author: LUKOWSKY, Justice.

text:
    COMMONWEALTH of Kentucky, Movant, v. Johnny MILLER, Respondent.
    Supreme Court of Kentucky.
    Dec. 19, 1978.
    Robert F. Stephens, Atty. Gen., Reid C. James, Asst. Atty. Gen., Frankfort, for movant.
    C. Thompson Evans, II, Louisville, for respondent.
   LUKOWSKY, Justice.

Miller was convicted of theft by deception in violation of KRS 514.040. His punishment was fixed at confinement in the penitentiary for one year. The trial judge withheld the imposition of sentence and the entry of judgment and placed him on probation for a period of five years. KRS 533.020. The Court of Appeals reversed the Taylor Circuit Court. We reverse the Court of Appeals and affirm the circuit court.

The only question to be answered on review is whether the trial judge erred when he refused to give the following instruction to the jury when so requested by Miller.

“Deception as to the person’s intention to perform a promise shall not be inferred from the fact alone that he did not subsequently perform the promise.”

The source of this language is KRS 514.-040(3).

An examination of KRS 514.040 discloses that the elements of the offense are contained in subsection (1) subdivisions (a) through (e) and that subsection (3) is intended to be a caveat to the trial judge. It prescribes a standard to be followed by him in determining whether there is sufficient evidence to warrant the submission of the deception issue to the jury.

This caveat is but the reverse of a presumption. It is the traditional Kentucky view that such matters should not be included in the instructions to the jury because to do so invades their province to weigh the evidence and draw their own conclusions. See Mason v. Commonwealth, Ky., 565 S.W.2d 140 (1978); Wells v. Commonwealth, Ky., 561 S.W.2d 85 (1978). Consequently, the trial judge did not err when he refused the requested instruction.

The decision of the Court of Appeals is reversed and the judgment of the Taylor Circuit Court is affirmed.

All concur.


source: Caselaw Access Project

author: PARK, Judge.

license: Public Domain

text:
    L. G. COOK, as Executor of the Estate of W. F. Foster, Deceased and as Trustee under the Will of W. F. Foster, Deceased, Appellant, v. Betty Ann HOLLAND, Judy Bowen, L. G. Cook, Individually, Joseph Leland Baucum, Dennis Vaughn, Clemontine Dabney, Katie Foster Long, and Charles S. Foster, Appellees. L. G. COOK, Individually, Cross-Appellant, v. Betty Ann HOLLAND, Judy Bowen, L. G. Cook, Executor and Trustee of W. F. Foster Estate, Charles S. Foster, Katie Foster Long, Joseph Leland Baucum, Dennis Vaughn and Clemontine Dabney, Cross-Appellees. Joseph Leland BAUCUM, Cross-Appellant, v. Betty Ann HOLLAND, Judy Bowen, L. G. Cook, Executor and Trustee of W. F. Foster Estate, Charles S. Foster, Katie Foster Long, Dennis Vaughn, Clemontine Dabney, and L. G. Cook, Individually, Cross-Appellees. Betty Ann HOLLAND and Judy Bowen, Cross-Appellants, v. L. G. COOK, Executor and Trustee of W. F. Foster Estate, Charles S. Foster, and Katie Foster Long, Cross-Appellees.
    Court of Appeals of Kentucky.
    June 30, 1978.
    Rehearings Denied Sept. 8, 1978.
    Discretionary Reviews Denied Jan. 30, 1979.

      James B. Brien, Jr., Mayfield, for appellant and cross-appellee, L. G. Cook, as Executor and Trustee of W. F. Foster Estate.
    Earl T. Shoup, Paducah, for appellee and cross-appellant, L. G. Cook, Individually.
    Williams, Housman & Sparks, Paducah, Stone & Greenwald, Louisville, for appel-lees and cross-appellants, Betty. Ann Holland and Judy Bowen.
    Earl T. Osborne, Paducah, for appellee and cross-appellant, Joseph Leland Baucum.
    Tom Garrett, Paducah, for appellee and cross-appellee, Clemontine Dabney.
    Lovett, Johnson & Shapiro, Benton, for appellees and cross-appellees, Charles S. Foster and Katie Foster Long.
    Before PARK, VANCE and WINTER-SHEIMER, JJ.
   PARK, Judge.

These consolidated appeals are from a judgment entered by the Graves Circuit Court in an action for personal injuries suffered by the plaintiffs (appellees and cross-appellants), Betty Ann Holland and Judy Bowen. Their personal injury claims arise out of a collision on October 23, 1971, between a truck operated by the defendant (appellee and cross-appellant), Joseph Leland Baucum, and an automobile driven by the defendant (appellee), Clemontine Dab-ney. Holland and Bowen were both passengers in the Dabney automobile. After the trial court directed a verdict against Bau-cum, the jury returned a verdict in favor of Holland for $156,062.84 and in favor of Bowen for $30,000.00. The jury also returned a verdict for Dabney for $1,758.00 on her cross-claim against Baucum.

For many years, Baucum had been employed as farm manager of the Foster Four Star Farm owned by W. F. Foster prior to his death in 1967. L. G. Cook qualified as executor and trustee under the will of W. F. Foster. Cook continued to employ Bau-cum as farm manager. Cook was a defendant in circuit court both individually and in his fiduciary capacity as executor and trustee. In this court, Cook is an appellee and cross-appellant in both capacities. The beneficiaries under the will were Foster’s son and widow, the defendants (appellees) Charles S. Foster and Katie Foster Long.

Numerous issues are raised on appeal, but they may be conveniently grouped in three categories: (1) the extent to which other persons associated with the Foster estate are liable for the negligence of Baucum; (2) whether the claim against Cook individually is barred by the statute of limitations; (3) whether a new trial should be granted.

I

The Judgment

The circuit court held that Cook was personally liable to Holland and Bowen for the negligence of Baucum. The judgment was rendered jointly and severally against Bau-cum and Cook. However, the judgment also granted Cook indemnity from Baucum and the Foster estate for all sums paid by him or on his behalf on the judgment recovered by Holland and Bowen. In effect, Cook was authorized to satisfy his liability under the judgment out of the assets of the trust estate. Nevertheless, the circuit court held that Holland and Bowen could not maintain an action against Cook in his fiduciary capacity. The plaintiffs’ complaint against the beneficiaries of the trust was also dismissed.

On appeal, Cook contends that he has no personal liability for Baucum’s negligence. Foster’s son, who is the principal beneficiary of the trust, and Cook, in his fiduciary capacity, both assert that the assets of the trust estate cannot be used to satisfy Cook’s personal liability under the judgment. Holland and Bowen claim that the circuit court erred in dismissing their complaint against Cook in his fiduciary capacity and against the trust beneficiaries.

