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DONALD JOHN NATH v. NATIONAL EQUIPMENT LEASING CORPORATION (11/07/80)

filed: November 7, 1980.

DONALD JOHN NATH, JR., APPELLANT,
v.
NATIONAL EQUIPMENT LEASING CORPORATION



No. 653 April Term 1979, Appeal from the Order and Judgment of the Court of Common Pleas of Allegheny County, Civil Div., at No. 3802 April Term, 1974.

COUNSEL

Kenneth W. Behrend and Charles H. Staub, III, Behrend, Aronson & Morrow, Pittsburgh, for appellant.

Randall J. McConnell, Jr., Pittsburgh, for appellee.

Spaeth, Wickersham and Lipez, JJ.

Author: Spaeth

[ 282 Pa. Super. Page 145]

The issue in this case is whether the doctrine of strict liability under the Restatement (Second) of Torts § 402A*fn1 should be applied to an equipment leasing corporation.

On March 29, 1972, appellant, Donald John Nath, was injured when his left hand became caught in the gears and blades of a wire and cable stripping machine; as a result, he lost three fingers and part of his hand. The machine had

[ 282 Pa. Super. Page 146]

    been leased to appellant's employer, Keystone Metals Company (now Keystone Resources), by appellee, National Equipment Leasing Corporation. In his complaint against appellee,*fn2 appellant alleged that appellee leased to Keystone a machine that was "unreasonably dangerous" in that it lacked a guard to protect the user's hands.*fn3 Appellant then, by motion for partial summary judgment, sought a ruling by the lower court that Section 402A applied to lessors such as appellee. On December 16, 1975, this motion was denied by a court en banc, which ruled that "the appellate courts of Pennsylvania" have not extended Section 402A to lessors. On December 23, 1975, the lower court amended its order denying appellant's motion. Noting that the issue involved "a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate Appeal from said Order may materially advance the ultimate termination of the matter," and that "Appellate State Courts in Pennsylvania have apparently not considered the issue," the lower court certified the case for appeal to this court, pursuant to 17 P.S. § 211.501. However, on January 5, 1976, this court denied appellant's Petition for Allowance of Appeal. Appellant then petitioned the Supreme Court for allowance of an appeal, and on March 3, 1976, that Court granted his petition. On June 3, 1977, the Supreme Court, with a per curiam opinion, remanded the case to the lower court for further consideration. The Court noted that subsequent to the order of the lower court, it had handed down its opinion in Francioni v. Gibsonia Truck Corporation, 472 Pa. 362, 372 A.2d 736 (1977), in which it held that Section 402A may be extended to a supplier of chattels, even though the marketing device employed is a lease. In Francioni the Court stated that the policy considerations justifying the extension of strict liability to the conventional lease are not present where the lessor is not marketing the product but

[ 282 Pa. Super. Page 147]

    merely financing its acquisition. 472 Pa. at 369-70 n. 3, 372 A.2d 736, 740 n. 3. In remanding, the Court referred to this statement, saying that "[w]e express no view as to appellee's claim that the instant lease was merely a financing device. This question, along with any others that may be properly raised on remand, should first be considered by the trial court." Nath v. National Equipment Leasing Corp., 473 Pa. 178, 180, n. 3, 373 A.2d 1105, 1107 n. 3 (1977).

Upon remand, the parties agreed to a trial in limine, limited to the issue of whether the lease in question was a conventional, commercial lease or merely a financing device. On October 20, 1978, the lower court determined that the lease was a financing device; the court stated that "there is not one shred of evidence that defendant [ i. e., appellee-lessor] here has by marketing and advertising placed an article in the stream of commerce." The court therefore concluded that under Francioni, Section 402A did not apply, and dismissed the action. On July 18, 1979, the court dismissed appellant's exceptions and entered judgment for appellee. Appellant now appeals.

-1-

A conventional, commercial lease may be defined as an instrument by which the lessor retains ownership of the particular item supplied to the lessee. The term of the lease is usually shorter than the useful life of the leased item, and at the end of the term, the lessor resumes possession of the item and either re-leases or sells it. Generally, the lessor is engaged in the business of leasing the item to others, and therefore possesses expertise with respect to it. By contrast, a finance lease resembles a sale. The lessee expects by installment payments ("rent") to pay for the item in full. The lessor generally has no expertise with respect to the item leased, and usually does not take possession of it. Rather, the lessee is the party with expertise, and it is generally the lessee that selects the equipment and negotiates the transaction. See Hawkland, The Impact of the Uniform Commercial Code on Equipment Leasing, 1972

[ 282 Pa. Super. Page 148]

U.Ill.L.F. 446, 449; Comment, Finance Lessor's Liability for Personal Injuries, 1974 U.Ill.L.F. 154; Note, In re Leasing Consultants, 84 Yale Law Journal 1722, 1723 (1975). J. White, R. Summers, Uniform Commercial Code, § 22-3 pp. 762-65 (1972). In determining whether a lease is a conventional commercial lease or a financing device, the circumstances of the particular transaction must be examined. An agreement may assume the form of a conventional commercial lease and yet upon examination prove to be a "disguised" financing device, in which the lessor's interest is not in the item itself but in the security represented by the item. 84 Yale Law Journal 1722, supra.

In Francioni, in applying Section 402A to a conventional lessor engaged in the business of leasing trucks, the Supreme Court observed that the policy behind Section 402A is to place responsibility on those who, through manufacturing and distribution, intend that products "reach the market." 472 Pa. at 367, 372 A.2d at 738, quoting Bialek v. Pittsburgh Brewing Co., 430 Pa. 176, 187 n. 2, 242 A.2d 231, 236 n. 2 (1968); Restatement (Second) of Torts § 402A, Comments C and F. The Court went on to say:

What is crucial to the rule of strict liability is not the means of marketing, but rather the fact of marketing, whether by sale, lease or bailment, for use and consumption by the public. Link v. Sun Oil Co., [160] Ind.App. [310], 312 N.E.2d 126, 130 (1974); Whitfield v. Cooper, 30 Conn.Sup. 47, 298 A.2d 50 (1972); Delaney v. Towmotor Corp., 339 F.2d 4, 6 (2d Cir. 1964). Where these fundamental principles are applicable, the imposition of artificial distinctions will only frustrate the intended purpose.

Id.

In applying Section 402A to the conventional lessor, the court particularly found support in Cintrone v. Hertz Truck Leasing & Rental Service, 45 N.J. 434, 212 A.2d 769 (1965), where the New Jersey Supreme Court found a warranty of ...


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