Richard Hartrick and Michelle Key v. Chuck Eldridge d/b/a Eldridge Motor Company

ca02-048

ARKANSAS COURT OF APPEALS

NOT DESIGNATED FOR PUBLICATION

WENDELL L. GRIFFEN, JUDGE

DIVISION II

CA02-48

August 28, 2002

RICHARD HARTRICK and AN APPEAL FROM WASHINGTON

MICHELLE KEY COUNTY CIRCUIT COURT

APPELLANTS [CIV01-750-4]

V. HON. MARY ANN GUNN, JUDGE

CHUCK ELDRIDGE d/b/a

ELDRIDGE MOTOR COMPANY AFFIRMED AS MODIFIED

APPELLEE

Richard Hartrick and Michelle Key appeal from a circuit court order finding that appellee Chuck Eldridge, d/b/a Eldridge Motor Company, did not breach an implied warranty of merchantability when it sold them a vehicle that became inoperable four days after the sale. We agree that appellee did not make an implied warranty, but modify the order to reimburse appellants for the fee they paid for a service contract that was never approved.

On August 16, 2000, appellants purchased a used 1987 GMC Suburban from appellee for $3,995. At the time of the purchase, the vehicle was fourteen years old and its odometer registered 139,486 miles. Under the "Warranty and Agreement" provision in the purchase agreement were three boxes that in boldface print read, "Sold As Is," "Sold With Guarantee," and "Sold with Implied Warranties." Appellant Michelle Key and appellee Chuck Eldridge signed the purchase agreement and initialed the "Sold As Is" disclaimer. The sticker on the vehicle indicated that the vehicle was sold, "As Is - No Warranty." On this sticker, under the provision "Systems Covered," was handwritten, "Service Contract Available." At the bottom of the sticker, the box labeled "Service Contract" was checked. Beside this box was the following language: "A service contract is available at an extra charge on this vehicle. Ask for details as to coverage, deductible, price, and exclusions. If you buy a service contract within 90 days of the time of sale, state law `implied warranties' may give you additional rights."

On the same date, appellants purchased an auto services vehicle protection plan (service plan) for $100. Under the provision labeled "Settlement," is the handwritten notation, "3 mo 3000 warranty," and beside that is the handwritten notation, "$100." The cost of this plan was included in the sale price as indicated on the purchase agreement. However, the service plan was a separate contract, and appellee sent a separate payment to Auto Services Company, Inc., the warrantor. This contract, which was signed by Key, stated, "The agreement becomes valid only upon receipt and acceptance by the administrator" and indicated that the buyer should contact the administrator if he did not receive confirmation of coverage within twenty days from the date of purchase.

On August 20, 2000, four days after the vehicle was purchased, the transmission malfunctioned. At this time, the vehicle had 139,754 miles on the odometer; thus, appellants had only driven the car for 268 miles. Appellants immediately notified appellee and theadministrator of the service plan. Appellee refused to repair the vehicle. In a letter dated August 25, 2000, which was sent to appellee, the administrator rejected coverage for the service plan and returned appellee's check to appellee.

Appellants had the transmission repaired at a cost of $1,186.22 and thereafter brought suit in Springdale Municipal Court to recover the cost of repairs. After a trial on May 7, 2001, the municipal court entered judgment in appellants' favor for $1,186.22 for the costs of repairs, plus costs and attorney's fees. Appellee appealed the municipal court ruling to the Washington County Circuit Court.

Appellants thereafter filed an amended complaint seeking to recover, in addition to the cost of repairs, the $100 fee paid for the service plan. On September 18, 2001, the circuit court entered an order dismissing appellants' cause of action. The circuit judge found that 1) the language disclaiming warranties was conspicuous and that the vehicle was traded without warranty; 2) there was no breach of warranty, express or implied; and 3) the service plan was rejected and therefore, did not give rise to any implied warranties. Noting that the transmission failed before the service contract was accepted, the judge also found that appellants received notice that the agreement was rejected and that the check for payment was returned.

I. Implied Warranty of Merchantability

Appellants' first argument is that the warranty statement attached to the vehicle and the purchase agreement implied a warranty of merchantability and that they relied upon this implied warranty in purchasing the vehicle. We hold that the trial court did not err in findingthat no implied warranty arose in this case.

An implied warranty of merchantability arises when a seller, who is a merchant who deals in goods of the kind, represents that the goods will meet certain minimum standards of quality. See Ark. Code Ann. § 4-2-314(1) (Repl. 2001). For goods to be merchantable, they must pass without objection in the trade under the contract description and be fit for the ordinary purposes for which such goods are used. See Ark. Code Ann. § 4-2-314(2)(a)(c). However, "unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like `as is,' `with all faults,' or other language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty . . . ." See Ark. Code Ann. § 4-2-316(3)(a).1

Appellants concede that the purchase agreement clearly states that the vehicle was sold "As Is" and that the window sticker was clearly marked, "As Is - No Warranty." Appellants also concede that if that were the only language within the parties' agreement relating to warranties, then any implied warranties would be properly disclaimed.

However, they maintain the following additional language gave rise to an implied warranty of merchantability: 1) in the purchase agreement, under the section labeled "Settlement," there is a handwritten notation, "3 mo 3000 warranty"; and 2) on the window sticker, the box labeled "Service Contract" is marked indicating, "If you buy a servicecontract within 90 days of the time of sale, state law `implied warranties' may give you additional rights." Appellants maintain that when all of this language is construed together, it cannot be said that they understood that they were surrendering their warranties. They further argue that the warranty provision "state law warranties may give you additional rights" is ambiguous.

