# FILED February 24, 1999 Cecil Crowson, Jr. Appellate Cou rt Clerk IN THE COURT OF APPEALS OF TENNESSEE AT NASHVILLE

MIDWEST BRONZE, INC., ) ) Plaintiff/Appella

nt, ) Montgomery Chancery No. 95-78-124

) v. ) ) Appeal No. 01A01-9707-CH-00358 OUTLAW AIRCRAFT SALES, INC., ) ) Defendant/Appe

llant. )

APPEAL FROM THE CHANCERY COURT OF MONTGOMERY COUNTY

AT CLARKSVILLE, TENNESSEE

THE HONORABLE ALEX W. DARNELL, JUDGE

For the Plaintiff/Appellant : For the Defendant/Appellee : Douglas Berry Gregory D. Smith Nashville, Tennessee Clarksville, Tennessee

AFFIRMED IN PART,

REVERSED IN PART, AND REMA NDED

HOLLY KIRBY LILL

ARD, J.

CONCUR: W. FRANK CRAWFORD, P. J., W.S. ALAN E. HIGHERS, J

.OPINION

This is a breach

of contract case. The plaintiff ent ered into a contr

act to purchase an airplane, subject to inspection. A deposit was paid on the airplane. Upon inspection, the plaintiff found defects and rejected the

aircraft. The defendant sought to remedy the defects and refused to return the deposit. The plaintiff filed suit for breach of contract and under the Tennessee Consumer Protection Act. The trial court a warded the plain

tiff a judgment for

the amount of the de

posit, but permitted the defendant to s et-off monies it ha

d spent to modify the airplane in antic ipation of sale to the plaintiff. It d

eclined to award prejudgment interest or damages under the Consumer Protection Act. The plaintiff appeals. We reverse in part the award of set-off

damages, reverse the denial of prejudgment inter

est, and affirm th

e denial of damag

es under the Consum

er Protection Ac

t. On December 29, 1994, the plaint iff , Midwest Bronze, Inc. ("Midwest"), entered into a written contract (the “

Agreement”)

withthe defendant, Outlaw Aircraft Sales, Inc., ("Outlaw") for the purchase of a 1976 C essna 18 2P aircraft for $62,650, subject to inspection by Midwest. The purchase price included the installation of additional equi pment requested b

y Midwest.

The contract required Midwest to

make a $10,000 earnest money deposit, which was delivered on December 29. On that date, the airplane was being repaired and a complete inspection was impossi ble. Con seq uen tly, the contract provided for a later inspection and test flight. The pertinent provisions of the Agreement state:

4. Acceptance

of Aircraft. On or about December 29, 1994 , Seller deli vered the Aircraft to Clarksville, Tennessee where Purchas e r conducted

a pre-purchas

e inspection . . . . Pu

rchaser shall pa

y for cost of its pre-purchase inspection. Purchaser shall n otify Seller

in writing by use of Exhibit B of Pur chaser’s acce

ptance (subject

to th e correctionby Seller of any listed deficiencie s) o r rejecti on of the Aircraft upon c

ompletion of pre-

purchase inspection and tes

tflight. Should Seller ref

use to correct the discrepancies, if any, Purchaser shallhave [the] right, at its election, to reject acceptance

of Aircraft. Acceptance

or rejection of the

Aircraft shall be at Purchaser’s s ole judgment

. If Aircraf

t is not acceptabl

e, this Agreeme

nt will be null and voided, and the parties shal [sic] have no further liability herein, except the earnest money

deposit shall be promptly returned in full to Purchaser . (emphasis in orig inal) After the Agreement was signed, Joe Pendergraft with Midwest Bronze wrote a letter to the First National Bank of Clinton in Clinton, Missouri, detailing the computation of the purchase2

price and the ad

ditional equipment t

o be installed. The

letter states: Computation for fin

al price is as foll

ows: Asking price ----------------------

----------------------------- $63,500.00 Negotiated

price, but seller must

add equipment: ---------- $62,250.00 1. JPI Instruments EDM-700 Scanner: Trade-A-Plane Price: --------------------

----- $1,695.00 Estimate 10 hours labor @ $40/hour ------ +$400.00 Total for JPI Scanner ------------------ $2,095.00 2. Tanis 6 cylinder engine heater: Trade-A-Plane Price: --------------------

----- $486.00 Estimate 6 hours labor @ $40/hour -------- +240.00 Total for Tanis heater ------------------ $726.00 TOTAL ADDITIO

