Thomas v. Ford Motor Credit Co.

• Decision Date: 11 May 1981
• Docket Number: No. 658,658
• Citation: 429 A.2d 277,48 Md.App. 617
• Parties: , 31 UCC Rep.Serv. 1265 Lamont THOMAS et ux. v. FORD MOTOR CREDIT COMPANY.
• Court: Court of Special Appeals of Maryland

Page 617

48 Md.App. 617

429 A.2d 277, 31 UCC Rep.Serv. 1265

Lamont THOMAS et ux. v. FORD MOTOR CREDIT COMPANY.

No. 658.

Court of Special Appeals of Maryland.

May 11, 1981.

Robert S. Sherman, Baltimore, with whom was Richard W. Winelander, Baltimore, on the brief, for appellants.

Robert D. Harwick, Jr., Baltimore, with whom were Donald C. Allen Theodore B. Oshrine and Allen, Thieblot & Alexander, Baltimore, on the brief, for appellee.

Argued before MORTON, MELVIN and COUCH, JJ.

MORTON, Judge.

Appellants, Lamont and Beverly Thomas, appeal from an order of the Circuit Court for Baltimore County (Raine, J.) sustaining the demurrer without leave to amend the demurrer of appellee, Ford Motor Credit Company. The appellants assert that the lower court erred in sustaining the demurrer in that a cause of action was stated against the appellee in each and every count of the declaration.

Appellee has filed a motion to dismiss this appeal for appellants' noncompliance with Maryland Rules 1028 a-c. The motion is without merit and, therefore, denied.

The declaration to which the appellee demurred was an amended declaration. A previous declaration had also been demurred to by Ford Motor Credit Company and the same court (Hinkle, J.) had sustained the demurrer on all but one count. The appellants were granted leave to amend. Appellants then filed the amended declaration which is before us in this appeal. The amended declaration, without referring to the previous declaration, reiterated the count on which the demurrer had been overruled.

The appellee, claiming no notice of the amended declaration having been filed, answered the original declaration by way of a general issue plea to the appellants' count on which Judge Hinkle had overruled the demurrer. Appellee, upon learning of the amended declaration, filed a demurrer to all counts. Thereafter, the demurrer to the amended declaration was sustained by Judge Raine as to all counts, including the reiterated count.

The appellants filed their declarations based on the following alleged set of circumstances. On or about May 30, 1978, the appellants bought a 1977 Mercury Monarch automobile from Monarch Lincoln Mercury (seller). ¹ They financed the purchase of the car by entering into a retail installment contract which was assigned to the appellee. Printed on the face of the contract is the notice required by Md. Com. Law Code Ann. § 14-1302:

"NOTICE

Any holder of this consumer credit contract is subject to all claims and defenses which the debtor could assert against the seller of goods or services obtained pursuant hereto or with the proceeds hereof. Recovery hereunder by the debtor shall not exceed amounts paid by the debtor hereunder."

The car had been used as a "demonstrator model" and the odometer showed 12,000 miles. The appellants assert that the car was represented as being of the same standard, quality and grade as a new automobile of the same year and model. Furthermore, the appellants paid for an "extended warranty" which covered the car for up to 36,000 miles or two years. The cost of this warranty was included in the purchase price but not specifically disclosed on the retail installment contract.

The appellants asserted that the vehicle possessed so many defects as to render it unfit for transportation and constituted a safety hazard. It was further alleged that the seller attempted to repair the defects but was unable to do so and refused to replace the automobile. Appellants did not revoke acceptance of the car ² but brought this action, maintaining that the vehicle is worth only a small fraction of the purchase price.

The amended declaration before us sets forth the appellants' claims in six counts. According to their brief, those counts assert the following: (1) "the sale of this particular automobile was in violation of the implied warranty of merchantability"; (2) "(t)he defects were of such a nature as to violate the implied warranty of fitness for a particular purpose"; (3) there was a breach of an express warranty by the seller in that the seller failed to repair the car as promised; (4) "the seller misled and/or deceived the Appellant(s) by deliberately misrepresenting the condition of the vehicle sold"; (5) Sections 12-605 and 12-606 of the Maryland Code of Commercial Law were violated in that an exact copy of the installment sales agreement was not delivered to the appellants at the time of signing and certain post-signing alterations were made on the agreement; and (6) the charge for the "extended warranty" was "hidden" in the cost of the vehicle, in violation of the Federal Truth in Lending Act (15 U.S.C. §§ 1601 et seq.).

