Johnson v. Earnhardt's Gilbert Dodge, Inc.

• Decision Date: 25 April 2006
• Docket Number: No. CV-05-0204-PR.,CV-05-0204-PR.
• Citation: 132 P.3d 825,212 Ariz. 381
• Parties: Brenda JOHNSON, Plaintiff-Appellant, v. EARNHARDT'S GILBERT DODGE, INC., Defendant-Appellee.
• Court: Arizona Supreme Court

Page 825

132 P.3d 825

212 Ariz. 381

Brenda JOHNSON, Plaintiff-Appellant, v. EARNHARDT'S GILBERT DODGE, INC., Defendant-Appellee.

No. CV-05-0204-PR.

Supreme Court of Arizona, En Banc.

April 25, 2006.

Krohn & Moss, Ltd. by Marshall Meyers, Phoenix, Attorney for Brenda Johnson.

Mary LaRue Walker, Chandler, and Osborn Maledon, P.A. by Thomas L. Hudson, Jason J. Romero, Phoenix, Attorneys for Earnhardt's Gilbert Dodge, Inc.

Sacks Tierney P.A., by James W. Armstrong, Gaye L. Gould, Scottsdale, Attorneys for Amici Curiae Arizona Automobile Dealers Association and Arizona Recreational Vehicle Dealers Association.

Bowman and Brooke LLP, by Negatu Molla, Abram N. Bowman, Phoenix, Attorneys for Amicus Curiae DaimlerChrysler Corporation.

OPINION

RYAN, Justice.

¶ 1 With most goods, "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." Ariz.Rev.Stat. ("A.R.S.") § 47-2314(A) (2005). However, the implied warranty of merchantability for the sale of a used motor vehicle may be limited to fifteen days or five hundred miles, whichever occurs first. A.R.S. § 44-1267(B) (2003). To limit the implied warranty of merchantability to the statutory minimum, a dealer must include in the sales agreement a conspicuous statement in bold type that the "vehicle will be fit for the ordinary purposes for which the vehicle is used for 15 days or 500 miles after delivery whichever is earlier." Id. § 44-1267(G).¹

¶ 2 The statutory ability to limit the implied warranty is subject to an important caveat. Under the Magnuson-Moss Warranty Act ("Warranty Act" or "Act"), 15 U.S.C. §§ 2301-2312 (2000), if a used car dealer enters into a service contract with the purchaser at the time of sale or ninety days thereafter, no limitation on an implied warranty of merchantability is permitted. 15 U.S.C. § 2308(a).² Under such circumstances, the terms of the service contract govern the duration of the implied warranty of merchantability. See id. § 2308(b).

¶ 3 We address two questions in this case: first, whether the used car dealer here entered into a service contract with the purchaser, and second, whether the service contract was a warranty under the Warranty Act. We have jurisdiction under Article 6, Section 5(3), of the Arizona Constitution and A.R.S. § 12-120.24 (2003).

I

¶ 4 In May 2000, Brenda Johnson purchased a used 1997 Kia Sportage "AS IS" from Earnhardt's Gilbert Dodge, Inc. ("Earnhardt"). The sales agreement expressly limited the implied warranty of merchantability to fifteen days or five hundred miles, whichever occurred first. In the same transaction, Johnson, through Earnhardt, applied to purchase a DaimlerChrysler service contract. Both Earnhardt's Finance Manager and Johnson signed the application. Johnson paid an amount in addition to the purchase price of the vehicle for the service contract. The service contract was subsequently issued to Johnson by DaimlerChrysler.

¶ 5 Johnson experienced mechanical problems with the Kia in June 2000, April 2001, and May 2001. These problems were not resolved to Johnson's satisfaction and she attempted to revoke acceptance of the vehicle nearly a year after she had purchased it.

¶ 6 When Earnhardt refused to accept return of the vehicle, Johnson filed suit in superior court alleging breach of the implied warranty of merchantability and revocation of acceptance under the Warranty Act.³ The superior court granted Earnhardt's motion for summary judgment, finding that Johnson had not entered into a service contract with Earnhardt.

¶ 7 Johnson appealed. A divided court of appeals reversed the trial court's grant of summary judgment, holding that, as a matter of law, Earnhardt had entered into a service contract with Johnson, and that Earnhardt had also "made a warranty in connection with the sale"; therefore, Earnhardt was not permitted to limit the implied warranty of merchantability. Johnson v. Earnhardt's Gilbert Dodge, Inc., 210 Ariz. 375, 378, 379, 381, ¶¶ 11-13, 20, 26, 111 P.3d 417, 420, 421, 423 (App.2005).⁴

II

A

¶ 8 The Warranty Act defines a service contract as "a contract in writing to perform, over a fixed period of time or for a specified duration, services relating to the maintenance or repair (or both) of a consumer product." 15 U.S.C. § 2301(8). A service contract requires "some consideration in addition to the purchase price of the consumer product." 16 C.F.R. § 700.11(c) (2005); see also Id. § 700.11(b). Moreover, "[n]o supplier may disclaim or modify (except as provided in [15 U.S.C. § 2308(b)]) any implied warranty to a consumer with respect to such consumer product if . . . at the time of sale, or within 90 days thereafter, such supplier enters into a service contract with the consumer which applies to such consumer product." 15 U.S.C. § 2308(a) (emphasis added).