NS TO EQUIPMEN

T: $2,821.00 (Equipme

nt has been added to spec sheet: Exhibit A) Seller to add VOX intercom, with jacks for front seat, and --- +400.00 an extension “plug

in” box for passeng

ers in back seat. Buyer to p ay. TOTAL SELLING PRICE: $62,650.00 TOTAL SAVI

NGS: Asking Price of $63,500 less Final Price of $62,250 -- $1,250.00** **Computations do not

include $400.00 fo

r installing VOX i

ntercom. Seller to Install Additional Equipment ------------- $2,821.00 Total Savings to Buyer --------------- $4,071.00 The letter indicates further that the additional equipment would be installed prior to the pre-purchase inspection. It notes spec ifically tha t: “paragraph

4 of the contract

allows the buy

er to list all deficiencies found, and seller shallc orrect. If ‘seller should refuse to correct the discrepa ncies,’ buyer has an option to refuse the plane.” After the additional equipment was installed, the aircraft was transported

to Hendersonville, North Carolina for inspection. Outlaw paid for transportation for the pre-pu rc hase inspection. Aerolina Incorporat

e d conducted the pre-purch ase inspection in Hendersonville on February 9, 1995. The inspection revealed seve ntee n problems with the airplane, including an engine compression problemrequiring extensive repairs. Midwest's president informed Outlaw verbally and in writing that he had decided to reject the airplane because of these findings. Midwest then demanded th e return of the $10,000 dep osit. Outlaw took the

position that, under

the contract, it w

as entitled to attempt to correct the de

ficiencies. It refused

to refund the mone

y, and Midwe

st filed this lawsuit

. Midwest's complaint requested return of the $10,000 deposit, prejudgment i nterest on the deposit amount, and damages under the Tennessee C onsume r Protection Act, Tennessee Code3

Annotated §§ 47-18-101 to 121. In the claim un der the Consumer Pr

otection Act,

Midwest alleged that Outlaw's failure to return the deposit constituted an unfair or deceptive practice. See

Tenn. Code Ann. § 47-18-104 (Supp. 1998). At the bench trial, Outlaw argued that the intent of the Agreement was to provide Outlaw an opportunity

to correct the lis

ted deficiencie

s prior to Midwest’ s decision to reje ct the aircraft

. Outlaw’s witnesses testifie d that the deficie

ncies listed by

Midwest could

be remedied. Midwe

st argued that the Agreement gave Midwest unf et tered discretion to reject the aircraft, without affording Outlaw an opportunity to correct any de ficiencies. It sought a full refund of the $10,000

earn est mon ey. Midwest’s representative, Joe Pendergraft, acknowledged at trial t hat Outlaw installed additional equipment on the ai rcraft at his re

quest. Pendergraft explained that he is blind in one eye, and “asked to

have some contro

ls put onto

the engine and -- so that I cou ld feel more comf

ortable if so mething were going wrong with the engine fly ing with one eye.” In addition to this extr a equipment, Pendergraft requested a special engine heater, explainin

g, “I fly in the ice and snow a

lot, and you put that on there to warm the engine up before y ou take off.” Pendergraft not ed that he could have purchased

the aircraft “l

ess the add-ons,”

but instead “neg

otiated a price f

or” the add-ons. After the trial, the trial court awarded Midwest the $10,000 deposit. However, Outlaw was permitted to set-off the cost of transportation for the pre -purchase ins pection and the cost of the additional equipment, leaving a total award to Midwest of $6,950. The trial court declined to award prejudgment

interest and made no award of damages or attorney ’ s fees under the Tennessee Consumer Protection Act. From this decision , Midwest now appe

als. On appeal, Midwest a

rgues that the tria

l court erred in p

ermitting Outlaw to

set-off the cost of transportation to t

he inspection site

and the cost of installing the additional equipment requested by Midwest. Midwest maintains that Outlaw did not plead set-off, and that there is no pr

ovision in the Agreement allow

ing set-off of costs for modifications made at the purchaser’s request. Midwest also argues that the trial court erred in not aw arding prejudgme

nt interest. Finally, Midwest contends that it was entitled to damages, including attorney ’s fees and treble damages, under the Tennessee Consumer Protection Act.4

