Freeman v. Hubco Leasing, Inc.

Decision Date09 January 1985
Docket Number41358 and 41359,Nos. 41357,s. 41357
Citation253 Ga. 698,324 S.E.2d 462
CourtGeorgia Supreme Court

T. Jackson Bedford, Jr., Bedford, Kirschner & Venker, P.C., Andrew R. Kirschner, Atlanta, for Donald L. Freeman.

Stephen H. Block, Levine, D'Alessio, Mullins & Stone, Atlanta, for Hub Motor Co., Hubco Leasing, Inc., et al.

Bedford, Kirschner & Venker, L. Jackson Bedford, Jr., Andrew R. Kirschner, for appellees. HILL, Chief Justice.

The questions involved in this case concern the rights and remedies, if any, of a consumer who leases a new car from a leasing company associated with an automobile dealer when the dealer refuses to repair alleged manufacturer's defects covered by the manufacturer's new car limited warranty because the manufacturer refuses to reimburse the dealer for its expenses in making such repairs.

Dr. Donald Freeman agreed to purchase a 1981 DeLorean sports car from the dealer, Hub Motor Company, in September, 1981, and at that time signed a sales contract to buy the car for over $27,000, with $2500 down pending delivery. When it arrived at the dealership, Freeman decided to lease, rather than purchase the car outright, and he was introduced to an agent for Hubco Leasing, Inc., in his office located on the dealer's premises. The lease was executed in November, 1981, between Freeman and Hubco Leasing. Under the lease, Freeman is obligated to pay 48 monthly payments of $611, plus $16,000 at the end of the lease term. Freeman accepted the car on November 12, 1981. When it overheated before Freeman arrived at his home less than 5 miles away, a replacement car was substituted.

In February, 1982, the second car also overheated, stopped running, and had to be towed in. Some repairs (free) and maintenance (paid for) were performed by Hub Motor on several visits, but all of the "defects" were not remedied. In June, the car again overheated, but this time Hub Motor refused to repair it because by then DeLorean Motor Cars of America had failed to pay for past warranty repairs. At that time, besides the chronic overheating problem, the brakes squealed, a gasket was leaking oil, the odometer did not work, a headlight and interior light were burned out, the roof leaked, the trunk latch was broken, the front door would not close well enough to lock it, and when the car was driven over 50 mph the door-open warning light came on.

At this point, Freeman stopped making the monthly rental payments to Hubco Leasing and, by a letter dated July 7, 1982, sought to revoke acceptance of the car and to rescind the lease. When his demand was refused, Freeman sued Hub Motor and Hubco Leasing to rescind the lease and to recover his payments, damages for loss of use, punitive damages for fraud and litigiousness, and attorney fees and costs of litigation under the provisions of the Magnuson-Moss Warranty--Federal Trade Commission Improvement Act, 15 U.S.C.A. § 2301 et seq.

Hubco Leasing and Hub Motor denied any liability to Freeman on the ground that any warranties had been made by DeLorean and not by them, and Hubco Leasing counterclaimed seeking to accelerate as a result of Freeman's default in payments under their lease agreement.

On defendants' motion for summary judgment, the trial court found that Hub Motor had breached its agreement to make repairs on behalf of DeLorean, which had been an inducement for Freeman to purchase the car, and that Hubco Leasing was estopped as a related company from accelerating payments on the lease. The trial court, therefore, ordered Hub Motor to repair the car without charging Freeman and denied Hubco Leasing the right to accelerate, but ordered Freeman to make up the payments past due within 30 days. The court also granted summary judgment in favor of Hub Motor and Hubco Leasing on Freeman's claims for rescission, damages for loss of use, punitive damages, and costs of litigation including attorney fees. Everybody appeals.

This case is not typical of the "lemon car cases" because the manufacturer is not a party, and a lease is involved. Therefore, the agreements of the parties must be examined in greater detail.

The agreement between DeLorean and Hub Motor provides that the dealer agrees to provide without charge to owners of DeLoreans all warranty service to which they may be entitled under the terms of the manufacturer's warranty, and that DeLorean will reimburse the dealer for such parts, materials and labor. DeLorean's warranty covers defects in materials or workmanship caused in the manufacture or assembly of any part of the vehicle for 12 months or 12,000 miles, whichever occurs first. The warranty provides further that DeLorean dealers will correct such defects by repair or adjustment using DeLorean components and that warranty repairs and adjustments will be made without charge. The warranty goes on to provide that it is DeLorean's and its dealers' intention to provide owners with the full benefits of these warranties. 1

Hub Motor sold the DeLorean in issue to Hubco Leasing by contract which provides that any warranties are those of the manufacturer and that Hub Motor disclaims all warranties, either express or implied, including any implied warranty of merchantability or fitness for a particular purpose.

