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from service were difficult to reuse because customers preferred
new garments and did not want to wear used clothes. Garments
that were withdrawn from service were: (1) Donated to charity,
(2) sold for scrap, (3) discarded, or (4) stored in petitioner’s
stockroom.
Service Rental Agreement
Petitioner used two standard form contracts, both titled
“Service Rental Agreement”, when negotiating its services to
furnish, clean, pick up, and deliver garments and dust control
items with customers.
The Service Rental Agreements included a replacement
provision that charged the customer for damages. The contract
stated:
3. REPLACEMENT: In the event of damage to
wearing apparel by CUSTOMER, reasonable wear excepted,
CUSTOMER shall pay PRUDENTIAL’s replacement value less
depreciation of 2% of the replacement value for each
month in service. Total depreciation is not to exceed
80% of replacement value. * * *
Petitioner’s management believed that the replacement provision
provided customers with an incentive to care for the items and
deterred customers from misusing the items.
The Service Rental Agreements set the term of the contract
at 60 months. The length of a clean room garment contract was
generally 60 months. The typical length of an industrial garment
contract was 36 months.
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Last modified: May 25, 2011