Wednesday, November 5, 2008
Court of Appeal Shields Finance Companies From Strict Products Liability
By STEVEN M. ELLIS, Staff Writer
The strict products liability doctrine does not apply to institutions that finance others’ equipment purchases through leases, the Fifth District Court of Appeal ruled yesterday.
Ruling that the public policy considerations behind imposing liability on those who distribute consumer goods vertically were not furthered by including “finance lessors” located outside the chain of distribution, the court upheld judgment in favor of CitiCapital Commercial Corporation in a man’s action for injuries from a machine whose purchase the company had financed.
Guillermo Arriaga filed suit alleging strict liability, negligence and breach of warranty after he was injured when his finger became entangled in a glue spreading machine at work.
The machine was in used condition when purchased by Arriaga’s employer, Orepak Hardwood Products, and the accident occurred because a portion of a guard was removed before Orepak took possession from AVP Ltd., who had financed the machine’s purchase through a lease from CitiCapital’s predecessor in interest, JLA Credit Corporation.
Noting that JLA did not select, manufacture or supply the machine but, rather, purchased it for, and then rented it to, AVP, CitiCapital moved for summary judgment against Arriaga—who had sued the company as the purported lessor/owner of the machine—on the ground that, as a finance lessor and one time seller, it was not part of the chain of commerce and thus not subject to strict products liability.
The company further asserted that it had no duty to inspect the machine for defects before Orepak purchased it, and thus could not be held liable for negligence, and argued that it could not be held liable for breach of implied warranty of merchantability in its role as a finance lessor.
After Fresno Superior Court Judge Mark Wood Snauffer granted the motion, Arriaga renewed on appeal his arguments that CitiCapital was strictly liable for his injuries because it had been instrumental in placing the product into the stream of commerce; that the company—as the alleged owner/lessor of the machine—had been required to exercise reasonable care to inspect it before turning it over to the lessee; and that an implied warranty of merchantability had arisen in the sale to Orepak.
But Justice Bert Levy wrote that Snauffer had properly granted summary judgment because CitiCapital was a finance lessor analogous “to a bank that loans money to its clients,” not a commercial lessor that retains a right of reversion, and because CitiCapital, as a mere financier, was outside the direct chain of distribution.
Examining the policy considerations behind imposing strict products liability on those involved in the vertical distribution of consumer goods, Levy opined that they would not be furthered by imposing strict liability on finance lessors because “[t]he finance lessor is not in any position to exert pressure on the manufacturer to enhance safety and any profit reaped by the finance lessor is derived from having placed its money, not the product, into the stream of commerce.”
Levy similarly concluded that CitiCapital’s status as a finance lessor meant it could not be liable under strict products liability or negligence theories for selling the used machine because it was a product to which CitiCapital had no connection “other than having obtained bare legal title through the financing mechanism” and noted that finance leases do not give rise to any implied warranty that goods will be merchantable.
Justices Betty L. Dawson and Brad R. Hill joined Levy in his opinion.
The case is Arriaga v. CitiCapital Commercial Corporation, 08 S.O.S. 6046.
Copyright 2008, Metropolitan News Company