Hubco Leasing leased the DeLorean to Freeman by contract which provides that the customer at his sole cost and expense shall maintain the vehicle in its original condition as to mechanical performance, reasonable wear and tear excepted, shall make all necessary and required repairs, and shall pay all costs and expenses of use and operation. 2 The lease provides that lessor makes no warranty, either express or implied, as to the condition of the vehicle or its parts or accessories, its merchantability or fitness for any particular purpose, or as to any patent or latent defect in materials, workmanship or otherwise, and no such defect or unfitness shall affect the customer's obligations to comply with the lease. It provides further that the only warranties applicable are warranties made by the manufacturer or its dealers and representatives, and that the customer's rights under the manufacturer's new vehicle warranty shall not be impaired by the lease.

A copy of the manufacturer's warranty was issued to Freeman. We therefore find that Freeman is the holder of, or entitled to the rights under, the manufacturer's warranty, whatever they may be and be worth. The defendants acknowledge this to be so.

1. The trial court held that Freeman is the third party beneficiary of the agreement between DeLorean and Hub Motor that Hub Motor would provide without charge all warranty service called for by the manufacturer's warranty. The trial court also found as a fact that Hub Motor made purchasers aware of the DeLorean warranty and of Hub Motor's agreement to perform such work. The manufacturer's warranty itself supports this finding. The trial court concluded that this constituted an agreement by Hub Motor with Freeman that it would perform manufacturer's warranty service and that DeLorean's default (failure to pay for past warranty work) did not relieve Hub Motor of this obligation. We agree.

The manufacturer's warranty transmitted by Hub Motor to Freeman imposes duties directly upon Hub Motor independent of any warranty disclaimed by Hub Motor. It provides that DeLorean dealers will correct without charge, by repair or adjustment using DeLorean components, defects in materials or workmanship caused in the manufacture or assembly of the vehicle. It states further that it is the intention of DeLorean dealers to provide owners with the full benefit of the manufacturer's warranty.

Hub Motor argues that the manufacturer's default relieved it of responsibility to perform manufacturer's warranty service. In typical third party beneficiary situations, this would be so. "[A] failure of the promisee to perform a return promise ordinarily discharges the promissor's duty to a beneficiary to the same extent that it discharges his duty to the promisee." Restatement of the Law, Second, Contracts 2d, § 309, comment at p. 459. However, Freeman is not the typical third party beneficiary; i.e., Freeman is not a stranger to the transaction at hand. Freeman is a lessee-purchaser of a DeLorean under a manufacturer's warranty transmitted by Hub Motor, a DeLorean dealer, which provides that DeLorean dealers will repair manufacturer's defects without charge. Freeman paid a consideration for this warranty and hence, as the trial court found, he is more than merely a third party beneficiary of the DeLorean-Hub Motor dealership contract. We find the dealer's liability to be based not upon any warranty by the manufacturer or dealer but upon the dealer's obligation to repair manufacturer's defects under the manufacturer's warranty adopted and transmitted by the dealer. 3 See Ventura v. Ford Motor Corp., 180 N.J.Super. 45, 433 A.2d 801, 807 (1981), where the selling dealer agreed "to promptly perform and fulfill all terms and conditions of the owner service policy."

The defendants' reliance upon their disclaimers of warranty is misplaced. The dealer never disclaimed responsibility for making repairs covered by the manufacturer's warranty, which responsibility is the basis of our holding above. Kure v. Chevrolet Motor Division, 581 P.2d 603 (Wyo.1978), relied upon by the defendants, is inapplicable here because in that case, on appeal, the purchaser did not contend that the selling dealer was liable to the purchaser.

The trial court did not err in denying summary judgment to Hub Motor because it is liable to Freeman for breach of its duty to repair manufacturer's defects covered by the manufacturer's warranty.

2. We turn now to the Magnuson-Moss Warranty--Federal Trade Commission Improvement Act, supra. An automobile is a "consumer product" as defined...

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