Barco Auto Leasing Corp. v. PSI Cosmetics, Inc.

• Citation: 125 Misc.2d 68,478 N.Y.S.2d 505
• Parties: , 39 UCC Rep.Serv. 840 BARCO AUTO LEASING CORPORATION, Plaintiff, v. PSI COSMETICS, INC., Sheldon Golumbia and Erol Pinto, Defendants and Third-Party Plaintiffs, v. AMC RENAULT CORPORATION and Manhattan AMC Jeep, Inc., Third-Party Defendants.
• Decision Date: 13 June 1984
• Court: New York City Court

Page 505

478 N.Y.S.2d 505

125 Misc.2d 68, 39 UCC Rep.Serv. 840

BARCO AUTO LEASING CORPORATION, Plaintiff, v. PSI COSMETICS, INC., Sheldon Golumbia and Erol Pinto, Defendants and Third-Party Plaintiffs, v. AMC RENAULT CORPORATION and Manhattan AMC Jeep, Inc.,

Third-Party Defendants.

Civil Court of the City of New York,

Special Term,

New York County, Part 1.

June 13, 1984.

Wurman & Birnbaum, New York City, for plaintiff.

Michael R. Berliner, New York City, for defendants.

EDWARD H. LEHNER, Judge.

The issue in this case is whether a lessor's disclaimer of all warranties in an automobile lease is enforceable where a vehicle to be used for business purposes failed to operate properly within a short period after delivery.

This action is against the corporate lessee and the individual guarantors (officers of the corporate defendant) for breach of an automobile lease, seeking to recover the accelerated unpaid rental for the remainder of the lease term plus attorneys' fees. Defendants' answer sets forth a general denial and a counterclaim for loss of business resulting from an inability to attend certain business meetings due to the defective nature of the vehicle. Before the court is plaintiff's motion for summary judgment.

On September 27, 1982 defendant PSI Cosmetics Inc. entered into an automobile lease agreement with plaintiff for the rental of a 1982 Renault. Defendants assert in their papers that: on November 28, 1982 the engine began to smoke and the car was towed to a nearby authorized Renault dealership where it took over three months to repair what was said to be a burned out motor; during this period defendants continued to make all rental payments despite being deprived of the use of the vehicle upon picking up the vehicle from the repair shop Mr. Golumbia was informed that after driving the vehicle an additional 300 to 600 miles, he should have it retorqued; three days after this work was done the engine again began to burn, and the automobile was rendered inoperative and towed to plaintiff's lot. As a result of this experience Golumbia allegedly missed an important business meeting, resulting in the cancellation of a $40,000 contract, thereby providing the basis for the counterclaim.

The agreement, printed on plaintiff's standardized form without any typed or handwritten riders, contains myriad procedural safeguards by which the lessor seeks to insulate himself. The lease provides that the lessor retains title and a security interest in the vehicle. There is no option to purchase granted to the lessee, who waives "counterclaim, set off, reduction, abatement, deferment or any other kind of defense because of ... unsatisfactory performance of the vehicle or for any reason whatever...." Repairs and replacement of parts are made the responsibility of the lessee. Further insulation is provided for the lessor by a disclaimer of any warranties, except for the manufacturer's standard warranty. The implied warranties of merchantability and of fitness for a particular use are conspicuously disclaimed (UCC §§ 2-316(2); 1-201(10)).

Although not raised in their answer, defendants contend in their papers that both the warranty disclaimer and the waiver of counterclaims are unconscionable and that, as to the action for the unpaid balance, plaintiff has failed to mitigate its damages in that it failed to sell the automobile.

Although the legislature has sought to protect individual purchasers of motor vehicles, it has clearly chosen not to protect corporate lessees of personal property. For example, New York's celebrated new "Lemon Law" (General Business Law § 198-a(2)) is inapplicable to the case at bar as it requires a "purchaser" and contemplates a sale. It is not concerned with the problem of "lemon" leases. Intended to protect only the abused "consumer" whose purchase is for "personal, family or household purposes," its coverage apparently extends neither to corporate entities, regardless of size, nor to transactions effected for business purposes. Finally, its application is restricted to manufacturer's express warranties, thus being of no avail to a defendant faced with implied warranty disclaimers and a non-manufacturer. See: Memorandum of Legislative Representative of City of New York, McKinney's Session Laws of New York (1983) p. 2554; Mindell, Summary of New State Laws to Aid Consumer Protection, N.Y.L.J. Aug. 16, 1983 p. 1 c. 3, p. 5, c. 3 (suggesting amendment to include implied warranties).

At the federal level, the Magnuson-Moss Warranty Act prohibits disclaimers of implied warranties, 15 U.S.C. § 2308(a), but only in connection with a "sale" to a "buyer" of a "consumer product", which is defined as one "normally used for personal, family or household purposes" ¹

Similar limitations are inherent in the credit disclosure statutes such as the Motor Vehicle Retail Installment Sales Act, Personal Property Law § 301(4), requiring a "sale ... other than for a commercial or business use", and the Federal Truth in Lending Act, 15 U.S.C. §§ 1601(b), 1602(h); 12 C.F.R. 226.2(p), (t), contemplating credit extended to "a natural person" where the subject of the transaction is "primarily for personal, family or household purposes."

