## Facts

- R.M.E. Enterprises operated a seasonal picnic grove that generated substantial refuse and sought an on-site, “nonpollutant” disposal method.
- Clean Air Controls, Inc. (the manufacturer) demonstrated incinerator units to R.M.E.’s manager, who agreed to lease two units.
- R.M.E. and Clean Air executed an initial lease requiring 60 monthly payments; although it included a disclaimer, it preserved the manufacturer’s “usual warranties.”
- Later, a Clean Air representative and an Industralease representative told R.M.E. the prior lease was ineffective and that R.M.E. had to sign a new lease to obtain the equipment.
- R.M.E. signed a new lease naming Industralease as lessor; this lease broadly disclaimed express and implied warranties.
- Industralease delivered and installed the incinerators; the units never operated properly, and R.M.E. incurred installation-related expenses without receiving functional equipment.
- Industralease sued for $17,936.76 in unpaid rent; R.M.E. denied liability and counterclaimed for damages.

## Issues

1. Whether U.C.C. Article 2 principles apply, at least by analogy, to a lease of industrial equipment.
2. Whether broad disclaimers of express and implied warranties in an equipment lease are unconscionable when the equipment never operates.
3. Whether the judgment for the lessee (defeating the rent claim and awarding counterclaim damages) should be upheld.

## Decision

- The Appellate Division affirmed the judgment for defendants on the complaint and the award on the counterclaim.
- The court held that U.C.C. concepts apply to leases of goods in transactions functionally akin to sales.
- The court held the lease’s warranty disclaimers unconscionable under the circumstances where the equipment never operated.

## Legal Principles

- U.C.C. Article 2 policies governing goods transactions, including unconscionability review, may be applied to equipment leases when the transaction is substantively similar to a sale.
- Under U.C.C. § 2-302, a court may refuse to enforce contract terms that are unconscionable in light of the circumstances of the transaction.
- U.C.C. § 2-316’s rules on excluding or modifying warranties do not preclude invalidation of a disclaimer under § 2-302 when enforcement would be oppressive.
- Sweeping warranty disclaimers that leave a lessee without a remedy may be unconscionable where the leased equipment fails to operate at all.

## Conclusion

The court treated the equipment lease as within U.C.C.-based scrutiny and refused to enforce broad warranty disclaimers that would have shifted all risk to the lessee despite total equipment failure, affirming judgment for the lessee on both the rent claim and the counterclaim.


Industralease Automated & Scientific Equip. Corp. v. R.M.E. Enters., Inc., 58 A.D.2d 482 (N.Y. App. Div. 2d Dep’t 1977)