We must first determine whether the appellants can assert their claims raised in counts one through four against the appellee. The appellee argues that its only relationship to the appellants is as a holder in due course of their consumer paper, the retail installment contract. We disagree.

To be able to assert the rights of a holder in due course as defined by Title 3 of the Maryland Uniform Commercial Code (see especially § 3-305), one must be a holder of a negotiable instrument as defined by Md. Com. Law Code Ann. § 3-104. ³ Even without the notice stamped on the face of the retail installment contract, it is a contract, not negotiable paper. If it were negotiable paper, the notice would have eliminated the possibility of anyone acquiring holder in due course status wish respect to the paper.

The notice required in specified consumer credit contracts under Md. Com. Law Code Ann. § 14-1302 is identical to that required for certain consumer credit transactions in or affecting interstate commerce by the Federal Trade Commission (FTC) Trade Regulation Rule, Preservation of Consumers' Claims and Defenses, 16 CFR § 433 (1980). Both the statute and the regulation make it an unfair or deceptive trade practice to take or receive a consumer credit contract which fails to contain the notice in at least ten point, boldface, type. The preservation of consumers' claims and defenses arises out of the legal effect the notice has on the consumer paper or contract, not directly from the statute or regulation. Thus, state law is applied in interpreting the effect of the notice.

The notice was intended to eliminate the possibility that the consumer's duty to pay would be independent of the seller's duty to fulfill his obligations where the seller "refers" customers to a creditor or is "affiliated" with the creditor. See "Statement of Enforcement Policy and Invitation to Comment in Regard to Trade Regulation Rule on Preservation of Consumers' Claims and Defenses," 41 Fed.Reg. 34,594 (August 16, 1976). It accomplishes this purpose by eliminating the holder in due course status for the consumer paper. The language of the notice deprives the paper of its negotiability in that it becomes a conditional promise to pay a sum certain; one requirement for asserting the rights of a holder in due course is that one must be a holder of negotiable paper. When a contract is involved, as in the case at bar, the language becomes a part of that contract.

That language subjects the creditor or assignee of the contract "to all claims and defenses which the debtor could assert against the seller." The creditor or assignee is "in the same position the seller would have been in. The rights between the buyer and the seller of goods are governed principally by Article 2 of the U.C.C. (Md. Com. Law Code Ann., Title 2). And buyer's general remedies are catalogued in § 2-711. In addition, buyer's right to reject or revoke acceptance is set out in § 2-602 et. seq." J. White and R. Summers Handbook of the Law Under the Uniform Commercial Code, p. 1143 (2nd Ed. 1980).

The appellee urges that a debtor can only assert a defense in response to a suit by the creditor for collection of the debt. We disagree. The appellee, as the assignee of the contract, can be sued directly by the appellants, recovery being limited to the amounts paid by the debtor under the contract. To find otherwise would be to defeat the purpose of the notice and the clear import of the language.

The appellee further asserts that counts one through four fail to state a cause of action in that the appellants have failed to allege that any payments were made under the retail installment contract. The notice which was printed on the contract stated that "(r)ecovery hereunder by the debtor shall not exceed amounts paid by the debtor hereunder." This is a limitation on the amount of recovery, but does not preclude the debtor from asserting a claim against the holder of the contract. We therefore reject appellee's argument on this point.

We now turn to a more particularized examination of the declaration. ⁴ The first count, according to appellants, asserts a claim for breach of implied warranty of merchantability. According to the appellee, it asserts three claims: breach of express warranty, breach of implied warranty of merchantability, and breach of implied warranty of fitness for a particular purpose. It is, of course, well settled that the failure to state separate causes of action in separate counts is improper and renders a declaration demurrable. Maryland Rule 340 c; Kirchner v. Allied Contractors, Inc., 213 Md. 31, 131 A.2d 251 (1957).

The first count states in pertinent part:

"Included in the purchase price for said automobile, was a two year extended warranty which was specifically provided for new cars only. The vehicle sold, had approximately twelve thousand (12,000) miles on it at the time of the sale, that the vehicle was represented by agents and/or servants of the defendant, Monarch, as a new car and sold as such, being specifically referred to as a 'demonstrator model.'

....

At the time of the sale, and delivery of said vehicle, the defendants, and both of them, had impliedly warranted the merchantability of the vehicle and further impliedly warranted that the...