Individual Liability of Cook

Under the orthodox common law rule, a trustee is personally liable to third persons for torts committed by him in the administration of the trust. Louisville Trust Co. v. Morgan, 180 Ky. 609, 203 S.W. 555 at 557, 7 A.L.R. 396 (1918); Pirtle’s Adm’x v. Hargis Bank and Trust Co., 241 Ky. 455, 44 S.W.2d 541 at 545 (1931); Restatement (Second) of Trusts § 264 (1959); G. Bogert, Trust and Trustees § 731 (2d ed. 1960); A. Scott, The Law of Trusts § 264 (3d ed. 1967). Cook concedes that a trustee is personally liable for his own negligence or other fault. However, Cook contends that a trustee should have no personal liability in the absence of personal fault. In this case, the collision between the Baucum truck and the Dabney automobile was not the result of any personal fault on the part of Cook.

Cook’s contention is not supported by the orthodox common law rule. A trustee is personally liable for torts committed by an agent or employee in the course of the administration of the trust. The principle of respondeat superior is applied to the trustee just as though he were the owner of the trust property free of the trust. His liability is the same as it would be if he were not a trustee. It is immaterial that the trustee receives no benefit from the trust. Restatement (Second) of Trusts § 264, Comment b; Bogert, op. cit., § 731 at 534-35; H. Stone, “A Theory of Liability of Trusts Estates for the Contracts and Torts of the Trustee,” 22 Colum.L.Rev. 527, 540-41 (1922); Annot., 7 A.L.R. 408 at 411 (1920), supplemented in 123 A.L.R. 458 at 462 (1939).

Professor Scott has given the following explanation for the rule imposing personal liability on the trustee under the doctrine of respondeat superior:

It may seem to impose a hardship upon the trustee that he should be held personally liable, and it is arguable that where he is not at fault he should be liable only to the extent to which he can obtain indemnity out of the trust estate. On the other hand, there is no reason why the victim of the tort should be denied relief merely because the trust estate is insufficient to indemnify the trustee. The risk of personal liability in tort is a risk which the trustee runs in undertaking the administration of the trust. Ordinarily he can protect himself by taking out liability insurance and paying the premiums out of the trust estate.

Scott, op. cit., § 264 at p. 2243. Holland and Bowen had no control over the amount of liability insurance covering the operations of the Foster farm. Cook did. Because the circuit court also held that Cook was entitled to indemnity from the trust estate, the practical consequence of the circuit court’s judgment is to place the risk of insolvency of the trust estate on the trustee rather than on the tort victims. We conclude that the trial court was correct when it adjudged Cook liable for Baucum’s negligence.

Cook’s Right of Indemnity

Even though a trustee may be personally liable for a tort committed by his agent or employee in the administration of the trust, it does not follow that the loss must ultimately be borne by the trustee. If the liability is vicarious and the trustee has violated no fiduciary duty, the trustee is entitled to indemnity out of the trust estate. Not only is the trustee entitled to indemnity, but the trustee may properly use trust property to discharge his personal liability. Restatement (Second) of Trusts § 247, Comments a and b; Bogert, op. cit., § 734; Scott, op. cit., § 247; Annot., 44 A.L.R. 637 at 676 (1926), supplemented in 127 A.L.R. 687 at 693 (1940). As a reason for imposing personal liability on a trustee, courts have stated that a trustee should not be allowed to impair the trust estate by his own tort or negligence. E. g., Louisville Trust Co. v. Morgan, supra, 203 S.W. at 557. However, if the trustee is without personal fault and his personal liability is vicarious, there is no sound reason for denying him a right of indemnity. In re Lather’s Will, 137 Misc. 226, 243 N.Y. 366, 375-76 (1930).

Although there are no Kentucky cases directly upholding the trustee’s right of indemnity when without personal fault, there are decisions which lend support to such a right. As a general rule, a trustee is not liable to the trust beneficiaries for losses caused by acts of agents properly employed in the administration of the trust. The trustee is liable to the beneficiaries for such losses only if he has failed to satisfy his fiduciary duty to exercise good faith and reasonable diligence in the administration of the trust. Kaufman v. Kaufman’s Adm’r, 292 Ky. 351, 166 S.W.2d 860 at 863-64, 144 A.L.R. 866 (1942); McRoberts v. Carneal, Ky., 44 S.W. 442 (1898), mod. sub nom., Stewart’s Adm’r v. Carneal, 21 Ky.L.Rep. 497, 51 S.W. 800 (1899); Restatement (Second) of Trusts § 225. If Cook would not have been personally liable for the destruction of any trust property as a result of Baucum’s negligence, no sound reason exists for denying Cook indemnity in the absence of proof that Cook breached his fiduciary duty to the beneficiaries. The right of indemnity should be denied only in those circumstances in which the trustee would be liable for the acts of an agent.

In Pirtle’s Adm’x v. Hargis Bank and Trust Co., supra, 44 S.W.2d at 545, the court stated:

It has been held that when a trustee is charged with the duty of carrying on a business, the estate may be liable for the negligent acts of other employees.

In the present case, W. P. Foster’s will contemplated that his trustee would continue the operation of the farm. His will provided:

I hereby respectfully request that the Foster Four Star Farm, consisting of my residence, all farm land and buildings, be saved and deeded to Charles Sheridan Foster, my son, so that this property may be retained in the Foster Family, as it has been for so many years. .

Cook was also authorized under the will to sell the farm if he deemed it advisable. However, Cook’s continued operation of the farm was in compliance with Foster’s testamentary wishes. If the accident had occurred during Foster’s lifetime, the farm could have been used to satisfy Foster’s liability for any negligence of his farm manager, Baucum. By his will, Foster could not insulate the continued operations of the farm from any tort liability. Cook, in his fiduciary capacities, simply stood in the shoes of Foster. Cf. Ireland v. Bowman & Cockrell, 130 Ky. 153 at 157, 113 S.W. 56, 17 Ann.Cas. 786 (1908).

This case does not involve the negligence of an officer or regular employee of a corporate trustee. See Restatement (Second) of Trusts § 225, Comment b; Scott, op. cit., § 225.1; Pirtle’s Adm’x v. Hargis Bank and Trust Co., supra. Baucum was employed by Cook solely in the administration of the trust, and Baucum’s compensation would be a proper expense of the trust. Because Cook breached no fiduciary duty to the beneficiaries, the ultimate burden of the loss should be borne by the trust estate rather than by Cook personally. The circuit court correctly held that Cook was entitled to indemnity out of the trust estate.

