Nath v. National Equipment Leasing Corp.
439 A.2d 633
Pa.
1981
Check Treatment

*1 A.2d NATH, Jr., Appellant, Donald John

v. EQUIPMENT CORPORATION, LEASING NATIONAL

Appellee. Pennsylvania. Supreme Court 17, Sept. 1981. Argued Dec. 1981. Decided Reargument Denied Jan. W. Kenneth Behrend and Mark Aronson, B. Behrend, Morrow, Aronson & Pittsburgh, appellant.

Daniel M. Berger, Pittsburgh, amicus curiae.

Randall J. Dickie, McConnell and Chilcote, McCamey & Miller, James R. Pittsburgh, for appellee. O’BRIEN,

Before J.,C. ROBERTS, NIX, LARSEN, FLAHERTY, KAUFFMAN and WILKINSON, JJ.

OPINION OF THE COURT NIX, Justice.*

This is an action in trespass brought the Court of Common Pleas of Allegheny County, 142, 282 Pa. Super. A.2d 868 which appellant seeks to recover sus- damages tained from an injury suffered during the course of his employment. On March 1972 the left hand of David Nath, John appellant, became caught the gears and blades of a wire and cable stripping machine which did not provide a guard to protect the user’s hands. Mr. Nath lost three fingers and part of the hand. His employer, Keystone Metals (now Company Keystone Resources) obtained the machine from the Rigby Manufacturing Company, which made it. Keystone asked appellee, National Equipment Leasing Corporation (National) to finance the purchase. had Keystone machine, ordered the bargained for the pur- chase price and received the $1,875.00. initial invoice of

Appellee borrowed money from the Pittsburgh National Bank (PNB) in order to provide the funds for Keystone’s purchase. Rigby Manufacturing Company accommodated request National’s to reinvoice the machine to show appellee as owner. Appellee then prepared a lease schedule for the machine and a financing statement to be filed in accordance with the security interest provisions of the Uniform Com- mercial Code. 13 Pa. C.S.A. 1101 et seq. §§ The lease was assigned to PNB as security in case National defaulted on its * reassigned This case was to the writer on October statement showed National to obligation.

loan a debtor. The machine Keystone a secured party be (in the lease term March during was later sold by Keystone 1975)to a California turned company proceeds in another based Appellant, to National. action over Court same filed United States District injury, against Rigby District of Manu- Pennsylvania the Western $175,000.00. verdict of facturing secured a Company, 16, 1975, motion for sum- partial December appellant’s On as to the of the Restatement judgment applicability mary 402A1 appellee Torts denied court § courts appellate en banc. That court concluded not extended Section 402A to lessors. A had Pennsylvania later, appeal lower court certified the case for week Court, to 17 211.501. pursuant P.S. On § *3 5, 1976, Court denied Peti- Superior appellant’s January then Appeal. Appellant petitioned tion for Allowance of of On March 1976 appeal. this Court for allowance an 3, 1977, On we remanded the June petition granted. court, v. Nat’l to the lower Nath Equipment Leasing case (Nath I), in view (1977) 373 A.2d 1105 of Corp., Pa. the fact that below, the court handed

[subsequent to action of [we] . . v. Truck Corporation, down. Francioni Gibsonia Pa. 362, 372 736. . .wherein we reasoned: A.2d provides: of Section the Restatement Torts 402A of Physical Liability Special of Product Harm 402A Seller of § or User (1) Consumer any product in a defective unreasona- One who sells condition subject bly dangerous property is the user or or to his consumer liability thereby physical caused user harm to the ultimate or consumer, property, if or to his selling product, engaged (a) in of the seller is the business and (b) expected the user consumer without it is to and does reach change in which sold. in the condition substantial (1) applies although (2) in The rule stated Subsection preparation possible (a) care in the the seller has exercised all his sale of bought product from (b) consumer the user or has with the contractual relation seller. entered into ‘What is crucial the rule of strict is not the marketing means of but rather the fact of marketing, sale, bailment, whether lease or for use and by consump- public.’ tion by

