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Law School Case Brief

Industralease Automated & Sci. Equip. Corp. v. R.M.E. Enters., Inc. - 58 A.D.2d 482, 396 N.Y.S.2d 427 (App. Div. 1st Dept. 1977)

Rule:

U.C.C. § 2-302 provides that the court may refuse to enforce a contract clause once it finds the clause to have been unconscionable at the time it was made. The determination of unconscionability is a matter of law for the court to decide, and thus subject to the court's review. The official comment to § 2-302 states that it is intended to allow the court to pass directly on the unconscionability of the contract or particular clause therein and to make a conclusion of law as to its unconscionability, and that the basic test is whether, in the light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract.

Facts:

Plaintiffs lessors, Industralease Automated & Scientific Equipment Corporation (Industralease) filed an action against defendant lessees, R.M.E. Enterprises, Inc., et al., (R.M.E.) to recover the unpaid rent due under an equipment lease that involved the lease of defective incinerators. R.M.E. denied liability, claiming that Industralease had breached its warranty that the equipment was properly constructed, and free of operational defects. At the trial, the court held that the disclaimer of warranties contained in the lease was not unconscionable as a matter of law. A jury returned a verdict for R.M.E. in the amount of $1,342 on their counterclaim. Industralease sought appellate review.

Issue:

Were the disclaimers of the express warranties contained in the lease unconscionable given the fact that the incinerators never operated?

Answer:

Yes.

Conclusion:

The Court held that the Uniform Commercial Code applied to leases of equipment and that the disclaimers of warranties were unconscionable under the circumstances of the case and, therefore, not enforceable. The equipment was not only valueless, it did not work at all and, therefore, achieved none of the purposes of the parties.

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