Hertz Commercial Leasing Corp. v. Transportation Credit Clearing House

• Decision Date: 17 February 1969
• Citation: 59 Misc.2d 226,6 U.C.C.Rep. 132,298 N.Y.S.2d 392
• Parties: , 6 UCC Rep.Serv. 132 HERTZ COMMERCIAL LEASING CORP., Plaintiff, v. TRANSPORTATION CREDIT CLEARING HOUSE et al., Defendants.
• Court: New York City Court

Page 392

298 N.Y.S.2d 392

59 Misc.2d 226, 6 UCC Rep.Serv. 132

HERTZ COMMERCIAL LEASING CORP., Plaintiff, v. TRANSPORTATION CREDIT CLEARING HOUSE et al., Defendants.

Civil Court of the City of New York, New York County Special Term, Part I.

Feb. 17, 1969.

Sahn, Shapiro & Epstein, New York City, for plaintiff.

Samuel Burstein, New York City, for defendants.

MARTIN EVANS, Judge.

Motion for summary judgment, based on four equipment leases, and on a guarantee by the individual defendants. A separate cause of action is based on each of the leases, and on the guarantee.

With respect to the 1st cause of action, defendant's answering affidavit urges that the machine subject to the lease broke down and that plaintiff did not repair or maintain it. It also urges, that plaintiff breached certain warranties that were made, expressly and impliedly, to the effect that the equipment was merchantable; i.e., fit for the ordinary purposes for which the equipment was to be used, and that it was fit for the particular use intended by defendant. Although this is set forth in somewhat conclusory fashion, nevertheless it would be sufficient to raise a question of fact unless the warranties alleged have either been properly disclaimed, or are barred of proof by application of the Parol Evidence Rule.

The lease, which is in a standard printed form (although, as between these parties, probably not for a contract of adhesion) provides in pertinent part, that

'Hertz has made no representation or warranty with respect to the suitability or durability of any such item of equipment for the purposes and uses of lessee, or any other representation or warranty, express or implied, with respect thereto.'

The threshold question, then, is whether or not the agreement of lease is subject to the rules of the Uniform Commercial Code. If it is, the disclaimer of warranties set forth in the lease must be tested in the light of the provisions of U.C.C. 2--316 to determine their validity.

The lease, for a period of five years, is of equipment with a cost price of $5,009.37. The total payments during the term of the lease, to the lessor, are $1,325.52 annually, for a total payment of $6,636.60 during the lease term. Renewal terms of one year each, at the option of the lessee (and apparently forever should the lessee so desire) are at an annual rate of $150.28. In lieu of renewal, lessee has the obligation of returning the equipment, at its expense, to lessor. Probably, although this does not appear in the papers, the cost of return is greater than the annual renewal charge.

Thus, the right of exclusive use of this equipment may belong to the lessee indefinitely; at least, until the equipment no longer has any market or use value.

The obligation of maintenance, of repair, of the payment of all taxes incident to the obtaining and to the use of the machine (including 'sales' taxes) are imposed on the lessee.

Whether or not this lease is merely intended as security, U.C.C. 1--201(37), cf. In re General Assignment for the Benefit of Creditors of Merkel, Inc., 46 Misc.2d 270, 259 N.Y.S.2d 514, or was intended as a sale, Canadair Ltd. v. Seaboard World Airlines, 43 Misc.2d 320, 250 N.Y.S.2d 723, need not be determined on this motion; nor is it necessary for the purposes of this decision to adopt the language in Matter of Penn. Whiskey Distributing Corp. v. Bruckman, 256 App.Div. 781, 783, 11 N.Y.S.2d 718, 721, to the effect that a 'sale is defined as any transfer of title or possession, or both, for a consideration' since that case relied on Matter of Sears, Roebuck & Co. v. McGoldrick, 279 N.Y. 184, 18 N.E.2d 25 and involved the application of a statute which made such definition for taxation purposes.

Equipment leasing is a recent device whereby users of goods are enabled to have sole and exclusive use thereof for such periods of time as are economically beneficial to them at advantageous costs. It has become a widely used substitute for purchase, with the lessor, in economic reality, taking the place of a financing agency and the lessee paying the equivalent of the full purchase price, plus interest, within the minimum lease period. The lessee, in effect, is the true purchaser. Under present tax laws, which appear to be the basis on which these arrangements are made, it is foreseeable that this method of transferring the right to use goods will encompass a sizeable portion of the volume of commercial transactions which have the use of goods (rather than their consumption) as their immediate economic end.

In view of the great volume of commercial transactions which are entered into by the device of a lease, rather than a sale, it would be anomalous if this large body of commercial transactions were subject to different rules of law than other commercial transactions which tend to the identical economic result.

The framers of the Uniform Commercial Code, and the Legislature in adopting it, clearly recognized that one of its purposes was:

'To simplify, clarify and modernize the law governing commercial transactions; to permit the continued expansion of commercial practices through custom, usage and agreement of the parties.' U.C.C. 1--102, subd. 2.

The official comment to subsections 1 and 2 states that:

'It is intended to make it possible for the law embodied in this Act to be developed by the courts in the light of unforeseen and new circumstances and practices.'

That provisions of Uniform Acts have been extended to transactions which are within their intent, although perhaps not within their words, is clear, Agar v. Orda, 264 N.Y. 248, 190 N.E. 479, 99 A.L.R. 269.

The Uniform Commercial Code itself has been given extra-legislative effect, and adopted as the best source of what may be termed 'Federal Common Law' United States v. Wegematic Corp., 360 F.2d 674, (C.A.2d, 1966) despite the absence of any Federal Legislation adopting the Code as the basis for transactions with the government. The Court there said (p. 676):

'We find persuasive the defendant's suggestion of looking to the Uniform Commercial Code as a source for the 'federal' law of sales. The Code has been adopted by Congress for the District of Columbia, 77 Stat. 630 (1963), has been enacted in over forty states, and is thus well on its way to becoming a truly national law of commerce * * * When the states have gone so far in achieving the desirable goal of uniform law governing commercial transactions, it would be a distinct disservice to insist on a different one for the segment of commerce, important but still small in relation to the total, consisting of transactions with the United States.'

Extending the rules embodied in the Code to a transaction not within the Code, the court in Vitex Manufacturing Corp. v. Caribtex Corp., 377 F.2d 795, 799 (3 Cir., 1967), which was an action for damages resulting from a breach of contract to supply wool for processing, said:

'While this contract is not controlled by the Code, the Code is persuasive here because it embodies the foremost modern legal thought concerning commercial transactions.'

The very wording of § 2--102 of the Code, defining the scope of the Article, states:

'Unless the context otherwise requires, this Article applies to transactions in goods * * *'

Clearly, a 'transaction' encompasses a far wider area of activity than a 'sale,' and it cannot be assumed that the word was carelessly chosen. The 1955 Report of the Law Revision Commission, at page 363 reveals that the 'property' or 'title' concept is of negligible importance under Article 2; and indeed a reading of the Article leads to the conclusion that this was the intent. The Code considers the duties, rights and remedies arising from a transaction as of primary importance, and relegates the...