Redfern Meats v. Hertz Corporation

Citations: 215 S.E.2d 10; 134 Ga. App. 381; 17 U.C.C. Rep. Serv. (West) 82; 1975 Ga. App. LEXIS 2021Docket: 50105

Court: Court of Appeals of Georgia; March 12, 1975; Georgia; State Appellate Court

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The Court of Appeals of Georgia addressed an appeal from Redfern Meats, Inc. regarding a dispute with Hertz Corporation stemming from a Truck Lease Service Agreement. Redfern rented tractors and refrigerated trailers from Hertz, and during a transport on June 26, 1973, the refrigeration unit failed, resulting in the spoilage of meat valued at $7,574.47. The leasing agreement included a 'Non-Liability for Contents' clause, which stated Hertz would not be liable for loss or damage to property transported in their vehicles, even due to negligence, and required Redfern to indemnify Hertz.

Redfern filed a lawsuit against Hertz, claiming breach of implied warranties of merchantability and fitness for a particular purpose, as well as breach of a bailor's warranty. Hertz responded by denying liability, citing the non-liability clause, and sought judgment on the pleadings. Redfern moved for summary judgment asserting there were no material facts in dispute. The trial court denied Redfern's motion and granted Hertz's motion, dismissing the case.

On appeal, the court found that Redfern's denial of summary judgment could not be reviewed as it lacked a certification for direct appeal. The court emphasized that the motion for judgment on the pleadings could only be granted if all material allegations of fact were admitted, leaving only legal questions to be decided. The appeal centered on the trial court's decisions regarding the summary judgment and judgment on the pleadings.

Hertz's motion for judgment asserts that even if Redfern's allegations are accurate, Hertz is not legally liable and is entitled to judgment. The court does not consider factual matters outside the pleadings, including three affidavits submitted by Redfern for summary judgment, as they either do not alter the legal issues or are undisputed facts. The trial judge's decision to grant Hertz's motion was based on Hertz's disclaimer of warranties, a legal question, rather than a lack of breach. 

Count 2 of Redfern's complaint claims recovery based on Hertz's alleged breach of a warranty as a bailor under Code 12-204. This code remains applicable alongside the Uniform Commercial Code (UCC), and Hertz argues that the UCC's disclaimer of liability does not pertain to Code 12-204, thereby disclaiming liability under that warranty through a 'non-liability' clause. The court agrees, noting that exculpatory clauses can absolve lessors of liability, including for negligence, provided they are clear and not contrary to public policy, with no allegations of willful misconduct against Hertz.

Regarding Count 1, Redfern alleges breach of two implied warranties under the UCC, specifically Code Ann. 109A-2-314 and 109A-2-315. The applicability of these implied warranties is crucial; if they are applicable, Hertz's 'non-liability' clause would not effectively disclaim them per the UCC standards. The court ultimately concludes that Redfern cannot recover based on Count 2, affirming the trial court's decision to grant Hertz's motion for judgment on the pleadings.

Under the 'Truck Lease Service Agreement,' Redfern rented tractors and trailers from Hertz, agreeing to a weekly rental fee of $77.78 for the refrigerated trailer, along with additional charges of 2.4 cents per mile and 38 cents per running hour for refrigeration. Redfern was billed weekly and was responsible for obtaining and maintaining liability insurance, naming Hertz as the insured party. In the event of an accident, Redfern had to report to Hertz, cooperate in liability claims, and hold Hertz harmless for liabilities exceeding their insurance limits. Redfern was not liable for damage to the vehicles, except for damages caused by its agents’ negligence and the first $500 for tractors and $100 for trailers involved in accidents.

Redfern was responsible for managing its drivers' conduct and for any fines arising from legal violations during operation. Hertz was responsible for providing vehicle registration, fuel, lubricants, and maintaining the vehicles in good condition. Redfern had to ensure periodic inspections and servicing at Hertz's Atlanta garage. If a vehicle became disabled, Hertz would manage repairs and provide a substitute vehicle. Hertz could also supply additional vehicles as needed for an extra cost.

The agreement included a cancellation provision allowing either party to cancel with 60 days' notice on any anniversary of the last vehicle's service date. Upon notice, Redfern was obliged to purchase the leased vehicles at a depreciated value defined in Schedule A, which listed the trailer's value at $15,287 with a depreciation rate of $34.14 per week. Vehicles in service for eight years or more were exempt from this purchase obligation upon cancellation. The lease lacked a specified term, referencing it consistently as a lease transaction.