Right of Holland and Bowen to Reach Assets of The Foster Estate

Under the orthodox common law rule, an action at law cannot be maintained for a tort against the trustee in his fiduciary capacity. Bogert, op. cit., § 732; Louisville Trust Co. v. Morgan, supra; Annot., 44 A.L.R. 636 at 640, supplemented in 127 A.L.R. 687, at 688. The general rule has been justified primarily on two grounds: (1) that courts of law do not recognize the trustee in his fiduciary capacity as a legal person distinct from the trustee in his individual capacity; and (2) that the trust estate ought not to be dissipated by the wrongful acts of the trustee. Bogert, op. cit., § 732 at 537. We shall consider whether either reason for the rule is sound when applied to the facts of this case.

We cannot justify application of the rule on the theory that Cook in his fiduciary capacity had no separate identity distinct from Cook in his individual capacity. First, such a rule was applied only by the courts of law. Courts of equity recognized the difference between a trustee’s acting in his fiduciary capacity and his acting in his individual capacity. So long as a distinction was made between actions at law and suits in equity, there was a theoretical basis for refusing to permit direct actions against a trustee in his fiduciary capacity for tort liability. See Iacobucci v. Cappelli, 90 R.I. 278, 157 A.2d 672 (1960); Schmidt v. Kellner, 307 Ill. 331, 138 N.E. 604 (1923). The theoretical basis for the rule disappears with the merger of law and equity. CR 2. Even when the distinction is maintained between law and equity, the rule is applied illogically. The tort creditor recovers a personal judgment against the trustee because the law does not recognize the trustee as having a separate identity in his fiduciary capacity. Nevertheless, the law then immediately recognizes the existence of the trust by refusing to permit the tort creditor to levy execution on the trust property. C. Fulda & W. Pond, “Tort Liability of Trust Estates,” 41 Colum.L.Rev. 1332, 1334-35 (1941). We can find no theoretical objection to the maintenance of a tort action against a trustee in his fiduciary capacity. Ireland v. Bowman & Cockrell, supra (action for damages for maintenance of a nuisance).

The argument that the assets of the trust ought not to be dissipated by the wrongful actions of the trustee is persuasive. However, in the present case, there was no breach of Cook’s fiduciary duties. As discussed above, Cook is entitled to indemnity out of the trust estate, and he may satisfy his judgment liability to Holland and Bowen out of trust assets. Little reason exists for disallowing a direct action against the trust estate when the ultimate burden of liability will be imposed upon the trust estate. As an exception to the general rule, tort creditors have been permitted in an equitable action to reach trust assets when the trustee is without personal fault and has a right of indemnity. Restatement (Second) of Trusts § 268. However, under the exception, the tort creditor must first exhaust his remedies against the trustee, and the tort creditor’s rights against the trust estate are measured by the trustee’s right of indemnification. Scott, op. cit, §§ 268.1 and 268.2; Stone, op. cit., at 531-32, 541-42.

Despite the supposed theoretic difficulties, some courts have authorized a direct action against the trustee in his fiduciary capacity. The leading case is the decision of the Texas Supreme Court in Ewing v. Foley, 115 Tex. 222, 280 S.W. 499, 44 A.L.R. 627, 634 (1926), in which the court stated:

The holding that a trustee, in cases where he is not chargeable with personal fault or negligence, may legally be reimbursed out of the trust estate for such damages as may be recovered against him, is in effect a holding that in such cases the trust estate is itself liable for such damages, and, since the trust estate is so liable, we think our practice allows it to be proceeded against in a suit brought directly against the trustee in his representative capacity.

The orthodox rule has been criticized for measuring the tort creditor’s rights by the trustee’s right of indemnity. When a tort has been committed in the administration of a trust, many have advocated a policy of casting the resulting economic loss upon the trust estate rather than upon the tort victim. Stone, op. cit, at 543; Fulda & Pond, op. cit., at 1353-56. This view was adopted by the Supreme Court of Alaska in Vance v. Estate of Myers, Alaska, 494 P.2d 816, 820 (1972), in which the court stated:

We hold that an administrator, executor, or trustee may be sued in his representative capacity, and collection may be had from the trust assets, for a tort committed in the course of administration, if it is determined by the court that the tort was a common incident of the kind of business activity in which the administrator, executor, or trustee was properly engaged on behalf of the estate.

See also Restatement (Second) of Trusts § 271A, Comment c.

We also note that sections 3-808 and 7-306 of the Uniform Probate Code authorize direct actions against a personal representative or trustee in his fiduciary capacity for torts committed in the course of the administration of the trust. As the comment accompanying section 3-808 makes clear, these sections were designed to make the trust estate a “quasi-corporation” for the purposes of tort liability. The personal representative or trustee is treated as though he were an agent for a corporation. This approach is in direct conflict with the common law rule in Kentucky that a trustee was not an agent having the power to bind the beneficiaries of the trust. Auxier v. Aetna Ins. Co., 222 Ky. 243, 300 S.W. 617, 619 (1927). Subsequent to the date of the accident giving rise to this litigation, the legislature enacted section 7-306 of the Uniform Probate Code. 1976 Ky. Acts, ch. 218, § 17 (KRS 386.730). However, the legislature did not enact section 3-808 of the Uniform Probate Code. Consequently, we now have the anomalous situation in which, for an identical tort, there is statutory authority for a direct action against a testamentary trustee in his fiduciary capacity, but no such statutory authority for a direct action against an executor in his fiduciary capacity.

Persuasive arguments are presented in favor of permitting Holland and Bowen to maintain a direct action against Cook in his fiduciary capacity. Nevertheless, we need not decide the question. If the circuit court erred in dismissing the complaint against Cook in his fiduciary capacity, such error was harmless. Holland and Bowen have recovered a personal judgment against Cook. In turn, Cook has a judgment which entitles him to indemnity from the Foster estate and which authorizes him to satisfy his judgment liability out of the trust estate. Under such circumstances, we conclude that Holland and Bowen are entitled to enforce their judgment directly against the trust estate. It would be absurd to require them to seek satisfaction of their judgment first out of Cook’s personal estate when he is immediately entitled to recoup his loss from the trust estate. All of the interested parties were before the court. See In re Raybould, [1900] 1 Ch. 199, discussed with approval in Ewing v. Foley, supra 44 A.L.R. at 632-33. No further proceedings are necessary. Holland and Bowen may now satisfy their judgment against Cook out of the trust estate to the extent that the liability is not covered by insurance.

