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Warranty Claims Against a Product Lessor - a Rental Company

The Hawaii Supreme Court has made it clear that warranty claims against a lessor stand along with the claims for strict product liability. Indeed, this has been specifically recognized by the Hawaii Court of Appeals in the case of Torres v. Northwest Engineering Co., 86 Haw. 383, 949 P.2d 1004 (Haw.App. 1997). As stated in the Torres case:

 

"The Hawai'i Supreme Court has stated that 'where a plaintiff seeks to recover for personal injury in warranty the elements of the action should be governed by the same policies which presently shape the elements of a tort strict products liability claim.' Larsen v. Pacesetter Systems, Inc., 74 Haw. 1, 22, 837 P.2d 1273, 1284 (1992). The reason for applying the elements for tort strict products liability is that 'the tort action for strict products liability is the warranty action for tangible injury to persons and property stripped of its contractual mask.' Id. at 22, 837 P.2d at 1284. Under the doctrine of strict products liability as adopted in this jurisdiction, where a seller or lessor, who is engaged in the business of selling or leasing a product, sells or leases a defective product which is dangerous to the user or consumer, and injury results from its use or consumption, the seller or lessor will be held strictly liable in tort for the injury." 86 Haw. at 398, 949 P.2d at 1019. [emphasis added]

Many jurisdictions have developed the law of warranties applicable to leases through case law. Hawaii is no longer one of those jurisdictions. HRS Chapter 490:2A "The Uniform Commercial Code - Leases" sets forth the law of warranties pertaining to leases for the State of Hawaii by statute.

HRS § 490:2A-103 defines various terms related to lease agreements. Some of those definitions include:

 

"(10) 'Lease' means a transfer of the right to possession and use of goods for a term in return for consideration, but a sale, including a sale on approval or a sale or return, or retention or creation of a security interest is not a lease. Unless the context clearly indicates otherwise, the term includes a sublease.

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"(14) 'Lessee' means a person who acquires the right to possession and use of goods under a lease. Unless the context clearly indicates otherwise, the term includes a sublessee.

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"(16) 'Lessor' means a person who transfers the right to possession and use of goods under a lease. Unless the context clearly indicates otherwise, the term includes a sublessor.

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"(20) 'Merchant lessee' means a lessee that is a merchant with respect to goods of the kind subject to the lease."

From these definitions, it is clear that the lessor of products is a lease covered by Article 2A of the Hawaii Uniform Commercial Code when the lessor is a merchant lessor. As such, the warranties provided for in Article 2A are created in the lease agreement.

HRS §490:2A-212(a) provides that an implied warranty of merchantability is created automatically in all leases by merchant lessors. In such circumstances, HRS §490:2A-212(b) provides:

 

"(b) Goods to be merchantable must be at least such as:

 

(1) Pass without objection in the trade under the description in the lease agreement;

 

(2) In the case of fungible goods, are of fair average quality within the description;

 

(3) Are fit for the ordinary purposes for which goods of that type are used;...

 

 

(6) Conform to any promises or affirmations of fact made on the container or label."

Hence, all of these implied warranties of merchantability are given at the time of the rental.

There is also an implied warranty of fitness for a particular purpose. HRS §490:2A-213 provides that "if the lessor at the time the lease contract is made has reason to know of any particular purpose for the which the goods are required and that the lessee is relying on the lessor's skill or judgment to select or furnish suitable goods, there is in the lease contract an implied warranty that the goods will be fit for that purpose." Obviously, a merchant lessor knows what its products are likely to be used for. Hence, the renter is generally entitled to "an implied warranty that the goods would be fit for that purpose".

It is also possible that express warranties are created between a merchant lessor and a renter. HRS §490:2A-210 provides:

    "(a) Express warranties by the lessor are created as follows:

 

(1) Any affirmation of fact or promise made by the lessor to the lessee which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods will conform to the affirmation or promise.

 

(2) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods will conform to the description.

 

(3) Any sample or model that is made part of the basis of the bargain creates an express warranty that the whole of the goods will conform to the sample or model.

"(b) It is not necessary to the creation of an express warranty that the lessor use formal words, such as 'warrant' or 'guarantee,' or that the lessor have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the lessor's opinion or commendation of the goods does not create a warranty."

The remedies for breach of lease warranties are provided for in Article 2A. Leases. HRS § 490:2A-508(d) provides that the lessee can recover damages for breach of warranty, whether express or implied. It specifically refers to § 490:2A-519(d) as setting forth the damages which are recoverable.

HRS § 490:2A-519(d) allows a lessee to recover incidental and consequential damages for breach of warranty. The lessee's incidental and consequential damages are defined in the following section - HRS § 490:2A-520. That section includes subsection (b)(2) which provides:

"(b) Consequential damages resulting from a lessor's default include:...

(2) Injury to person or property proximately resulting from any breach of warranty."

Hence, in summary, a renter is entitled to rely upon the implied warranties of merchantability and fitness for a particular purpose, as well as any express warranties which were created, in their dealings with a merchant lessor. For breach of such warranties, the renter is entitled to damages including damages for "injury to person or property proximately resulting from any breach of warranty."

