Patton v. McHone

Citation17 UCCRep.Serv.2d 404,822 S.W.2d 608
Decision Date17 July 1991
Docket NumberNo. 88-1652-,88-1652-
Parties17 UCC Rep.Serv.2d 404 Rozell PATTON and Beverly Patton, Plaintiffs/Appellants, v. Jesse McHONE, Harpeth Toyota, Inc., and Ford Motor Credit Co., Defendants/Appellees. ii.
CourtCourt of Appeals of Tennessee

Joseph H. Johnston, Nashville, for plaintiffs/appellants.

William Carter Conway, for defendant/appellee Harpeth Toyota.

Alexander, Conway & Williams, Franklin, John E. Buffaloe, Jr., Nashville, for defendant/appellee Ford Motor Credit Co.

KOCH, Judge.

This appeal involves a used car that had been damaged extensively prior to its sale. The buyers requested rescission of the contract when they discovered the damage and the faulty repairs shortly after purchasing the car. After their requests for rescission were rebuffed, the buyers filed an action in the Chancery Court for Davidson County against the prior owner of the car, the dealer, and the financing company. The trial court, hearing the case without a jury, awarded the buyers a judgment against the prior owner of the car but dismissed their claims against the dealer and the financing company. The trial court also awarded the financing company a deficiency judgment against the buyers. The buyers have appealed, taking issue with the deficiency judgment and the dismissal of their claims against the dealer and the financing company. We find that the buyers are entitled to relief against the dealer and the financing company. Therefore, we reverse the deficiency judgment and the dismissal of the buyers' claims against the dealer and the financing company.


On July 14, 1986, Harpeth Toyota, Inc. purchased a used 1985 Honda Prelude from Ralph LaFevor, an individual who repaired cars as a sideline in his garage at home. Harpeth Toyota's used car manager inspected the car while it was being repaired, and Mr. LaFevor informed him that the car's roof, trunk lid, and rear windshield had been damaged by a falling tree limb. 1

Harpeth Toyota sold the car "as is" to Jesse McHone on February 6, 1987. Mr. McHone did not inquire into the background of the car, and Harpeth Toyota did not volunteer any information about it. Mr. McHone financed the car through Credithrift of America, Inc.

The car was involved in another accident on March 9, 1987. Mr. McHone paid more than $5,200 to repair the car and later pled guilty to a DUI charge stemming from the accident. As a result of his conviction, Mr. McHone lost his driver's license and his job. Since he could no longer drive or afford the monthly car payments and increased insurance premiums, Mr. McHone parked the car in a church lot on Gallatin Road and placed a sign in the front windshield offering to sell the car to anyone who would agree to assume his monthly payments.

Beverly Patton saw the car parked in the church parking lot. She contacted Mr. McHone and became interested in buying the car after driving it. Mr. McHone told her that the car was "the best car he had ever owned" and that he had not had any problems with it. He did not, however, tell Mrs. Patton that the car had been involved in an accident. Mrs. Patton also inquired about an extended service contract. Mr. McHone had not purchased one when he bought the car, but he told Mrs. Patton that she could probably buy one from Harpeth Toyota.

A series of discussions between Mrs. Patton, Mr. McHone, Harpeth Toyota, and Credithrift followed. Mrs. Patton finally agreed to refinance the car after she and Mr. McHone were informed that Mr. McHone would remain liable on the Credithrift note even after Mrs. Patton assumed it. Mrs. Patton and her husband also agreed to pass the transaction through Harpeth Toyota's books 2 in order to purchase an extended service contract, to avoid paying additional taxes, and to obtain financing through Ford Motor Credit Corporation ("Ford Credit").

Harpeth Toyota paid off the Credithrift note, and on June 22, 1987 Credithrift discharged its lien and assigned the car's title to Harpeth Toyota. On June 25, 1987, Harpeth Toyota prepared the following documents: (1) a retail installment contract listing Mr. Patton as the buyer and Harpeth Toyota as the seller; (2) a bill of sale listing Mr. Patton as the buyer and Harpeth Toyota as the seller; and (3) an application for an extended warranty on behalf of Mr. Patton. Harpeth Toyota also placed an endorsement on the car's title stating that Mr. Patton was the new owner, that Harpeth Toyota was the seller, and that Ford Credit was the new lienholder.

Harpeth Toyota earned $1,163.13 on the transaction. While it made no profit from the car itself, it earned (1) $532.78 from arranging the Pattons' financing with Ford Credit, (2) $200 as a commission for the sale of the extended warranty, and (3) $430.35 as a commission on the credit life and disability insurance.

