On Pеtition To Transfer from the Indiana Court of Appeals, No. 20A05-0404-CV-202
We hold that tort liability of a tenant who leaves a dangerous item on the leased premises at the expiration of a lease is not extinguished by reason of the expiration of the lease. We also hold that a provision in a lease to a successor tenant that the item is acquired “as is” does not of itself bar a tort claim asserted by a non-contracting party.
Facts and Procedural History
Dutchmen Manufacturing, Inc., is a manufacturer of recreational vehicle travel trailers and fifth wheels. From April 1992 until February 1999 Dutchmen leased a facility in Goshen, Indiana, from Chapman Realty, Inc. At some point during its tenancy, Dutchmen employees installed scaffolding which was affixed to the ceiling beams without Chapman’s knowledge or consent. The identities of the employees who performed the assembly and the time it was done are not known according to Dutchmen.
Dutchmen’s lease required that it remove all personal property and trade fixtures before vacating the premises. Any property not rеmoved would become the property of Chapman, and the lease also gave Chapman the right to require removal at Dutchmen’s expense.
Chapman had initially told Dutchmen to remove the scaffolding or pay for its removal, which was estimated to cost $4,200. Shortly before the lease expired, Chapman began negotiating to lease the premises to Keystone RV, Inc., a manufacturer of travel trailers and Keystone expressed a desire that the scaffolding be left in the building. Dutchmen first offered to sell thе scaffolding to Keystone, and when that proposal was rejected offered to give the scaffolding to Keystone if Chapman would not charge Dutchmen for its removal.
Dutchmen vacated the premises on February 28, 1999 leaving the scaffolding in place. Two weeks later, Keystone signed a lease with Chapman and took possession of the premises on May 3. Under its lease, Keystone accepted the premises from Chapman “AS IS.” Keystone’s chairman supplied an affidavit that it was his understanding that Keystone “accepted and took possession of the scaffolding ... at its own risk, regardless of whether the scaffolding contained defects or deficiencies.”
In December 1999, Chad Reynolds, a Keystone employee, was installing electric wiring in a trailer under assembly. Scaffolding broke loose from its mounting and struck Reynolds rendering him paralyzed below the neck. According to Keystone’s employee injury report, a weld in the scaffolding had failed. Keystone’s engineers determined that an inner steel tube had fractured due to lack of lubricant and “improper welding procedure.” The inner tube was concealed from view by an outer tube and an end cap when the unit was assembled.
In November 2000, Reynolds
1
filed a complaint against Chapman and Dutch
*519
men, alleging, among other things, that Dutchmen was liable for the injuries because it had constructed and installed defective scaffolding in the building that it had formerly leased from Chapman. Dutchmen moved for summary judgment, arguing that it did not owe Reynolds any duty and was not negligent per se. At the hearing on that motion, Reynolds filed a supplemental memorandum of law, alleging for the first time that Dutchmen was liable as a supplier of a defective chattel under section 388 of the Restatement (Second) of Torts. Dutchmen responded that the scaffolding was not a chattel, and that Keystone was aware of the dangers of the scaffolding and had accepted the premises and scaffolding “as is.” The trial court granted Dutchmen’s motion for summary judgment with respect to Reynolds’ negligence per se claim and all theories of negligence except for the section 388 claim. On interlocutory appeal, the Court of Appeals reversed and remanded to the trial court with direction to enter summary judgment for Dutchmen on all theories, including the section 388 claim.
Dutchmen Mfg., Inc. v. Reynolds,
Standard of Review
Reynolds’ section 388 claim is the only issue in this interlocutory appeal. Dutchmen argues that the trial court errеd in denying its motion for summary judgment and the Court of Appeals agreed. On review of a trial court’s decision to grant or deny summary judgment, we apply the same standard as the trial court: we must decide whether there is a genuine issue of material fact that precludes summary judgment and whether the moving party is entitled to judgment as a matter of law.
