W.L. Scott, Inc. v. Madras Aerotech, Inc.

653 P.2d 791, 103 Idaho 736, 35 U.C.C. Rep. Serv. (West) 956, 1982 Ida. LEXIS 300

• Court: Idaho Supreme Court
• Decided: October 15, 1982
• Docket: 13444
• Status: Published

Opinions

DONALDSON, Justice.

Appeal is brought from a final judgment rendered in favor of the plaintiff corporation in a civil action based upon the breach of a lease agreement.

The trial court found as fact that on December 14, 1976, the corporate defendant entered into a lease agreement with the corporate plaintiff. The agreement provided for the lease of a new Sharp 2600 System computer to the corporate defendant and by its terms required monthly payments. The computer was purchased by the plaintiff from the local Sharp dealer specifically for this lease at a cost of $14,-745.00. Performance of the agreement by the corporate defendant was guaranteed by the individual defendant, Mr. Larry Dowers. The individual defendant executed a “Guaranty Agreement” dated January 17, 1977, and thereafter the plaintiff paid the dealer for the computer which had been delivered during the interim between the execution of the two agreements. On January 6, 1977, the plaintiff filed a financing statement on the computer with the Idaho Secretary of State pursuant to the Uniform Commercial Code. Monthly payments were made in accordance with the lease until September 1977 when a dispute arose. The plaintiff notified the local Madras Aerotech office and Mr. Larry Dowers that the lease was in default and requested payment. When no payments were made, the plaintiff with the assistance of the Sharp dealer peacefully repossessed the computer. The plaintiff attempted to sell the computer locally by contacting two potential buyers and by running local newspaper advertisements. These attempts proved futile and the computer was sold to the original supplier for $3,000.00.

. L.S. Leasing then commenced suit against the defendants to collect a deficiency judgment based upon the lease and guaranty agreements. During the discovery period prior to trial, the defendants made a motion for summary judgment accompanied by affidavits which alleged that L.S. Leasing was not a legally recognized corporate entity in Idaho and thus had no standing to institute suit in the Idaho courts. Before this motion was heard, plaintiff filed a motion to amend its complaint which together with the motion for summary judgment was heard by the trial judge at a consolidated hearing. The trial judge heard argument on the plaintiff’s motion first and granted leave to amend the complaint to reflect that L.S. Leasing is a d/b/a for W.L. Scott, Inc., an Idaho corporation. Then the trial judge heard argument on the motion for summary judgment.

In the memorandum decision which incorporated an order denying the motion for summary judgment, the trial judge rejected defendants’ argument that a corporation cannot do business under an assumed name. Colorado Milling and Elevator Co. v. Proctor, 58 Idaho 578, 76 P.2d 438 (1938). Further, the trial judge rejected defendants’ arguments that the lease was void as a matter of law for lack of mutuality and for being usurious.

The matter was then tried to the trial court. Among the trial court’s conclusions of law, were the following: (1) the lease agreement was a lease and not governed by article 9 of the Uniform Commercial Code, (2) the agreement was not usurious, (3) the computer after repossession was not sold in a commercially reasonable manner, (4) there existed sufficient consideration to support the guaranty agreement, (5) the plaintiff satisfied the requirements of pleading and proving satisfaction of conditions precedent, (6) the plaintiff was entitled to a deficiency judgment, and (7) neither party was entitled to costs or attorney fees. Judgment was entered in favor of the plaintiff lessor. The defendants appeal and the plaintiff cross-appeals.

I.

The first issue we consider is whether the trial court erred by allowing the plaintiff to amend its complaint prior to hearing argument on defendants’ motion for summary judgment.

The original complaint which was filed January 11, 1978, named the plaintiff as “L.S. Leasing, Inc.” The defendants in their original answer did not raise by specific negative averment that L.S. Leasing, Inc. lacked the legal capacity to enforce a contract in the Idaho courts. Dairy Equipment Co. of Utah v. Boehme, 92 Idaho 301, 442 P.2d 437 (1968); I.R.C.P. 9(a). However, by an amended answer and counterclaim filed with leave of the Court on February 2, 1979, the defendant sufficiently raised this issue. Thereafter on February 9, 1979, defendants filed a motion for summary judgment based on grounds that plaintiff lacked standing to bring suit. The plaintiff then filed on February 13, 1979, a motion to amend its complaint to reflect that W.L. Scott, Inc. was doing business as L.S. Leasing. The trial court exercised its discretion in first hearing and permitting the amendment which reflected W.L. Scott, Inc., d/b/a L.S. Leasing as the plaintiff before considering defendants’ motion for summary judgment.