On June 27, 1987, the car stalled after the Pattons' son drove it over a pothole. When the car could not be restarted, Mrs. Patton had it towed to King's Automotive, a Nashville repair shop specializing in Hondas. King's Automotive discovered that the car had a cracked block and a bent frame and that the timing chain had broken and had fallen into the engine. It informed Mrs. Patton that the car had been damaged earlier and that the damage had been improperly repaired. It also informed Mrs. Patton that the repairs would cost $2,132.11 but that the car "would never be right."

The Pattons contacted the warranty company and learned that the warranty would cover only the repairs to the timing chain. Thereafter, they requested Harpeth Toyota to take the car back and to rescind the contract, but Harpeth Toyota told them that it had a policy against rescinding sales contracts. They also requested Ford Credit to rescind the contract, but Ford Credit simply referred them back to Harpeth Toyota.

With matters in this state, the Pattons' lawyer arranged for Ford Credit to repossess the car. Ford Credit sold the car at a private sale for $3,950 and then demanded that the Pattons agree to pay the $7,341.15 deficiency. The Pattons declined and on June 23, 1988 filed suit against Harpeth Toyota, Ford Credit, and Mr. McHone, alleging fraud, breach of the implied warranty of merchantability, and violations of the Tennessee Consumer Protection Act and the Magnuson-Moss Act.

The trial court found that Mr. McHone wrongfully failed to disclose that the car had been extensively damaged in an accident and awarded the Pattons a $6,650 judgment against him. 3 The trial court also dismissed the Pattons' claims against Harpeth Toyota and Ford Credit, awarded Ford Credit a judgment against the Pattons for $7,341.15 and reasonable attorneys fees, and then dismissed all remaining cross-claims and third-party claims.


The threshold question in this case is a factual one concerning Harpeth Toyota's role in the transaction. Harpeth Toyota claims that it was in "no way" involved in the sale and asserts that the transaction was solely between Mr. McHone and Mr. Patton. The evidence, however, belies this argument and preponderates against the trial court's finding that Mr. Patton bought the car from Mr. McHone. Mr. Patton bought the car from Harpeth Toyota both in law and in fact.


Mr. Patton and Mr. McHone agreed initially that Mr. Patton would assume Mr. McHone's Credithrift loan. However, they changed the transaction upon learning that Mr. McHone would remain liable on the Credithrift note and that Mr. Patton could obtain an extended service contract through Harpeth Toyota. They finally agreed that Mr. Patton would "refinance" the car in order to relieve Mr. McHone of any further liability and that Mr. Patton would obtain his financing and extended service contract through Harpeth Toyota.

Accordingly, Harpeth Toyota paid off Credithrift and on June 22, 1987 listed itself as the "new owner" on the car's title certificate. Three days later, Harpeth Toyota executed a "car invoice and bill of sale" certifying that it had "sold" the car to Mr. Patton and warranting that it was "the lawful owner thereof with a good right to sell same." At the same time, it prepared a retail installment sales contract naming itself as the seller, and it endorsed the title certificate showing itself as the seller, Mr. Patton as the new owner, and Ford Credit as the lienholder.

Harpeth Toyota also sold Mr. Patton a "Supersafe" two-year or 24,000 mile extended service agreement costing $360 as well as credit life and disability insurance costing $1,075.87. Its commissions on these transactions, taken with its commission for arranging Mr. Patton's financing with Ford Credit, earned Harpeth Toyota $1,163.13 on the transaction.


For the purposes of the Uniform Commercial Code, a "seller" is a "person who sells or contracts to sell goods," and a "merchant" is a "person who deals in goods of the kind ... involved in the transaction." See Tenn.Code Ann. §§ 47-2-103(1)(d), 47-2-104(1) (1979). A "sale" consists of the "passing of title from the seller to the buyer for a price." See Tenn.Code Ann. § 47-2-106(1) (1979).

For the purposes of the Magnuson-Moss--Federal Trade Commission Improvement Act, 15 U.S.C. §§ 2301-2312 (1982) ("Magnuson-Moss Act"), a "supplier" is "any person engaged in the business of making a consumer product directly or indirectly available to consumers." 4

It is difficult to understand how, in the face of the facts, Harpeth Toyota can assert that it was only "assisting" Mr. Patton in refinancing the car and in obtaining an extended service contract. Harpeth Toyota became the record owner of the car on June 22, 1987 and sold the car to Mr. Patton on June 25, 1987 at a $1,163.13 profit. It follows that Harpeth Toyota was not only a "merchant" but also a "seller" and a "supplier" for the purposes of the Uniform Commercial Code and the Magnuson-Moss Act. Its liability to Mr. Patton must be measured accordingly.



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