Carie v. PSI Energy, Inc.,
I. Restatement (Second)
Torts Section 388
Section 388 of the Restatement (Second) of Torts provides:
One who supplies directly or through a third person a chattel for another to use is subject to liability to those whom the supplier should expect to use the chattel with the consent of the other or to be endangered by its probable use, for physical harm caused by the use of the chattel in the manner for which and by a person for whose use it is supplied, if the supplier
(a) knows or has reason to know that the chattel is or is likely to be dangerous for the use for which it is supplied, and
(b) has no reason to believe that those for whose use the chattel is supplied will realize its dangerous condition, and
(c) fails to exerсise reasonable care to inform them of its dangerous condition or of the facts which make it likely to be dangerous.
A. Merger of the Scaffolding into the Real Estate
A “chattel” is “movable or transferable property; personal property.” *520 Black’s Law Dictionary 251 (8th ed.2004). The parties agree that the scaffolding is a trade fixture. A “trade fixture” is “personal property put on the premises by a tenant which can be removed without substantial or permanent damage to the premises.” 14 Ind. Law Encyclopedia, Fixtures § 14 at 137 (West 2004). Thus, the scaffolding was a chattel at the time of Dutchmen’s occupancy.
Dutchmen аrgues, however, that the scaffolding merged into the realty and title to the scaffolding vested in Chapman when Dutchmen vacated the premises and Keystone had not yet signed its lease with Chapman. Therefore, Dutchmen reasons, the scaffolding was realty and not a “chattel” at the time of the accident and section 388 is inapplicable. Reynolds responds that Dutchmen did not abandon the scaffolding, so it remained a chattel at the expiration of Dutchmen’s lease. Reynolds argues, that Dutchmen transferred ownership of the scaffolding to Keystone with the consent of Chapman in order to avoid incurring the expense of its removal, and this arrangement was consummated before Dutchmen vacated the premises.
The parties discuss this issue in terms of ownership of the asset, citing cases dealing with title to fixtures and similar property where the landlord and the tenant dispute ownership after expiration of a lease. It is true, as the Court of Appeals held in this case, that a trade fixture installed by a tenant merges with the realty and thereby becomes the property of the landlord if it is left on the premises after the tenant leaves the premises. The cases cited by the parties typically deal with a situation where the tenant has enhanced the real estate and the landlord claims title by “merger” to structures or improvements that the tenant had not removed. Chapman apparently viewed the scaffolding as a liability, not an asset, because it demanded removal and claimed a right to charge Dutchmen with the cost of removal if Dutchmen did not remove it at the expiration of the lease. Chapman then located a prospective tenant that affirmatively wanted the scaffolding. At least one inference is that Chapman had no interest in obtaining title to the scaffolding and intended to demand removal when Dutchmen vacated the premises, but then arranged for Dutchmen to transfer the scaffolding to Keystone to avoid the cost of removal.
The documents before us make no specific reference to the scaffolding in the arrangement between Keystone and Chapman, and in particular do not specifically address interest in the scaffolding. It is clear, however, that Chapman disclaimed ownership of the scaffolding and demanded its removal which, if not done, would be performed at the tenant’s expense.
A tenant may remove buildings or improvements pursuant to the terms of its lease, but failure to do so ordinarily causes title to the improvements to merge into the real estate.
Merrell v. Garver,
We think a fair inference from this evidence is that Chapman consented to Dutchmen’s leaving the scaffolding in the building after the lease expired. If so, title to the scaffolding never vested in Chapman and was transferred directly from Dutchmen to Keystone. Indeed, the affidavit of Keystone’s chairman refers to Keystone’s taking “ownership” of the scaffolding at the time it occupied the building. If the scaffolding had passed to Chapman and was governed by the lease to Keystone, Keystone would be its lessee, not its owner. Given that Dutchmen left the scaffolding at Chapman’s request to accommodate Keystone’s desires and to avoid the cost of removal, we think that view of these facts is plausible and, if so, no merger occurred.