¶ 9 The Act and its implementing regulations do not provide any guidance on when a supplier "enters into" a service contract with a consumer. See Barkley Clark & Christopher Smith, The Law of Product Warranties § 19:5 n. 4 (Westlaw 2002) ("The legislative history of [15 U.S.C. § 2308] does not shed any light on the meaning of the phrase `enters into.'"). When the Warranty Act does not define a term or phrase, we look to state law to resolve this issue. See, e.g., Curtis R. Reitz, Consumer Product Warranties Under Federal and State Laws § 2.01, at 13 (2d ed.1987) (stating that the Warranty Act "is partial and corrective legislation that begins with acceptance of the continuation of existing state law as the foundation. The reform of federal law is overlaid on that body of state law . . . [b]ut familiar, traditional state law remains in place unless displaced by the Act or its regulation"); Henry Weinstock, Comment, Consumer Warranty Law in California Under the Commercial Code and the Song-Beverly and Magnuson-Moss Warranty Acts, 26 UCLA L.Rev. 583, 675 (1979) ("The Magnuson-Moss Warranty Act does not attempt to supplant state law; its goal is to supplement the consumer's rights.").⁵

B

¶ 10 A contract is "a bargain in which there is a manifestation of mutual assent to the exchange and a consideration." Restatement (Second) of Contracts § 17(1) (1981) ("Restatement"); see also Hill-Shafer P'ship v. Chilson Family Trust, 165 Ariz. 469, 473-74, 799 P.2d 810, 814-15 (1990) (requiring a meeting of the minds for contract formation).

¶ 11 Mutual assent is ascertained from "objective evidence, not [from] the hidden intent of the parties." Hill-Shafer P'ship, 165 Ariz. at 474, 799 P.2d at 815. Objective evidence includes written and spoken words as well as acts. Corbin-Dykes Elec. Co. v. Burr, 18 Ariz.App. 101, 103, 500 P.2d 632, 634 (1972) (holding that the manifestation of mutual assent "is determined by the words used and the other manifestations of intent having reference to the contract"); Restatement § 19(1) ("The manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act.").

¶ 12 Under Arizona's parol evidence rule, "[w]here . . . an ambiguity exists on the face of [a] document or the language admits of differing interpretations, parol evidence is admissible to clarify and explain the document." Standage Ventures, Inc. v. State, 114 Ariz. 480, 482, 562 P.2d 360, 362 (1977); see also Leo Eisenberg & Co. v. Payson, 162 Ariz. 529, 532, 785 P.2d 49, 52 (1989). The court may also admit evidence to determine the intention of the parties if "the judge . . . finds that the contract language is `reasonably susceptible' to the interpretation asserted by its proponent." Taylor v. State Farm Mut. Auto. Ins. Co., 175 Ariz. 148, 154, 854 P.2d 1134, 1140 (1993).

C

¶ 13 The court of appeals held that "the trial court erred when it determined that Earnhardt did not `enter into' a service contract with Johnson" because "[b]y the plain language of the application and the service agreement, Earnhardt is a party to the agreement among Johnson, Earnhardt and DaimlerChrysler to provide service for Johnson's Kia." Johnson, 210 Ariz. at 378, ¶¶ 11-12, 111 P.3d at 420. We agree with the court of appeals that the superior court erred in granting summary judgment against Johnson. We conclude, however, that the court of appeals erred in holding, as a matter of law, that Earnhardt was a party to the service contract.

¶ 14 In considering Earnhardt's motion for summary judgment, the superior court stated that Congress intended the phrase "enters into" to apply only to parties. Because it granted the motion, the court must therefore have implicitly concluded that Earnhardt was not a party to the service contract.

¶ 15 "Summary judgment is appropriate only if no genuine issues of material fact exist and the moving party is entitled to judgment as a matter of law." Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons Local No. 395 Pension Trust Fund, 201 Ariz. 474, 482, ¶ 14, 38 P.3d 12, 20 (2002) (citing Ariz. R. Civ. P. 56(c); Orme School v. Reeves, 166 Ariz. 301, 309, 802 P.2d 1000, 1008 (1990)). "Thus, summary judgment in favor of either party is appropriate only `if the facts produced in support of the [other party's] claim or defense have so little probative value, given the quantum of evidence required, that reasonable people could not agree with the conclusion advanced by the proponent of the claim or defense.'" Andrews v. Blake, 205 Ariz. 236, 240, ¶ 13, 69 P.3d 7, 11 (2003) (quoting Orme School, 166 Ariz. at 309, 802 P.2d at 1008) (alteration in original).

¶ 16 We agree that a service contract that merely obligates a third party to provide services has not been "entered into" by the dealer, even when sold by the dealer. We also assume that to be the case even if the third party (such as DaimlerChrysler) has contractual arrangements with the dealer requiring the dealer to provide the service. In this case, however, language in the documents comprising the...