DAVID AUSTIN WISE v. ALPHA LEASING COMPANY, INC.
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RENDERED: AUGUST 8, 2003; 10:00 a.m.
NOT TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO. 2002-CA-001254-MR
AND NO. 2002-CA-001329-MR
DAVID AUSTIN WISE
v.
APPELLANT/CROSS-APPELLEE
APPEAL AND CROSS-APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE STEPHEN K. MERSHON, JUDGE
ACTION NO. 99-CI-001322
ALPHA LEASING COMPANY, INC.
APPELLEE/CROSS-APPELLANT
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
COMBS, GUIDUGLI, AND SCHRODER, JUDGES.
SCHRODER, JUDGE.
This is an appeal from summary judgments
dismissing claims by a car buyer against the leasing company for
breach of contract, breach of fiduciary duty, and breach of
warranty based on allegations that the leasing company should
have investigated the legitimacy of the company selling the
vehicle.
The leasing company cross-appeals from a judgment
rejecting its counterclaim against the car buyer for unjust
enrichment.
Upon review of the record and the applicable law,
we adjudge that the trial court properly dismissed the claims of
the car buyer and properly found that the leasing company could
not succeed on its claim of unjust enrichment.
Hence, we
affirm.
The facts in this case are largely undisputed.
In
July of 1997, appellant/cross-appellee David Wise saw an ad in a
magazine placed by a company called International Autos
(“International”) touting the sale of restored exotic cars at
bargain prices.
Wise contacted International and was told that
it could acquire, restore, and sell him a 1995 Ferrari F355 for
$75,000.
International later sent Wise photos of the damaged
vehicle with an offer to sell it “for $66,000 as is or $76,000
finished.”
Wise negotiated with International and arrived at a
$74,500 finished price.
On July 30, 1997, Wise entered into a
written purchase agreement with International through its
representative Greg Hillen wherein Wise agreed to buy the
restored Ferrari for $74,500.
Subsequently, Jim Moore, an
attorney and family friend of Wise, referred Wise to Bill Ward
of Alpha Leasing (“Alpha”), appellee/cross-appellant herein, to
explore financing options for the vehicle.
Alpha is an
independent company that arranges for leases of vehicles with
various banks.
Wise contacted Ward and they discussed the
various financing options.
Wise decided to lease the vehicle as
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that offered a substantially lower monthly payment than a
conventional bank loan.
On July 31, 1997, Wise signed an open-
end vehicle lease with Huntington National Bank (“Huntington”)
which was arranged through Alpha.
The relationship between
Alpha and Huntington was governed by a 1990 operating agreement
whereby Huntington agreed to provide financing for certain
leases arranged by Alpha, and Alpha agreed to certain duties in
order to protect Huntington’s security interest in the vehicles.
Thereafter, Wise sent $7,400 for the down payment directly to
International according to the terms of the agreement.
In the
subsequent days, Wise made several phone calls to Alpha asking
them to forward the remaining purchase price funds to
International so that International could acquire the Ferrari
and begin the restoration process.
money to International.
forthcoming.
Thereupon, Alpha wired the
However, the Ferrari was not
As time went by without receiving the car, Wise
began to worry.
In October of 1997, Wise personally drove to
International and was assured by Greg Hillen that International
would still comply with the terms of the agreement.
Some days
later, however, Wise received a phone call from another
International customer warning Wise that International was on
the verge of bankruptcy.
This warning proved true when
International filed for Chapter 7 bankruptcy before obtaining
Wise’s Ferrari.
Wise filed a proof of claim and a complaint in
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an adversary proceeding in the U.S. Bankruptcy Court seeking
damages for non-delivery of the automobile sold to Wise, fraud,
and conversion.
Because of Alpha’s obligation under its dealer
operating agreement with Huntington to obtain the car and have
it titled in the name of the bank, Alpha began investigating the
whereabouts of the Ferrari at issue.
Alpha learned that the car
was at Astra Motor Cars in New York and that International had
arranged to purchase it for $55,000, of which International had
already paid $10,000.
Accordingly, Alpha paid the outstanding
$45,000 plus a $950 transport fee to have the car, which had not
been restored, delivered from New York to Wise in Louisville.