In any event, we do not regard the legal title to fixtures to be the controlling consideration for purposes of section 388 tort liability. One who supplies a chattel for purposes of section 388 has liability whether or not thе chattel is incorporated into the real estate. Dutchmen was a “supplier” as that term is used in section 388, and Dutchmen does not contend otherwise. Comment c of section 388 defines a “supplier” as “any person who for any purpose or in any manner gives possession of a chattel for another’s use.... These rules, therefore, apply to sellers, lessors, donors, or lenders.” Dutchmen was not only the manufacturer of the scaffolding, it also turned the scaffolding over for Keystone’s “use” in return for consideratiоn (avoiding the cost of removal). The scaffolding therefore was not simply abandoned property at the expiration of Dutchmen’s lease, which we assume, without deciding, would not ordinarily render an exiting tenant a “supplier.”
Section 388 sets out a tort doctrine that places a loss on the party who caused it. The niceties of real estate title — specifically incorporation into realty — produce no different result. A supplier of a chattel is not freed from section 388 liability because the chаttel is incorporated into another chattel.
See, e.g., McGlothlin v. M
*522
& U Trucking, Inc.,
Because we draw factual inferences in favor of the non-moving party, summary judgment for Dutchmen cannot be affirmed on the merger theory. The designated evidence permits the inference that the intention of all three parties involved was that Keystone would obtain ownership of the scaffolding if and when it signed its lease with Chapman. The arrangement effectively allowed Dutchmen an extension of time past the conclusion of the lease for removing the scaffolding and was for the benefit of all three. Had the lease between Keystone and Chapman not been consummated, Dutchmen would have had a reasonable time to remove the scaffolding or pay for its removal.
Merrell,
B. Elements of a Section 388 Claim
Section 388 imposes liability on a supplier of a chattel for physical harm caused by the supplier’s “failure to exercise reasonаble care” to provide to any expected user of the chattel any information as to the “character and condition of the chattel ... which [the supplier] should recognize as necessary to enable [the user] to realize the danger of using it.” Restatement (Second) Torts § 388 cmt. b. A supplier of a chattel has no duty to warn of an obvious hazardous condition which a “mere casual looking over will disclose.”
Id.
at cmt. k; R.D. Hursh,
Manufacturer’s or Seller’s Duty to Give Warning Regarding Product
as
Affecting His Liability for Product-Caused Injury,
Dutchmen argues that Reynolds’ section 388 claim fails because Dutchmen had no reason to know the weld on the scaffolding was defective and had no reason to believe that those using the scaffolding would fail to realize its dangerous propensities. Reynolds does not deny that Keystone and its employees knew of the potential dangers generally associated with the use of scaffolding. However, Reynolds contends that despite Keystone’s inspections of the scaffolding, because an outer tube and end cap were placed over the defective weld, Keystone was unaware of that defect and the lack of adequate lubricant in the joints. Reynolds contends that only the designers and constructors of the scaffolding, who were Dutchmen employees, could have known of the improper weld and thus the particular associated danger.
*523 The trial court found that “there has been no evidence designated establishing that Dutchmen had actual knowledge of the allеged welding defects in the scaffolding.” However, Reynolds provided expert opinion that the defect in the weld that led to the collapse was so poor in appearance that the allegedly defective weld “should have been visibly obvious” to the welder at the time of manufacture when the inner tube was still visible.
A negligence claim under section 388 may be based upon the supplier’s actual or constructive knowledge of the danger. Bo
gard v. Mac’s Rest., Inc.,
II. Assumption of Risk
Dutchmen argues that section 388 does not impose liability on it because Keystone contractually accepted the premises, which included the scaffolding, “as is” and contractually assumed any risks associated with the scaffolding. There was no written contract between Keystone and Dutchmen. Keystone’s lease with Chapman provided that Keystone acquired the premises “as is.” The “as is” language in Keystone’s lease with Chapman is contained in the section of the lease entitled “Lessee’s Examination of Premises, Maintenance and Repair,” which is also found in Dutchmen’s lease with Chapman.
Based on the “as is” clause, Dutchmen argues that Keystone “contractually assumed any risks associated with the scaffolding.” There are several reasons why this contention does not support summary judgment. First, if the scaffolding passed directly from Dutchmen to Keystone, it was not a part of “the premises” leased by Chapman to Keystone and was not the subject of the “as is” clause. Second, in order to effectuate an exemption from liability for the consequences of negligence, a provision for such an exemption must clearly express an intention to exclude liability for any and all harms however caused. Arthur Linton Corbin, 6A
Corbin on Contracts
§ 1472 (1962). The “as is” language in the lease between Chapman and Keystone serves to disclaim any implied warranty from Chapman to Keystone. “As is” means “in the existing condition without modification.”