Id. at at 738. Pa. A.2d [472 367] Thus, in view our that the strict holding chattels, Section is to be to a supplier extended 402[A] lease, even though device is a we marketing employed now vacate order partial motions for denying the cause summary judgment remand for further consideration view of our v. opinion Francioni Gibso nia Corporation, Truck supra. [Footnote omitted.] 180; Id. 473 Pa. at 373 A.2d at 1106. intended to be question remanded Nath I is whether

the lease in was in a question merely financing fact device or whether it was a device used by supplier agreed chattel. On remand the to a limine. parties trial in conventional, the issue whether the lease was a Only or a commercial one financial device was considered. The lower court found the lease to abe device and financing further concluded that under Francioni section 402A did not result, apply. As a the action was dismissed. The Court affirmed the lower and this court followed. appeal Both courts’ are accord decisions with the fully principles announced this Court in Francioni.

The issue presented by appeal this is whether Section 402A applies to “lessor” under a secured transaction fi- nancing device. When we decided Francioni v. Gibsonia *4 Truck conventional, Corporation, supra, commercial leases were clearly distinguished from those secured transactions termed “leases” for 369-70 Pa. at financing purposes. n.3, 372 A.2d at 740 n. 3. We indicated in footnote 3 of Francioni, the in supra, policy operative considerations ex- tending liability to a commercial or are true lease not present where the lessor markets neither nor the supplies merely but is a secured party. that

Appellee contends its lease arrangement with David Trucking Tesone Company actually a method of fi- conventional, not a equipment commercial nancing The is that the appellee’s argument lease. essence rule not extend of strict does to finance lessors en- the finance agree business of We with gaged leasing. the finance lease sui appellee generis the that is that considerations an extension the policy justifying the the present of strict true lease are not concept or the “marketing” “supplying” when the lessor is is, fact, or finan- merely party, but secured “product.” is the The distinction cier, whose collateral has been leasing finance and conventional de- between manner: following scribed variant, leverage finance and its the lease The lease leasing into the market men and financial brought have are financiers rather than institutions who sellers. the equipment These lessors do not manufacture or sell lease; instead, the they purchase it for lessee. they is, is the lessee the ordered equipment by That lessor and turn rented to the lessee. by the purchased when considers tax advan The reasons are obvious one to those invest funds in given are tages Hawkland, The Uniform equipment. Impact Equipment Leasing, Code on U.Ill.L.F. Commercial 446, 449. Comment, Liability also Finance Lessor’s Personal

See U.Ill.L.F. Injuries, distinction between conventional or

An additional leases and finance leases seen “security” “true” relationship: lessor-lessee true what is meant lease is word commonly In the lessor allows the lessee to use theory,

“lease”. life, for some fraction of its useful but equipment end of expects to retake chattel at the “fully right term resell or re-lease it.” The lease and either equipment upon expiration default possession the lease be termed reversion.” may “equipment bemay “disguised” lease of as a security thought contract, a secured sales agreement, installment *5 or a lease “intended as security.” Although security form, written leasing agreement is in lease the not expect goods lessor does retake the at the end the lease instead period but to transfer full ownership Note, to the “lessee” for minimal a sum. In re Leasing Consultants, Law (1975) Yale Journal (footnotes omitted). is, therefore, is,

It a as question to whether the lessor fact, supplying the or whether he particular chattel offering instance, use of In the money. former supplier produce selects it in the places stream In situation, of commerce. the latter it is the “lessee” who chooses the he wishes to use for his ... purposes. v.

Francioni Gibsonia Truck Corp., 472 Pa. at 369 supra, 70 n. 372 A.2d at 740 n. 3.