Protection of Rights of Trust Beneficiary

A third reason has been advanced for denying a direct action against a trustee in his fiduciary capacity. In Kirchner v. Muller, 280 N.Y. 23, 19 N.E.2d 665, 127 A.L.R. 681, 685 (1939) the New York Court of Appeals stated:

Such a procedure would involve a trial in the same action of both the tort liability and whether the nature of the tort was such as to entitle the trustees or executors to reimbursement, out of the estate, which might entail an undesirable clash of interests between the trustee in his individual capacity and in his representative capacity.

If the trustee is sued both individually and in his fiduciary capacity, it would be in the interest of the trustee to cast all liability upon the trust to the detriment of the trust beneficiaries. If such a conflict of interest exists, it may be appropriate to make the beneficiaries a party to the action. See Annot. 9 A.L.R.2d 10, § 42 (1950). At the very least, the beneficiaries should be notified of the pendency of the action and permitted to intervene. Comment, “Fiduciary and Estate Liability in Contract and in Tort,” 55 Marquette L.Rev. 297, 303-04 (1972). The problem may also be minimized by separate representation which will protect the interests of the beneficiaries which are in conflict with the individual interests of the trustee. See Vance v. Estate of Myers, supra 494 P.2d at 819-20.

The ultimate beneficiary of the trust estate was Foster’s son, Charles S. Foster. In their original complaint, Holland and Bowen sued Cook only in his fiduciary capacity as executor and trustee. Foster was also joined as a party defendant. Subsequently, the circuit court sustained a motion of Foster to dismiss the complaint against him. At that time, Foster was aware that the only claim being made by Holland and Cook was against the trust estate. None of the pleadings filed on behalf of Foster alleged that the accident was the result of the personal fault of Cook or that the trust estate was not liable for any negligence of Baucum. Foster never argued that Cook breached any fiduciary duty by continuing to employ Baucum as farm manager. Although Foster was dismissed as a party early in the proceedings, that order did not become final until entry of the final judgment.

Following the dismissal of the complaint against Foster, the complaint was amended to seek relief against Cook individually. Because there were separate policies of liability insurance affording coverage to the “Foster Estate” on the one hand and to Cook, individually, on the other, there was dual representation of Cook throughout the balance of the proceedings. The attorneys representing Cook in his fiduciary capacity presented an active and skillful defense which was in the interest of Foster as beneficiary of the trust estate. Consequently, we can find no prejudice to Foster as a result of the conflict between Cook’s personal interests and his interests as executor -and trustee of the estate.

Foster argues that Cook should be personally liable to the extent that the judgment in favor of Holland and Bowen exceeds the liability insurance coverage which Cook obtained for the protection of the trust estate. We disagree. Foster never asserted a claim against Cook for negligence in failing to secure liability insurance with greater limits of liability. Cook, in fact, increased the limits of liability on the policies existing at the time of W. F. Foster’s death. At the time of the accident, the applicable policies provided liability coverage of $100,000-300,000. See the companion case, Kentucky Farm Bureau Ins. Co. v. Cook, Ky.App. (this day decided). We find nothing in the record to suggest that a reasonably prudent man exercising ordinary care for his own affairs would have considered $100,000-300,000 liability protection inadequate. See In re Lather’s Will, supra, 243 N.Y.S. at 376. The circuit court did not err in holding that Cook was entitled to indemnity for the full amount of the judgments recovered against him.

Dismissal of Beneficiaries as Parties

Holland and Bowen contend the trial court erred in dismissing the complaint against the beneficiaries of the Foster estate. The beneficiaries have no personal liability for Baucum’s negligence. Restatement (Second) of Trusts § 276. The record does not indicate that the estate is now insolvent because of distributions subsequent to the accident made to the beneficiaries who had knowledge of the claims of Holland and Bowen. Id. § 279. The circuit court did not err in dismissing the complaint against the beneficiaries.

II

Statute of Limitations: Claim Against Cook Individually

In the original complaint filed October 12, 1972, L. G. Cook was named as a defendant in his capacity as “executor of the estate of W. F. Foster, deceased, and as trustee under the will of W. F. Foster, deceased.” On June 27, 1974, Holland and Bowen sought to amend their complaint by “adding” Cook “individually” as a named defendant. The motion to file the amended complaint was sustained by the circuit court on August 12, 1974. Because more than one year has passed since the date of the accident, October 23, 1971, Cook contends that the amended complaint was barred by the one year statute of limitations applicable to the claims of Holland and Bowen. KRS 413.140(a). Holland and Bowen assért that the amended complaint relates back to the date of the filing of the original complaint which was within the statutory period of limitation.

Subsection (1) of CR 15.03 provides:

Whenever the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading, the amendment relates back to the date of the original pleading.

The same “conduct, transaction or occurrence” was set forth in both pleadings. The only question presented is whether there was a change of parties which requires the plaintiffs to meet the additional standards of subsection (2) of CR 15.03.

L. G. Cook as “executor and trustee” is the same person as L. G. Cook “individually.” The designation of Cook “individually” rather than as “executor and trustee” does no more than indicate the source out of which any judgment was to be satisfied. Indeed, had a judgment been rendered against Cook “as executor and trustee,” the words “as executor and trustee” might be considered surplusage to be ignored in enforcing the judgment against the personal assets of Cook. Kirchner v. Muller, supra; Schmidt v. Kellner, supra. The W. F. Foster estate had no separate existence. It was not a legal person. The only person was Cook. Whiting v. Hudson Trust Co., 234 N.Y. 394, 138 N.E. 33, 25 A.L.R. 1470, 1478 (1923) (Cardozo, J.); Vass v. Conron Bros. Co., 59 F.2d 969, 970 (2d Cir. 1932) (L. Hand, J.).

The amended complaint made no change in the parties before the court. 3 Moore’s Federal Practice ¶ 15.15[4.-1] (1974). Thus, we need not decide whether the requirements of subsection (2) of CR 15.03 have been satisfied. An amended pleading changing the theory of liability relates back so long as no new “conduct, transaction or occurrence” is alleged. Clay, Ky. Prac. CR 15.03, Comment 6 (3d ed. 1974). Holland and Bowen had but a single cause of action against Cook as a result of the collision. The amended complaint did no more than change the manner in which they intended to satisfy their judgment against Cook. Cf. Wimsatt v. Haydon Oil Co., Ky., 414 S.W.2d 908, 911 (1967).