A trial court is vested with the sound discretion to decide whether to permit the amendment of a pleading, Idaho First National Bank v. Wells, 100 Idaho 256, 596 P.2d 429 (1979); Smith v. City of Preston, 99 Idaho 618, 586 P.2d 1062 (1978), and in furtherance of justice between the parties may permit amendment. See Smith v. Shinn, 82 Idaho 141, 350 P.2d 348 (1960). In challenging a decision of the trial court which granted permission to amend a pleading, the challenger must clearly demonstrate an abuse of discretion, see, e.g., Usher v. Krasselt, 96 Idaho 854, 538 P.2d 783 (1975); Dairy Equipment Co. of Utah v. Boehme, supra; Rankin v. Caldwell, 15 Idaho 625, 99 P. 108 (1908), which has not, here, been shown. We hold that the trial court did not err in hearing and granting the motion to amend before hearing the motion for summary judgment.

Appellants argue that the denial of their motion for summary judgment was error. This argument upon review has no merit. The amendment of the complaint supersedes the original complaint and all subsequent proceedings are based upon the amended complaint. E.g., Billings v. Sisters of Mercy of Idaho, 86 Idaho 485, 389 P.2d 224 (1964). In the absence of statutory prohibition, a corporation may conduct business and enter into a valid contract under an assumed name. However, to enforce that contract the corporation should bring the suit under its corporate name. In a suit on the contract brought under the assumed name, if the affirmative defense is raised and established either during proceedings on a motion for summary judgment or at trial which challenges the legal status of the plaintiff, the defendant will prevail unless the corporation such as here is granted leave to amend its complaint. The defendants presented affidavits in support of their motion which related to the legal status of L.S. Leasing, Inc. and not of W.L. Scott, Inc.¹ Therefore, we affirm the trial court’s denial of the defendants’ motion for summary judgment.

II.

Appellants next argue that the trial court erred by denying their motion for dismissal at the close of plaintiff’s case which was based on the alleged failure of the plaintiff to plead and prove satisfaction of conditions precedent. The record provides little support for appellants’ position.

Appellants contend that the language of the lease agreement raised a question of a condition precedent. This language was:

“Lessee requests Lessor to purchase the above-described Equipment from Supplier and to lease said equipment to Lessee upon the terms and conditions of this lease; and upon written acceptance hereof signed at the Lessor’s office by an authorized employee Lessor agrees to lease Equipment. The undersigned agree to all the terms and conditions of this lease as set forth above and on the reverse side hereof, and on the application initially attached to this form.”

Appellants argue that “written acceptance ... signed at the Lessor’s office by an authorized employee” was a condition precedent. While the trial court did not decide if this was a condition precedent, its finding that if it were a condition precedent that plaintiff’s general averment in paragraph II of its amended complaint satisfied the requirement of I.R.C.P. 9(c)² has not been shown to be error. The record reveals that the lease agreement was introduced into evidence without objection after Roy Farrer authenticated the document and testified to his signature thereon. The trial court determined that “[acceptance of the lease agreement appears unequivocally on the face of the document with the signature of Roy Farrer.” Thus, it is apparent that the trial court determined that an effective acceptance was proven. The appellants have failed to demonstrate that these findings were clearly erroneous. I.R.C.P. 52(a). Consequently we reject their argument.

III.

We next consider appellants’ arguments that the lease agreement was intended as a security device, that provisions of the Uniform Commercial Code, I.C. §§ 28-9-101 to -507, were thus applicable with regard to notice requirements, good faith, commercial reasonableness, waivability of notice and procedural and substantive determinations, and that the agreement was usurious.

