Opinion ID: 393715
Heading Depth: 2
Heading Rank: 2

Heading: Tennessee Law of Misrepresentation

Text: 31 Tennessee first recognized the law of tortious misrepresentation in Ford Motor Co. v. Lonon, 217 Tenn. 400, 398 S.W.2d 240 (1966). There the court permitted Lonon to recover actual and consequential damages resulting from defects in a Ford tractor. Lonon had purchased the tractor from his local dealer, relying on representations made to him by the dealer, and in Ford advertising and sales literature, that the tractor would be trouble-free. In holding Ford liable for misrepresentation, the court applied Section 552d of the Restatement (Second) of Torts 7 which imposes liability on a seller of chattels who makes misrepresentations of material facts concerning the character or quality of the chattel ... of importance to the normal purchaser, by which the ultimate buyer may justifiably be expected to be influenced in buying the chattel. 398 S.W.2d at 247, quoting Restatement (Second) of Torts, § 402B, Comment (g).
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33 ViCon says CMI falsely represented, through its advertising literature (specifically its dryer specification sheet) and the oral representations of its salesmen, that its asphalt plant would produce 200 tons of asphalt per hour. 34 CMI denies making any misrepresentations concerning plant production capabilities and says that neither the dryer sheet nor its salesmen's oral representations establish the claimed misrepresentation. Because the dryer sheet refers only to dryer capacity not total production, CMI says ViCon's reliance thereon is misplaced. Assuming arguendo that the dryer sheet relates to total plant production, CMI says ViCon introduced no evidence that the dryer did not perform as represented. 35 It is undisputed that the plant achieved an average production rate of only 145 tons per hour. The Master found the average moisture content of the aggregate used to have been 6%, a level at which the dryer sheet states it will dry 184-244 tons per hour. That finding was based on two written reports of moisture tests conducted by an independent testing inspector showing: (1) a 6.47% moisture content on the day following a 1.16 inch rainfall and (2) a 4.94% moisture content, a month and a half later and on the inspector's deposition testimony that in numerous other unrecorded tests, the moisture content never exceeded 6%. Though CMI urges that the Master erred in relying on this testimony, its only attempt at rebuttal was through its own chief engineer who testified, based on his calculations of ViCon's average fuel consumption for one of its jobs over a 6 month period, that the average moisture content was 10%. That testimony was subsequently discredited: 36 Q. So your ten percent moisture that you come up with is a result that you wanted to reach rather than what your own calculations showed it to be, isn't that correct? 37 A. That's right. 38 Moreover, CMI's own tests in November, 1973 showed an aggregate with a moisture content of 4.2%. CMI urges that asphalt production is a function of variables other than dryer efficiency, such as cycle time 8 and hauling efficiency, 9 but there is no evidence that those factors significantly affected the average hourly production rate of the plant. In fact, CMI states in its advertising literature that the drying process is at the heart of efficient asphalt production and that while all components of an asphalt plant affect its production, the most common bottleneck is dryer performance. 39 Regarding oral representations, CMI says that if Jones represented plant production to be 200 tons per hour, ViCon is not entitled to rely thereon because Mann knew that Jones was not aware of all the variables involved in ViCon's asphalt production. Again, CMI's difficulty lies in the absence from the record of evidence to support its position. To the contrary, CMI's own witnesses testified at trial that its general advertising is designed to create in prospective purchasers certain expectations regarding the product and that such purchasers have a right to rely on its representations. 40 Finally, CMI contends that because ViCon's records show that the plant did produce at a rate of 200 tons per hour on 15 of the 477 production days, approximately 3% of the time, the plant had that inherent capacity and its representation was therefore true. CMI's contention is disingenuous. Judge Nixon found that CMI's production representations related to sustained rates of production, and that finding is amply supported by the evidence of record. That the plant operated at 200 tons per hour on 3% of its production days is no indication that the plant was capable of sustained performance at that rate. In fact, substantial evidence established that the plant was not capable of such sustained performance. 41
42 Judge Nixon also found that CMI had falsely represented that the plant would be free of serious defects and would have a low maintenance cost. 43 CMI does not deny that it made those representations or that ViCon suffered mechanical failures. Nor does CMI deny that those failures were attributable to defective material, except with respect to the wet wash exhaust system. 10 Instead, CMI maintains that because the maintenance costs were lower than the industry average, that error occurred in the finding that those expenses were excessive. We disagree. 44 ViCon's uncontroverted testimony establishes that it incurred expenses of $129,170.55 for parts and labor to correct defective conditions in the plant over and above its normal repair and maintenance costs. That figure clearly establishes the excessive cost of maintaining the plant. 45 Regarding the wet wash system, CMI says its premature wear is attributable to corrosion caused by ViCon's method of operation, not by any defect in the system itself. ViCon says the wear resulted from abrasion by an excessive number of fine sand particles (fines) being pulled through the system. In light of the extensive testimony on the subject, Judge Nixon's finding that both factors contributed to wear, but that the primary cause was abrasion, cannot be held clearly erroneous. ViCon's engineering expert testified without contradiction that excessive fines were present in the system. Moreover, CMI admitted that during the early stages of the plant's operation, excessive dust was carried through the exhaust system. 46 Judge Nixon properly found that CMI falsely represented the plant's production capability and its maintenance and repair costs. Because those representations are clearly material to prospective purchasers of hot mix asphalt plants and of such character as to influence a purchase of such plants, we conclude, as did Judge Nixon, that each of the elements of tortious misrepresentation is present and that ViCon is entitled to recover thereon.
