In Lyon Financial Services, Inc. d/b/a U.S. Bancorp Business Equipment Finance Group v. Illinois Paper and Copier Company, Lyon Financial bought a copier from Illinois Paper and then leased the copier to the town of Bensenville, Illinois for a term of six years. The town stopped payment on the lease after two years, informing Lyon Financial that leases of more than five years’ duration violated Illinois state law. Lyon then sued Illinois Paper, alleging that the vendor’s warranty claiming that the lease was valid and fully enforceable was false.
A trial court ruled against Lyon Financial. The ruling was overturned by an appeals court that certified to the Minnesota Supreme Court the question of whether “a breach of contract claim based on an alleged breach of a contractual representation of future legal compliance is actionable under Minnesota law without proof of reliance.”
And to that question, the Minnesota Supreme Court answered “yes,” citing Minnesota freedom of contract public policy in upholding the enforceability of what the Court said was a “representation of future legal compliance”.
To facilitate future transactions, lenders and lessors may be well served by the inclusion of language in their financing agreements that the relationship between the parties is reliant upon the master contract’s agreements, covenants, representations and warranties.
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