Question

Business Law - Third Parties

Burning Lake Tire Company is a small business owned primarily by the Jones family of Cleveland, Ohio. Bob Jones, President of Burning Lake Tire, signed an agreement with Scotti Commercial to lease a machine designed to bend exhaust pipes so that mufflers could be fitted into different makes of cars. The lease was a pre-printed contract drafted by Scotti and contained lots of standard language (aka, “small print”). Specifically, the lease contained the following language: “Assignment: This lease may be assigned by Scotti to a third party without notice, and in such event Scotti’s assignee shall have all rights and remedies of Scotti. Burning Lake Tire agrees that its obligations shall not be subject, as against any such assignee, to any defense or counterclaim available to Burning Lake Tire against Scotti.”   Shortly after signing the lease, Scotti assigned its rights to Chase Bank and notified Lake Tire of the assignment. Burning Lake Tire made 11 payments to Chase but then informed Scotti and Chase that it would make no more payments because the machine failed to work. Scotti filed for bankruptcy. Chase sued Burning Lake Tire, demanding the rest of the money. Lake Tire counterclaimed against Chase, alleging breach of contract.

Should Chase be able to enforce the waiver clause (under UCC 9-403), prohibiting Burning Lake Tire from raising defenses against Chase?

a. In your response, first draft arguments on behalf of BOTH Chase and Burning Lake Tire as to why each should win (using both legal and equitable arguments).

b. State the rules of law that apply to the situation and then conclude by deciding which party should win and why (if you were a judge in this case).

Answer 1

A) Arguments

Chase:

As Chase being the assignee in this case, has whole and equal right as Scotti Commercial (assignor). The agreement between Chase and Scotti consist that he would entitled to all the revenue from the lease payments of Burning Lake Tire Company. The argument here is that, although Scotti being representing party of the consignor having all the legal right to receive the lease payment from Burning Lake Tire Company is being defaulted or denied.

Burning Lake Tire Company:

Here, we must acknowledge that the Burning Lake Tire Company made 11 payments to Chase(consignee) and denied to pay any further because the leased machine broke down. So the argument of the company is that, as the machine broke down being useless or unproductive for the company, hence the Burning Lake Tire Company would not pay any further to Chase Bank (consignee).

B) Clause - UCC - 9-403

Unless the terms and condition of lease agreement between Burning Lake Tire Company and Scotti Commercial specifically says that the defense or claim cannot be asserted against any third party, the rights or any claims mention in the terms of the contract transfers to consignee from the consignor.

Judgement:

Burning lake Tire Company v/s Scotti Commercial.

Burning lake tire company would loose the case against Scotti because the terms and condition of the lease contract does not involve any such condition of defaulted payment in case the machine turn out to be unproductive during contract period.

Chase Bank v/s Burning Lake Tire Company

Chase Bank will win the law persuit as the Chase Bank being assignee, has all the legal right to demand remaining money as the bank is entitled to do so. All the defense and claim have been asserted from Scotti (consignor) to chase bank (consignee).