EN
Corporate

Leasing: Suspiciously high price should have been checked

logo
Legal news
calendar 22 May 2013
globus Denmark

A printer worth DKK 7,500 was leased at a price of DKK 1.5 million. However, the Danish Supreme Court refused to set aside the leasing agreement because the lessee and the lessor had acted negligently by not checking up on the price when the agreement was made. Instead, the leasing fee was halved.

A trade union for local authority employees in Greater Copenhagen entered into agreements for the leasing of printers.

The agreements were made with a printer company as supplier and a finance company as financier. The agreements ran for terms of 72 months. One of the agreements concerned a printer which was leased at a price of DKK 22,000 per month. The printer was valued at a monthly leasing fee of no more than DKK 435.

The finance company entered into the leasing agreements, but it was the printer company that headed the negotiations, executed the agreements and procured the signature of the customer. The agreements were thereafter sent to the finance company for approval and signing.

In connection with the trade union signing the leasing agreements, the printer company used illegal methods.

The Supreme Court: Both the finance company and the trade union acted negligently

Firstly, the Supreme Court held that the finance company did not have (and should not have had) knowledge or suspicion of the illegal methods used by the printer company. The Court made this decision despite the fact that when receiving the agreement for signing, the finance company could see that it involved a total claim for DKK 1,584,000 in the form of a monthly payment of DKK 22,000 for a period of 72 months for an ordinary office appliance. However, the finance company was only interested in the names and signatures of the persons authorised to sign for the trade union and in its credit rating.

The Court ruled that the finance company should have paid attention to the huge costs associated with the agreement and have examined what type of appliance the agreement concerned. This would have revealed the financial mismatch and caused the finance company to contact the trade union. The illegal methods of the printer company would also have come to light.

Consequently, the Supreme Court ruled that the finance company failed to exercise reasonable care to such a degree as to render the agreement unfair and contrary to honest conduct. This formed the basis for setting aside the agreement under the general provision on invalidity in Danish contract law, i.e. section 36 of the Danish Contracts Act.

However, the Supreme Court refused to set aside the agreement in its entirety because the trade union itself had acted very negligently when it entered into the agreement. Instead, the Supreme Court halved the total leasing payment under the agreement to DKK 749,431.50.

IUNO's opinion

Leasing agreements are complex and can easily be misused for fraudulent purposes. The lessee must therefore be very careful. The possibility of using section 36 of the Contracts Act to set aside agreements in business relationships is limited.

When applying section 36 of the Contracts Act, it is necessary to weigh up the considerations behind the agreement. In the judgment, the Court uses negligence to weigh up the considerations, which is unusual. In IUNO's opinion, the Supreme Court should have taken into consideration that the lessee would not suffer any loss if the leasing fee was reduced to the market or list price of the printer. We also believe that it is an important point that the agreement was made on the basis of criminal circumstances.

The fact that the Court has attached considerable weight to the negligent conduct clearly indicates that professional parties are expected to prepare thoroughly before they enter into a final agreement. The Court's decision to only halve the leasing payment further shows that it will not allow the binding nature of the agreements to be undermined, in particular not in business relationships.

[Supreme Court judgment rendered on 12 April 2013. Case no. 109/2011]

A trade union for local authority employees in Greater Copenhagen entered into agreements for the leasing of printers.

The agreements were made with a printer company as supplier and a finance company as financier. The agreements ran for terms of 72 months. One of the agreements concerned a printer which was leased at a price of DKK 22,000 per month. The printer was valued at a monthly leasing fee of no more than DKK 435.

The finance company entered into the leasing agreements, but it was the printer company that headed the negotiations, executed the agreements and procured the signature of the customer. The agreements were thereafter sent to the finance company for approval and signing.

In connection with the trade union signing the leasing agreements, the printer company used illegal methods.

The Supreme Court: Both the finance company and the trade union acted negligently

Firstly, the Supreme Court held that the finance company did not have (and should not have had) knowledge or suspicion of the illegal methods used by the printer company. The Court made this decision despite the fact that when receiving the agreement for signing, the finance company could see that it involved a total claim for DKK 1,584,000 in the form of a monthly payment of DKK 22,000 for a period of 72 months for an ordinary office appliance. However, the finance company was only interested in the names and signatures of the persons authorised to sign for the trade union and in its credit rating.

The Court ruled that the finance company should have paid attention to the huge costs associated with the agreement and have examined what type of appliance the agreement concerned. This would have revealed the financial mismatch and caused the finance company to contact the trade union. The illegal methods of the printer company would also have come to light.

Consequently, the Supreme Court ruled that the finance company failed to exercise reasonable care to such a degree as to render the agreement unfair and contrary to honest conduct. This formed the basis for setting aside the agreement under the general provision on invalidity in Danish contract law, i.e. section 36 of the Danish Contracts Act.

However, the Supreme Court refused to set aside the agreement in its entirety because the trade union itself had acted very negligently when it entered into the agreement. Instead, the Supreme Court halved the total leasing payment under the agreement to DKK 749,431.50.

IUNO's opinion

Leasing agreements are complex and can easily be misused for fraudulent purposes. The lessee must therefore be very careful. The possibility of using section 36 of the Contracts Act to set aside agreements in business relationships is limited.

When applying section 36 of the Contracts Act, it is necessary to weigh up the considerations behind the agreement. In the judgment, the Court uses negligence to weigh up the considerations, which is unusual. In IUNO's opinion, the Supreme Court should have taken into consideration that the lessee would not suffer any loss if the leasing fee was reduced to the market or list price of the printer. We also believe that it is an important point that the agreement was made on the basis of criminal circumstances.

The fact that the Court has attached considerable weight to the negligent conduct clearly indicates that professional parties are expected to prepare thoroughly before they enter into a final agreement. The Court's decision to only halve the leasing payment further shows that it will not allow the binding nature of the agreements to be undermined, in particular not in business relationships.

[Supreme Court judgment rendered on 12 April 2013. Case no. 109/2011]

Receive our newsletter

Aage

Krogh

Partner

Similar

logo
Corporate

23 March 2022

Changes to the Danish Sale of Goods Act: Guarantees

logo
Corporate

2 March 2022

What do the sanctions against Russia mean for your company?

logo
Corporate

23 February 2022

Overview: New rules for sale to consumers

logo
Corporate

13 December 2021

How to avoid illegal shareholder loans

logo
Corporate

1 December 2021

Now companies are not allowed to receive cash payments of more than DKK 20,000

logo
Technology HR-legal Corporate

2 November 2021

Joint whistleblower schemes for multinationals

The team

Aage

Krogh

Partner

Caroline

Bruun Ibsen

Senior legal advisor

Josephine

Gerner Amaloo

Legal assistant

Karoline

Skak Kristensen

Legal assistant

Madeleine

Grønning Madsen

Legal assistant

Mai

Haaning Kristensen

Legal assistant

Matilde

Grønlund Jakobsen

Senior Associate