BUDDY JAMES SMITH v. GENERAL MOTORS CORPORATION, CADILLAC, INC.
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RENDERED: October 16, 1998; 2:00 p.m.
TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
No. 1997-CA-002295-MR
BUDDY JAMES SMITH
v.
APPELLANT
APPEAL FROM McCRACKEN CIRCUIT COURT
HONORABLE JAMES R. DANIELS, JUDGE
ACTION NO. 95-CI-000934
GENERAL MOTORS CORPORATION,
and ROYAL OAKS CHEVROLETCADILLAC, INC.
APPELLEES
OPINION
REVERSING AND REMANDING
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BEFORE:
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HUDDLESTON, KNOPF, and MILLER, Judges.
MILLER, JUDGE.
Buddy James Smith brings this appeal from a
summary judgment (Ky. R. Civ. Proc. (CR) 56) of the McCracken
Circuit Court entered April 24, 1997.
We reverse and remand.
On or about December 15, 1994, Buddy James Smith
(Smith) purchased a new GMC van from co-appellee, Royal Oaks
Chevrolet-Cadillac, Inc. (Royal Oaks), in Paducah, Kentucky.
employer paid for the vehicle as a retirement gift.
His
During the
first 4,800 miles, the van “stalled” three times on interstate
roads while traveling at highway speed.
In June, 1995, Smith
took the van to Royal Oaks complaining of the stalling incidents.
Royal Oaks examined the vehicle and was unable to find a defect.
Smith was advised to keep driving the van.
About one month
later, he complained to co-appellee, General Motors Corporation
(General Motors).
He requested both Royal Oaks and General
Motors to sign statements that the vehicle was safe for use.
Each declined.
Being unsatisfied with these responses, Smith
returned the van to Royal Oaks.
On November 7, 1995, Smith filed suit against Royal
Oaks and General Motors, alleging breach of warranty under the
sales provision of our Uniform Commercial Code (UCC)(codified in
Ky. Rev. Stat. (KRS) 355.2-101 - 355.2-725) and violation of our
Consumer Protection Act (codified in KRS 367.110 -367.360).
In
the course of discovery, Smith learned that Royal Oaks had made
pre-sale repairs to the van.
In March 1994, some nine months
before Smith acquired the van, repairs were made to the radiator.
At the time, the odometer reading was eight miles.
In August of
the same year, the van was serviced for engine performance
problems, which included “[dying] at highway speeds.”1
time, the odometer reading was forty-five miles.
totaled $323.33.
At this
These repairs
Royal Oaks did not advise Smith of the vehi-
cle’s service history prior to his taking possession of same.
Upon learning said history, Smith amended his complaint to allege
fraud.
On April 24, 1997, the McCracken Circuit Court entered
1
During discovery, it was learned that other General
Motor’s vans had experienced stalling problems.
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summary judgment dismissing Smith’s complaint in its entirety.
This appeal followed.
Certain facts are not in dispute.
The van was sold as
a new vehicle by Royal Oaks, GM’s franchised dealer.
As such, it
was accompanied by the General Motors’ new vehicle warranty and,
likewise, afforded all protection of the law relative to the sale
of new vehicles.
FRAUD CLAIM AGAINST ROYAL OAKS
Smith contends that the circuit court committed reversible error by entering summary judgment upon his claim of fraud.
We agree.
On this claim, we are of the opinion that Smith
established sufficient facts to preclude summary judgment as to
Royal Oaks’ failure to disclose the van’s pre-sale history.2
Summary judgment is proper only when there exists no
material issue of fact and movant is entitled to judgment as a
matter of law.
Steelvest, Inc. v. Scansteel Service Center,
Inc., Ky., 807 S.W.2d 476 (1991).
To establish an actionable
case of fraud based upon suppression of a fact, Smith must
demonstrate (1) that Royal Oaks had a duty to disclose a material
fact, (2) that Royal Oaks failed to disclose same, (3) that Royal
Oaks’ failure to disclose the material fact induced him to act,
and (4) that he suffered actual damages therefrom.
See Faulkner
Drilling Company, Inc. v. Gross, Ky. App., 943 S.W.2d 634 (1997),
and Wahba v. Don Corlett Motors, Inc., Ky. App., 573 S.W.2d 357
2
At oral argument, Smith informed the Court that the fraud
claim would be directed only against Royal Oaks.
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(1978).
Royal Oaks asserts, however, there existed no duty upon
it to disclose the pre-sale history of the van.
It is, of course, well established that mere silence is
not fraudulent absent a duty to disclose.
324 S.W.2d 410 (1959).
Hall v. Carter, Ky.,
A duty to disclose may arise from a
fiduciary relationship, from a partial disclosure of information,
or from particular circumstances such as where one party to a
contract has superior knowledge and is relied upon to disclose
same.
See Bryant v. Troutman, Ky., 287 S.W.2d 918 (1956); Dennis
v. Thomson, 240 Ky. 727, 43 S.W.2d 18 (1931); and Faulkner, 943
S.W.2d at 634.
