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Intek Auto Leasing, Inc. v. Gharib

A-5173-04T2 (N.J. Super. App. Div. 2006) (Unpublished)

BAILMENT; LEASES—A repair company holding its customer’s property is a bailee who has a duty to exercise reasonable care in safeguarding the property and if the property was leased from a leasing company, the leasing company has a duty to its lessee to use reasonable efforts to secure return of the property from the bailee.

An automobile sales and repair company sold a used truck to a customer. The sale was financed by a leasing company that took title to the truck and leased it to the customer. When the truck broke down several months later, the truck was towed back to the seller for repair. The seller determined that the engine needed to be “overhauled” and provided the customer with a signed written estimate. The consumer paid the required deposit for the repairs. During the course of the repairs, the customer called every day to find out the status of the repair. The seller told its customer that the truck required a new engine and that the estimated cost would be about eight thousand dollars, including labor. The leasing company agreed to restructure the lease, but refused to permit the seller to conduct the repairs based on its prior bad experience with the seller. The leasing company also gave its lessee a three month abatement of payments and worked with the customer to regain possession of the truck. The seller refused to turn over possession, claiming that it was entitled to storage fees of twenty-five dollars per day, retroactive to the date the truck was towed. Many months later, the leasing company finally took steps to regain possession of the truck and it was returned without an engine or transmission. In addition, the seller had stripped the truck of its internal components and left them unprotected from the elements.

When the leasing company finally regained the engine parts, they had been destroyed and were useless. The leasing company sued the seller for damaging the truck and sued its lessee for the balance of the lease payments. The seller countersued for its storage fees. The lower court found that the seller and leasing company entered into a bailment relationship that imposed a duty on the seller to exercise reasonable care for safeguarding the truck while in its possession. It also found that it was a mutual bailment, voluntarily entered into by the parties when the customer paid the initial repair deposit. The seller did not place any limitations on the time it would hold the truck or extent of the repairs it would undertake and therefore had a duty to safeguard the truck while in its possession. The seller breached that duty when it dismantled the engine and transmission and left the parts exposed to the elements. The lower court also found the amount of damages to be the replacement cost for the destroyed engine and transmission. With respect to the leasing company’s complaint against its lessee, the lower court found that, under the Uniform Commercial Code, the leasing company had to take reasonable steps to mitigate its damages. It noted that the leasing company did not act in good faith because it was not diligent in attempting to retrieve the truck and get it repaired for resale. All it attempted to do was to seek the entire value of the lease agreement, including repossession charges, without attempting to protect the truck and re-sell it. The Appellate Division affirmed.

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