Konicki v. Salvaco, Inc.

• Decision Date: 06 January 1984
• Citation: 474 N.E.2d 347,16 OBR 43,16 Ohio App.3d 40
• Parties: , 16 O.B.R. 43, 41 UCC Rep.Serv. 103 KONICKI, d.b.a. Seal-Away of Kettering, Appellee, v. SALVACO, INC.; Stone Leasing Co., Appellant.
• Court: Ohio Court of Appeals

Page 40

16 Ohio App.3d 40

474 N.E.2d 347, 16 O.B.R. 43, 41 UCC Rep.Serv. 103

KONICKI, d.b.a. Seal-Away of Kettering, Appellee, v. SALVACO, INC.; Stone Leasing Co., Appellant.

Court of Appeals of Ohio, Second District, Montgomery County.

Jan. 6, 1984.

Syllabus by the Court

1. Where the buyer of equipment promptly notifies the manufacturer that the equipment is defective and the manufacturer fails to seasonably cure the defect, but the buyer fails to notify the lessor/seller of the defects until nearly one year later by the institution of legal proceedings against both the manufacturer and the lessor/seller, the buyer has failed to effectively revoke his acceptance, as against the lessor/seller, within a reasonable time under R.C. 1302.66(B) and has impliedly accepted the equipment despite its nonconformity. That is, although the goods were non-conforming and the buyer had a right to revoke under R.C. 1302.66(A)(1) (failure to seasonably cure non-conformity), the right to revoke may be waived where the buyer fails to effectively revoke his acceptance within a reasonable time.

2. A financing lessor which acts as a middleman for the manufacturer and buyer may disclaim warranties to a product in which it had no active dealings in the manufacture, promotion or sale thereof. In such a case, the buyer's remedies for nonconformity of the goods to the manufacturer's warranty must be obtained against the manufacturer.

G. Jack Davis, Jr., Columbus, for appellee.

Donald E. Ely, Columbus, for appellant.

BROGAN, Presiding Judge.

Salvaco, Inc. was the manufacturer of certain asphalt sealing equipment referred to as the "SCST." In early 1980, Salvaco engaged itself in the active promotion of the sale and/or lease of this equipment directed towards individuals interested in starting or expanding their own business. In response to said promotional activity the plaintiff, Kenneth W. Konicki, entered into negotiations with Sam Cowart, a Salvaco representative, in March 1980. The parties agreed to enter into a lease-purhase agreement. In order to work out an appropriate financing arrangement Salvaco contacted Stone Leasing Company ("Stone Leasing"). Stone Leasing agreed to purchase the equipment from Salvaco for $11,000 and in turn lease said equipment to Konicki. Two separate leases were prepared by Stone Leasing and presented to Konicki by the Salvaco representative. One lease covers the lease of the sealing equipment itself, while the other concerns the lease of a trailer needed to transport the SCST.

These leases obligated Konicki to pay Stone Leasing certain monthly installments for sixty months. Upon the expiration of the lease term Konicki was given an option to purchase the equipment for $1,000 and the trailer for $100. The lease further contained a warranty disclaimer in bold print, wherein Stone Leasing disclaimed any and all express or implied warranties. Paragraph nine of the lease agreement did provide, however, that the lessee would be provided by the lessor with any manufacturer's warranties covering the equipment.

Upon receipt of the equipment in May, Konicki discovered it failed to operate properly. Apparently, the pumping mechanism was faulty, thereby preventing the equipment from properly spraying the sealing material. In addition the equipment was improperly balanced, causing problems in transporting it on the trailer. Konicki immediately notified the manufacturer (Salvaco) of the problems.

Several attempts were made by the manufacturer to correct the defects to no avail. Finally, at some point in time undisclosed in the record, the manufacturer refused to attempt to fix or incur any further expense in having the SCST repaired. Konicki notified Stone Leasing shortly after the problems were discovered, and maintained contact with Stone Leasing throughout his endeavors to have the equipment repaired. The record does not disclose, however, whether Stone Leasing was ever notified of Salvaco's ultimate refusal to continue efforts to correct the defects.