47 That the CMI/ViCon contract contains a disclaimer of express or implied warranties does not absolve CMI of liability for tortious misrepresentation. Under Tennessee law, it is clear that in a tortious misrepresentation action under § 552d, disclaimers of liability by the supplier are ineffectual to defeat recovery. Walker Truck Contractors v. Crane Courier Co., 405 F.Supp. 911, 917 (E.D.Tenn.1975).
48 Nor is the parol evidence rule violated by consideration of the representations made by CMI. Evidence of misrepresentations may be admitted without violating the rule where, as here, they neither tend to vary nor contradict the written contract. As set forth by the Tennessee Court of Appeals in Huddleston v. Lee, 39 Tenn.App. 465, 284 S.W.2d 705 (1955) 49 The rule applies only against attempts by parol to vary or contradict a written contract or to say it was different, in order to hold the seller on a promise or contract obligation not in the writing or contradictory of the writing. It does not apply where the effort is not to change the contract but to hold the seller for a tort, that is a false warranty or a false affirmation of fact, which was not part of the contract but was the inducement to it. 50 Id. at 710. 51 (III) Damages. 52 Because Tennessee law permits a buyer to recover both actual and consequential damages resulting from a seller's misrepresentations, Judge Nixon properly awarded ViCon consequential damages for economic loss resulting from the failure of the plant to perform as represented. Ford Motor Co. v. Lonon, supra. Though CMI admits that such damages are recoverable under Section 552d, it objects to the findings on the amount of those damages. 53 The Master found that the failure of the plant to produce 200 tons per hour increased production costs per ton and accordingly recommended that ViCon be awarded damages for production loss. CMI complains that the evidence of production loss is too speculative to support the award and that ViCon failed to show that it could have produced and utilized the increased production without increased costs. We disagree. 54 The court's assessment of damages is amply supported by the uncontradicted testimony of Frank Betts, a qualified CPA, who examined ViCon's financial records and testified that its major production costs remained constant regardless of plant production. Because less production means a lesser base on which to distribute fixed costs of operation, Betts concluded that ViCon suffered monetary loss reflected in increased production costs per ton when the plant averaged 145 tons per hour. 55 Because the plant produced 27.5% less asphalt than CMI said it would, the district court computed ViCon's loss by multiplying its fixed costs by 27.5%. Contrary to CMI's contentions, that assessment is founded on a reasonable factual basis and is not speculative. Nor is it appropriate that we substitute our judgment for that of a district court respecting the level or amount of damages where, as here, a basis for the assessment appears in the record. The award is accordingly affirmed.(IV) Rule 60(b) Motion. 56 CMI says that because Mann's uncorroborated testimony provided the only proof of essential elements of ViCon's case, evidence that Mann later pleaded guilty to charges of misrepresenting ViCon's performance under a government contract, a fraud against the United States, would have produced a different result in this case. CMI says that substantial justice therefore requires that it be granted relief under Rule 60(b). We disagree. 57 Mann's indictment and guilty plea relate to events occurring after he testified in this case and are unrelated to this lawsuit. Though CMI urges that the evidence goes to Mann's credibility as a witness, CMI neither asserts here nor did it assert below that Mann committed perjury in this case. 58 Mann's testimony in this case is consistent with that of other ViCon witnesses as well as that of CMI's own witnesses and its factual accuracy is not disputed by CMI. In such circumstances, Judge Nixon properly concluded that the evidence that Mann made misrepresentations in a different proceeding would not have produced a different result in this case and that substantial justice was in fact achieved here by his judgment. The denial of the Rule 60(b) motion was not an abuse of discretion and must therefore be affirmed. 59 (V) Interest. 60 28 U.S.C. § 1961 makes mandatory the allowance of interest at the rate provided by state law from the date of entry of the district court judgment. Whether the judgment will also include prejudgment interest is a question of the measure of damages and is to be resolved by state law. 61 Relying on Air Temperature Inc. v. Morris, 63 Tenn.App. 90, 469 S.W.2d 495 (Tenn.Ct.App.1970), ViCon says that under Tennessee law, interest accrues as a matter of right from the time an obligation is liquidated. ViCon then says that because its damages became liquidated as of the filing of the Master's Report, it is entitled to interest from that date. 62 ViCon's reliance on Air Temperature is misplaced. The court there expressly noted: 63 Interest as a matter of right is purely statutory, unknown to the common law, and its allowance must be confined to those obligations and demands specified and enumerated in statutory provisions. In cases not so included, it remains as in common law, a matter of discretion in the (court), to be allowed or not, according to the facts presented. 64 Id. at 504. 65 Though prejudgment interest was allowed in Air Temperature, that award was based on the court's recognition of the debtor-creditor relationship of the parties and its application of Tennessee Code § 47-14-107: 66 All bonds, notes, bills of exchange and liquidated and settled accounts signed by the debtor shall bear interest from the time they become due .... 67 Because ViCon asserts no statutory basis for claiming interest from the filing of the Master's Report, the award of such interest is left to the discretion of the district court. Judge Nixon's refusal to award prejudgment interest was not, in the circumstances of this case, an abuse of discretion and is therefore affirmed.