It clear from Francioni there was no intention of extending coverage of Section 402A transactions that are designed solely financing for purposes. factors pertinent to our determination extend Section cov- 402A erage to lessors in the of leasing products business to the public were:

(1) In lessor, seller, some instances the like the bemay only member of the marketing chain available to the redress; injured for plaintiff (2) As case of the seller, imposition of strict liability the lessor serves as an (3) incentive to The lessor will safety; be in a better position than the consumer to prevent the circulation of products; (4) defective can lessor distribute the cost of for compensating injuries resulting from defects business, i.e., by charging it in his by adjustment of the rental terms. 368-69,

472 Pa. at 372 A.2d at 739. Appellant attempts question the wisdom of rejecting 402A application Section in situations such here as presented. He asserts above criteria have been met. We cannot agree. Section 402A which provides is, form of course, predicated upon *6 the basis for provides That or “negligence.” “fault” that the of is products liability upon suppliers fastening one that has the control over is the or manufacturer supplier of commerce. it within the stream places product the no control the transaction has financing merely The party the selection of manufacture, is not involved the over its as to its a representation makes any way nor in product the ulti- Between the financier and or soundness. quality the goods, the latter who selects usually purchaser, mate its use. and has control over its purchase negotiates the financing purchase the makes it is true that While can be extent the financier that limited and to possible, the product, in the of delivery have participated perceived of the supplying goods in the participation tangential noted, As liability. of strict imposition the justify does not chattel but rather the supplying financier is not the money. the use of offering suggest financing agen- indeed to

It would be novel defects in the detecting prod- responsible should be cies catastrophic impact result would have ucts financed. Such institutions are not Financing equipped commerce. upon are products they of the of myriad the upon quality pass have impact upon nor do direct they to finance upon called to exercise product quality of the manufacturing process with a manu- relationship particular their control. Finally, course, the continui- not, in the normal possess does facturer a basis for indirect provide that would of transactions ty of the safety product. condition and the over the influence the security agree- the fact that impressed by are we Nor of the gain possession for the financier ment may provide Here, of default. it is obvious again, in the event product over the is in no product way the financier’s control but is contingent of the rather safety product related to the financing agree- with the terms of the upon compliance ment. case, in the chain of appellee’s participation

In the instant Its role was not substan- financing was tangential. events risk of This finance creation of an undue harm. tial in the to, nor it was not able would have been in a position lessor In to, product. effect oversee terms safety events, product National’s relationship chain with that of PNB. The was mere was identical selling A finance lessor is not the business of collateral. A finance is in the merchandise. lessor busi- an activity possibly funds. Such cannot circulating ness reasonable reliance of merchan- produce safety reasons, role For the a finance lessor’s foregoing dise. a predicate upon events does not which the provide chain of can rest for a defective product. imposition of the Court affirmed. Order *7 J., a opinion filed in which FLAHER- dissenting LARSEN KAUFFMAN, JJ., joined. TY and LARSEN, Justice, dissenting. decided is whether question today strict un- liability

der (Second) the Restatement of Torts 402A1 extends to § those institutions which provide public to the under products financing leases. appellant suffered while on a injury machine working

which had been leased to his employer appellee, and by suit, instituted in appellant thereupon the Court of Common Pleas of Allegheny County, recover from damages appel- asserted, alia, lee. A theory liability inter was that of under 402A of the liability Restatement § Special Liability Physical A. of Seller Product § for Harm to User Consumer (1) any product One sells in a defective condition unreasona- bly dangerous property subject user or or to consumer his physical thereby harm caused to the ultimate user or consumer, property, or to his if engaged (a) selling product, in seller is the business of (b) expected to and does reach user or consumer with- change in out substantial the condition in which it is sold. (2) (1) applies although The rule stated in Subsection (a) possible preparation the seller has exercised all care in the and sale of his (b) bought the user or consumer has not from or into with entered contractual relation the seller. appellant’s complaint allegation The specific Torts. rented to under appellant’s employer, leased or appellee Lease”, a wire and cable “Equipment captioned a contract in that unreasonably dangerous machine was stripper, hands from the ma- a a user’s guard protect it lacked edges. chine’s cutting Summary Judg a Motion for Partial then filed

