AND QUALITY CAR AND TRUCK LEASING, INC.; GLOCKNER CHEVROLET, INC. v. JAMES DARBY; ELLA DARBY
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RENDERED: August 27, 1999; 10:00 a.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
1997-CA-002032-MR
AND
CROSS-APPEAL NO. 1997-CA-002554-MR
QUALITY CAR AND TRUCK
LEASING, INC.; GLOCKNER
CHEVROLET, INC.
APPELLANTS/CROSS-APPELLEES
APPEALS FROM LAWRENCE CIRCUIT COURT
HONORABLE JAMES KNIGHT, JUDGE
ACTION NO. 95-CI-00219
v.
JAMES DARBY; ELLA DARBY
APPELLEES/CROSS-APPELLANTS
OPINION
AFFIRMING IN PART, REVERSING IN PART,
AND REMANDING
** ** ** ** **
BEFORE:
COMBS, DYCHE, AND HUDDLESTON, JUDGES.
DYCHE, JUDGE.
This is an appeal by Quality Car and Truck
Leasing, Inc. (Quality), and Glockner Chevrolet, Inc. (Glockner),
from a jury verdict awarding economic and emotional distress
damages to James Darby and Ella Darby (the Darbys), based upon
negligent misrepresentations made by an agent of Quality Car and
Glockner Chevrolet to the Darbys in conjunction with the leasing
of a coal trailer by the Darbys.
This is also a cross-appeal by
the Darbys in objection to the submission of a comparative fault
instruction.
We affirm in part, reverse in part, and remand.
With the intention of setting up his own commercial
coal hauling operation, James Darby negotiated a contract on a
used 1994 East tri-axle trailer with Glockner.
The transaction
was negotiated through Steve Noel, used truck sales manager for
Glockner.
James contends that Noel told him that the trailer was
three to five months old, and was “like-new.”
However, Noel
disputes that, contending that he stated only that the trailer
had been on the lot for approximately three months.
The trailer,
in fact, had been previously wrecked and was approximately one
year old.
On August 18, 1994, James signed a “Master Commercial
Lease Agreement” for the trailer.
The transaction was financed
as a lease-purchase through Quality, a sister-business of
Glockner engaged in vehicle financing and located on premises
common to those occupied by Glockner.
James testified that, following his acquisition of the
trailer, the trailer experienced uneven tire wear and excessive
tire blow-outs.
In August of 1995, the tractor and trailer
toppled over while James was backing out of a weigh area at a
coal delivery site in Bell County, Kentucky.
The mishap resulted
in extensive damage to the tractor and trailer.
Following this,
the Darbys discovered that the trailer had been wrecked prior to
their purchase of it.
The Darbys contend that they, as a result
of the August 1995 accident, suffered severe financial
difficulties and that they were eventually forced to file for
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bankruptcy.
The Darbys further contend that the stress of the
events resulted in health problems, including problems with
Ella’s nerves and heart.
On December 20, 1995, the Darbys filed suit against
Quality and Fifth Third Bank of Southern Ohio (Fifth Third) in
Lawrence Circuit Court.
They sought compensatory and punitive
damages, alleging fraud, deceit, misrepresentation, violation of
KRS 367.170, breach of express and implied warranties, and
violation of the Magnuson-Moss Warranty Act.
The Darbys
subsequently amended their complaint to add Glockner as a
defendant.
Fifth Third was eventually dismissed from the suit,
and, on March 10, 1997, the matter proceeded to trial with
Glockner and Quality as defendants.
The jury returned a verdict
finding that Glockner and Quality were liable to the Darbys for
negligent misrepresentation.
The jury awarded the Darbys
$1,314.90 for excessive tire damage; $25,000.00 for past mental
and physical suffering caused by the appellants’ negligent
representations; and $15,000.00 to compensate them for the lower
fair market value of the trailer attributable to the prior wreck.
A comparative fault instruction was given and the damages were
apportioned 50% to the Darbys, 25% to Glockner, and 25% to
Quality.
Following apportionment, the net award to the Darbys
was $20,657.45.
Following the trial, Glockner and Quality filed a
motion for judgment notwithstanding the verdict or for a new
trial, and the Darbys filed a motion objecting to apportionment
of the judgment and a motion to alter, amend or vacate the
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judgment.
All post-trial motions were denied and this appeal and
cross-appeal followed.
The appellants first argue that the appellees failed to
present substantial evidence and that the appellants were
entitled to a judgment notwithstanding the verdict.
The standard
governing the granting of a motion for a judgment notwithstanding
the verdict is the same for a motion for a directed verdict.
Cassinelli v. Begley, Ky., 433 S.W.2d 651 (1968).