We uphold the trial court in its conclusion of law that the lease agreement at issue was not a security interest subject to article 9 of the Uniform Commercial Code. The trial court properly analyzed the lease agreement upon the facts of the case. Whitworth v. Krueger, 98 Idaho 65, 558 P.2d 1026 (1976); I.C. § 28-1-201(37). We find no error in the trial court’s statements that:

“There is no provision in the lease giving the option to purchase the computer for nominal consideration at the end of the term. The lease expressly states that ‘At the expiration of this lease... Lessee, it [sic] its expense shall return equipment in good working condition and repair by delivering it packed and ready for shipment, to such place or on board such carrier as Lessor may specify.’ Furthermore, from the testimony of Roy Farrer, he did not discuss with Frank Dower what would happen to the equipment at the end of the lease term. Dower produced no evidence of an oral agreement to purchase the computer at the end of the lease term. Farrer further established that in practice, what happened to equipment at the end of lease term depended on the particular circumstances of the parties. In many cases, the equipment is returned to the leasing corporation. In other cases, the lessee still needs the equipment, so the equipment is released to the lessor under a new contract. Sometimes the lessee might purchase the equipment, not at a predetermined price but on a fair market value basis. Farrer established that in a recent survey made in preparation for another trial, out of the first 200 equipment leases on photocopy machines, only 7 had thus far exercised an option to purchase.

“Looking at all the facts of this case, it is clear that although the lease agreement does contain some attributes of an installment sales contract, there was no oral or written option to purchase the equipment, and title did not pass to the lessee at the end of the term. Since no other relevant evidence was presented demonstrating that the parties intended the transaction to be anything other than lease, this court concludes that the agreement is a lease and Article 9 of the Code is not applicable.”

Additional support for the trial court’s holding can be gleaned from Eimco Corporation v. Sims, 100 Idaho 390, 394, 598 P.2d 538, 542 (1979), wherein we recognized that “[i]t is well settled that an equity in the lessee is one of the distinctive characteristics of a lease intended for security.” Here, the trial court found that “the lessee did not acquire any equity in the equipment.” The trial court was also correct in holding that the filing of a financing statement was not determinative.³ Because we conclude that the trial court properly held the lease agreement at issue to be a lease, we also agree that no issue of usury is present. Transportation Equipment Rentals, Inc. v. Ivie, 96 Idaho 223, 526 P.2d 828 (1974).

IV.

Appellant Larry Dowers tries to raise the argument on appeal that the guaranty agreement fails for want of consideration. Under Idaho law a presumption arises from a written instrument that consideration has been given. Lewis v. Fletcher, 101 Idaho 530, 617 P.2d 834 (1980); I.C. § 29-103. Once this presumption arises, the party seeking to assert the affirmative defense of lack of consideration must establish that defense by a preponderance of the evidence. See Lewis v. Fletcher, supra; Rosenberry v. Clark, 85 Idaho 317, 379 P.2d 638 (1963); I.C. § 29-104. It was necessary for appellant to introduce evidence to establish this defense. After a review of the record, we are not persuaded that the trial court erred by denying this defense.⁴

V.

We next consider two interrelated issues. First, whether the trial court erred in finding the efforts by the lessor to sell the computer were commercially unreasonable and second, whether the trial court erred by utilizing an improper measure of damages.

The situation at hand is similar in certain respects to that which we encountered in Industrial Leasing Corporation v. Thomason, 96 Idaho 574, 532 P.2d 916 (1974). In that case a lessee of farm equipment breached a lease agreement before its expiration. After the breach, the equipment was made available to the lessor. We considered in that case what if any duty existed on the part of the lessor under such circumstances and what damages lessor could recover. We held that

“the lessor of personal property is not unconditionally entitled to the full amount of the rentals reserved in the lease as damages in the event of breach of the lease. If the leased property is of such a kind that the lessor may reasonably anticipate the existence of a market for its re-lease or sale, the lessor is under a duty to use ‘commercially reasonable’ efforts to re-lease or sell the property to mitigate damages .... ” Id. at 578, 532 P.2d at 920 (footnote omitted).

The Thomason holding is applicable here. Thomason developed rules to provide guidance as to the duty imposed upon the lessor to mitigate. To sweep away any vestige of confusion which might exist as to the lessor’s duty, we reemphasize our language in Thomason and state that the lessor’s duty is measured by the standard of what is commercially reasonable.⁵ Id. Thomason enunciated how lessor’s damages are to be ascertained. Lessor is “to attempt to mitigate the damages sustained by the lessee’s breach by re-leasing or selling the property and setting off the amount received against the damages sustained ....’’ Id. (Emphasis added.) We stated:

“Where the lessor sells the property in mitigation of the damages to be sustained by the lessee’s breach of the lease, the damages to which the lessor is entitled are the total discounted rents provided for in the lease, together with any salvage value of the equipment reasonably to be anticipated at the end of the original lease term, together with reasonable expenses of sale incurred and interest, less the price received in the sale of the equipment and expenses saved by the breach.” Id. (Emphasis added.)