In March 1981, Konicki ceased making his lease payments and filed his complaint against both the manufacturer and the lessor, Stone Leasing. The record fails to reflect whether or not Konicki conveyed his reasons for nonpayment to Stone Leasing. The record further fails to indicate any offer on behalf of Konicki to return the defective equipment, nor a request for a refund of the $4,365 he had already paid. In fact, Konicki admitted he continued to use the equipment as a holding tank while performing certain jobs even after the defects were known. The equipment was finally re-acquired by Stone Leasing only after it had commenced an action to replevy the goods.

In order to meet the obligations he had incurred based on his expectations the equipment would perform as warranted by the manufacturer, Konicki was forced to subcontract his jobs. He consequently incurred substantial damages, encouraging him to institute the present action. Konicki's complaint alleges both Salvaco and Stone Leasing are liable to him for breach of express and implied warranties.

Prior to trial a settlement was reached as between Konicki and Salvaco for $20,000. This stipulated judgment is part of the decision and judgment entry of the trial court. Trial proceeded on Konicki's claim against Stone Leasing and on Stone Leasing's counterclaim against Konicki for the balance due on the lease. At trial Konicki took the position that the transaction between himself and Stone Leasing was in reality a sale. He argued further that the Uniform Commercial Code therefore applied and that he had effectively revoked acceptance of the equipment.

The trial court concluded that (1) the transaction was in actuality a sale regardless of the use of the term "lease"; (2) R.C. 1302.66, right of revocation of acceptance, was applicable; (3) Konicki did properly and effectively revoke acceptance to the seller/lessor; (4) Konicki was entitled to recover the $4,365 he had paid; and (5) Stone Leasing was not entitled to recover under its counterclaim. Additionally, the court concluded Stone Leasing failed to communicate to Konicki, to his detriment, a ninety-day, limited manufacturer's warranty.

From this judgment Stone Leasing has timely filed a notice of appeal. Stone Leasing sets forth two assignments of error, the first of which maintains that:

"The court's legal conclusion that plaintiff-appellee revoked his acceptance of the leased equipment is not sustained by the evidence, and therefore the judgment rendered in favor of plaintiff-appellee, and against defendant-appellant, Stone Leasing Company, for the amount it had received pursuant to the terms of the equipment leases is contrary to law."

Stone Leasing essentially argues the judgment is against the weight of the evidence, as the elements of R.C. 1302.66 upon which the court relied were not sufficiently established. As a reviewing court, we may reverse a judgment on these grounds only where the judgment is not supported by some competent, credible evidence going to all the essential elements of the case. C.E. Morris v. Foley Construction Co. (1978), 54 Ohio St.2d 279, 376 N.E.2d 578 . Our review of the record reveals each element of R.C. 1302.66 was not adequately proved and we must therefore agree with the appellant.

R.C. 1302.66 provides:

"(A) The buyer may revoke his acceptance of a lot or commercial unit whose non-conformity substantially impairs its value to him if he has accepted it:

"(1) on the reasonable assumption that its non-conformity would be cured and it has not been seasonably cured; or

"(2) without discovery of such non-conformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller's assurances.

"(B) Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it.

"(C) A buyer who so revokes has the same rights and duties with regard to the goods as if he had rejected them."

In order for a complainant to prevail under this provision it is essential each element of division (B) be properly established, to-wit: (1) revoke within a reasonable time; (2) before any substantial change in condition; and (3) give notice to the seller. Stone Leasing challenges the court's findings as to all three elements. As to the first requirement we shall not disturb the ruling as the question of reasonableness is within the sound discretion of the trial judge. The second element is also supported by the record as certain permissible inferences may be made that the changed condition resulted from the existing defects in the equipment.

However, we must disagree with the trial court's conclusion that the evidence supports a finding that an effective revocation occurred. In order to effectively revoke, R.C. 1302.66(B) requires that the buyer notify the seller of the revocation. The Revised Code fails to designate the form or content required to meet the notice requirement. We are, however, of the opinion it would be unfair to conclude under the facts presented that adequate steps were taken to so notify this seller.

Revocation of acceptance and rejection of tendered goods are not to be confused with one another. The former allows non-conforming goods to be returned and money refunded after acceptance while the latter requires the goods initially be rejected prior to acceptance. Although a distinction exists between the two, they are similar in that they both require timely notice to the seller to make the rejection or revocation effective. See R.C. 1302.61 and 1302.66. They are also similar in that courts have generally treated the adequacy of notice for each to be the same. The problem lies in what constitutes adequate notice of both rejection and...