We review the trial

court’s findin

gs de novo , with a presumption of the correctness of the factual findings of the trial court. See Tenn. R. App. P. 13(d). No such pr esumption of corr

ectness attaches to the trial court’s conclusions of law. See Carvell v. Botto ms , 900 S.W.2d 23, 26 (Tenn. 1995). Midwest

alleges first that

the trial court

erred in allowing set-off for the cost of modifications it requested and for the cost of transport to the site of the pre-p

urchase inspec

tion. Midwest

contends that the claim of set-off was not properly pled, and that the trial court erred in allowing the reduction in damages. In its original Answer, Outlaw alleged "[t]he Defendant specifically pleads accord and satisfaction, and set-off in amounts to be determined at a subsequent time." Outlaw then filed an AmendedAnswer that did not mention set-of f. Mi dwest argues that the Amended Answer superseded

the original Answer, and th at consequently Outlaw failed to plead set-off. Outlaw maintains that the Amended Answer supplemented the original Answer, rather than superseding it. Outlaw also notes that evidence of set-off was admitted at trial without objection by Midwest. The trial record in this case contains descriptions and c osts of the addition

al items installed in the aircraft be

fore inspection.

Midwest has pointed to no place in the record in which it objected to the introduction of

such evidence. R

egardless of w

hether Outlaw’s

original Answer

pleading setoff was superseded or supplemented by the Amended Answer, clearly the issue of set-off was tried without objection. See Tenn. R. Civ. P. 15.02. The a ward of set-off will not be revers ed on this basis. Midwest

argues that the trial court erred in permitting set-off because the Agreement did not specifically

provide that Outlaw would be permitted to set-off the cost of the additional equipment installed at

Midwest’s request. The trial court ruled that Midwest could reject the aircraft and recoup its earnest money, but permitted set-off of these costs be cause Mi dwest’s right to reject “must be tempered by equity.” In the letter

written by Pe

ndergraft the

day after execution of the Ag

reement, he cle

arly contemplates that the equipment would be added prior to his p re-purchase

inspection. He describes in his testimony ne

gotiating a sep

arate price fo

r the additional e

quipment, which was then ad ded into the total negotiated purchase price. However, the trial testimony does not address whether Outlaw could recoup the cost of the additional equipment upon resale of the aircraft. Pendergraft ha d5

Outlaw install additional controls to accommod ate his blindness in one eye, and a special engine heater for flying

in ice and snow. I

t is conceivable t

hat t he nature o f the specialized equipment would make it difficult for Outlaw to recoup its cost upon resale. Howeve r, the burden was on Outlaw to establish

its losses and damages. Generally, the party claiming setoff has the burden of establishing the right to

setoff. Polk v. Torrence , 218 Tenn. 680, 405 S.W.2d 575, 576 (1966). Had Outlaw established that it would likely not recoup the cost of the equipment upon resale, setoff might be justified. However, in the absence of such evidence, we

are compelled to conclude that the record does not support the award of setoff. The award of setoff damages to Ou tlaw for the cost of the addedequipment must be reversed. However, since the Agreement provides that Midwest would pay for the cost of the inspection the award of setoff for the c ost of transporting is affirmed. Midwest also argues that the trial court erred in failing to award prejudg ment interest. Prejudgment

interest is

available in

cases where the amount of the debt is certain. Tennessee Code Annotat ed § 47-14-123 provides that prejudgment interest may be awarded a s an element of damag e s "in accordance w

ith the principles o

f equity at any rate not in excess of a maximum effective rate of ten pe rcent (10%) per

annum." Tenn. Cod

e Ann. § 47-14-123

(1995); see Squibb v. Smith , 9 4 8 S.W.2d 752, 756-57 (Tenn. App. 1997) ; Schoen v. J.C. Bradford & Co. , 667 S.W.2d 97, 101 (Tenn. App. 1984). “The award

of prejudgment interest is within the sound discretion of the trial court and the decision will not be disturbed upon appellate review unless the reco rd reveals a manifest and palpable abuse of discretion.” Otis v. Cambridge Mut. Fire Ins. Co. , 850 S.W.2d 439, 446 (Tenn. 1992); see also Teague Bros., Inc. v. Martin & Bayley, Inc. , 750 S.W.2d 15 2, 158 (Tenn. App. 1987). Prejudgment inte

rest is not considered a

penalty imposed upon the defe ndant, but is

awarded “inaccordance with the principles of equity.” Otis , 850 S.W.2 d at 446 (cit ing In re Estate of Davis , 719 S.W.2d 526 (Tenn. App. 1986)). At trial, Midwest

relied on the provision in the Agreement stating that acceptance or rejection of the aircraft wo

uld be “at Purcha

ser’s sole judgm

ent” and that “the

earnest money

deposit shall be promptly returned in full to Purchaser.” Outlaw maintained that the Agreement gave Outlaw the right to attempt t