Proving Ability to Discovery Breach of Warranty is NOT Required

A renter need not prove that a merchant lesser could have or should have discovered the defects in the product in order to assert his claims for breach of warranty. The case of Ontai v. Straub Clinic and Hosp. Inc., 66 Haw. 237, 659 P.2d 734 (1983) involved the failure of a footrest on a table used for patients at Straub Clinic. The footrest collapsed while it was in vertical position, causing a patient to fall to the floor. The Hawaii Supreme Court found in that case that a breach of warranty does not need to be discoverable for there to be a cause of action under warranty. The Court stated:

 

"Moreover, as discussed supra, the jury could have found that the footrest was defective. And it has been held that where a product is defective, even when the defect is not detectable by the seller, the seller is liable under both the implied warranty of merchantability and the implied warranty of fitness for a particular purpose. Vlases v. Montgomery Ward & Co., 377 F.2d 846 (3rd Cir.1967) (sale of diseased chicks). In Vlases, the court explained: 'The entire purpose behind the implied warranty sections of the Code is to hold the seller responsible when inferior goods are passed along to the unsuspecting buyer. What the Code requires is not evidence that the defects should or could have been uncovered by the seller but only that the goods upon delivery were not of a merchantable quality or fit for their particular purpose. If those requisite proofs are established the only exculpatory relief afforded by the Code is a showing that the implied warranties were modified or excluded by specific language under Section 2-316. Lack of skill or foresight on the part of the seller in discovering the product's flaw was never meant to bar liability. The gravamen here is not so much with what precautions were taken by the seller but rather with the quality of the goods contracted for by the buyer.' 377 F.2d 846, 850. (Footnote omitted) See Fredrick v. Dreyer, 257 N.W.2d 835 (S.D.1977) (sale of mobile home with defective doors, wiring and plumbing); see also Sam's Etc. v. Admar Bar & Kitchen, 103 Misc.2d 276, 425 N.Y.S.2d 743 (1980) (sale of pushcarts which lacked mobility)." 66 Haw. 251-252, 659 P.2d 744-745 [Emphasis added]

Notification of Breach

A renter who wishes to assert a breach of warranty claim may be required to give notice of the breach to the merchant lessor and/or the product manufacturer. The comments to HRS §490:2-607 provide "the time of notification is determined by applying commercial standards to a merchant buyer [emphasis added]. 'A reasonable time' for notification from a retail consumer [emphasis added] is to be judged by different standards so that in most cases it will be extended, for the rule of requiring notification is designed to defeat commercial bad faith, not to deprive a good faith consumer of his remedy. [emphasis added]" The comments to the official text elaborate further on this point in Section 5: "Under this article various beneficiaries are given rights for injuries sustained by them because of the seller's breach of warranty. Such a beneficiary does not fall within the reason of the present section in regard to the discovery of defects and the giving of notice within a reasonable time after acceptance, since he has nothing to do with acceptance. However, the reason of this section does not extend to requiring the beneficiary to notify the seller that an injury has occurred. What is said above, with regard to the extended time for reasonable notification from the lay consumer after the injury is also applicable here; but even a beneficiary can be properly held to the use of good faith in notifying, once he has had time to become aware of the legal situation."

The leading case on the issue of notice in Hawaii is a Federal Court case interpreting Hawaii law - Chapman v. Brown, 198 F.Supp. 78 (D.Haw. 1961), aff'd. Brown v. Chapman, 304 F.2d 149 (9^th Cir. (Haw.) 1962). This case involved the purchase of a hula skirt on March 10, 1956, an accident and injuries which took place on November 2, 1957 and notice which occurred to the defendant shop which sold the hula skirt in approximately December of 1958 or January of 1959. The jury found that reasonable notice had been given by the plaintiffs of the breach of warranty. The District Court and the Ninth Circuit Court of Appeals upheld that finding. In so doing, the Court stated "It should be remembered that the defect (as found by the jury)

'dangerous flammability' was a latent one which would not from its nature be known to plaintiff or the buyer until the happening of the fire which caused the injury... On the whole, assuming that the statutory notice requirement is applicable, the rule here adopted appears to be the more reasonable one, the one more likely to be followed by the Hawaii courts. However, an even better view would be that 'The notice provision of the Act is inapplicable, at least where personal injuries are sustained.' And where there is no privity." 198 F.Supp. at 85

The District Court's decision in Chapman v. Brown was affirmed on appeal in Brown v. Chapman, 304 F.2d 149 (9^th Cir. Haw. 1962). The Appellate Court also found "it cannot be said that, as a matter of law, proper notice was not given within a reasonable time, but... it was a question for the jury to decide under all of the circumstances." 304 F.2d at 152. (See also La Hue v. Coca-Cola Bottling, Inc., 1957, 50 Wash.2d 645, 314 P.2d 421 in which the court held that the provision of their Uniform Sales Act as to notice did not apply because this was not an action by a buyer against a seller. See, also, Harper & James, Law of Torts, 1575, 28.17, criticizing notice requirement as to accident victims not 'steeped in the 'business practice' which justifies the rule.')