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Mercedes-Benz Credit Corporation v. Lotito

A-2879-96T2, 1997 WL 748613 (N.J. Super. App. Div. 1997)

AUTOMOBILES; LEASES; CONSUMER LAW—A consumer automobile lessee may raise a breach of warranty claim against the lessor when there is a sufficiently close relationship between the seller, the manufacturer, and the lessor.

An automobile lease provided for simultaneous assignment from the dealer to the manufacturer’s credit corporation. The lease purported to insulate the credit corporation from liability for breach of any warranty or claim relating to the car. All warranties were from, and enforceable against, the manufacturer and dealer only. After experiencing repeated problems with the car, the lessee stopped payment, whereupon the credit corporation filed an action requesting payment and a writ of replevin. The Lessee countered by claiming breach of the applicable warranties by the credit corporation, the dealer and the manufacturer. The issue was whether a leasing company closely affiliated with an automobile manufacturer, distributor and dealer, yet still a separate entity, was subject to a customer’s defense of breach of warranty. Specifically, the question was whether the credit corporation could enforce the lease over a defense that the vehicle suffered from manufacturing defects in breach of the new car warranty. The trial court granted summary judgment for the credit corporation, holding that the credit corporation was a separate entity. On appeal, the lessee claimed that because the car was defective, there was a breach of express and implied warranties rendering the lease unenforceable.

The Appellate Division held that a consumer lessee may raise a breach of warranty claim against the lessor when there is a sufficiently close relationship between the seller, the manufacturer and the lessor, and that any contractual attempt to disclaim the warranty obligations is unenforceable. The Court found that the credit corporation created the lease form and had extensive knowledge of the terms of the underlying sale agreement, thereby creating a disparity in bargaining power. The Court justified its expansion of consumer rights beyond those granted by contract by stating that a consumer has a reasonable expectation that defective goods will be repaired or a refund granted. The Court then found that the trial judge erred in granting judgment for the credit corporation without first determining whether there in fact had been a breach of warranty, concluding there was no other way to determine whether the credit corporation was liable for the breach of warranty claim. The summary judgment motion was reversed and the case remanded for a factual determination of breach of warranty.


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