MBI Motor Co., Inc. v. Lotus/East, Inc., 74-1234

• Decision Date: 10 December 1974
• Docket Number: No. 74-1234,74-1234
• Citation: 506 F.2d 709
• Parties: MBI MOTOR COMPANY, INC., et al., Plaintiffs-Appellees, v. LOTUS/EAST, INC., Defendant-Appellant, and Dutchess Auto Company, Defendant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 709

506 F.2d 709

MBI MOTOR COMPANY, INC., et al., Plaintiffs-Appellees, v. LOTUS/EAST, INC., Defendant-Appellant, and Dutchess Auto Company, Defendant.

No. 74-1234.

United States Court of Appeals, Sixth Circuit.

Dec. 10, 1974.

Harold B. Stone, Stone & Bozeman, Knoxville, Tenn., Lea, Goldberg & Goldsmith, Lola S. Lea, New York City, for appellant.

Allen B. Johnson, Wallace F. Burroughs, Knoxville, Tenn., for appellee.

Before PHILLIPS, Chief Judge, MILLER, Circuit Judge, and McALLISTER, Senior Circuit Judge.

PHILLIPS, Chief Judge.

In this diversity case, MBI Motor Company, Inc., filed suit against Lotus/East, Inc., in connection with five automobiles it purchased at wholesale from that defendant. After a trial to the court sitting without a jury, the District Judge entered judgment in favor of MBI and against Lotus/East based on a theory of liability not mentioned in the complaint or in the pretrial order. Lotus/East appeals from this judgment. For the reasons stated below, we vacate the judgment of the District Court and remand for further proceedings.

Lotus/East is a distributor of Lotus automobiles, and MBI was an authorized Lotus dealer located in Maryville, Tennessee. Between November 1970 and June 1971 Lotus/East sold to MBI five Lotus cars, of which four eventually were resold to retail customers. Each car at the time of sale had, or subsequently developed, substantial mechanical defects that required repeated servicing by MBI. The four customers were dissatisfied with their cars, and each has taken steps to recover the purchase price from MBI.

On July 24, 1972, MBI filed a complaint against Lotus/East in the Chancery Court for Blount County, Tennessee, alleging misrepresentation in that the cars were not new 1971 model Lotus automobiles as stated by Lotus/East, but were in fact used 1969 model cars. MBI also claimed that it had not been reimbursed for repair work that it performed on these cars pursuant to the parts and service warranty running from Lotus/East to retail purchasers.

Lotus/East removed the case to the District Court, and after further pleading, the District Judge entered a pretrial order that described the theories upon which MBI expected to recover as follows:

'Defendants sold to plaintiffs five Lotus automobiles, billing and warranting the same to be new automobiles and of a 1971 year model; which said five automobiles were not a 1971 year model, and were used automobiles; that warranties were performed by plaintiffs on the five Lotus automobiles; however, plaintiffs were not reimbursed by defendants for said warranties.

'Plaintiffs have conducted themselves in a proper manner, have not damaged any reputation of the Lotus automobile by their actions; but that plaintiffs have been damaged by the misrepresentation and failure to comply with their agreements by the defendants for which plaintiffs sued for damages.'

The order also characterized defendant's theory of nonliability in the following manner: 'Defendant Lotus/East, Inc., has neither misrepresented any products sold to the plaintiffs, nor has it breached any contract entered into with plaintiffs.' The order framed the issues for trial as follows:

'(1) Were the five automobiles which plaintiff purchased from Lotus/East, Inc., new 1971 model automobiles or were they demonstrators?

'(2) If defendant breached his contract with the plaintiff, what is the amount of damages?'

After the trial, the court entered a memorandum opinion holding that Lotus/East had not misrepresented the nature and vintage of the five automobiles. The court concluded, however, that the cars were materially defective at the time of delivery to MBI and that, therefore, Lotus/East breached the implied warranty of merchantability created by 2-314 of the Uniform Commercial Code. T.C.A. 47-2-314 (1964). ¹ Accordingly the court gave judgment for MBI in the amount of $7,165, denied Lotus/East's motion to reopen for additional proof, and deemed the pleadings amended to conform to the evidence.

Lotus/East complains that the warranty of merchantability was not an issue in the case until the court rendered its opinion and that it would have pursued a different trial strategy and presented additional evidence had it realized its exposure to warranty liability. Defendant relies upon Jackson v. Crockarell, 475 F.2d 746, 747 (6th Cir. 1973), in which we said:

'A review of the record of this case indicates that the statements of counsel in setting out his theory of defense and the charge of the Court to the jury on these points goes well beyond the theory of defense as set out in the pleadings and the pre-trial order. The pleadings under which this case was tried did not raise the defense of the right to kill to prevent the escape of a felon. Since the practice deprives the opposing party of an opportunity to present evidence to counter the new theory, it is reversible error for a court to give instructions concerning an issue not raised by the pleadings.'

MBI points out, however, that in Jackson there was little or no evidence in the record to support the newly raised defense theory. MBI insists that in the case at bar the merchantability issue was tried by the implied consent of the parties. Fed.R.Civ.P. 15(b). Therefore, the argument goes, the court was fully justified in basing its decision on that theory and in amending the pleadings to conform to the evidence.

We think it clear that if a theory of recovery is tried fully by the parties, the court may base its decision on that theory and may deem the pleadings amended accordingly, even though the theory was not set forth in the pleadings or in the pretrial order. See Wallin v. Fuller, 476 F.2d 1204 (5th Cir. 1973); Monod v. Futura, Inc., 415 F.2d 1170 (10th Cir. 1969); Dering v. Williams, 378 F.2d 417 (9th Cir. 1967); Fed.R.Civ.P. 15(b). However, the implication of Rule 15(b) and of our decision in Jackson v. Crockarell is that a trial court may not base its decision upon an issue that was tried inadvertently. Implied consent to the trial of an unpleaded issue is not established merely because evidence relevant to that issue was introduced without objection. At least it must appear that the parties understood the evidence to be aimed at the unpleaded issue. See Bettes v. Stonewall Ins. Co., 480 F.2d 92 (5th Cir. 1973); Standard Title Ins. Co. v. Roberts, 349 F.2d 613, 620 (8th Cir. 1965); Niedland v. United States, 338 F.2d 254, 258 (3d Cir. 1964).

With these principles in mind, we turn to the evidence presented in this case. MBI personnel and three of the retail purchasers testified at some length about the specific mechanical defects in the five automobiles. The following description by the MBI chief mechanic is typical of such testimony:

'THE COURT: What do you claim was wrong with the car?

'THE WITNESS: At this particular date when the car was bought back from Mr. Yount, the electrical system would not keep the automobile's battery charged; the lights would not extend from their retracted position; the engine would not idle; the automobile overheated frequently; the air conditioner did not work or did not perform properly; the automobile and extensive vibration at speeds which the customer was dissatisfied with; the electrical windows in the automobile would not operate or perform normally.'

No doubt this evidence is directly relevant to the merchantability of the car, but we are not convinced that plaintiff introduced it with a view to establishing a breach of the warranty of merchantability. The same witness later was asked how new cars could be distinguished from used ones. He gave the following reply: 'By their mechanical condition at the time, appearance, problem with such time change items they should not wear out as frequent or should not be a problem at that particular time.' The witness then estimated that a particular defect in...