The Motor Vehicle Retail Installment Sales Act applies also to lease agreements in which the lessee agrees to pay "a sum substantially equivalent to or in excess of" the value of the motor vehicle and becomes or has the option to become the owner upon full compliance with the terms of the contract. Personal Property Law § 301(5). The Truth in Lending Act goes further, protecting lessees of consumer goods, even in the absence of an option to purchase. 15 U.S.C. § 1667(1); 12 C.F.R. 226.2(mm).

None of these statutes, however, provide comfort to the defendants herein, whose transaction has taken the form of a pure business lease of personal property.

The first issue that must be decided is whether Article 2 of the Uniform Commercial Code and the implied warranties which it provides apply to the automobile lease herein. If so, what remains to be resolved is whether the warranty disclaimer is unconscionable.

Several cases in this jurisdiction have applied UCC Article 2 to the leasing of chattels, e.g. Industralease Automated & Scientific Equipment Corp. v. R.M.E. Enterprises Inc., 58 A.D.2d 482, 396 N.E.2d 427 (2d Dept.1977); Laudisio v. Amoco Oil Co., 108 Misc.2d 245, 437 N.Y.S.2d 502 (Sup.Ct.N.Y.Co.1981); Hertz Commercial Leasing Corp. v. Transportation Credit Clearing House, 59 Misc.2d 226, 298 N.Y.S.2d 392 (Civ.Ct.N.Y.Co.1969), rev'd on other grounds, 64 Misc.2d 910, 316 N.Y.S.2d 585 (App.T. 1st Dept.1970); United States Leasing Corp. v. Franklin Plaza Apts., 65 Misc.2d 1082, 319 N.Y.S.2d 531 (Civ.Ct.N.Y.Co.1971).

Judicial approaches to the applicability of Article 2 to leases has been "placed along a spectrum measuring willingness to depart from the sales construct." Note, Disengaging Sales Law from the Sales Construct: A Proposal to Extend the Scope of Article 2 of the UCC, 96 Harv.L.Rev. 470, 475 (1982).

The "exclusionary" view requires strict adherence to the premise that Article 2 applies only to paradigmatic sales, thereby excluding lease transactions as well as hybrid sales-plus-services contracts from coverage.

The "analogy" approach advocates that Article 2 be applied to transactions held not to be paradigmatic sales, but only when the transactions closely resemble such sales. Murray, Under the Spreading Analogy of Article 2 of the Uniform Commercial Code, 39 Ford.L.Rev. 447, 451 (1971). This has been the approach of the courts in this state. See: Uniflex Inc. v. Olivetti Corp. of America, 86 A.D.2d 538, 445 N.Y.S.2d 993 (1st Dept.1982) (leases); Aguiar v. Harper & Row Publishers Inc., 114 Misc.2d 828, 832, 452 N.Y.S.2d 519 (Civ.Ct.N.Y.Co.1982) (sales-plus-services). Thus, Article 2 is said to be "attended by a penumbra or umbrella of influence in areas of contract law not specifically within the literal definition of sales under section 2-102", Lupiano, J. dissenting in Leasco Data Processing Equipment Corp. v. Starline Overseas Corp., 74 Misc.2d 898, 903, 346 N.Y.S.2d 288 (App.T. 1st Dept.1973), aff'd 45 A.D.2d 992, 360 N.Y.S.2d 199, appeal dismissed, 35 N.Y.2d 963, 365 N.Y.S.2d 179, 324 N.E.2d 557 (1974). See also Restatement, Contracts Second § 208 (1981), comment a.

Related to the analogy approach is the "policy" approach which further departs from a rigid adherence to the sales model by the selective application of particular provisions of Article 2 whenever the policies underlying such provisions are appropriate to the transaction in issue. Note, The Uniform Commercial Code as a Premise for Judicial Reasoning, 65 Colum.L.Rev. 880 (1965). See, e.g. Dillman and Associates Inc. v. Capital Leasing Co., 110 Ill.App.3d 335, 66 Ill.Dec. 39, 442 N.E.2d 311, 316 (1982); Walter E. Heller & Co. v. Convalescent Home of the First Church of Deliverance, 49 Ill.App.3d 213, 8 Ill.Dec. 823, 365 N.E.2d 1285 (1977).

The most inclusive approach is a more complete departure from the sales construct, focusing on the Article 2 scope provision in § 2-102 ("transactions in goods"). Although the article is replete with terms such as "sale", "seller", and "buyer" such language is nowhere to be found in § 2-102. An argument for such approach, as applied to lease transactions, is that it recognizes the modern economic realities of less-than-full-title property interests, rejecting the use of location of title as a basis for resolving issues. In eschewing the prevailing analysis of the analogy approach, it is said to avoid ad hoc determinations and the intellectually questionable pigeonholding of facts so that the transaction will more closely resemble a sale. Note, Disengaging Sales Law, supra; Murray, supra. Thus, unlike the analogy approach, it does not perpetuate the use of the "covert tools" in decision-making which the draftspersons of the UCC had hoped to avoid. See:...