The standard
for appellate review of a directed verdict is set forth in Lewis
v. Bledsoe Surface Mining Company, Ky., 798 S.W.2d 459, 461-2
(1990):
Upon review of the evidence supporting a
judgment entered upon a jury verdict, the
role of an appellate court is limited to
determining whether the trial court erred in
failing to grant the motion for directed
verdict. All evidence which favors the
prevailing party must be taken as true and
the reviewing court is not at liberty to
determine credibility or the weight which
should be given to the evidence, these being
functions reserved to the trier of fact. The
prevailing party is entitled to all
reasonable inferences which may be drawn from
the evidence. Upon completion of such an
evidentiary review, the appellate court must
determine whether the verdict rendered is
"'palpably or flagrantly' against the
evidence so as 'to indicate that it was
reached as a result of passion or
prejudice.'" If the reviewing court
concludes that such is the case, it is at
liberty to reverse the judgment on the
grounds that the trial court erred in failing
to sustain the motion for directed verdict.
Otherwise, the judgment must be affirmed.
(Citations omitted.)
The appellants’ liability in this case, as disclosed by
the instructions to the jury, is based upon negligent
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misrepresentation.
The elements of a claim of negligent
misrepresentation are (1) a misrepresentation, (2) concerning a
material fact, (3) justifiably relied on by the plaintiff, and
(4) loss or damages proximately caused by such misrepresentation.
37 C.J.S. Fraud § 59 (1997);
Torts, § 552 (1977).1
See also
Restatement (Second) of
An action for negligent misrepresentation
is an action for fraud.
37 C.J.S. Fraud § 59 (1997).
Accepting as true all evidence favorable to the Darbys,
the verdict of liability against the appellants was not palpably
or flagrantly against the evidence.
Misrepresentation was shown
by testimony that the trailer had previously been wrecked and
that James was not told this. In addition, the trailer was
represented to James as being three to five months old when, in
fact, it was at least one year old.
There was evidence
presented to show that the appellants in fact knew the actual age
of the trailer and that it had been wrecked.
Alternatively,
there was evidence presented that the appellants, with their
expertise in examining and appraising trailers, should have known
that the trailer had been wrecked and its actual age.
Materiality was shown by James’s testimony that
truthful disclosure of the prior wreck and actual age of the
trailer would have been of significant relevance to his decision
whether to purchase the trailer at the contract price.
Moreover,
expert Les Smith testified that the prior wreck caused
1
Kentucky has never specifically adopted the tort of
negligent misrepresentation as defined in the Restatement of
Torts (Second) § 552. However, neither has the tort theory been
specifically rejected and we discern no reason that the tort is
not a valid claim of relief in Kentucky.
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significant damage and that such information would be important
to a buyer in making a decision as to whether to purchase the
trailer.
Finally, there was competent testimony tending to show
that James justifiably relied on Steve Noel’s representations and
that the Darbys suffered damages relating to the representations.
Hence, taking all the evidence favorable to the Darbys as true,
inasmuch as all elements of negligent misrepresentation were
shown, we cannot say that the jury’s verdict of liability for
negligent misrepresentation was palpably and flagrantly against
the evidence.
The appellants next contend that the Darbys failed to
produce sufficient evidence of damages with respect to the
$25,000.00 awarded for pain and suffering and the $15,000.00
awarded for the loss of the fair value of the trailer as a result
of the prior wreck.
The jury awarded the Darbys $25,000.00 for “mental
pain, humiliation, [and] mortification.”
While there are
compelling arguments that a pain and suffering instruction should
not be given in a fraud case such as this, those arguments are
not preserved for appeal.
The appellants tendered jury instructions to the trial
court.
The instructions were filed into the record on March 11,
1997, and are contained in the court record at pages 181 through
185.
The tendered instructions, at page 185, include a proposed
damage instruction for “pain and suffering.”
Trial counsel, in
regard to any objections to the trial court’s proposed jury
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instructions, stated only that “we would object to the giving of
any Instruction that contradicts the Instructions we’ve given.”
The trial court’s jury instructions did not materially contradict
the jury instructions proffered by the appellants.
Where the source of an instruction alleged by a party
to be faulty could be traced to an instruction tendered to the
court by the party, CR 51(3) precludes an appellate court from
considering the allegation of error.
Kendall v. Cleveland Crane
& Engineering Company., Ky. App., 555 S.W.2d 817 (1977), modified
on other grounds in Bohnert Equipment Company, Inc. v. Kendall,
Ky., 569 S.W.2d 161 (1978).
Hence the propriety of the giving of
the instruction is not preserved for our review.
Inasmuch as the
pain and suffering objection was presented to the jury with the
approval of the defendants in the case, having reviewed Ella’s
testimony describing her suffering, and taking this as true, we
cannot say that the jury’s award for pain and suffering was
excessive or a result of passion or prejudice.
The appellants preserved their objection to the award
of $15,000.00 representing the difference in the fair market
value of the trailer as it was represented to be versus the fair
market value of the trailer as a previously wrecked trailer.
We
agree with the appellants that this damage award is not supported
by the evidence.
Expert Les Smith offered the only competent
evidence on the issue and he testified that the previously
wrecked condition of the trailer, after repair, resulted in a
reduction in fair market value of $10,000.00 to $11,000.00.
However, we also agree with the appellants that, since the Darbys
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were leasing the trailer, not buying it outright, this
calculation of damages is improper in any event.
The proper measure of damages for fraud in obtaining a
sales contract is the difference between the reasonable market
value of the property sold and its value as represented by the
fraudulent statement.
