U.S. Roofing, Inc. v. Credit Alliance Corp.

• Decision Date: 29 March 1991
• Docket Number: No. C006930,C006930
• Citation: 228 Cal.App.3d 1431,279 Cal.Rptr. 533
• Court: California Court of Appeals Court of Appeals
• Parties: , 14 UCC Rep.Serv.2d 746 U.S. ROOFING, INC., Plaintiff and Respondent, v. CREDIT ALLIANCE CORP. et al., Defendants and Appellants; LEASING SERVICE CORPORATION, Defendant, Cross-Complaint and Appellant.

Page 533

279 Cal.Rptr. 533

228 Cal.App.3d 1431, 14 UCC Rep.Serv.2d 746

U.S. ROOFING, INC., Plaintiff and Respondent, v. CREDIT ALLIANCE CORP. et al., Defendants and Appellants;

LEASING SERVICE CORPORATION, Defendant, Cross-Complaint and Appellant.

No. C006930.

Court of Appeal, Third District, California.

March 29, 1991.

Rehearing Denied April 23, 1991.

Review Denied June 20, 1991.

Steven R. Crooks, Hefner, Stark & Marois, Sacramento, for defendant and appellant Leasing Service Corp.

James A. Murphy, Mark E. Ellis, Murphy, Pearson, Bradley & Feeney, San Francisco, for defendant and appellant Liquid Asphalt Systems.

H. L. Koelewyn, John A. Sheehan, Hoseit & Koelewyn, Sacramento, for plaintiff and respondent.

MARLER, Associate Justice.

This case presents the question of what remedies are available to a lessee-buyer in the purchase and sale of equipment financed by a lease arrangement when the equipment is defective and the financing lessor has disclaimed all express and implied warranties to the equipment. We hold that a financing lessor may validly disclaim all warranties, provided the lessee-buyer has an adequate remedy against the manufacturer or supplier for any defect in the equipment, and it is the role of the trial court, not the jury, to determine whether the disclaimer is valid. We further hold that where the disclaimer is valid and the equipment conforms to all provisions of the lease relating to the equipment, such as the description of the equipment and the terms of delivery, so that the equipment cannot be considered nonconforming to the lease, the remedy of revocation of acceptance is not available as against the financing lessor even though the equipment is defective.

Because of dissatisfaction with a crane it intended to purchase through lease financing, U.S. Roofing, Inc. stopped making payments on the lease and brought suit against National Crane, the manufacturer, Liquid Asphalt Systems (LAS), the supplier, Steve Jones, its president, and Credit Alliance Corporation and Leasing Service Corporation (LSC), the leasing company, for breach of warranty. ¹ LSC filed a cross-complaint for breach of the lease, seeking a deficiency judgment. A jury determined that both LAS and LSC were liable to U.S. Roofing for different amounts. The jury also found for U.S. Roofing on LSC's cross-complaint for breach of the lease. National Crane was not held liable. Both LAS and LSC appeal. LAS contends the judgment against it cannot stand as a matter of law, in effect claiming there is insufficient evidence. We affirm this judgment as to LAS's liability to U.S. Roofing, but remand the case for a new trial limited to damages. LSC attacks the legal basis of the judgment against it, contending the trial court erred (1) when it submitted the question of whether the disclaimer of warranties in the lease was unconscionable to the jury, (2) when it refused to give LSC's specific instruction on revocation of acceptance, and (3) when it gave confusing or misleading instructions on the disclaimer. LSC further contends the undisputed evidence shows it is entitled to a deficiency judgment of $261,850.60 for the balance of the lease payments, including costs, interest and late charges. We reverse the judgments against LSC on both the complaint and the cross-complaint and direct the entry of a judgment in favor of LSC on its cross-complaint in the amount of $125,354.60.

FACTUAL AND PROCEDURAL BACKGROUND

U.S. Roofing is a roofing contracting firm specializing in government roofing jobs. In 1983 U.S. Roofing was awarded a contract for the Alameda Naval Air Station in Oakland. U.S. Roofing determined that a crane would be needed to complete the work and began to contact dealers about purchasing a crane.