It is undisputed that Greg Hillen of International
offered to pay Wise $7,500 to settle any claims arising from
their non-delivery of the vehicle.
Wise refused the offer.
Ultimately, Wise paid approximately $12,000 to a Chicago-area
company to restore the Ferrari and sold it for $55,000.
Wise
thereafter paid off the lease with Huntington, although the
lease payoff amount was $10,583 more than the proceeds of the
sale.
On March 5, 1999, Wise filed an action against Alpha
and Huntington.
The claims against Huntington have been settled
and thus are not at issue in this appeal.
The basis of the
initial claim against Alpha was breach of warranty pursuant to
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KRS 355.2A-212 and KRS 355.2A-213, and breach of the lease
agreement which Wise maintained obligated Alpha to deliver to
him a fully restored, drivable vehicle.
On January 26, 2000,
Wise amended his complaint against Alpha to allege breach of
contract as third-party beneficiary of the contract between
Alpha and Huntington and also alleging breach of fiduciary duty.
Alpha filed a counterclaim against Wise for unjust enrichment to
recover the sums it paid to acquire the vehicle and have it
delivered to Wise.
On May 17, 2000, the court entered summary judgment in
favor of Alpha on the claims of breach of warranty and breach of
contract regarding the lease agreement.
The breach of contract
claim relative to Wise being a third-party beneficiary of the
operating agreement between Huntington and Alpha was dismissed
on July 19, 2000.
On November 1, 2000, the court entered
summary judgment in Alpha’s favor on the claim of breach of
fiduciary duty.
above judgments.
Wise then filed a motion to reconsider the
In particular, Wise asked the court to
reconsider his breach of contract claim relative to an alleged
oral service contract between he and Alpha.
On February 1,
2001, the court denied the motion to reconsider, except as to
the allegation regarding the oral service contract.
Later,
however, on April 3, 2001, the court dismissed the breach of
oral service contract claim.
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On October 26, 2001, Wise filed yet another motion to
amend his complaint, this time asserting that Alpha willfully
misrepresented or failed to disclose the condition of the
vehicle prior to delivery.
on November 15, 2001.
The court denied the motion to amend
Wise now appeals from the various
judgments dismissing his claims and denying his motion to amend.
The counterclaim by Alpha for unjust enrichment was
the only claim tried to the court.
On May 22, 2002, the court
entered its findings of fact, conclusions of law, and judgment
denying Alpha’s claim.
This cross-appeal by Alpha followed.
Wise first argues that the trial court erred in
dismissing his claim for breach of fiduciary duties.
Wise
maintains that, as his agent in the transaction, Alpha owed him
a duty of utmost care and that this duty was breached when Alpha
forwarded International the full amount of the lease proceeds
without first investigating the financial status/solvency of
International.
Before reaching the issue of whether Alpha had a
fiduciary duty to Wise, it must be determined what the legal
relationship was between Wise and Alpha.
The trial court found
that there was no contractual relationship between the two, but
that Alpha did act as Wise’s agent in the transaction.
Wise
contends that he had a contractual relationship with Alpha, as
well as an agency relationship.
Alpha denies that it had a
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contractual or an agency relationship with Wise and further
maintains that the allegation of an agency relationship was
never pled in this case.
The lease in the present case was furnished/drafted by
Alpha and explicitly states that Alpha “helped to arrange this
Lease”, but denotes Huntington as the lessor.
However, the
lease worksheet, which was completed by Alpha and calculated the
payments, charges, etc., referred to Alpha as the lessor/dealer.
The evidence established that Wise paid no fee/commission
directly to Alpha.
From the following deposition testimony of
William Ward of Alpha, we gather that Alpha was apparently
compensated by Huntington by Alpha’s assignment of the lease to
the lender (Huntington) at a lower interest rate than that
established in the lease:
The part in my proceeds with Huntington Bank
was the money that I made on the interest of
the loan. David [Wise] bought the loan at
roughly five percent interest rate and I was
able to negotiate a three percent interest
rate. That difference is the profit on the
financing of the vehicle.
“Agency” is the fiduciary relationship resulting from
manifestation of consent by one person to another, that the
other shall act on his behalf and subject to his control and
consent by the other to so act.
S.W.2d 317 (1962).