Appellant was a appellee the trial court to rule that ment, requesting 402A of the Restatement of under Section “lessor-sellor motion, the court en banc denied the Although Torts 2d.” Court, to the since Superior certified the matter trial court controlling questions concluded that the the trial court had to which to lessors was one as whether 402A extended § After an opinion. difference of was a substantial there Court, we granted appellant’s affirmance by remanded the case to the and thereafter appeal petition consideration, then- of our light trial court for further Track Corporation, Francioni v. Gibsonia decided recently we (1977), A.2d 736 wherein stated 472 Pa. the rule of strict is not the is crucial to “[W]hat the fact of marketing, but rather means sale, bailment, consumption for use and lease or by whether public.” limine, remand, to a trial parties agreed Upon was a question the issue of whether the lease limited to *8 finance lease. The trial court conclud- lease or a commercial that strict liability was a finance lease and ed that the lease Court affirmed and apply. 402A did not under appeal. petition we granted appellant’s legal between the distinguishing basis for principal from liability, flowing of strict in the context consequences, commercial lease is stated lease as to a opposed a financial brief: appellee’s on in the decision participate a lessor does not

When selection, order, of the delivery product, specifications, the lessee to be to the lessee to enable has advanced funds has re- purchase in a to later position its loan of money, interest to secure tained a behind section 402A should policy apply lessor.

asOr stated elsewhere in appellee’s brief: “It is the class of ‘lessors’ who are to have presumed special knowledge of justifies imposition of the doctrine of strict liability.”

The elements reflected in the above statements are clearly to “fault” keyed or “negligence” concepts, and as such are at variance with sharp our clearly enunciated guidelines for strict liability. Co., Azzarello v. Black Inc., Bros. 480 Pa. (1978). Furthermore, 391 A.2d 1020 as this Court had occasion to reiterate in Francioni v. Gibsonia Truck Corpora tion, I supra, find compelling Justice Traynor’s observation: “. . . public demands policy be fixed responsibility wher ever it will most reduce effectively the hazards to life and health inherent in defective products that reach the mar ket.” Escola v. Coca Cola Bottling Fresno, Co. of 24 Cal.2d 453, 462, 150 P.2d 440 (1944) (concurring opinion).

It is beyond that in dispute Pennsylvania the imposition of strict has been premised upon the need to relieve consumers of a burden which bemay intolerable to one upon whom has caprice placed it and to shift that burden to those whose business it to traffic in commerce. Nor am I persuaded that those who facilitate the placing goods in commerce by providing indispensable funds for the purchase and subsequent financial leasing of goods a role play any less critical to hazard creation than such others as job wholesalers. The circumstance that wholesalers, financial lessors, (often) retailers have little or no opportunity inspect goods in which they deal is inconsequential, since imposed without reference to whether cau- tion was exercised or disregarded, if in fact the product defective.

In Pennsylvania, we have consciously consistently rejected an approach to strict liability which is predicated fault, element of knowledge of trading parties (or *9 alien thereof), expectations,

lack consumer other elements partici- identification on bases other than their to defendant (in stage marketing any at the manufacture pation fashion) of It those products. parties-participant spread society the costs of over capacity injury have defective and relieve those innocent victims of a large at consequences. of what be disastrous financial may for institutions a vital and play To afford a shield be to retreat continuing product marketing role in would frequent- our and Given the informing premise. from basic role scheme indispensable played ly can be for afford- lessors, justification no advanced finance here privileged the financial lessor ing uniquely position urged by appellee. Truck factors cited in Francioni v. Gibsonia pertinent 368-369, 372 A.2d 472 Pa.

Corporation, supra, coverage 402A to lessors are no extending 739 for Section no less in the context of finan- present compelling less and redress, lessor leases. The of the availability cial of the circulation safety, possible prevention incentive to inju- defective cost-distribution for products, finally all 402A no less dictating coverage ries sustained are factors lessors, wholesalers, lessors than for commercial for financial I that inclusion of finance expect or retailers. Indeed would objec- these realizing lessors would enhance likelihood of inter- tives, greater because of the number diversity parties. ested reasons, Superi-

For I would reverse order of the these pleas the common court’s conclu- or Court which affirmed lessor, within the sion that as finance was not appellee, 402A Restate- under of the scope Section Torts, case for ment and I would remand the this further consistent with conclusion. proceedings KAUFFMAN, JJ., join dissenting in this FLAHERTY opinion.