o correct the deficiencies, and that Midwest could not simply reject the aircr aft without permitting Outlaw to remedy the defects. Ho wev er, the Agreement refers to the Seller correcting deficiencies if the purchaser accepts the aircraft subject to the correction of deficiencie

s. In other words,

the right to correct deficiencies comes into play only after the purchaser accepts the6

aircraft. In this case, Midwest never accepted the aircraft, subject to the correction of deficiencies or otherwise. The

refore, under

the language

in the Agreeme

nt, Midwest

had the right, in i

ts “sole discretion,” to reject the aircraft. The Agreement clearly provides for the prompt return of the earnest money. Since the amount involved is a sum certain, and the Agreement clea rly provides for its prompt return, the denialof prejudgment interest was an abuse of the trial court’s discretion. The decision of the trial on this issue is reversed, and the judgment is modified to include an award of prejudgment

interest on the $10,000 earnest money minus the setoff for the costs of transportation for inspection. Midwest also argues that it should have been granted relief under the Tennessee Consumer Protection Act, Tennessee Code Annotated §§ 47-18-101 to 121. Midwest base s its claim under the Consumer Protection Act on the statutory provision that prohibits “[r]ep

resenting that a

consumer transaction confers or involv es rights, remedies or obligations that it does not have or involve or which are prohibited by law.” Tenn. Code Ann. § 47-18-104(b)(12) (Supp. 1998). Midwest argues that Outlaw violated this provision by directly contradicting the terms of its

own contract, which provided that upon rejection of the airplane, “the earnest mon

ey deposit sh

all be promptly returned in full to p urchaser.” Midwest asserts that it was induced to enter into the Agreement

by the written assurance that it had an absolute right to re fund of its depo sit. By later den yi ng this reme dy, Midwest argues that Outlaw was “representing that [the]. . . transaction confer[red] . . . rights

[and] remedies . . . that it [did] not have.” Id. Midwest also claims that the Consumer

Protection Act ap

plies because Ou

tlaw misreprese

nted the conditio

n of the airplane, causing the plaintiff to incur additional inspection expenses. The Tennessee Consum

er Protection Ac

t is “to be liberally

construed to

protect consumers and others from those who engage in deceptive act[s] or practices.” Haverlah v. Memphis Avi ation, Inc. , 674 S.W.2d 297, 305 (Tenn. App. 1984). The Act allows victims of unfair o r deceptive act

s

or practices to recover

actual damages. See Tenn. Code Ann. § 47-18-109(a)(1) (1995). The trial court ma y also award attorney’ s fees. See id. § 47-18-109(e)( 1). If the tri al court finds th

at th e defendant willfully or

knowingly v

iolated the Act,

the court may award treble damages. See id. §47-7

18-109(a)(3). Factors to be considered when determining whether to

award treble damages include: (A) The competence of the consumer or other person; (B) The nature of

the deception or coercion practiced upon the consumer or other person; (C) The damage to the consumer or other person; and (D) The good faith of the person found to ha

ve vio late d the provisions of this pa

rt. Id. § 47-18-109(a)(4). The gist of Midwest’s

claim in this

case is Outlaw’s breach of the contractual provision for return of Midw est’ s earnest money . Outlaw interpre

ted the Agreem

ent as providing

it an opportunity to remedy deficiencies prior to Midwest’s rejection. Unde r the se circumstance

s, the evidence is insufficient

for an award of

damages under

the Tennessee Co

nsumer Protection

Act. The evidence does notpreponderate against the trial court’s decision not to award damages under the Tennessee Consumer Protection Act, and this decision is affirmed. In sum, the trial cour

t’s decision to per

mit Outlaw to

set-off the costs

of transportation for inspection is affirmed. The trial court’s dec

ision to permit Outlaw to setoff the cost of the additional equipment

is reversed. The

trial court’s decision not to award prejudgment interest is reversed, and the cause is remanded for

an award of prejudgment interest on the $10,000 earnest money minus the setoff for transportation costs. The trial court’s decision not to award damages under the Tennessee Consumer Protection Act is affirmed. The decision of

the trial court is affirmed in part, reversed in part, and remanded as set forth above. Costs are assessed equally against Appellant and Appellee, for which execution may issue, if necessary.

HOLLY KIRBY LILLARD, J. CONCUR:

W. FRANK CRAW

FORD, P. J., W.

S.

ALAN E. HIGHERS, J.