McAlister v. Whitford, Ky., 365
In our view, notwithstanding the fact that
Alpha may or may not have had a contractual relationship with
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Wise, we agree with the trial court that Alpha, at the very
least, was acting as Wise’s agent with regard to the financing
of the car.
Clearly, Alpha was acting on Wise’s behalf and
subject to his consent and control in attempting to secure
financing for him.
As to whether an agency relationship was
pled, while Wise may not have used the term “agency” in his
pleadings, we believe his assertions that Alpha arranged
financing on his behalf and his claim of a fiduciary duty on the
part of Alpha in securing this financing encompassed a claim of
agency and sufficiently gave notice to Alpha of said claim.
We now turn to the issue of whether Alpha breached its
fiduciary duty to Wise by disbursing all of the lease proceeds
to International without investigating its financial stability.
The scope of the duties and responsibilities of an agent to his
principal is dictated by “the nature of the particular office
which the agent agrees to perform.”
S.W.2d 127, 130 (1979).
Deaton v. Hale, Ky., 592
As stated above, there is no question
that Alpha was acting as Wise’s agent in securing financing for
the Ferrari in question.
However, Wise’s allegations of
malfeasance against Alpha relate not to their actions in
arranging the financing for him, but in actually purchasing the
vehicle.
There is no evidence that Wise asked Alpha to help him
negotiate the purchase of the vehicle.
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In fact, the evidence
established that Wise had personally negotiated the purchase of
the car by himself and had already entered into the agreement
with International for said purchase before Alpha became
involved in financing the transaction.
Although Alpha took it
upon itself to run a check on International through the Better
Business Bureau, there was no evidence Wise ever asked anyone at
Alpha to investigate the financial stability of International
before sending it the lease proceeds.
On the contrary, Wise
called Alpha several times demanding that they send the lease
proceeds to International because he was anxious to obtain the
car.
Summary judgment is proper where there is no genuine
issue as to any material fact and the moving party is entitled
to judgment as a matter of law.
494 (1968); CR 56.03.
Isaacs v. Cox, Ky., 431 S.W.2d
For the above reasons, we adjudge that
the trial court properly determined that Alpha was entitled to
summary judgment on the breach of fiduciary duty claim.
We next move on to Wise’s argument that the trial
court erred in dismissing his claim based on his being a thirdparty beneficiary of the operating agreement between Alpha and
Huntington.
Wise asserts that as an intended beneficiary under
the agreement, he was entitled to receive a Ferrari with a value
of at least $65,000 (instead of the damaged unrestored vehicle
he received) since Alpha was required under the operating
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agreement to procure and deliver to Wise the vehicle described
in the lease agreement between Wise and Huntington.
The lease
between Wise and Huntington was for a 1995 Ferrari F355, and the
estimated value of the car at the buyout of the lease was listed
as $65,000.
Under Kentucky law, before a third person not a party
to a contract can derive benefit from that contract, the third
person must show that the contract was made and entered into
directly or primarily for the benefit of the third person.
King
v. National Industries, Inc., 512 F.2d 29 (6th. Cir. 1975).
In
order for a contract for the benefit of a third party to be
enforceable, it must be shown that there was consideration
flowing to the promisor and that the promisee intended to exact
a promise directly benefiting the third party.
Coal, Inc., Ky., 677 S.W.2d 305 (1984).
Simpson v. JOC
Wise argues that he was
the intended beneficiary of the provision in the operating
agreement requiring that Alpha deliver the vehicle described in
the lease to him.
We disagree.
The purpose of said provision
in the operating agreement was clearly to preserve Huntington’s
security interest in the vehicle, as were the provisions
requiring Alpha to verify that the car was insured, licensed,
and properly registered and titled in the lessor’s name.
Huntington was the intended beneficiary of this provision.
Hence,
We
agree with the trial court that Wise was merely an incidental
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beneficiary of the operating agreement.
Accordingly, the lower
court properly dismissed this claim.
Wise’s third argument is that the trial court erred in
dismissing his breach of warranty claim.
Wise alleged that
Alpha breached the implied warranty of merchantability and
implied warranty of fitness for particular purpose pursuant to
KRS 355.2A-212 and KRS 355.2A-213 when it delivered the damaged,
unrestored car to him.
