Hodges v. Johnson

• Decision Date: 30 January 2009
• Docket Number: No. 97,062.,97,062.
• Citation: 199 P.3d 1251
• Parties: Merle J. "Boo" HODGES, M.D., and Melissa R. Hodges, Appellants/Cross-appellees, v. Jim JOHNSON, d/b/a Johnson and Associates, Appellee/Cross-appellant.
• Court: Kansas Supreme Court

199 P.3d 1251

Merle J. "Boo" HODGES, M.D., and Melissa R. Hodges, Appellants/Cross-appellees, v. Jim JOHNSON, d/b/a Johnson and Associates, Appellee/Cross-appellant.

No. 97,062.

Supreme Court of Kansas.

January 30, 2009.

Robert A. Martin, of Norton, Wasserman, Jones ones & Kelly, L.L.C., of Salina, argued the cause, and was on the brief, and Lawrence E. Nordling, of the same firm, was

with him on the reply brief for appellants/cross-appellees.

Chris J. Kellogg, of Kennedy Berkley Yarnevich & Williamson, Chartered, of Salina, argued the cause, and Larry G. Michel, of the same firm, was with him on the briefs for appellee/cross-appellant.

The opinion of the court was delivered by DAVIS, J.:

The small claims court granted judgment against a used-car dealer for the cost of replacing a defective air conditioner in a vehicle purchased by a consumer. The used-car dealer appealed the monetary award; the district court affirmed but denied the plaintiffs' request for attorney fees. Both parties appealed. The Court of Appeals reversed the district court, concluding that the implied warranty of merchantability "warrants the operation of major components that are necessary for the vehicle to operate" and that the air conditioner is not a major component of the used vehicle. See Hodges v. Johnson, 39 Kan.App.2d 220, 225, 178 P.3d 59 (2008). We reverse the Court of Appeals, affirm the district court's decision affirming the small claims court, reverse the district court's decision regarding attorney fees, and remand the case to the district court for an assessment of those fees.

FACTS

Jim Johnson owns a car dealership in Saline County that sells high-end, used vehicles. In January 2005, Johnson sold Dr. Merle Hodges and Melissa Hodges a 1995 Mercedes S320 with 135,945 miles for $17,020 (the sales price of $15,900 plus tax). Johnson had been driving the Mercedes as his personal vehicle for roughly 2 years before the sale. Johnson testified before the district court in this case that he told the Hodgeses when they purchased the Mercedes that it was a nice car in good condition. Dr. Hodges testified that Johnson said the car "was just pretty much a perfect car" and that Johnson "loved driving it."

At the time the Hodgeses bought the Mercedes from Johnson, there was no discussion about the operation of the air conditioning, heating, or other components of the vehicle. Both Dr. Hodges and Johnson testified that they had no reason to believe that the air conditioner did not work when the Mercedes was sold to the Hodgeses.

In February 2005, about a month after he had bought the car from Johnson, Dr. Hodges noticed that the vent in the Mercedes did not circulate cool air and that the car emitted a strange smell. In March of the same year, the Hodgeses noticed that the Mercedes' air conditioning did not work and contacted the Hodgeses' mechanic, Virgil Anderson. Anderson added Freon to the air conditioner. About a month later, the air conditioner again was not working; Anderson added more Freon. The Hodgeses contacted Johnson to notify him of the air conditioning problem, and Johnson told them that some older vehicles may need a yearly boost of Freon to work properly.

In May 2005, the air conditioner failed a third time. After checking the air conditioning system for leaks, Anderson informed the Hodgeses that the Mercedes' evaporator, condenser, and compressor needed to be replaced. Anderson explained that these repairs would cost approximately $3,000 to $4,000.

At some time around May 2005, a mechanic who worked for Anderson told the Hodgeses that Johnson had requested that the mechanic put a product called Super Seal into the Mercedes' air conditioner in May 2003 (when he was using the car as his personal vehicle). The mechanic explained that the use of Super Seal complicated the current repair of the air conditioner and that the mechanic personally would not recommend Super Seal or apply it unless requested.

Johnson testified that he did not recall any problems with the Mercedes' air conditioner after the mechanics added Super Seal in May 2003, though he could not recall whether additional Freon was added during that time. Johnson further testified that the air conditioning problem in 2003 only involved the car's evaporator.

Anderson identified the condenser as the main problem with the Mercedes' air conditioner in 2005. Anderson testified during the pendency of this case that he could not determine whether the problem with the Mercedes' air conditioner existed at the time that the Hodgeses bought the car from Johnson or occurred at some time later.