Considering Royal Oaks’ superior knowledge and
Smith's reliance thereupon, we are of the opinion there arose, as
a matter of law, a duty upon Royal Oaks to disclose material
defects and repairs known to it.
We believe issues of fact exist
as to whether the van’s pre-sale history of repairs and defects
would be considered material to a reasonable person.
ner, 943 S.W.2d at 634.
See Faulk-
We therefore conclude that material
issues of fact exist as to Smith’s common law fraud claim, thus
precluding summary judgment.
We additionally think statutory provisions exist that
imposed upon Royal Oaks a duty to disclose the van’s pre-sale
history.
One such statute is KRS 190.071(1)(e), set forth in KRS
Chapter 190, “Motor Vehicle Sales.”
KRS 190.071(1)(e) reads as
follows:
(1) It shall be a violation of this section
for any new motor vehicle dealer:
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. . .
(e) To use false or fraudulent representations in connection with the operation of the
new motor vehicle dealership. (Emphasis
added.)
“Fraud,” in the above context, is defined in KRS 190.010(23) as
“a misrepresentation in any manner, whether
intentionally false or due to gross negligence, of a material fact; a promise or representation not made in good faith; or an
intentional failure to disclose material
fact.” (Emphases added.)
Considering this definition of fraud, we believe KRS
190.071(1)(e) imposes an affirmative duty upon new motor vehicle
dealers to disclose material facts to customers while in the
course of conducting business.
We further believe that failure
to so inform the customers may constitute fraud.
We are but-
tressed in our interpretation of same by KRS 190.015 wherein the
Legislature declared its public policy underlying Chapter 190:
190.015.
Public policy declared.
The Legislature finds and declares that the
distribution and sale of vehicles within this
state vitally affects the general economy of
the state and the public interest and the
public welfare, and that in order to promote
the public interest and public welfare, . . .
it is necessary to regulate and license vehicle manufacturers, distributors . . . distributor representatives, and to regulate and
license dealers of vehicles doing business in
this state, in order to prevent frauds, impositions, and other abuses upon its citizens
. . . . (Emphasis added.)
Upon the forgoing, we are of the opinion that KRS 190.071(1)(e)
imposed upon Royal Oaks a duty to disclose such material pre-sale
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repairs and defects known to it and that issues of fact exist as
to whether the van's pre-sale repairs and defects were material.
See Faulkner, 943 S.W.2d at 634.
We are also persuaded by Smith’s argument that KRS
186A.540 imposed an affirmative duty upon Royal Oaks to disclose
repairs exceeding $300.00.
That statute is found in the “Damaged
Motor Vehicles” Act (KRS 186A.500-550) and states as follows:
An individual or a dealer required to be
licensed pursuant to KRS Chapter 190 shall
disclose all damages to a motor vehicle which
result in repairs or repair estimates that
exceed three hundred dollars ($300) and that
occur while the motor vehicle is in his possession and prior to delivery to a purchaser.
Disclosure shall be in writing and shall
require the purchaser’s signature acknowledging the disclosure of damages. (Emphasis
added.)
Royal Oaks urges this Court to adopt a narrow interpretation of
the above statute so that it includes only “body” damage to motor
vehicles.
We decline to do so.
We believe said statute should
be broadly interpreted to include any motor vehicle repairs over
$300.00, be they mechanical, body, or otherwise.
We view such
broad interpretation as mandated by the legislative purpose of
the “Damaged Motor Vehicles” Act:
186A.500.
Legislative finding.
The General Assembly finds that purchasers
when buying vehicles are entitled to know if
the vehicle has sustained prior severe damage
. . . . (Emphasis added.)
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As the van’s cumulative repair work exceeded $300.00, we think
KRS 186A.540 imposed a duty upon Royal Oaks to disclose the
repairs.
In sum, we are persuaded there existed both a common
law and statutory basis for imposition of a duty upon Royal Oaks
to disclose material pre-sale repairs and defects of the van and
that issues of fact exist to preclude summary judgment thereupon.
CONSUMER PROTECTION CLAIM AGAINST
ROYAL OAKS AND GENERAL MOTORS
Upon the aforementioned grounds, we likewise perceive
that Smith should not have suffered summary judgment upon his
claim that failure to disclose the van’s pre-sale history constituted a false, misleading and/or deceptive trade practice under
the Consumer Protection Act. KRS 367.170.
Cf. Ford Motor Company
v. Mayes, Ky. App., 575 S.W.2d 480 (1978)(holding that Ford Motor
Company’s failure to repair or replace a defective vehicle
constituted an unfair trade practice under the Consumer
Protection Act).
We believe this claim should proceed against
both Royal Oaks and General Motors.
We note that “false”,
“misleading”, and “deceptive” are defined in terms generally
understood and perceived by the public.
Cf. Dare To Be Great,
Inc. v. Commonwealth, Ky., 511 S.W.2d 224 (1974).
Certainly, a
fact-finder might reasonably conclude that the sale of the van as
“new” without disclosure of its pre-sale history constituted a
false, misleading or deceptive act.
Thus, we believe summary
judgment upon this issue was improper.