Both KRS 355.2A-212(1) and KRS 355.2A-
213 contain an exception for a “finance lease” which is defined
in KRS 355.2A-103(g)1. as a lease wherein “the lessor does not
select, manufacture, or supply the goods.”
The lease in the
present case was clearly a finance lease and thus was exempted
from the above statutes.
Wise’s remaining argument is that the lower court
erred in refusing to allow him to amend his complaint on
October 26, 2001 alleging misrepresentation and failure to
disclose material facts.
CR 15.01 provides in pertinent part:
A party may amend his pleading once as a
matter of course at any time before a
responsive pleading is served or, if the
pleading is one to which no responsive
pleading is permitted and the action has not
been placed upon the trial calendar, he may
so amend it at any time within 20 days after
it is served. Otherwise a party may amend
his pleading only by leave of court or by
written consent of the adverse party; and
leave shall be freely given when justice so
requires.
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The trial court has broad discretion in its decision
on whether or not to grant leave to amend, and its ruling will
not be disturbed absent an abuse of that discretion.
Winer, Ky., 351 S.W.2d 193 (1961).
Graves v.
The motion to amend at issue
was Wise’s third such motion and at the time it was filed, a
trial date had been set for February 26, 2002.
Over the course
of the two and a half years the parties had been litigating the
case, numerous discovery depositions had already been taken,
numerous motions had been filed and ruled on, and all the claims
by Wise against Alpha had been disposed of.
By the time of
Wise’s final motion to amend, the only remaining claim, the
counterclaim by Alpha, was ready to be submitted to the court.
Had the third amended complaint been allowed to proceed, Alpha
would have had to again gear up to defend another claim.
Under
these circumstances, we cannot say that the trial court abused
its discretion in not allowing Wise to amend his complaint yet
again at that late date.
See Lawrence v. Marks, Ky., 355 S.W.2d
162 (1961).
We now turn to Alpha’s cross-appeal.
Alpha argues
that the trial court erred in ruling that it was not entitled to
recovery against Wise on grounds of unjust enrichment.
The
basis of Alpha’s counterclaim against Wise was that as a result
of Wise’s negligence in purchasing the vehicle from
International, Alpha was forced to spend $46,000 to procure the
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car for Wise, which Wise has never paid Alpha, and that Wise has
therefore been unjustly enriched to this extent.
To succeed on
a claim of unjust enrichment, the plaintiff must show:
that a
benefit was conferred on the defendant at the plaintiff’s
expense; that the defendant took advantage of this benefit; and
the inequitable retention of this benefit without payment for
its value.
Tractor & Farm Supply v. Ford New Holland, 898 F.
Supp. 1198 (W.D. Ky. 1995).
In denying Alpha’s claim, the court
found, first, that Wise had not been unjustly enriched by the
actions of Alpha in that Wise received far less than what he had
bargained for.
Secondly, the court adjudged that Alpha could
not recover in equity because it did not have clean hands by
virtue of its failure to sufficiently investigate the financial
stability of International.
In our view, the court correctly found that Wise was
not unjustly enriched by receiving the car.
As the court
pointed out, Wise also lost considerable money on the
transaction because he was nevertheless obligated to pay off the
lease.
It was not as if receipt of the car resulted in a
$46,000 windfall to Wise.
Further, Wise’s retention of the
vehicle was not inequitable.
Alpha was contractually obligated
to deliver the vehicle to Wise by virtue of its operating
agreement with Huntington and it cannot use a court of equity to
escape this contractual obligation.
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The basis of Alpha’s claim
of unjust enrichment was that Wise was negligent in failing to
investigate the financial stability of International for the
protection of Alpha, which would essentially impose a duty from
Wise to Alpha.
As we held above, Alpha did not owe such a duty
to Wise, hence it would be inequitable to impose a like duty on
Wise.
If Alpha wanted to protect itself, it should have
investigated International more thoroughly for its own benefit.
Given our ruling above, it is unnecessary for us to address
Alpha’s contention that the “clean hands doctrine” does not
preclude recovery for negligent behavior.
For the reasons stated above, the judgments of the
Jefferson Circuit Court are affirmed.
ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Joseph S. Elder, II
Louisville, Kentucky
Robert M. Klein
Louisville, Kentucky
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