Black’s Law Dictionary
121 (8th ed.2004). “Generally, a sale of property ‘as is’ means that the property is sold in its existing condition,” and use of the phrаse “as is” relieves the seller from liability to the purchaser for defects in that condition.
Id.
at 122. Expressions such as “as is” or “with all faults” are commonly understood to exclude implied warranties.
See Warner v. Design & Build Homes, Inc.,
*524
More, importantly, even if we construe the “as is” clause as an attempt to bar such claims, an agreement between Keystоne and Chapman or Keystone and Dutchmen does not bar Reynolds’ tort claim against Dutchmen. Dutchmen is correct that contracting parties are free to allocate risks as they choose. But that freedom extends only to allocation of risk as among the parties to the agreement. Parties cannot by agreement transfer risk from themselves to non-parties.
3
Keystone could indemnify Dutchmen against third party claims, but Keystone cannot waive its employees’ rights against Dutchmen.
4
Keystone can agree to indemnify Dutchmen against claims by Keystone employees.
5
Even if we take the agreement to lease the premises “as is” to imply such an indemnity as to the scaffolding, an employer’s decision to indemnify a third party does not limit an employee’s tort claim against the third party.
See, e.g., Waters v. Puget Sound Power & Light Co.,
We find little case law on the effect of an “as is” clause on tort liability to third parties. Dutchmen cites this Court’s decision in
Stapinski v. Walsh Construction Co., Inc.,
Dutchmen is correct in pointing out that Stapinski noted the employer’s agreement to purchase the vehicle “as is.” But this factor was cited among others and in isolation Stapinski did not find it sufficient to eliminate any liability of the seller to bystanders, employees or other third parties in the scope of the risk. To the contrary, we think the holding in Stapinski is grounded largely on the employer’s obligation to maintain the vehicle coupled with the employee’s use of the truck on public highways, both of which amounted to intervening circumstances.
Dutchmen’s reliance on landlord-tenant cases is also misplaced. It is true, as Dutchmen contends, that a landlord under many circumstances has no liability to tenants or others for injuries on the property when the tenant is in full control of the leased premises. But the case Dutchmen cites for this proposition deals with injuries due to snow removal that was the tenant’s obligation.
See Smith v. Standard Life Ins. Co.,
Finally, Dutchmen also cites the affidavit of Keystone’s chairman that:
Keystone’s understanding was that, if it accepted the Scaffolding from Dutchmen or Chaрman, Keystone would be accepting and taking possession of the Scaffolding on an “AS IS” basis.
More specifically, Keystone’s understanding was that, if it accepted and took possession of the Scaffolding, it was doing so at its own risk, regardless of whether the Scaffolding contained defects or deficiencies.
Reynolds responds that the chairman was not present during the lease and scaffolding negotiations and that acceptance of the scaffolding “as is” was never discussed in the negotiations. But even if we tаke the chairman’s affidavit as reflecting some form of agreement between Chapman and Keystone or Keystone and Dutchmen, it does not support summary judgment as to Reynolds. The affidavit is ambiguous and may be construed as either a disclaimer of warranties, an indemnity of Chapman and/or Dutchmen, or an effort to bar third party claims. For reasons already given, none of these would bar Reynolds’ claim.
Conclusion
The ruling of the trial court denying Dutchmen’s summary judgment motion on Reynolds’ section 388 of the Restatement (Second) of Torts claim is аffirmed. This case is remanded to the trial court.
Notes
. Chad was nineteen years old when the complaint was filed, and Don Reynolds was a *519 named plaintiff in his capacity as Chad’s father. See Ind.Code § 34-23-2-1 (2004). For simplicity, we refer to the plaintiffs collectively as ''Reynolds.”
. See
Revzen Bus. Interiors, Inc. v. Carrane,
.
See Rhodes v. Wright,
.
See, e.g., Folstad v. Eder,
. See, e.g., Borroel v. Lakeshore, Inc.,