Finally, appellants argue that the language indicating that the service protection plan only becomes valid upon acceptance is irrelevant to a determination of whether the disclaimer is ambiguous. They assert that under the service agreement, the dealer remains liable for repairs and should not be allowed to escape liability where it otherwise accepted the parties' agreement, simply "because it took longer for the mail to run from Tonitown to Mountain Home than it did for the automobile he received for $3,995 to break down."

In reviewing a bench trial in circuit court, we will not reverse unless the trial court erred as a matter of law or its findings were clearly against the preponderance of the evidence. See Trucker's Exchange, Inc. v. Border City Foods, Inc., 67 Ark. App. 291, 998 S.W.2d 434 (1999). We hold that the trial court did not err in finding that the implied warranty of merchantability was effectively disclaimed. Ambiguities of disclaiming language or circumstances are resolved against the seller. See Ciba-Geigy Corp. v. Alter, 309 Ark. 426, 834 S.W.2d 136 (1992). However, a contract for the purchase of an automobile should be construed in accordance with what an ordinary purchaser would understand from its language. See Walker Ford Sales v. Gaither, 265 Ark. 275, 578 S.W.2d 23 (1979).

Here, there was no ambiguity. The purchase agreement was made out in the names of Michelle Keys or Richard Hartrick. Keys signed the agreement and initialed the section stating that the vehicle was sold, "As Is." In addition, the window sticker tag indicated that the car was sold, "As Is - No Warranty." Appellants do not dispute that the "3 mo 3000 warranty" language in the purchase agreement refers to the service plan that they purchased. In short, there was nothing to indicate to the ordinary consumer that any warranty would arise, other than the warranty contained in the service plan, which would become effective only in the event the service plan was accepted. Appellants cite no authority supporting that the mere purchase of a service plan, which is contingent upon acceptance by the plan's administrator before it becomes effective, gives rise to an implied warranty when the vehicle becomes inoperable before the plan is rejected.

Appellants are correct that the acceptance or rejection of the auto service protection plan by the administrator is a separate issue from whether the disclaimer was ambiguous. However, the fact that appellants attempted to purchase the plan, which was rejected by the plan's administrator, is not "irrelevant." To the contrary, the evidence supports that the service protection plan was purchased because the vehicle was sold with no other warranties. The fact that the service plan was bought and was referenced in the purchase agreement supports that the disclaimer was not ambiguous, especially where the purchase agreement indicated, "Sold As Is" and "Sold with Implied Warranties" and where the former was checked, but not the latter.

Finally, appellant's argument that the buyer must have reasonably understood that bypurchasing the vehicle "as is," he lost all implied warranties appears to be a correct statement of the law, but does not change the result here. The Commentary to section 4-2-316 states that this section "seeks to protect a buyer from unexpected and unbargained language of disclaimer by . . . permitting the exclusion of implied warranties only by conspicuous language or other circumstances which protect the buyer from surprise."

Given the circumstances in this case, and given all of the disclaiming language of which appellants admit they were aware, an ordinary consumer would understand that the only warranty that attached to appellants' vehicle was the warranty contained in the service plan - which, unfortunately, never became effective. Therefore, we hold that the trial court did not err in finding that appellee effectively disclaimed the implied warranty of merchantability. Because we hold that no implied warranties arose, we do not address the issue of whether the trial court erred in finding that appellee did not breach an implied warranty of merchantability.

II. Refund for Service Plan

While we agree with appellee that no implied warranty arose in this case, we agree with appellants that they are entitled to be reimbursed for the $100 they paid to purchase the service contract. It is clear that this money was refunded to appellee, but that appellee never refunded the money to appellants. Therefore, we modify the order to require appellee to reimburse appellants $100.

When this case was appealed to the circuit court, appellants filed an amended complaint seeking the return of the $100 they paid for the service plan. Appellee admittedin its answer that the money had not been paid and indicated that the money would be returned to appellants. Further, during the hearing before the circuit judge, appellee's attorney acknowledged that appellants still had not been paid, as indicated by the following exchange:

Court: All right. There's no dispute that the Plaintiffs are receiving their hundred dollars back?

Appellants'

Attorney: They have not as of this date yet.

Appellee's

Attorney: No, but we'll pay it, Your Honor. It just didn't come up until this.

The court's order thereafter stated: "Plaintiffs received notice that the agreement was rejected and the check for the payment was returned."

Appellee asserts that appellants argue for the first time on appeal that the money has not been returned. It also argues that the trial court never had an opportunity to make a decision regarding the money. Appellee's argument is frivolous, as its attorney signed the answer to appellants' amended complaint, stating the allegation in the amended complaint was the first request for the $100 and that "it will be returned to Plaintiffs." Moreover, as noted above, appellee's attorney informed the trial court during the hearing that the money had not been paid. The letter dated August 25 was addressed to appellee and showed a photocopy of the front of the check written by appellee, with appellants' service plan number in the memo line of the check. Thus, the check was returned to appellee, because it was appellee's check, but appellants were never reimbursed.

We may affirm a circuit judge's order but modify as to the award of damages. See, e.g., Jocon, Inc. v. Hoover, 61 Ark. App. 10, 964 S.W.2d 213 (1998) (affirming judgment in favor of property owners in breach of contract action, but modifying award of damages). Therefore, we affirm the trial court's order, but modify the order to include an award of $100 to appellants for the money they paid for the service plan.

Affirmed as modified.

Jennings and Neal, JJ., agree.

1 The Commentary to section 4-2-316 states that subsection (3) encompasses "common factual situations in which the circumstances surrounding the transaction are themselves sufficient to call the buyer's attention to the fact that no implied warranties are made or that a certain implied warranty is being excluded." See Comment to Ark. Code Ann. § 4-2-316 (Repl. 1995).