A lease agreement is explicitly defined as a contract of leasing, wherein the customer acquires no rights to the property beyond the terms of the lease. According to Code Ann. 109A-2-314, an implied warranty of merchantability applies to sales contracts when the seller is a merchant. The terms 'seller' and 'buyer' are outlined in Code Ann. 109A-2-315, which describes a sale as the transfer of title from seller to buyer for a price (109A-2-401). The definitions suggest that the cited Code sections pertain exclusively to sales rather than leases, despite a broader application indicated in Code Ann. 109A-2-102. The legislative intent is to confine Article 2 of the UCC to sales transactions. 

The case of Mays v. C. S. Nat. Bank illustrates a scenario in which a defendant leased a vehicle but later defaulted. The court examined whether UCC warranty provisions applied, concluding that the lease did not constitute a sale as defined under the UCC. The court refrained from addressing whether a lease with a purchase option would be treated as a sale. While some jurisdictions have extended UCC warranty provisions to leases, the Georgia Commercial Code's explicit language restricts such application. The ruling affirms that the warranty provisions of Code Ann. 109A-2-316 do not apply to the lease in question. The case also acknowledges that few jurisdictions have directly addressed similar issues, indicating a preference for treating leases analogously to sales in certain circumstances, as demonstrated in Sawyer v. Pioneer Leasing Corp.

The defendant entered into a Master Lease Contract with the plaintiff for an ice machine rental at $45.32 per month for six months, with a requirement to return the machine at the lease's end and no cancellation provision. The defendant was responsible for repairs and maintenance. At trial, the lessor sought accrued payments based on a default clause, while the defendant claimed breach of implied warranties. The Arkansas Supreme Court acknowledged the appropriateness of applying UCC provisions to lease agreements analogous to sales and concluded that disclaimers of implied warranties should similarly be conspicuous. The court emphasized that the extension of UCC implied warranties applies only to transactions resembling sales. It rejected broader UCC applications seen in other cases where leases were treated as sales without distinction. The court aimed to prevent merchants from evading UCC protections by framing sales as leases. This approach aligns with Georgia law, which may interpret leases with reserved titles as sales based on the contract's purpose rather than its label.

The increasing trend among individuals and businesses to lease items instead of purchasing them is noted, with both methods achieving similar business objectives. In the specific transaction involving Redfern and Hertz, several factors indicate it resembles a lease rather than a sale. The weekly rental rate of $77.78 starkly contrasts with the $34.14 weekly depreciation credit for purchase, resulting in a total of $33,156.48 paid over eight years for a vehicle worth $15,287, plus additional costs. Redfern would incur further charges if the lease was canceled. Hertz retained all ownership rights, including maintenance, fuel, insurance, and title, while Redfern had no obligation to repair or replace a disabled vehicle. Despite these lease indicators, Redfern was compelled to purchase the vehicle under certain conditions, resembling a sale. Notably, if Redfern defaulted, Hertz could cancel the lease and enforce a purchase. Thus, Redfern was effectively obligated to buy the vehicle at some point, ensuring it would be less valuable by the end of the lease term. The price disparity arises partly from services provided by Hertz and an implied high-interest rate. Hertz's retention of title is misleading, as it contracted to transfer ownership to Redfern at a future date. The legal definitions and implications of title in sales under Georgia law are discussed, emphasizing that title does not equate to ownership as previously understood. Hertz argues that even if the transaction is seen as a sale, it primarily constitutes a services contract, referencing legal precedents that distinguish between sales and service agreements.

Lovett is distinguishable as the core of the contract with Redfern revolves around the procurement of vehicles, specifically for transporting frozen meat, rather than just servicing vehicles. Redfern's claims include entitlement to recover damages based on Hertz's breach of express warranties, which were outlined in Hertz's advertising, promising that refrigeration units would maintain a 0° temperature and that substitute vehicles would be provided during service interruptions. Even if the express warranty provisions of the UCC applied, Redfern's ability to present these warranties is restricted by the parol evidence rule, as established in Code Ann. 109A-2-202, which states that a final written agreement cannot be contradicted by prior agreements unless it is intended to be an exclusive statement of terms. The agreement in question includes an integration clause affirming it as the complete agreement. Although the transaction isn't a present "sale," it is treated similarly to a future sale under Code Ann. 109A-2-106 (1), making UCC implied warranties applicable. The trial court's ruling that Hertz was not liable to Redfern was erroneous, leading to a reversal and remand for further proceedings on the breach of implied warranties under Code Ann. 109A-2-314 and 109A-2-315. Judges Bell and Webb concurred.