return for Ger-Beck’s note for the purchase price plus interest. Repayment terms were specified in a lease agreement whereby Ger-Beck agreed to make fixed monthly payments. It was further agreed that at the end of the lease period Ger-Beck would become the owner of the lathe for approximately 20 percent of its original price. Ger-Beck deposited this sum with GECC.

In 1978, immediately after the installation of the lathe in Ger-Beck’s plant, Ger-Beck began experiencing problems with it and called upon American Tool to cure the defects. On the assurance of American that the defects could be remedied, Ger-Beck accepted the lathe. Upon notification of Ger-Beck's acceptance of the lathe, GECC paid the distributor the full purchase price.

American was unable to remedy the defects to Ger-Beck’s satisfaction. In July 1980 Ger-Beck ceased making payments under the lease, and in August 1980 notified GECC for the first time that the lathe was not operating satisfactorily. GECC brought this diversity action on the note and on the lease. At trial GECC proceeded on the note only.

At trial Ger-Beck asserted the defense of breach of warranty amounting to a complete failure of consideration. The defendant also alleged a proper revocation of acceptance of the lathe, and counterclaimed for the return of the deposit and rental payments under a written lease agreement with the plaintiff. Both the defenses and the counterclaim assumed that the transaction between the plaintiff and the defendant was in the nature of a sale governed by Article 2 of the Uniform Commercial Code. See N.J.S.A. 12A:2-101 to 2-725.

The case was tried to a jury and at the close of the defendant’s case, the plaintiff moved for a directed verdict asserting that its lease arrangement with Ger-Beck was strictly a financing transaction in which the lease was intended to provide only a security interest. Therefore Article 2 by its express terms did not govern the rights and duties of the parties. See N.J.S.A. 12A:2-102.

The trial court denied the motion for a directed verdict. The jury returned a verdict for Ger-Beck, finding on special interrogatories that the transaction between GECC and Ger-Beck was a sale and not merely a financing arrangement. GECC renewed its motion under Fed.R.Civ.P. 50(b) and requested judgment n.o.v. The trial court ultimately ruled that Article 2 did not apply to the transaction as a matter of law and therefore sustained the plaintiff’s motion and entered judgment accordingly.

II.

A judgment n.o.v. should be granted only if there is no evidence on which a jury could properly find a verdict for the party opposing the motion. Powell v. J.T. Posey Co., 766 F.2d 131 (3d Cir.1985). An appellate court should apply the same standard as the trial court in determining the propriety of a judgment n.o.v. Id. at 134, quoting Dudley v. South Jersey Metal, Inc., 555 F.2d 96 (3d Cir.1977).

On appeal, Ger-Beck does not press its breach of warranty defense. It argues only that the evidence supports the jury’s finding that it made an effective revocation of acceptance.

In this diversity action we must apply the law of the forum state. We may affirm the judgment n.o.v. only if, as a matter of New Jersey law, there is no evidence from which a jury could find that Ger-Beck’s revocation of acceptance of the lathe was effective against GECC.

Revocation of acceptance is a remedy available in transactions governed by Article 2 of the Uniform Commercial Code. See N.J.S.A. 12A:2-608. The focal issue in this case is framed by the provision of the Code which by its express terms excludes from the coverage of Article 2 “any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction____” N.J.S.A. 12A:2-102. The verdict for the defendant depended on the threshold finding that the transaction between the plaintiff and the defendant was not intended to operate only as a financing transaction. The plaintiff argues that as a matter of law the lease agreement was intended only as a security transaction to which Article 2 remedies are inapplicable.

By the undisputed facts, the plaintiff provided nothing in this three-way transaction except the money to finance Ger-Beck’s acquisition of the lathe from the supplier. We would, of course, be bound by a definitive statement by the New Jersey Supreme Court as to whether a party who merely finances a three-way equipment lease-purchase transaction may be treated as a seller for the purpose of a revocation of acceptance. Since no such authority exists, we must predict how New Jersey’s highest court would decide this issue. McGowan v. University of Scranton, 759 F.2d 287 (3d Cir.1985). Decisions of intermediate appellate courts are evidence of state law, id. at 291, and must be given significant weight in the absence of any indication that the highest state court would rule otherwise. Ciccarelli v. Carey Canadian Coal Mines, Ltd., 757 F.2d 548 (3d Cir.1985).

In entering judgment n.o.v., the district court relied on the decision of the New Jersey Superior Court Appellate Division in Miller Auto Leasing Co. v. Weinstein, 193 N.J.Super. 328, 473 A.2d 996 (App.Div.1984), aff’g 189 N.J.Super. 543, 461 A.2d 174 (Law Div.1983), cert. denied, 97 N.J. 676, 483 A.2d 192 (1984). In Miller, the plaintiff was a lessor who did not ordinarily manufacture or sell the equipment which was the subject matter of the lease. Rather, upon request by the lessee, the lessor purchased equipment from a supplier and in turn leased it to the lessee. The lessor had no contact with the equipment; the lessee did not rely in any way on the lessor’s expertise when selecting the equipment. In fact, the lessor’s only function was to supply the financing for the transaction. A jury had found a breach of warranty resulting in a complete failure of consideration. The New Jersey court found that the lessor was strictly a financier and that as a matter of law it was not a “seller” for purposes of Article 2 warranties. The court granted a motion for judgment n.o.v.

