R.K. Chevrolet v. Bank of the Commonwealth

Present: All the Justices
R.K. CHEVROLET, INC.
v. Record No. 971907 OPINION BY JUSTICE ELIZABETH B. LACY
June 5, 1998
BANK OF THE COMMONWEALTH
FROM THE CIRCUIT COURT OF THE CITY OF HAMPTON
Wilford Taylor, Jr., Judge
In this appeal, we consider whether the trial court
properly awarded damages against an automobile dealership for
breaching its agreement with a lender by incorrectly titling a
motor vehicle.
In July 1995, John H. Kauffman and Janice S. Carter
purchased a 1995 Chevrolet Camaro Z-28 from R.K. Chevrolet,
Inc. (RK). To finance the purchase, Kauffman obtained a loan
in the amount of $24,398.87 from the Bank of the Commonwealth
(the Bank). As a part of the loan transaction, the Bank
required that the Camaro be titled in Kauffman's name and that
a first lien in the Bank's favor be recorded on the
certificate of title. The Bank issued a check for the
purchase price of the car, showing Kauffman and RK as payees.
The reverse side of the check contained a legend reciting the
obligation of the payees. 1 Kauffman and RK endorsed the check;
1
The legend read as follows: "The endorsement of this
check by the payee constitutes an obligation to the Bank of
the Commonwealth that the payee will record a first lien in
favor of the Bank of the Commonwealth, on one 1995 Chevrolet
Z-28 Camaro Identification No. 2G1FP22PXS2151739 Title in the
Name of John H. Kauffman In the amount of $23,828.00 Secured
by a Security Agreement Dated July 25, 1995."
however, the car was titled in the name of Janice Carter, not
Kauffman.
Approximately one year later, the Bank discovered the
titling error and contacted RK and Carter. Although both the
Bank and RK tried to convince Carter to re-execute the title
to the Camaro and add Kauffman's name, she refused.
The Bank filed this action on September 24, 1996,
alleging that RK and Kauffman breached their contractual
obligations to the Bank by failing to properly title and
secure the Bank's lien on the Camaro. 2 The trial court entered
judgment in favor of the Bank, imposing joint and several
liability on RK and Kauffman in the amount of $19,131.75 plus
interest.
RK appeals the trial court's judgment on three grounds.
First, RK asserts that even though it breached its contractual
duties to the Bank, the Bank sustained no damages as a result
of RK's breach. Any damages suffered by the Bank, RK claims,
were caused by Kauffman's failure to make payments on his
loan. 3 We disagree.
2
Kauffman filed a cross-claim against RK, and RK filed an
amended third-party motion for judgment against Carter.
Neither of these claims is at issue in this appeal.
3
At the time the suit was filed, the Bank had notified
Kauffman that some payments were late, but had not declared
the loan in default. At trial in May 1997, the Bank's
evidence showed that the loan payments were paid through
February 1997.
2
When a motor vehicle dealer breaches its contractual
warranty with a lender by not properly titling a vehicle, the
lender is damaged because it loses its security for the loan.
United Virginia Bank of Fairfax v. Dick Herriman Ford, Inc.,
215 Va. 373, 375, 210 S.E.2d 158, 161 (1974). The amount of
the lender's recovery is limited to the lesser of the value of
the vehicle at the time of the breach and the amount of the
intended lien. The lender's recovery is also diminished by
any loan payments actually received. Id. at 375-76, 210
S.E.2d at 161.
Here, like the dealer in Dick Herriman Ford, RK breached
its contract with the Bank. While the record is not clear as
to the precise calculations made by the trial court in
reaching the damage amount, it does show that the amount of
the intended lien was $23,828.00 and that the value of the
collateral at the time of purchase was $24,289.45. 4 RK does
not dispute the Bank's representations that the trial court
decreased the award by the loan payments received by the Bank.
RK seeks to distinguish Dick Herriman Ford by asserting
that in that case, the bank suffered "actual damages as a
direct proximate result" of the dealership's breach because
the borrower stopped making payments on the loan and took the
vehicle out of the state. This factual distinction is not
3
material to the holding in Dick Herriman Ford. In both cases,
the vehicle was mistitled and the lenders could not enforce
their liens, regardless of the location of the vehicles or the
status of the loan payments. The injury suffered was the loss
of the collateral for the loan, not the failure to make
payments on the loan or the location of the vehicle.
RK next asserts that, even if the Bank were entitled to
damages, the trial court erred in granting the Bank a "full
monetary judgment" because the Bank failed to mitigate its
damages. In support of this claim, RK refers to evidence of
the Bank's contacts with Carter through its collection manager
and the Bank's release of its lien on a duplicate title issued
for the Camaro. The Bank responds that the evidence showed
that its collection manager tried to convince Carter to re-
execute the title and add Kauffman's name, that Carter
testified she was not going to sign any documents changing the
title to the Camaro, that RK requested and handled the
paperwork on the duplicate title, and that even though the
original title reflected a lien in favor of the Bank, the Bank
had no legal interest in the Camaro.
Mitigation of damages is an affirmative defense for which
RK bears the burden of proof. Marefield Meadows, Inc. v.
Lorenz, 245 Va. 255, 266, 427 S.E.2d 363, 369 (1993); Foreman
4
The purchase price as shown on the title application is
conclusive evidence of the vehicle's value. Dick Herriman
4
v. E. Caligari & Co., Inc., 204 Va. 284, 289-90, 130 S.E.2d
447, 451 (1963). Whether RK has satisfied its burden of
showing that the Bank failed to mitigate its damages is a
factual determination based on the evidence produced.
Considering this record, we cannot say that the trial court
erred in failing to find that the Bank did not mitigate its
damages.
Finally, RK argues that the award against it includes
amounts attributable to late fees, interest, and collection
costs of $674.62 which should have been assessed against
Kauffman only. 5 Because, as we noted above, the record does
not show how the award was calculated, the record is
insufficient to address this claim.
For the above reasons, we will affirm the judgment of the
trial court.
Affirmed.
Ford, 215 Va. at 376, 21 S.E.2d at 161.
5
RK apparently bases this amount on a past due notice
sent Kauffman which was introduced as an exhibit. That
notice, however, shows late charges of only $180.63 and the
loan amount past due as $493.99, for a total amount due of
$674.62.
5