The trial court did not err in permitting the amended complaint to be filed. The amended complaint was not barred by the statute of limitations. In Smiley v. Hart Co. Brd. of Education, Ky., 518 S.W.2d 785 (1974), the defendants were originally sued in their capacity as members of the board of education. The Court held that the trial court erred in refusing to permit the plaintiff to file an amended complaint against the defendants in their individual capacity. The amended complaint was not barred by the statute of limitations, but related back under CR 15.03. See the discussion of the Smiley case in H. L’Enfant, “Kentucky Law Survey: Civil Procedure,” 64 Ky.L.J. 357, 364-66 (1975). When it permitted the filing of the amended complaint, the circuit court acted in accordance with the policy that leave to amend should be freely given when justice requires. CR 15.01.

We find no merit in Cook’s contention that the circuit court abused its discretion when it permitted the filing of the amended complaint seeking relief against Cook individually. Cook’s individual liability insurance carrier defended him on the amended complaint. More than one and one half years elapsed between the filing of the amended complaint against Cook individually and the trial of the case. Consequently, Cook and his individual liability insurance carrier had ample time to prepare for trial. Cook also claims that he was prejudiced by the filing of the amended complaint in that his individual liability insurance carrier is defending him under a reservation of rights because of the delay in notifying it of the claim against Cook individually. Cook’s original defense to the action was conducted by the liability insurance carrier insuring him in his fiduciary capacity. In effect, Cook has accused his fiduciary liability insurance carrier of conducting the original defense for its own benefit because of its delay in raising the issue of the nonliability of Cook in his fiduciary capacity. We conclude that the squabble between Cook’s insurance carriers did not require the circuit court to refuse to order the filing of the amended complaint. Having in mind the right of indemnity afforded Cook individually, we find no abuse of discretion by the circuit court in permitting the filing of the amended complaint.

Ill

Last Clear Chance Instruction

The trial court instructed the jury that Baucum was negligent as a matter of law in the operation of the truck and that his negligence was “a proximate cause” of the collision. The circuit court also instructed the jury on the duties of Dabney in the operation of her automobile and submitted the question of her negligence to the jury. In the event that the jury found the collision resulted from the negligence of both Baucum and Dabney, the jury was authorized to apportion liability between them on the basis of the percentage of causation of the accident attributable to each defendant. This instruction was based upon the form used in Orr v. Coleman, Ky., 455 S.W.2d 59, 61-62 (1970). Because the jury returned a verdict for Dabney on her cross-claim against Baucum, the jury found that Dab-ney was not negligent.

On appeal, no one argues that the circuit court erred in instructing the jury that Baucum was negligent as a matter of law. However, the contention is made that Bau-cum was entitled to a last clear chance instruction. This argument is without merit for a number of reasons.

In directing a verdict against Baucum on the issue of negligence, the circuit court necessarily concluded that Baucum entered the highway when the Dabney vehicle was so near as to constitute an immediate hazard of collision. Baucum’s act of entering the highway occurred such a short time before the collision that it is doubted that Dabney can fairly be said to have had a last clear chance to avert the collision. See Smith v. Wright, Ky., 512 S.W.2d 943, 946 (1974).

Even more important is the fact that the doctrine of last clear chance is intended to relieve a plaintiff of the harsh effect of the doctrine of contributory negligence. The doctrine of last clear chance has absolutely no application to the case of a negligent defendant. In effect, Baucum is asking to be relieved from the consequences of his negligence because of the alleged subsequent negligence of Dabney in not avoiding the collision. The claim of last clear chance is in reality a claim that Dab-ney’s alleged negligence constituted a superseding cause excusing Baucum’s prior negligence. Assuming that Baucum negligently drove onto the highway when the Dabney car was so near as to constitute an immediate hazard of collision, Dabney’s subsequent failure to avoid the collision can hardly be said to be extraordinary or unforeseeable. Consequently, as a matter of law, any subsequent negligence on the part of Dabney would not have constituted a superseding cause. House v. Kellerman, Ky., 519 S.W.2d 380 (1975); Hall v. Midwest Bottled Gas Distributors, Ky., 532 S.W.2d 449 (1975).

Last, the circuit court instructed the jury respecting Dabney’s duty to operate her automobile in a careful manner, including her duty as to lookout and speed. Any duty which would have been imposed upon Dab-ney by the last clear chance instruction was incorporated in the duties imposed upon Dabney in the instructions to the jury. The jury found that Dabney was not negligent. Consequently, there is no way that the failure to give the instructions could have been prejudicial.

Exclusion of Testimony Respecting Prior Speed

Baucum and Cook assert that the circuit court erred in excluding certain testimony of Dennis Vaughn which was offered to show the speed of the Dabney automobile a short time before the collision. Driving his own pickup truck, Vaughn had preceded Baucum onto the highway and traveled for some distance prior to the accident. Vaughn testified by avowal that he met two vehicles on his way to his own home, approximately ¾ mile away. He had traveled about 3/io of a mile when he met the first vehicle, which he was unable to describe. Approximately V2 mile from the entrance to the Foster farm, Vaughn met the second vehicle which he testified was traveling between 80 and 85 miles per hour and crowding the centerline. The circuit court held this evidence was inadmissible.

The circuit court did not err in excluding Vaughn’s testimony. There was a real question whether the car observed by Vaughn was the vehicle operated by Dab-ney. According to Vaughn, the speeding car was the second vehicle he met, but Baucum testified that two automobiles passed the farm entrance before he entered the highway and collided with Dabney. Vaughn also testified that the speeding automobile was red and/or maroon. Dab-ney’s automobile was a bronze Mustang with a black roof.

Even assuming that Vaughn did observe Dabney speeding ½ mile from the Foster farm entrance, Vaughn’s testimony was not admissible for the purpose of proving that Dabney was speeding immediately prior to the collision. Vaughn did not continue to observe the vehicle to the point of the collision. His testimony did not show a pattern of reckless or wanton driving. Consequently, Vaughn’s testimony fell within the general rule that evidence of speed some distance from the place of an accident is inadmissible. Tingle v. Foster, Ky., 399 S.W.2d 475 (1966); Huff v. Daniels, Ky., 335 S.W.2d 332 (1960); and Gauze v. Horn, Ky., 253 S.W.2d 606 (1952).

Award of Excessive Damages

Cook in his fiduciary capacity asserts that the jury’s award to Bowen of $25,294.72 for pain and suffering was excessive. For the purpose of this argument, we will accept as correct the statement of facts set forth in Cook’s own brief:

Bowen received a broken right leg, a broken ankle and several lacerations. She was in a case [sic] for four months and then on crutches for two. In June of 1972 [the accident occurred October 23, 1971] she returned to her employment and worked on a full time basis (when she wanted to) from that time until the time of trial. She had not seen a doctor or taken medication because of the injuries since April of 1972 and at trial testified she did not have any problems with her ankle. The only permanent injury that she received is that her right leg, is one-half to three-fourths of an inch shorter than her left leg, but she has no loss of function.