It is uncontested that the facts here are indistinguishable from those in Miller. The defendant concedes on appeal that under Miller the plaintiff lessor is not a seller for purposes of imposing warranties. The defendant argues, however, that GECC is nevertheless a seller for purposes of revocation of acceptance by the buyer and that, therefore, the jury’s finding that Ger-Beck properly revoked acceptance of the lathe should not be ignored.

We have no indication that the New Jersey Supreme Court would disapprove the decision in Miller.1 Nor have we found a case from any jurisdiction where U.C.C. buyer’s remedies have been enforced on behalf of a nominal lessee who will ultimately acquire ownership of the leased property and against a finance lessor who had no connection with the lessee’s choice of equipment to be leased and who had no relationship by agency or assignment with the actual supplier of the equipment. On the contrary, courts have held that in such situations a buyer/lessee’s remedy is properly against the actual supplier. See e.g., Chatlos Systems, Inc. v. National Cash Register Corp., 479 F.Supp. 738 (D.N.J.1979); Citicorp Leasing, Inc. v. Allied Institutional Distrib., Inc., 454 F.Supp. 511 (W.D.Okla.1977).

Furthermore, we find that the language of Miller offers no suggestion that the New Jersey courts would find the transaction between a buyer and a financing agent who only contributed money in a three-corner transaction to be governed by Article 2 for any purpose. To the contrary, the court indicated by way of a footnote that the Miller case should be given a broad reading as holding that the transaction at issue was as a matter of law intended only for security. The New Jersey court stated:

Defendant’s brief seems to urge that the court consider defendants a “purchaser” not a “lessee” (citation omitted). In fact, the court adopts that position, but that is not the problem. The issue is, who is the “seller” for purposes of imposing implied warranties, and on that question it seems clear Z & W and the manufacturer of Alpha Romeos are the true “sellers”, not plaintiff. We are, therefore, willing to hold, notwithstanding the technicalities of the lease-form, that “title” in fact passed from Z & W/Alpha to defendants, with plaintiff merely obtaining a security interest in the vehicle____

189 N.J.Super. at 547 n. 2, 461 A.2d 174.

The defendant claims a revocation of acceptance under Article 2. A revocation of acceptance is accomplished by notifying the seller. See N.J.S.A. 12A:2-608 comment 1. Therefore, for a revocation to be effective against it, GECC must be classified as a seller. A “seller” is defined as “a person who sells or contracts to sell goods.” N.J.S.A. 12A:2-103(d). A “sale” consists in the passing of title from the seller to the buyer for a price. N.J.S.A. 12A:2-106(1). The Miller court held specifically that, “notwithstanding the technicalities of the lease form,” title in fact passed from the distributor/manufacturer to the buyer, with the financier merely obtaining a security interest in the vehicle. See Miller, 189 N.J.Super. at 547 n. 2, 461 A.2d 174. The Code section cited by the New Jersey court in Miller deals with leases which are intended as security. See N.J.S.A. 12A:1-201(37). In holding that a financing agent as a matter of law acquires only a security interest in the goods, Miller impliedly holds that the transaction cannot be other than one intended only for security as between financier/lessor and buyer/lessee.

We find that by the undisputed facts, the plaintiff provided nothing in this three-way transaction except the money to finance a sale between a manufacturer of equipment and the buyer. Therefore, under Miller, the plaintiff’s status is, as a matter of law, solely that of financier. Consequently, the transaction between the plaintiff and the defendant was, as a matter of law, intended only as a security transaction to which, by its terms, Article 2 does not apply. See N.J.S.A. 12A:2-102.

We agree with the district court that the question of whether the transaction between the plaintiff and the defendant was intended as a sale should not have been submitted to the jury. Since the verdict for the defendant depended on the applicability of Article 2 through the threshold finding of a sale, the record cannot support the verdict. Ger-Beck may not prevail on a defense or counterclaim based on Article 2.

We conclude that the trial court did not err in its ruling that as a matter of law Article 2 does not apply to the transaction here involved and therefore did not err in granting the plaintiff’s motion for judgment n.o.v. Accordingly, we will affirm the judgment of the district court.

1 . The case relied upon by the dissent, Associates Discount Corp. v. Palmer, 47 N.J. 183, 219 A.2d 858 (1966), does not illuminate the issue presented here. The cases appear similar because the plaintiff in Associates Discount, like the plaintiff here, is a third party to a sales transaction whose only role is to provide purchase money to a seller of equipment. In both cases the character of the instrument sued upon is determined by the intent of the parties to the instrument. The analogy ends there, however. In Associates Discount, the instrument sued upon was the agreement between the buyer of an automobile and the seller from whom the buyer selected and purchased the automobile. The plaintiff was merely the assignee of the seller’s interest in the document. The New Jersey Supreme Court found the instrument to be both a sales contract and a security agreement and held that the Article 2 statute of limitations applied to the sales aspect of the transaction.

In the instant case, the instrument sued upon is the agreement between the purchaser of equipment and the financier who provided purchase money to a third party upon application of the purchaser who selected the equipment from the third party. It is difficult to see a useful analogy between the intent of the parties to the agreements. In Associates Discount the rights of the plaintiff were those of the supplier of the automobile to the defendant. In the instant case, the crux of the problem is that the rights of the plaintiff and the defendant with respect to one another are completely independent from any rights or duties of the third party supplier of equipment.