Glenn Dick Equipment Co. v. Galey Const., Inc., 11427

• Court: United States State Supreme Court of Idaho
• Writing for the Court: McFADDEN; McQUADE, C. J., DONALDSON and SHEPARD, JJ., and SCOGGIN
• Citation: 541 P.2d 1184,97 Idaho 216
• Parties: , 18 UCC Rep.Serv. 340 GLENN DICK EQUIPMENT CO., an Idaho Corporation, Cross Complainant, Respondent-Cross Appellant, v. GALEY CONSTRUCTION, INC., an Idaho Corporation, Cross Defendant, Appellant-Cross Respondent. GALEY CONSTRUCTION CO., INC., an Idaho Corporation, Counter Claimant, Cross Claimant, Appellant-Cross Respondent, v. GLENN DICK EQUIPMENT CO., an Idaho Corporation, Cross Defendant, Counter Defendant, Respondent-Cross Appellant.
• Docket Number: No. 11427,11427
• Decision Date: 08 October 1975

Page 1184

541 P.2d 1184 97 Idaho 216, 18 UCC Rep.Serv. 340 GLENN DICK EQUIPMENT CO., an Idaho Corporation, Cross Complainant, Respondent-Cross Appellant,
v.
GALEY CONSTRUCTION, INC., an Idaho Corporation, Cross Defendant, Appellant-Cross Respondent.
GALEY CONSTRUCTION CO., INC., an Idaho Corporation, Counter Claimant, Cross Claimant, Appellant-Cross Respondent,
v.
GLENN DICK EQUIPMENT CO., an Idaho Corporation, Cross Defendant, Counter Defendant, Respondent-Cross Appellant. No. 11427. Supreme Court of Idaho. Oct. 8, 1975.

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[97 Idaho 218] Paul T. Baird of Clemons, Cosho, Humphrey & Samuelsen, Boise, for appellant-cross respondent.

Donald W. Lojek of Moffatt, Thomas, Barrett & Blanton, Boise, for respondent-cross appellant.

McFADDEN, Justice.

Glenn Dick Equipment Company, as lessor, and Galey Construction Company, as lessee, entered into a contract for the lease of three motor scraper units owned by Glenn Dick Equipment Company. After extended legal proceedings, judgment was entered awarding Glenn Dick Equipment Company damages, interest, attorney fees, and costs. Galey Construction Company appeals from the judgment and Glenn Dick Equipment Company cross appeals. We affirm.

The lease at issue involves the rental of three motor scraper units to Galey Construction Company. The motor scraper units are pieces of heavy construction equipment used on road construction projects to haul fill dirt; the units consist of motor units and scraper bowl units. Glenn Dick Equipment Company (hereinafter, Dickco), the owner of the units, is a corporation whose primary business is the sale and lease of heavy construction equipment;

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[97 Idaho 219] the principal officers of Dickco are Glenn Dick, Kaye Dick and Yale Dick.

Dickco mailed to Galey Construction Company (hereinafter Galey), a corporation whose primary business is heavy construction, a flyer describing the three units and offering them for sale. Galey, needing the scraper units for a road construction job near Baker, oregon, entered into negotiations with Dickco for lease of the units. The lease, dated June 25, 1971, provided for the lease of the three units for the term of July 1, 1971, to August 31, 1971, at an aggregate rent of $18,000-$9,000 was payable in advance and $9,000 was due on August 1, 1971. The lease gave the lessee, Galey, the option to purchase the three units for $58,800 payable August 31, 1971. According to the lease, the lessee (Galey) was obligated to 'keep the equipment in good repair, condition and working order' and the lessor (Dickco) disclaimed all warranties, express or implied. Galey paid the advance rental. On June 28, 1971, Dickco assigned its rights under the lease to the Idaho Bank and Trust Company.

One unit (hereinafter, unit # 8) was located at Dickco's yard in Boise and Galey took delivery of the unit there. Unit # 8 was transported to the Baker jobsite, arriving June 28. At the jobsite, Galey's employees examined unit # 8 and found that the unit's transmission and hydraulic system needed repairs and that the tires were in poor condition.

The other two units (units # 6 and 7) were located in Reno, Nevada; Galey took delivery of these in Reno and transported them to Boise in early July. When these units arrived in Boise, Galey discovered that the machines had mechanical problems; several meetings between Frank Galey, president of Galey Construction Company, and employees of Galey and Glenn Dick, Kaye Dick, and Yale Dick were held to discuss the mechanical problems. The trial court found that, during these discussions, an oral modification of the lease agreement was entered into whereby the parties agreed that the lease period would not begin to run on units # 6 and 7 until they reached the Baker jobsite and that Galey would make the necessary repairs and charge those repairs against the second month's rental of $9,000.