We conclude that the award of damages to Bowen for pain and suffering was not excessive. Wilson v. Redken Laboratories, Ky., 562 S.W.2d 633 (1978).

Admissibility of Medical Depositions

Prior to the filing of the amended complaint making Cook individually a party, the testimony of four treating physicians was taken by oral deposition. Cook objected to the introduction of the' medical depositions on the ground that he was not a party to the action at the time the depositions were taken. He asserts that the depositions were inadmissible under CR 32.01 because he was not present or represented at the taking of the depositions and had no notice thereof.

We find no merit to this argument. At the taking of the medical depositions, Cook was represented by counsel in his fiduciary capacity. Insofar as the question of damages was concerned, there was no conflict between the representation of Cook in his fiduciary capacity and the representation of Cook in his individual capacity. Cook had ample opportunity to retake the medical depositions after the filing of the amended complaint, but he chose not to do so. Cook was granted indemnity out of the Foster estate. There is a complete absence of any actual prejudice to Cook attributable to the taking of the medical depositions prior to the time the complaint was amended to seek relief against him individually.

IV

The judgment of the Graves Circuit Court is affirmed on all appeals.

All concur.

      . We note the enactment of section 7-306 of the Uniform Probate Code by the legislature subsequent to the date of the accident. Although not cited by any party, the statute purports to abolish the tort liability of a trustee except in cases in which he is personally at fault. 1976 Ky.Acts, ch. 218, § 17 [KRS 386.-730(2)].

      . Restatement (Second) Trusts § 225(2) states in part:
      The trustee is liable to the beneficiary for an act of such an agent which if done by the trustee would constitute a breach of trust, if the trustee
      (a) directs or permits the act of the agent; or
      (b) delegates to the agent the performance of acts which he was under a duty not to delegate; or
      (c) does not use reasonable care in the selection or retention of the agent; or
      (d) does not exercise proper supervision over the conduct of the agent; or
      (e) approves or acquiesces in or conceals the act of the agent; or
      (f) neglects to- take proper steps to compel the agent to redress the wrong.


text:
    FORD MOTOR COMPANY, Appellant, v. Larry W. MAYES, Glenda J. Mayes, his wife, and North City Ford, Inc., Appellees.
    Court of Appeals of Kentucky.
    Sept. 22, 1978.
    As Modified Sept. 29, 1978.
    Discretionary Review Denied Jan. 30, 1979.

      Edward H. Stopher, Louisville, Clarence McCarroll, Owensboro, for appellant.
    Maubert R. Mills, Madisonville, Albert W. Spenard, Madisonville, for appellees.
    Before COOPER, HOGGE and PARK, JJ.
   PARK, Judge.

Ford Motor Company appeals from a judgment awarding Larry and Glenda Mayes compensatory damages of $5,135.38, punitive damages of $25,000, and attorneys fees of $5,000. Mr. and Mrs. Mayes had purchased a new 1976 Ford F-150, 4-wheel drive, pickup truck which was covered by Ford’s 1976 new car and light truck “limited” warranty. The judgment was based upon a jury verdict finding that Ford’s conduct relating to the warranty constituted an unfair trade practice in violation of the Kentucky Consumer Protection Act of 1972 (KRS 367.110 to 367.300).

On this appeal, Ford raises the following issues: (1) that there was no evidence that Ford had engaged in any unfair trade practice within the scope of the Consumer Protection Act; (2) that the trial court erred in permitting the jury to award punitive damages; (3) that the trial court erred in permitting the jury to return a verdict for consequential damages; and (4) that the trial court erred in awarding attorney’s fees.

I

FACTUAL BACKGROUND

In deciding whether Ford was entitled to a directed verdict on the issue of liability, we must view the evidence in the light most favorable to Mr. and Mrs. Mayes.

Mr. and Mrs. Mayes purchased the truck in Madisonville on February 25, 1976, from an authorized Ford dealer, North City Ford, Inc. A number of minor defects in the truck were repaired by North City shortly after the purchase. Approximately five weeks after the purchase, Mr. Mayes noticed unusual noise and vibration in the truck. Upon inspection, North City discovered worn clutches in the rear end of the truck. These were replaced, but the grinding noise and vibration continued. Mr. and Mrs. Mayes returned the truck to North City on seven or eight more occasions. North City made fruitless attempts to eliminate the problem by replacing or repairing clutches, transmission gears, the steering mechanism and other parts. On several occasions, North City’s employees sought assistance from Ford’s district office in Louisville. Ford was of no assistance in determining the cause of the noise and vibration. Its suggestions were limited to a recommendation that the drive shaft be wrapped with springs and that liquid foam be pumped into the drive shaft in an attempt to deaden or mask the noise.

After North City was unable to correct the problems with the truck, one of Ford’s engineers suggested that the frame of the truck might be bent. Because North City did not have the equipment necessary to make such a determination, the truck was taken to the Myers Frame Shop in Hopkins-ville. On August 6,1976, Myers determined that the truck frame was twisted approximately 2½ inches and that it was “diamond-ed” approximately 1 inch.

On August 26, 1976, Mr. and Mrs. Mayes returned the truck to North City with written notice that they were revoking their acceptance of the truck. According to evidence introduced on behalf of Mr. and Mrs. Mayes, a twisted and diamonded frame would cause excessive wear and tear to all moving parts of the truck. When informed of the attempt by Mr. and Mrs. Mayes to revoke acceptance of the truck, Ford informed North City that it would not under any circumstances repurchase the truck, furnish Mr. Mayes with a new truck, or extend the period of its warranty. Ford had a firm long-standing policy against replacing or repurchasing defective motor vehicles. Ford suggested that the truck be brought to its Louisville facilities so that Ford engineers could confirm the diagnosis of Myers Frame Shop and, if necessary, attempt to make “corrective repairs.” No longer acknowledging ownership of the truck, Mr. and Mrs. Mayes declined to grant permission for the truck to be taken to Louisville. This litigation ensued.

II

Ford argues that its limited warranty constituted a lawful trade practice authorized by the Uniform Commercial Code. Ford also asserts that its conduct relative to the truck of Mr. and Mrs. Mayes was specifically authorized by the limited warranty. Ford then concludes that it was entitled to a directed verdict as a matter of law on the issue of its liability under the Consumer Protection Act. On the other hand, Mr. and Mrs. Mayes contend that Ford’s warranty policy denied them remedies afforded by the Uniform Commercial Code. They further argue that Ford’s policy of refusing to recognize a buyer’s remedies under the Uniform Commercial Code is unconscionable, and therefore an unfair trade practice under the Consumer Protection Act.

