J.L. Teel Co., Inc. v. Houston United Sales, Inc.

• Citation: 491 So.2d 851
• Decision Date: 23 July 1986
• Docket Number: No. 54448,54448
• Parties: 1 UCC Rep.Serv.2d 337 J.L. TEEL COMPANY, INC. v. HOUSTON UNITED SALES, INC.
• Court: United States State Supreme Court of Mississippi

Page 851

491 So.2d 851

1 UCC Rep.Serv.2d 337

J.L. TEEL COMPANY, INC. v. HOUSTON UNITED SALES, INC.

No. 54448.

Supreme Court of Mississippi.

July 23, 1986.

Gary L. Geeslin, Columbus, for appellant.

Edward D. Lancaster, John P. Fox, Houston, for appellee.

En Banc.

ROBERTSON, Justice, for the Court:

I.

This lemon case is infested with several wormy issues. On one level it involves a copy machine that would not work. On another we are asked to decide to what extent, if at all, an equipment lease is a legal chameleon so that the Sales Article of the Uniform Commercial Code furnishes rules of decision for cases arising from such transactions.

For the reasons explained and to the extent articulated below we hold that, insofar as the lease is the functional equivalent of a sale, the provisions of the Sales Article furnish analogies from which we derive governing rules. Applying that principle to the case at bar, we hold, inter alia, (a) that the lessor warranted the copier to be fit for the lessee's particular purpose, (b) that the lessor breached this warranty, (c) that the lessee nevertheless kept and used the copier for which the lessor is entitled to quantum meruit recovery, subject to two adjustments explained below. We affirm in part and reverse in part and remand.

II.

On May 15, 1979, J.L. Teel Company, Inc., ("Teel") as lessor, and Houston United Sales, Inc., ("Houston") as lessee, entered into a written equipment lease agreement the object of which was Teel's furnishing to Houston the exclusive use of a Minolta copying machine, Model No. 510. Houston agreed to pay a rental of $160.00 each month for a period of 36 months.

As a part of the contract Houston agreed to provide public liability insurance on the leased equipment, pay any applicable state and local taxes as additional rental and, at its own expense, maintain the leased equipment in good operating condition. The lease provided at its expiration that Houston had several renewal options plus the option to purchase the copier for five percent of the original gross lease price.

The contract contained the following provision: "THERE ARE NO IMPLIED WARRANTIES OF FITNESS FOR PURPOSE OR MERCHANTABILITY." Teel gave Houston an express warranty that the copier would be free of defects of material and workmanship under normal use and service. The express warranty provided that Teel would make all necessary adjustments to the copier not occasioned by accident, misuse, or negligence free of charge for a period of ninety days after installation and would then conduct a final inspection. Teel further obligated itself to repair or replace without charge any parts found to be defective within twelve months with certain listed exceptions. The express warranty did not apply to normal maintenance services, consumable items and equipment problems resulting from misuse, accident, negligence and lack of proper lubrication and maintenance, and provided, "This warranty is in lieu of all other warranties, express or implied."

The copier was installed on Houston's premises on May 15, 1979, and apparently provided acceptable service for a little over a month. On June 25, 1979, the first of eight documented service calls was made by Teel to the Houston premises. Each of these service calls, except the third (where Teel merely added toner to the machine), was occasioned by a malfunction of the copier.

The most significant of Teel's service calls was made on August 7, 1979, at which time Teel replaced the P.C. board in the copier. The P.C. board (the computer) is the brains of the copier; the copier will not operate without the P.C. board functioning properly. Teel replaced the thermostat, bushings, lamps, corona and receptacle on subsequent service calls.

Seven days after the August 7 service call, Houston wrote Teel and requested that the copier be picked up and Houston be released from the lease contract. There was testimony by Dwayne Griffin and Mrs. Janice Smith, president and office manager, respectively for Houston, that the copier was totally unsatisfactory. The record of service calls represented only the tip of the iceberg. According to Griffin Houston had trouble with the copier continually and after he wrote the letter on August 14, Griffin testified that the copier was never fixed.

Mrs. Smith testified in detail about trouble that Houston had with the copier: it jammed every two copies, the "wait" light would not go off, copies were blurred, it printed half pages, the reset button would not work, the copier smoked, and on occasions would not print. She further testified that she talked to Jim Teel, President of J.L. Teel Company, Inc., on November 19, 1979, reviewed the problems with the copier, and Teel said it was possible that the machine could have been a lemon and possibly it would be replaced.