(1953).
Webb v. Verkamp Corp. Ky., 254 S.W.2d 717
This, however, was a lease with a purchase option, and
not a sales contract.
Generally, the pecuniary loss sustained is
a proper measure of damages for fraud.
Sanford Construction
Company v. S & H Contractors, Inc., Ky., 443 S.W.2d 227 (1969).
Only one-fourth of the lease term was performed under
the contract, and it is speculative as to whether the Darbys
would have eventually exercised their purchase option.
With the
exception of excessive tire blow-outs, for which the Darbys have
been elsewhere compensated in this action, the trailer was
apparently otherwise a functional trailer and permitted the
Darbys to operate an effective coal hauling business up until the
time of the accident.
As this was a lease, and not a purchase,
we cannot agree that the Darbys were entitled to a judgment
compensating them for the full reduction in the fair market value
of the trailer as a result of the prior wreck of the trailer.
In order to compensate the Darbys for the negligent
misrepresentations of the appellants, we conclude that the proper
measure should be the difference between the actual lease
payments paid for the one year use of the trailer under the
actual lease and the fair rental value for the one year lease of
the trailer based upon its actual value taking into consideration
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that it had been previously wrecked.
We accordingly vacate that
portion of the judgment relevant to this award and remand for a
determination of damages consistent with the foregoing.
The appellants’ final argument is that the trial court
submitted the wrong burden of proof to the jury.
The burden is
on the party asserting fraud to establish it by clear and
convincing evidence.
Wahba v. Don Corlett Motors, Inc., Ky.
App., 573 S.W.2d 357, 359 (1978).
The trial court, instead, gave
a preponderance of the evidence instruction. The standard of
proof jury instruction was therefore incorrect.
Glockner and Quality correctly assert that the trial
court submitted the wrong burden of proof to the jury.
However,
the appellants did not object to the preponderance of the
evidence instruction nor did they offer a clear and convincing
instruction.
“No party may assign as error the giving or the
failure to give an instruction unless he has fairly and
adequately presented his position by an offered instruction or by
motion, or unless he makes objection before the court instructs
the jury, stating specifically the matter to which he objects and
the ground or grounds of his objection.”
CR 51(3).
A party must
object specifically to an omission in jury instructions, and must
provide alternate instructions on that issue for an objection to
be reviewable by this Court.
Burke Enterprises, Inc. v.
Mitchell, Ky., 700 S.W.2d 789, 792 (1985).
Hence we may not
review this error.
On cross-appeal, the Darbys contend that the trial
court erred in giving an apportionment of damages instruction.
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The instruction was modeled on the comparative negligence
instruction approved in Hilen v. Hays, Ky., 673 S.W.2d 713
(1984), and permitted the jury to apportion fault to the Darbys
if they failed to exercise ordinary care in inspecting the
trailer and such failure was a substantial factor in causing the
formation in the lease/purchase agreement.
As a general rule, the measure of damages for fraud is
the actual pecuniary loss sustained, and one injured by the
commission of fraud is entitled to recover such damages as would
place him in the same position as he would have occupied had he
not been defrauded.
Johnson v. Cormney, Ky. App., 596 S.W.2d 23
(1979), overruled on other grounds by Marshall v. City of
Paducah, Ky. App., 618 S.W.2d 433, 434 (1981).
However, negligent misrepresentation is a tort.
Restatement (Second) of Torts, § 552 (1977).
See
Our comparative
fault statute, KRS 411.182, provides that in all tort actions
tried by a jury involving fault of more than one party to the
action, a comparative fault instruction should be given.
It was
obviously the jury’s determination that the Darbys were
contributorily at fault, apparently because of their failure to
more closely inspect the trailer, as the jury assessed them 50%
of the fault under the comparative fault instruction.
As more
than one party to the action was at fault, the instruction
appears to have been consistent with our comparative fault
statute.
Restatement of Torts (Second) § 552A, comment a.
states, in pertinent part, as follows:
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. . . when the misrepresentation is not
fraudulent but only negligent, the action is
founded solely upon negligence, and the
ordinary rules as to negligence liability
apply. Therefore contributory negligence of
the plaintiff in relying upon the
misrepresentation will bar his recovery.
(Emphasis added.)
Under the ordinary rules of negligence in Kentucky,
however, contributory negligence is not a bar to the plaintiff’s
recovery, but, rather, the plaintiff is allowed to recover his
damages less those damages apportionable to him because of his
comparative fault in causing the losses.
See Hilen v. Hays,
supra.
In summary, we believe the submission of a comparative
fault instruction to the jury in this particular negligent
misrepresentation action was consistent with our comparative
negligence statute, Restatement of Torts (second) § § 552 and
552A, and Hilen v. Hays and its progeny.
For the foregoing reasons we affirm in part, reverse in
part, and remand for a redetermination of damages consistent with
this opinion.
ALL CONCUR.
BRIEF FOR APPELLANTS/CROSS
APPELLEES:
BRIEF FOR APPELLEES/CROSSAPPELLANTS:
John D. Meyers
Lexington, Kentucky
Bradley F. Wallace
Louisa, Kentucky
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