The burden is upon the adverse parties to introduce evidence of the individual elements as required by Thomason. This burden must be carried to enable the trial court or jury to determine the damages (eg:, the burden is upon the lessee to demonstrate at trial an appropriate discounting factor to be used or he may not complain if a different factor is used; lessor to recover the salvage value must provide evidence of that factor).

Upon review of the record, we affirm the trial court’s determination that lessor’s efforts to sell were commercially unreasonable. Evidence introduced by the lessee’s expert witness concerning computer marketing, computer publications, and computer brokers adequately supports this finding. We agree with the trial court that to preclude recovery of a deficiency judgment because of the lessor’s failure to make commercially reasonable efforts would be contrary to the spirit of commercial reasonableness espoused by the Uniform Commercial Code and would often result in injustice. It was proper for the trial court to utilize evidence of value introduced by lessee to offset the damages to the lessor. Lessee introduced evidence that the computer would have been worth $9,000 at the time it was sold for $3,000 to the original supplier. The trial court utilized the $9,000 value to offset the damages. Under the circumstances of this case, this was not error.

We next consider the appellants’ contention that the trial court erred by not discounting the total rents in computing the damage award. We agree. Industrial Leasing Corporation v. Thomason, supra, established the rule of law that when a lessor’s damages are computed that future rents are to be discounted to present value. Id. at 578, 532 P.2d at 920; see also United Leasing & Financial Services, Inc. v. R.F. Optical, Inc., 103 Wis.2d 488, 309 N.W.2d 23 (1981). This rule of law was formulated to preclude the overcompensation or unjust enrichment of the lessor. This statement is consistent with our previously expressed purpose or objective which is to place the injured party in a position no better and no worse than if the contract had been performed. Industrial Leasing Corporation v. Thomason, supra, 96 Idaho at 577, 532 P.2d at 919; Young Electric Sign Co. v. Capps, 94 Idaho 518, 522, 492 P.2d 57, 61 (1971); King v. Beatrice Foods Co., 89 Idaho 52, 58-59, 402 P.2d 966, 969 (1965).

In determining the validity of liquidated damage clauses, we have adhered to the rule set forth in the Restatement of Contracts § 339 (1932):

“An agreement, made in advance of breach, fixing the damages therefor, is not enforceable as a contract and does not affect the damages recoverable for the breach, unless

(a) the amount so fixed is a reasonable forecast of just compensation for the harm that is caused by the breach, and

(b) the harm that is caused by the breach is one that is incapable or very difficult of accurate estimation.” (Emphasis added.) Young Electric Co. v. Capps, supra [94 Idaho] at 521, 492 P.2d at 60; Graves v. Cupic, 75 Idaho 451, 457, 272 P.2d 1020, 1023-24 (1954).

Our holding that the discounting of future damages is appropriate finds analogous support in the requirement of § 339(a) that the amount fixed as liquidated damages be a reasonable forecast of just compensation. We recognize that money is capable of earning income and therefore rents which are accelerated must be accordingly discounted. Other courts when faced with an absence of evidence as to a rate of interest, have utilized the legal rate of interest. Freeman v. Lanning Corporation, 61 Mich. App. 527, 233 N.W.2d 68 (1975); Groendyke Transport, Inc. v. Merchant, 380 P.2d 682 (Okl.1962). However, we do not believe that we need to limit the trial court’s discretion in this regard. We hold that the discounting rate is a question of fact and must be determined by the trier of fact. Because the trial court’s memorandum decision, findings of fact and conclusions of law and order does not address the discounting of the accelerated rental payments, we will not presume such discounting occurred.⁶ See I.R.C.P. 52(a).

This cause must be remanded for a recomputation of the damage award. The trial court is directed to utilize the measure of damages established by Industrial Leasing Corporation v. Thomason, supra. It is our opinion that the trial court may in its discretion receive additional evidence as to damages. If the trial court chooses not to receive further evidence, it may still determine an appropriate discount rate by taking judicial notice.

