On July 8, 2013, Ohio’s 5th District Court of Appeals issued an opinion that will be of interest to commercial equipment lessors in Ohio.  This case concerns the commercial lease of a beverage caddy and the status of the “middle man” lessee when the vendor undergoes bankruptcy.

Elms Country Club, the lessee (“Elms”), believed that the agreement constituted a “zero-net-lease” so that the vendor would pay lessee the monthly payments, which lessee would then pay to the bank. The vendor (“Royal Links”) made only four of the anticipated sixty payments.  Elms made no further payments and retained possession of the caddy because the lessor never repossessed the caddy.

The lessor, a commercial bank, sued for breach of the equipment lease and Elms filed a third party complaint against Royal Links which filed a bankruptcy action. After relief from the bankruptcy stay, some years later, the lessor filed a motion for summary judgment which was granted.

On appeal, Elms argued that the lessor failed to mitigate damages and fraudulently induced Elms into signing the lease agreement because Royal Links was an agent of Dollar Bank.

The court ruled that to establish apparent agency, a party must show that (1) the “principal held the agent out to the public as possessing sufficient authority to embrace the particular act in question” and (2) that the entity “dealing with the agent knew of those facts and … believe[d] that the agent possessed the necessary authority.”  Because Elms had offered no evidence to support its contention that Royal Links was an agent of the lessor and because, the court observed, the lease agreement clearly described the role of the vendor in the transaction and the role of the equipment lessor, the court overruled this exception to the trial court’s judgment.

The court also overruled Elms’ argument that the lessor had failed to mitigate its damages because it had not repossessed the caddy. It reasoned that the value of the beverage caddy was largely in the advertising placed on the caddy and in retail goods used to stock the caddy. The lessor, the court reasoned, was not in the business of operating a beverage caddy.

The court also overruled the argument that it was inequitable to hold Elms responsible for interest that continued to accrue on the unpaid amount owed on the lease for the seven (7) years the case was pending.

See Dollar Bank Leasing Co. v. Elms Country Club, 2013-Ohio-2974 (5th Dist., July 8, 2013)