Griffin made notes of calls to Teel complaining of problems with the copier on November 9, 12, 13, 15 and 19, 1979.

Griffin said Jim Teel called on October 17, 1980, and said he would like to "make up and pick up the machine", but he wanted Houston to accept another copier on the same terms as with the Minolta. Griffin agreed to talk to his personnel and call Teel. He later called Teel and told Teel that it would be unfair to him to buy another copier from him because his, Griffin's (Houston's) personnel had lost confidence in Teel and his ability to furnish a copier that would be satisfactory.

Griffin never receded from the position taken in his August 14, 1979 letter that he wanted the copier picked up; however, when Teel finally sent for the copier, Griffin refused to surrender it because Teel would not sign a document releasing Houston from any further liability. Griffin also said Houston was not able to get any legible copies from the copier after he wrote the letter in August, 1979, and, if Houston had not kept its old copier, it would have been unable to make copies.

Testimony for Teel was to the effect that his company answered every service call and put the copier back in proper operation after each service call and also gave instructions by telephone to the employees of Houston about procedures to follow so the copier could be restored to service. Records taken from the counter of the copier showed that a large volume of copies had been made, suggesting that the machine must have functioned some of the time. This evidence, of course, suggests nothing about the quality of the copies made.

Houston finally gave up and ceased using the copier on April 10, 1980. The machine was placed in storage on Houston's premises. Houston continued to refuse surrender of the machine to Teel because Teel would not agree to release Houston from any further claims under the equipment lease agreement.

Not surprisingly, this history ultimately generated a veritable plethora of claims and counterclaims by and between Teel and Houston, all in the Circuit Court for the First Judicial District of Chickasaw County. In the above state of the evidence the Circuit Court, sitting without a jury, found that Teel had represented the copier as fit to do the job Houston needed, that Houston entered into the lease agreement in reliance upon these representations, and the copier "failed to do and perform the job" Houston required. Notwithstanding, the Circuit Court entered judgment for Teel against Houston for $1,227.76. This amount was composed of (1) monthly rentals from the date Houston stopped paying until the date Houston stopped using the machine and (2) $453.57 for supplies and service costs furnished by Teel.

III.

Teel filed a direct appeal assigning numerous errors which may be summarized as follows:

(1) The Circuit Court erred in holding that the Uniform Commercial Code's implied warranties applied where there was no sale of goods or passing of title.

(2) The Circuit Court erred in failing to enforce the terms of the lease which negated any common law implied warranty.

(3) The Circuit Court's finding of fact that the copier was not fit for its intended purpose was contrary to the overwhelming weight of the evidence.

(4) The Circuit Court erred in failing to allow Teel to recover attorney's fees and expenses pursuant to the terms of the lease of the contract.

Houston filed a cross-appeal and assigned the following as error:

(1) The Circuit Court erred in allowing a judgment against it.

(2) The Circuit Court erred in denying Houston recovery for incidental and consequential damages resulting from Teel's breach of warranties as provided by the common law and the Mississippi Uniform Commercial Code.

(3) The Circuit Court erred in assessing all court costs against Houston.

IV.

A.

At its foundation this case presents the question whether, if at all, the provisions of the Sales Article of the Uniform Commercial Code, Miss.Code Ann. Secs. 75-2-101, et seq. (Supp.1985) furnish rules of decision we ought employ when resolving controversies arising out of equipment lease transactions.

Whenever practices and conditions change subsequent to the drafting and enactment of a statute, difficult questions of interpretation are presented. In the forty-odd years since the language of the Sales Article [Article 2] of the Uniform Commercial Code acquired its present form and the almost twenty years since that language was enacted into law in Mississippi, ¹ substantial changes in commercial customs and usages have evolved. More specifically, business concerns today regularly acquire office equipment via varying types of leasing arrangements.

At the time Article 2 was drafted, office equipment was commonly acquired through purchase and sale. Various legal facilities were employed where the purchaser did not pay cash. A conditional sales contract, sometimes called a retail installment sales contract, would be used in two party transactions. Other forms of secured transaction--a chattel mortgage, a chattel deed trust--would be used when a lender or other finance company would be...