FORD’S LIMITED WARRANTY

The warranty accompanying the sale of the truck by North City to Mr. and Mrs. Mayes provided as follows:

LIMITED WARRANTY
1976 NEW CAR AND LIGHT TRUCK
Ford warrants for 1976 model cars and light trucks sold by Ford that the Selling Dealer will repair or replace free any parts, except tires, found under normal use in the U.S. or Canada to be defective in factory materials or workmanship within the earliest of 12 months or 12,000 miles from either first use or retail delivery.
THERE IS NO OTHER EXPRESS WARRANTY ON THIS VEHICLE.
ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS IS LIMITED TO THE 12 MONTH/12,000 MILE DURATION OF THIS WRITTEN WARRANTY.
NEITHER FORD NOR ANY OF ITS DEALERS SHALL HAVE ANY RESPONSIBILITY FOR LOSS OF USE OF THE VEHICLE, LOSS OF TIME, INCONVENIENCE, COMMERCIAL LOSS OR CONSEQUENTIAL DAMAGES.

Ford’s 1976 limited warranty is different from other new motor vehicle warranties previously considered by the appellate courts of this state.

Under the Uniform Commercial Code, a seller of goods has two means of limiting warranty liability. The seller may disclaim warranties (KRS 355.2-316), or the seller may limit the remedies available to a buyer for breach of warranty (KRS 355.2-719). See generally Note, Legal Control of Warranty Liability Limitation under the Uniform Commercial Code, 63 Va.L.Rev. 791 (1977); Comment, What Chance for the New Car Purchaser of a “Lemon”?, 62 Ky. L.J. 557 (1974). Most litigation in Kentucky has involved efforts to exclude all implied warranties. See Childers & Venters, Inc. v. Sowards, Ky., 460 S.W.2d 343 (1970); Massey-Ferguson, Inc. v. Utley, Ky., 439 S.W.2d 57 (1969). Contractual limitations on the buyer’s remedies for breach of warranty have been considered on only one occasion. See Cox Motor Car Co. v. Castle, Ky., 402 S.W.2d 429 (1966).

In its 1976 warranty for new cars and light trucks, Ford makes no effort to disclaim or exclude implied warranties such as the implied warranty of merchantability under KRS 355.2-314. However, Ford’s warranty does attempt to limit the buyer’s remedies for breach of contract. The only express remedy afforded the buyer under Ford’s warranty was repair or replacement of any parts found to be defective under normal use within the “earliest” of 12 months or 12,000 miles. The warranty expressly stated that neither Ford nor its dealer would have any responsibility for loss of use, loss of time, inconvenience, commercial loss or consequential damages.

We agree with Ford that this limitation of the buyer’s remedy is not prohibited under Kentucky law. KRS 355.2-719(l)(a) provides that an agreement may limit a buyer’s remedies under the sales article of the Uniform Commercial Code “to repair and replacement of non-conforming goods or parts.” Furthermore, subparagraph (3) of the same statute provides that consequential damages may be excluded unless the exclusion is “unconscionable.” However, subparagraph (2) of KRS 355.2-719 provides:

Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this chapter.

Therefore, Ford’s limitation of the buyer’s remedy to repair or replacement of defective parts was valid unless the exclusive remedy of repair or replacement of defective parts failed of its essential purpose, and the disclaimer of liability was valid unless “unconscionable.”

The purpose of the limited remedy clause can best be understood by reference to a buyer’s remedies for breach of warranty in the absence of any contractual limitation. If after acceptance of a new motor vehicle the buyer discovers a defect which “substantially impairs” the value of the vehicle, the buyer under certain circumstances has the right to revoke his acceptance of the vehicle. KRS 355.2-608. In effect, the buyer may rescind the contract. Revocation of acceptance authorizes the buyer to recover any part of the purchase price which he has paid for the vehicle. KRS 355.2-711(l). In addition to recovery of the purchase price, the buyer may also be entitled to damages. KRS 355.2-712. If the buyer does not revoke acceptance, he is entitled to damages under KRS 355.2-714. In either case, damages may include incidental and consequential damages. KRS 355.2-715.

In Beal v. General Motors Corp., 354 F.Supp. 423, 426 (D.Del.1973), the court made the following analysis of a warranty limiting the buyer’s remedy to repair or replacement of defective parts:

The purpose of an exclusive remedy of replacement or repair of defective parts, whose presence constitute a breach of an express warranty, is to give the seller an opportunity to make the goods conforming while limiting the risks to which he is subject by excluding direct and consequential damages that might otherwise arise. From the point of view of the buyer the purpose of the exclusive remedy is to give him goods that conform to the contract within a reasonable time after a defective part is discovered. . The limited, exclusive remedy fails of its purpose and is thus avoided under § 2-719(2), whenever the warrantor fails to correct the defect within a reasonable period.

We agree with this analysis. When the selling dealer fails within a reasonable time to correct a defect which substantially impairs the value of a new motor vehicle, the buyer is entitled to revoke his acceptance of the vehicle. Tiger Motor Co. v. McMurtry, 284 Ala. 283, 224 So.2d 638 (1969); Conte v. Dwan Lincoln-Mercury, Inc., 172 Conn. 112, 374 A.2d 144 (1976); Jacobs v. Metro Chrysler-Plymouth, Inc., 125 Ga.App. 462, 188 S.E.2d 250 (1972); Durfee v. Rod Baxter Imports, Inc., Minn., 262 N.W.2d 349 (1977); Zabriskie Chevrolet, Inc. v. Smith, 99 N.J.Super. 441, 240 A.2d 195 (1968); Moore v. Howard Pontiac-American, Inc., Tenn.App., 492 S.W.2d 227 (1972); see Galigher Trucks, Inc. v. McKenzie, Ky.App., 553 S.W.2d 294 (1977).

In this case, the truck purchased by Mr. and Mrs. Mayes contained a serious defect. For more than five months, Mr. and Mrs. Mayes gave Ford and North City an opportunity to correct that defect. As required by Ford’s warranty, Mr. and Mrs. Mayes returned the truck to the selling dealer, North City, seven or eight times for major repairs. The problems were never corrected. When the trouble was finally diagnosed as a twisted and diamonded frame, Ford would not extend the duration of the warranty even though the defective frame would cause excessive wear to all moving parts. The value of the truck was substantially impaired within the meaning of KRS 355.2-608. As the court commented in Zabriskie Chevrolet, Inc. v. Smith, supra, 240 A.2d at 205:

For a majority of people the purchase of a new car is a major investment, rationalized by the peace of mind that flows from its dependability and safety. Once their faith is shaken, the vehicle loses not only its real value in their eyes, but becomes an instrument whose integrity is substantially impaired and whose operation is fraught with apprehension.