VI.

Appellants try to raise as an issue on appeal an alleged denial by the trial court of attorney fees, costs and expenses pursuant to I.C. § 28-9-507, I.R.C.P. 15(a), and I.R.C.P. 37(c). We find no merit in this argument. Appellants have failed to demonstrate that the issue was ever presented to the trial court; therefore, the issue was not properly preserved for appellate review.

On appeal reasonable attorney fees are awarded the respondent/cross-appellant pursuant to the contract provisions embodied in the lease and guaranty agreements.

Affirmed in part and reversed in part with respect to the computation of damages and remanded with directions.

No costs allowed.

McFADDEN, BISTLINE and SHEPARD, JJ., concur. McFADDEN, J., registered his vote prior to his retirement on August 31, 1982.

1 . A corporation is exempt from the filing requirements of Title 53, Ch. 5, I.C. which concerns “assumed business names.” I.C. § 53-504; see Colorado Milling and Elevator Co. v. Proctor, 58 Idaho 578, 76 P.2d 438 (1938).

2 . I.R.C.P. 9(c) provides:

“Conditions precedent. — In pleading the performance or occurrence of conditions precedent, it is sufficient to aver generally that all conditions precedent have been performed or have occurred. A denial of performance or occurrence shall be made specifically and with particularity.”

3 . An examination of the financing statement reveals that the following language appears therein: “This property is owned by L.S. Leasing and is being leased to debtor under lease #-[.] The secured party is not a seller or purchase money lender of the collateral.”

At the time the lease agreement was executed, the Uniform Commercial Code as enacted in Idaho was silent as to the effect of the filing of a financing statement vis-a-vis a lease. In 1979, the legislature enacted, as I.C. § 28-9-407A, a provision which explicitly states: “filing [of a financing statement] shall not of itself be a factor in determining whether or not the ... lease is intended as security, section 28-1-201(37).” Thus, our holding comports with this new legislation.

Further support can be found in paragraph 25 of the lease agreement:

“25. FILING OR RECORDING. The parties hereto do not intend this lease to be and it is not a conditional sales contract, chattel mortgage or security agreement within the meaning of any statute requiring filing or recordation thereof or of any notice or statement with respect thereto. Nevertheless, this lease may be so filed of record to give notice to interested parties. Lessee hereby gives Lessor authority to execute and complete any such notices, including financing statements filed pursuant to the Uniform Commercial Code, in behalf of and as agent for Lessee for said purposes.”

4 . The trial court found that:

“[E]ven though a guaranty promise may have been made subsequent to the creation of the principal obligation, the guaranty is founded upon consideration if the promise was given as a result of the previous arrangement and the priciple [sic] obligation was induced by the guaranty. 38 Am.Jur.2d Guaranty § 45 (1968).

“... [Tjhere is evidence that the lease agreement and the guarantee agreement were treated by the parties as a single transaction. Roy Farrer established at the time the Lease Agreement was signed on December 14, 1977 he obtained assurances from Frank' Dower that a personal guarantee would be forthcoming. Farrer also established that the guarantee was relevant to the decision to enter into the lease, and he absolutely would not have entered in to [sic] the lease, and he absolutely would not have entered into the agreement without it because with new or closely held corporations, the decision to lease is based on the individual credit of the officers or owners. The reason the guarantee agreement was signed subsequently to the lease agreement was because the lease agreement was entered into upon completion of all the necessary documents and Larry Dower was not available at the time....

“... The reliance by the plaintiff upon the promise to guarantee the lease constituted sufficient consideration in itself to support the guarantee contract .... ”

5 . Thomason established the duty upon lessor to mitigate damages by using commercially reasonable efforts which are to be tested by concepts of commercial reasonableness developed under the Uniform Commercial Code.

6 . The trial court held that the lessor was entitled to the following damages:

“52 Accelerated and Unpaid rental payments not to include the sales tax on rental payments saved by the breach (52 X 383.37 = 19,935.24) minus the commitment fee not including sales tax, ($1,533.48) minus the amount that the computer could have been sold for if it had been sold in a commercially reasonable manner ($9,000) for a judgment of $9401.76.”