The Hodgeses asked Johnson to pay to repair the air conditioning unit in the Mercedes. Johnson refused.

Shortly thereafter, the Hodgeses filed an action in small claims court against Johnson, alleging he caused them damages of $3,474-Anderson's estimate of the repair costs. The small claims court found in favor of the Hodgeses and awarded them $3,474 damages, plus $56 in costs and interest.

Johnson appealed to the district court. After holding a de novo hearing, the district court also found in favor of the Hodgeses, noting that "while [Johnson] may not have known of the failure of the air conditioning unit[,] ... there is an implied warranty of merchantability," and Johnson "is responsible to the plaintiffs to provide a car that is merchantable." The court therefore entered a judgment in favor of the Hodgeses for $3,474, together with costs of $56 plus interest. The court found that attorney fees were not warranted because Johnson's actions did not rise "to a level of misrepresentation."

The Hodgeses appealed the denial of attorney fees to the Court of Appeals. Johnson filed a cross-appeal, arguing that the implied warranty of merchantability does not extend to air conditioning units on used vehicles. The Court of Appeals reversed in a divided opinion and held as a matter of law that the implied warranty of merchantability on a used vehicle extends only to "the operation of major components that are necessary for the vehicle to operate, such as the engine and transmission." Hodges, 39 Kan.App.2d at 225, 178 P.3d 59. The court further held that "it is the responsibility of the buyer to ensure that the components incidental to operation are in working condition." 39 Kan.App.2d at 225, 178 P.3d 59. Because it found that a car's air conditioning unit is not a major component of its operation, the court held as a matter of law that the implied warranty of merchantability did not hold Johnson accountable for the failure of the air conditioner in this case. 39 Kan.App.2d at 225, 178 P.3d 59.

Because the majority held that the implied warranty of merchantability did not apply to the Mercedes' air conditioning system as a matter of law, the majority declined to reach Johnson's other arguments that the Hodgeses bought the car at a significant discount and that the Hodgeses had failed to prove the exact amount of damages. 39 Kan. App.2d at 225-26, 178 P.3d 59. Although the majority found that the district court had applied the wrong standard for determining whether attorney fees should apply, the majority concluded that the Hodgeses were not "successful parties" within the meaning of K.S.A. 61-2709(a); thus, attorney fees were not warranted. 39 Kan.App.2d at 226-27, 178 P.3d 59.

Judge Leben dissented, stating that the majority applied the wrong standard for evaluating whether the implied warranty of merchantability applied in this case. According to Judge Leben, the question in this case was not whether the implied warranty of merchantability applied—a question of law—but whether the specific air conditioner in this Mercedes was covered by that warranty—a question of fact. Hodges, 39 Kan. App.2d at 228, 178 P.3d 59 (Leben, J., dissenting). Judge Leben stated that because this case involved a question of fact, it should be reviewed for substantial competent evidence. Judge Leben further found that substantial evidence existed to support the district court's decision in this case. 39 Kan. App.2d at 230-31, 178 P.3d 59 (Leben, J. dissenting).

This court granted the Hodgeses' petition for review.

IMPLIED WARRANTY OF MERCHANTABILITY

Kansas' implied warranty of merchantability is contained in K.S.A. 84-2-314, which states that "a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind." K.S.A. 84-2-314(1). The statute further states that in order for goods to be "merchantable," they must be "at least such as ... are fit for the ordinary purposes for which such goods are used." K.S.A. 84-2-314(2)(c).

The implied warranty in K.S.A. 84-2-314 "set[s] minimum standards of merchantability." International Petroleum Services, Inc. v. S & N Well Service, Inc., 230 Kan. 452, 454, 639 P.2d 29 (1982). Although "more may be required by the parties' agreement, course of dealing, or usage of trade," the minimum standards contained in K.S.A. 84-2-314 "assure a buyer that if the goods received do not conform at least to normal commercial expectations, the buyer will have a cause of action by which he or she can secure compensation for losses suffered." 230 Kan. at 454, 639 P.2d 29. This court has explained that the warranty seeks to strike a balance between "two extremes":

"Even though the seller may be careful not to make a single assertion of fact or promise about the goods, the ordinary buyer in a normal commercial transaction has a right to expect that the goods which are purchased will not turn out to be completely worthless. The purchaser cannot be expected to purchase goods offered by a merchant for sale and use and then find the goods are suitable only for the junk pile. On the other hand, a buyer who has purchased goods without obtaining an express warranty as to their quality and condition cannot reasonably expect that those goods will be the finest of all possible goods of that...