ABC . . .DeLage Landen – A Cautionary Tale of Equipment Finance Leasing
A manufacturer’s rep comes to your business to show you his company’s new digital color/copier/printer system. It has all the bells and whistles. He tells you that he can get you favorable lease terms. You agree and he provides you with “paper work.” You may or may not notice, for the first time, that the company named in the paper work is not the manufacturer’s leasing company, but rather a company called De Lage Landen. You may or may not read the lease agreement carefully (you read so many). You check the numbers and you sign it.
A month later the digital color system is delivered to your business. You begin trying to make color copies and find that the system doesn’t work. Numerous repairmen come and, in the meantime, you’re making payments on the lease (these lease terms usually vary from 24 to 60 months at a cost of $1500 to $4000 per month). What you don’t know, and most business centers and financial offices don’t, is that De Lage Landen (“DLL”) is not affiliated with the company that manufactures or distributes the printer, but merely is an equipment leasing company, and that you are responsible for continuing payment, even though the digital color system never worked.
Based in the Netherlands, DLL is a global provider of leasing, business and consumer finance solutions. They are listed as a Michigan corporation with United States Headquarters in Wayne, Pennsylvania. DLL never guarantees the performance of the equipment; it merely provides the financing. You are responsible for the payments regardless of the performance of the equipment, even if it never works.
The DLL Contract
The standard contract, which is usually never read or even glanced over, provides that DLL is not responsible for the performance of the equipment that it is financing for you. In addition, the customer agrees that any dispute will be decided in the Commonwealth of Pennsylvania, usually in the County of Chester. The standard contract states that you cannot have a jury trial. You further agree, that in the event of default, DLL can declare the entire balance of the unpaid lease payments for the full term immediately due and payable. They can also charge late fees of 5% for each delayed payment, or $10.00, whichever is greater. They also can charge interest at 18% plus charge you their attorney’s fees at 25% of the final judgment entered in connection with enforcement of any remedies. It’s a pretty one-sided deal.
Historically, the Courts have strictly construed the standard DLL contract, usually in favor of DLL. Unlike a consumer transaction, a small or medium-sized business does not have the same rights and cannot claim that it did not read or understand the contract. There actually is a provision in the contract that requires you to warrant and represent that the equipment will be used for business purposes, and not for personal, family, or household purposes. This, effectively, wipes out any hope of your consumer defenses.
You can tell by the grim tone of this article that they aren’t many defenses against the DLL standard contract. Typically, the customer company brings a third-party action against the manufacturer and/or vendor of the equipment and asks that the manufacturer or vendor hold them harmless against the claims of DLL. Sometimes there are issues with buy back of equipment or sale of equipment if the equipment is repossessed. The buy back or sale has to be done in a “commercially reasonable manner” and, if not, you may have some claims regarding the remaining balance that is due and owing after the equipment is sold. Sometimes you can attack the formation of the contract itself, especially if you can allege any misrepresentations made by the vendor to induce you to sign a contract. However, these misrepresentations must relate directly to the lease provisions themselves and not the performance of the equipment.
Moral of the Story
What have we learned?
- Read your contract.
- Get warranties from the dealer or manufacturer “and read the warranty.”
- Get the dealer or manufacturer to indemnify you or hold you harmless against any claims of the equipment leasing company.
All of the above practices, while they make sense, are easier said than done. Sometimes you just have to take a risk when you lease equipment. Clarifying upfront what your duties and obligations are is always a good course of action.
The following article is informational only and not intended as legal advice. Speak with a licensed attorney about your own specific situation. © Copyright 2011 MacElree Harvey, Ltd. All rights reserved.