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Car Wash Management Inc. v. Equipment Marketers

A-2593-08T1 (N.J. Super. App. Div. 2010) (Unpublished)

UCC; REVOCATION — Even though it is not a hard and fast rule, under the Uniform Commercial Code, when a purchaser revokes acceptance of non-conforming goods, it generally cannot continue to use the goods.

A laundromat operator purchased a number of commercial dryers for use in its laundromats. On four separate occasions, four of the dryers caught fire, burning clothing or towels. The equipment distributor sent service technicians to inspect the machines and there were discussions with the operator about proper venting and cleaning of the machines. The operator demanded that the dryers be removed and that it be reimbursed for the purchase price of the dryers and for other damages. When the dryers were not removed, the operator sued the manufacturer and distributor for revocation of non-conforming goods under the Uniform Commercial Code (UCC).

Throughout the litigation, the operator continued to use the defective dryers, but used an enhanced maintenance program for the dryers to avoid future fires and there were no additional fires during that time period. The operator claimed that he used the four dryers when the laundromat was busiest and only when necessary, and he monitored them closely and steered customers away from those dryers when the laundromat was not busy.

The distributor moved for summary judgment to dismiss the UCC claim, arguing that the laundromat operator’s continued use of the dryers after it gave notice of revocation constituted confirmation of its continued acceptance of the dryers. Therefore, the revocation was ineffective. The laundromat responded that the dryers were used as a last resort as backup dryers to minimize its damages. The lower court agreed with the distributor and dismissed the UCC claim. The laundromat appealed and the Appellate Division affirmed.

The Court noted that the UCC allows a purchaser to revoke acceptance of nonconforming goods when the nonconformity substantially impairs its value. In order to revoke, the purchaser must do so within a reasonable time after discovering the grounds for revocation and before there is any substantial change in the condition of the goods which is not caused by their defect. In addition, the revocation is not effective until the purchaser notifies the seller. However, under the UCC, when a purchaser revokes acceptance of non-conforming goods it generally cannot continue to use them. This, however, is not a hard and fast rule. The Court cited an Ohio Supreme Court case that gave five factors to consider in determining if a purchaser’s continued use of a product after revocation was reasonable: (1) After the purchase revoked acceptance, what instructions did the seller give the purchaser with respect to the goods rejected?; (2) Did the purchaser’s business needs compel the continued use of the equipment?; (3) During the purchaser’s continued use of the goods, did the seller assure the purchaser that the non-conformities would be cured or that the purchaser would be compensated for the dissatisfaction and inconvenience?; (4) Did the seller act in good faith?; and (5) Was the seller prejudiced by the purchaser’s continued use of the goods.

In this case, the Court found that the laundromat’s continued use of the dryers after its attempted revocation was unreasonable. It did not find compelling circumstances that required the laundromat to continue using supposedly defective dryers. In noted that the dryers were ordinary commercial dryers for which suitable substitutes were available. The Court also noted that while the distributor did not offer to reclaim the dryers after the laundromat’s notice of rejection, the laundromat never disconnected the dryers. The laundromat did not mark them “out of order” or have them moved to storage. Instead, the laundromat continued using the dryers, albeit with a more careful maintenance program. The Court found that the laundromat made a business decision to continue using the dryers because the enhanced maintenance seemed to take care of the fire problem and use of the dryers generated income for the store. Under these circumstances, there were no compelling or exigent circumstances that excused the laundromat’s continued use of the dryers after it sent notice of revocation to the distributor. Therefore, the laundromat’s revocation was no longer effective.

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