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BREACH OF WARRANTY CLAIM AGAINST
ROYAL OAKS AND GENERAL MOTORS
We now turn to the consideration of Smith’s breach of
warranty claim against Royal Oaks and General Motors.
KRS 355.2-
314(1), a provision of our UCC, implies a warranty of merchantability in all contracts of sale.
may, of course, be rejected.
If goods are defective, they
KRS 355.2-602.
If a defect is not
discovered until after acceptance, however, a revocation of the
acceptance may be effected, and the buyer may have “the same
rights and duties with regard to the goods . . . as if he had
rejected them.”
KRS 355.2-608(3).
In the case at hand, Smith
accepted the van, together with all the rights afforded him under
the UCC.
When he experienced stalling at highway speeds, he gave
appellees prompt and ample opportunity to correct same.
355.2-608.
KRS
They gave him no assurance, but suggested that he
continue utilizing the vehicle under what he perceived to be
extraordinary risk.
Unsatisfied with the proffered remedy, Smith
revoked his acceptance by delivering the van to the dealer.
See
Mayes, 575 S.W.2d at 480.
The appellees, as did the circuit court, believe it
incumbent upon Smith to prove by direct evidence a specific
defect.
In their briefs and at oral argument, the appellees
relied upon Briner v. General Motors Corporation, Ky., 461 S.W.2d
99 (1971), for this proposition.
injured in an automobile accident.
In Briner, the appellant was
She instituted an action
against the manufacturer of the automobile, General Motors
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Corporation, and the dealer/seller, Universal.
The bases of the
action were “manufacturer’s liability and negligent repair.”
at 100.
Id.
Essentially, the appellant claimed that a defect existed
in the steering system of the vehicle causing her to veer across
the centerline and strike another automobile and that such defect
was the proximate cause of the accident.
It is crucial to note
that the appellant in Briner had the burden of proving not only
the existence of a defect but, more importantly, that such defect
caused the accident.
Indeed, the Briner Court pointed out that
“[t]here was no direct proof of the existence of a defective
mechanical condition existing at the time of the accident which
could have caused it.”
(Emphasis added.)
Id. at 101.
The Court
recognized that such “causal relationship” may be proved by
circumstantial evidence but thereafter invoked the well-founded
rule of law that such relationship may not be proved by an
inference which is itself based upon an inference.
The following
is the Court’s ratiocination:
To justify a finding of liability on
Universal’s part would require a jury first
to infer a breakdown in the steering mechanism attributable to a defect. Secondly, it
would be required to further infer that, had
Universal made different inspections and
tests it would have discovered and corrected
the condition which ultimately caused plaintiff’s car to veer to the left. This is
piling inference upon inference, which leads
to speculation. . . .
. . .
As said in Le Sage v. Pitts, 311 Ky. 155,
223 S.W.2d 347, 352 (1949):
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“An inference may be drawn from a clearly
established fact, but, if the conclusion is
drawn upon a fact dependent for proof of its
existence upon a prior inference, the evidentiary fact is too remote to support the
conclusion.”
Id. at 101-102.
The Briner Court simply held that inference of a
“causal relationship” was impermissible as it was based upon
inference of a defective condition.
stances in the case at hand.
Such are not the circum-
As no accident occurred, Smith need
not prove a “causal relationship.”
inapposite to the case at hand.
The reasoning of Briner is
Smith invokes but a single
inference in his attempt to prove a defective condition.
such as clearly permissible.
We think it only necessary for
Smith to prove that the van stalled.
defective condition.
We view
Such is evidence of a
A defect may be proved by a sufficient
quantum of circumstantial evidence.
Indeed, it has been observed
that “[i]t matters not that the evidence be circumstantial for as
Thoreau put it ‘Some circumstantial evidence is very strong, as
when you find a trout in the milk.’”
Embs v. Pepsi-Cola Bottling
Company of Lexington, Kentucky, Inc., Ky., 528 S.W.2d 703, 706
(1975).
Considering the van’s uncontroverted prior history of
stalling, the witnessing of said stalling by several others
besides Smith, and the documented stalling of other General
Motors’ vans, we liken the weight of circumstantial evidence
herein to that of the proverbial “trout in the milk.”
In sum, we are convinced that the record presents a
material issue of fact as to whether the van’s stalling was a
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material defect rendering the vehicle unmerchantable.
Under the
doctrine announced in Steelvest, 807 S.W.2d at 476, we are
therefore of the opinion that the summary judgment upon the
breach of warranty claim was inappropriate.
Conclusion
We think summary judgment was improperly granted on
Smith’s claims of fraud, violation of the Consumer Protection
Act, and breach of warranty.
For the foregoing reasons, the judgment of the
McCracken Circuit Court is reversed, and this cause is remanded
for proceedings consistent with this opinion.
ALL CONCUR.
ATTORNEYS FOR APPELLANT:
ATTORNEY FOR APPELLEE/GM:
Thomas L. Osborne
C. Thomas Miller
Paducah, KY
Donald Craig York
Louisville, KY
ATTORNEY FOR APPELLEE/ROYAL
OAKS CHEVROLET:
John C. Whitfield
Madisonville, KY
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