Unit # 7 was transported to the Baker jobsite on July 19 and unit # 6 arrived at the jobsite July 22. At the jobsite, Galey experienced serious mechanical problems with the units including problems with the transmissions, torque converters, hydraulic systems, and tires. Galey's project super-intendent on the Baker job testified that lost time on units # 6, 7 and 8 was 84% whereas lost time on similar motor scraper units owned by Galey and used on the same haul was 4%. Galey alleges that it spent $11,725.04 for repairs.

Units # 6 and 7 were returned to Boise in mid-September and Dickco picked up these units on September 27, 1971. Galey transported unit # 8 to a jobsite near Jordan Valley in Owyhee County, where the unit was used until Dickco repossessed the unit October 5, 1971.

This action was precipitated by the filing of a complaint by the Idaho Bank & Trust Company against Glenn Dick, Dickco, and Galey, seeking to foreclose on the bank's security interest in the three units and other relief. Dickco instituted a cross-claim against Galey and Galey filed a counterclaim against the bank and a cross-claim against Dickco. Pursuant to a stipulation of the parties, the district court entered judgment for the bank against Glenn Dick and Dickco, and dismissed with prejudice the bank's claim against Galey and Galey's counterclaim against the bank.

The action was tried to the district court sitting without a jury as to the cross and counterclaims of Dickco and Galey. Dickco sought damages for rental, repair costs, and other items on an open account, damages for wrongful possession of the units beyond the lease term, punitive damages, and other relief. Galey, alleging that the scraper units were defective, that the lease had been modified, and that Dickco's

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[97 Idaho 220] repossession was wrongful, sought possession of the units for six months or, in the alternative, damages, and damages for breach of warranty. Judgment was entered against Galey for damages in the amount of $3,500 plus interest for the wrongful retention of unit # 8, for attorney fees in the amount of $6,757.29, and for costs. Galey appeals and Dickco cross-appeals from the judgment. Since the issues raised by Galey's appeal are central to resolution of this case, Galey's appeal will be considered first.

Galey's assignments of error focus on the following issues-the extent of an oral modification of the written lease agreement; the admissibility of certain evidence relevant to Galey's allegation that Dickco fraudulently misrepresented the machines; the trial court's finding of fact that no fraudulent representations were made by Dickco; the creation of express and implied warranties and Dickco's disclaimer of these warranties; and the trial court's interpretation of certain provisions contained in the written lease agreement.

The threshold issue raised by this appeal is whether Article 2 of the Uniform Commercial Code (I.C. § 28-2-101 et seq.) should be extended to this lease transaction. ¹ Before discussing the issues pertaining to Article 2, we will review Galey's assignments of error directed to the modification of the contract.

Galey argues that the following finding of fact was in error.

'A subsequent oral modification of the written Lease Agreement was effected in that the parties agreed that the lease payments would not begin to run on the two scrapers referred to as No. 6 and No. 7 until said equipment was actually at the job site in Oregon and that Galey would make necessary repairs to the equipment prior to the delivery to the job site and that such repairs could be charged against the second month's rental for the lease of this machinery.'

Galey submits that the finding was in error because the parties entered into a modification of the contract whereby the costs of repairs would be charged against the second month's rental with Dickco assuming the repair costs in excess of the second month's rental and the rental period for units # 6 and 7 would begin when the machines were operable rather than when the machines arrived on the Baker jobsite. Dickco does not contest the trial court's finding that the parties entered into an oral modification of the written lease agreement; thus, the only issue this court will consider is the extent of the modification, i. e., whether the contract modification included additional terms not delineated in the trial court's finding of fact. A review of the record indicates that this finding of fact is supported by substantial competent, although conflicting, evidence; we will not disturb the finding on appeal. Enders v. Wesley W. Hubbard & Sons, Inc., 95 Idaho 908, 523 P.2d 40 (1974). Thus, the contract between the parties consists of the oral modification as found by the trial court and those portions of the written lease agreement not in conflict with the oral modification.

Generally, questions regarding the applicability of Article 2 to a lease have arisen in the area of implied warranties. Cases which have found Article 2, or at least, the implied warranty provisions, to be applicable to a lease have employed a least three different rationales. Some courts have concluded that Article 2 is directly applicable to a lease because a lease is within the scope of Article 2 as it is a transaction in goods. ² See, I.C. § 28-2-102. Other

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[97 Idaho 221] courts have concluded that the specific lease was analogous to a sale of goods and so have found that the lease was subject to Article 2. ³ These courts have examined the facts of the transaction at issue to analyze whether the the contract provides an option to purchase or to extend the lease for nominal consideration, who has the duty to repair, and other factors; if a court found that the lease transaction was actually a 'disguised sale' then the court applied Article 2 provisions. Finally, other courts, comparing the economic considerations of leasing to a sale of goods, have concluded that certain provisions of Article 2 should be applied by analogy to lease transactions. ⁴ See, 48 A.L.R.3d 668 'UCC...