Henry Jessup of U.S. Roofing contacted Steve Jones of LAS and discussed his needs for the job. They entered into negotiations for the purchase of a truck-mounted crane. An agreement on the type and price of a crane was reached and U.S. Roofing sent LAS a $1,000 earnest money deposit. This was followed by a second deposit of $7,402.19. U.S. Roofing relied on LAS to arrange financing. LAS suggested a lease arrangement. A lease has advantages over conventional financing; there is a lower initial capital outlay and the lease payments can be deducted currently as expenses which results in a greater tax savings than depreciating the equipment. Of the two leasing companies to whom LAS referred U.S. Roofing, U.S. Roofing selected LSC and they entered into a lease agreement. Under the lease agreement U.S. Roofing selected the equipment and the supplier (LAS). LSC purchased the equipment and leased it to U.S. Roofing for a period of 57 months. An amendment to the lease gave U.S. Roofing an option to purchase the equipment at the end of the term of the lease for $8,049. Included in the lease agreement, in all capital letters in red print just above the signature line, was a disclaimer which read: "THE EQUIPMENT IS LEASED HEREUNDER AS-IS, AND LESSOR MAKES NO EXPRESS NOR IMPLIED NOR STATUTORY WARRANTIES AS TO ANY MATTER WHATSOEVER, INCLUDING WITHOUT LIMITATION THE CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS FOR ANY PURPOSE."

Also included in the lease was a late payment clause which read: "Should Lessee fail to pay when due any part of the rent herein reserved or any other sum required to be paid to Lessor by Lessee, Lessee shall pay to Lessor a late charge of 1/15th of 1% per day on such delinquent payment, but not to exceed, however, the maximum permitted by applicable law, from the date when such payment was due until paid, and expenses of collection, including attorneys' fees. Lessee hereby irrevocably authorizes any attorney of any court of record to appear for and confess judgment against Lessee (except in any jurisdiction where such action is not permitted by law) for all unpaid amounts due hereunder, plus expenses and 15% added for attorneys' fees, without stay of execution, and Lessee hereby waives the issue of process, all rights of appeal and relief from any and all appraisement, stay or exemption laws then in force."

The crane was delivered on August 24, 1983. U.S. Roofing never returned the certificate of acceptance because it did not receive the full roofer's package it ordered. Nonetheless, LSC paid the full purchase price of $116,000, less the two deposits, to LAS.

Immediately, U.S. Roofing experienced problems with the crane. The stabilizing outriggers lifted off the ground, frightening those operating the crane. The crane leaned against the building and failed to lift to full capacity. U.S. Roofing contacted LAS about the problems and the crane was sent to Coast Crane for repairs, which included torquing the mounting bolts and adding counterweights. After these repairs, problems continued. On a slight grade the crane could not go over 25 miles per hour. There were still problems with lifting a capacity load and the crane leaked hydraulic fluid. In addition, welds on the mounting brackets were cracked and gussets were missing. The crane was unsafe in this condition; U.S. Roofing stopped using it and rented another crane to complete the job. The crane was sent back to Coast Crane for repairs in late October; the repairs were not completed until almost the end of the year.

In the meantime U.S. Roofing decided it did not want the crane and sent a letter to LAS, with a copy to LSC, to revoke the lease. U.S. Roofing then stopped making lease payments. LSC, treating the nonpayment as a breach of the lease, invoked the lease's acceleration clause, repossessed the crane and sold it at public sale to itself for $60,000. The crane was later sold to Bacon Company for $57,500.

U.S. Roofing then brought a lawsuit against National Crane Company (the manufacturer of the crane), LAS and LSC for breach of warranties. LSC cross-complained for breach of the lease and sought a deficiency judgment.

At trial there was considerable testimony about the problems with the crane. The mechanic who worked on the crane affirmed the problems, but opined that most were caused by misuse. He testified the crane tested stable and lifted 125 percent of capacity.

William Bagby of LSC testified in support of LSC's claim for a deficiency judgment. On November 22, 1983, LSC made a demand on U.S. Roofing for the accelerated unpaid balance of the lease, including late payments and taxes, in the amount of $142,199. The crane was repossessed in late December or early January. Mr. Bagby explained after attempts at a private sale of the crane failed, LSC set up a public sale. Notices of the sale were published and sent to U.S. Roofing, as well as to potential buyers. LSC purchased the crane at the public auction for $60,000.

Mr. Bagby also testified about the calculation of the deficiency judgment. As of the date of the auction the deficiency was $125,354.60, which was determined by computing the balance due (lease payments, late charges and taxes) and subtracting the net proceeds of the sale. He then updated the deficiency to the time of trial by calculating the late charges of $76 per day to date. The late charges totalled $136,496; the total deficiency was $261,850.60.

Neither U.S. Roofing nor LAS challenged the commercial reasonableness of the public sale or the calculation of the deficiency. The trial court was concerned about continuing to assess the late charge after the crane was repossessed and sold.

After the conclusion of plaintiff's case-in-chief, all of the defendants moved for a nonsuit; the motions were denied. At the end of the trial the defendants moved for a directed verdict and these motions were also denied.

An eight-person jury returned a verdict on the complaint in favor of U.S. Roofing by a vote of six to two; it found against LAS in the amount of $42,555.76 and against LSC in the amount of $10,734.19. ² The verdict on the cross-complaint was in favor of U.S. Roofing, by a vote of seven to one.

LSC...