Mr. and Mrs. Mayes were entitled to revoke their acceptance of the truck at the time they returned the truck to North City on August 26, 1976. The purpose of the limited remedy of repair and replacement of defective parts had failed.

THE CONSUMER PROTECTION ACT

Under the Kentucky Consumer Protection Act, all “unfair” acts or practices in the conduct of any trade or commerce are declared to be unlawful. KRS 367.170(1). The term “unfair” is defined to mean “unconscionable.” KRS 367.170(2). Any person who purchases goods primarily for “personal, family or household purposes” and who thereafter suffers any ascertainable loss as a result of any act declared unlawful by KRS 367.170 is authorized to bring a civil action to recover actual damages. KRS 367.220(1). Ford asserts that it committed no unfair or unconscionable act which was unlawful under the Consumer Protection Act. We disagree.

When Mr. and Mrs. Mayes properly revoked acceptance and returned the truck to the selling dealer, North City made a request that Ford either replace the truck or repurchase it. This Ford refused to do. Ford took the position that repair and replacement of the defective parts was the only remedy available to Mr. and Mrs. Mayes. Ford maintained that anything mechanical eventually can be repaired. Ford’s owner relations manager for 172 dealers in three states testified that Ford had a firm policy against repurchasing or replacing a defective new car. This policy was applied without regard to the actual defect found in the car. Ford’s insistence that the buyer must acquiesce in further attempts to repair any defect rather than receiving reimbursement of the purchase price or tender of a substitute vehicle has been noted before. Pavesi v. Ford Motor Co., 155 N.J.Super. 373, 382 A.2d 954 (1978). Before this court, Ford has continued to refuse to recognize the right of a buyer to revoke acceptance if Ford and its selling dealer fail to remedy the defect within a reasonable time. In its brief, Ford stated:

Ford’s valid warranty limited the plaintiffs’ remedy to repair and replacement of parts and excluded return of the vehicle and repayment of the price.

This position is untenable. Even if revocation of acceptance was available as a remedy only against the selling dealer, Ford was liable in damages for breach of its warranty. Volvo of America Corp. v. Wells, Ky.App., 551 S.W.2d 826, 829 (1977).

By insisting that its only liability was to repair or replace defective parts even when the defects could not be corrected within a reasonable time, Ford would use the strict language of the express warranty to deprive Mr. and Mrs. Mayes of the benefits of their purchase. This Ford cannot do. Myers v. Land, 314 Ky. 514, 235 S.W.2d 988, 991 (1951). Ford offered no evidence that the frame of the truck could be repaired or replaced. Assuming for the moment that Ford could have repaired or replaced the frame at its Louisville plant, the fact remains that the various moving parts of the truck had been subjected to unusual stress and wear because of the defective frame. Mr. and Mrs. Mayes would never have received what they bargained for, namely a new truck fit for the ordinary purposes for which trucks are used and free from defective parts. At best, they would have been left with a prematurely aged truck for which Ford had refused to extend the warranty period.

Although the limitation of the buyer’s remedies was not unconscionable on its face, Ford’s warranty policy was unconscionable as applied to Mr. and Mrs. Mayes. Eckstein v. Cummins, 41 Ohio App.2d 1, 321 N.E.2d 897 (1974). After breach of its duty under the express warranty to repair or replace defective parts within a reasonable time, Ford could not, in good conscience, attempt to hide behind any provision making the express warranty the sole remedy of the buyer. Soo Line R. Co. v. Fruehauf Corp., 547 F.2d 1365 (8th Cir. 1977); Jones & McKnight Corp. v. Birdsboro Corp., 320 F.Supp. 39 (N.D.Ill.1970); Ehlers v. Chrysler Motor Corp., S.D., 226 N.W.2d 157 (1975); Durfee v. Rod Baxter Imports, Inc., supra.

Because the truck could not be repaired within a reasonable time, Ford acted “unconscionably” when it insisted that Mr. and Mrs. Mayes had no remedy other than to allow Ford and its dealer to continue indefinitely in their efforts to correct the problem. Ford followed a warranty policy which refused to recognize the rights of buyers under the Uniform Commercial Code when the only remedy afforded by its limited warranty fails of his purpose. This was an “unfair” trade practice which was unlawful under the Consumer Protection Act. KRS 367.170. This is not the case of a motor vehicle in which there was an identifiable defect which Ford reasonably believed could be corrected satisfactorily within a reasonable period of time. Instead, there was never any assurance that the defects in the truck could be remedied so as to give Mr. and Mrs. Mayes the benefit of their bargain. The trial court did not err in overruling Ford’s motion for a directed verdict on the issue of its liability under the Kentucky Consumer Protection Act.

Ill

PUNITIVE DAMAGES

Ford asserts that the trial court erred in permitting the jury to return a verdict for punitive damages. Ford argues that the claim of Mr. and Mrs. Mayes is based upon contract and that punitive damages are not awarded for mere breach of contract.

Kentucky has long followed the general rule that punitive damages ordinarily are not recoverable for a breach of contract. General Accident Fire & Life Assurance Corp. v. Judd, Ky., 400 S.W.2d 685, 688 (1966); Cumberland Tel. & Tel. Co. v. Cartwright Creek Tel. Co., 128 Ky. 395, 108 S.W. 875, 878, 32 Ky.L.Rep. 1357 (1908); Deaton v. Allstate Insurance Co., Ky.App., 548 S.W.2d 162, 164 (1977). Nevertheless, this rule permits a plaintiff to recover punitive damages if the breach of contract also involved tortious conduct. D. Dobbs, Law of Remedies pg. 818 (1973).

In Hibshman Pontiac, Inc. v. Batchelor, Ind.App., 340 N.E.2d 377 (1976), the Indiana court overturned an award of punitive damages in an action brought against General Motors Corporation and its selling dealer for failure to carry out the express warranty to repair or replace defects in a new Pontiac automobile. The Indiana court stated:

Many breaches of contract arise because of a valid dispute as to the scope of the contractual obligation or because of inability to perform. Clearly, breach of contract in such cases is not a “wrong” warranting punishment by punitive damages. Even in cases of unjustified intentional breach of contract unaccompanied by tor-tious conduct, we do not believe that the “wrong” involved is a wrong warranting the intrusion of punitive damages into a private transaction. The threat of punitive damages should not be allowed to chill the assertion of a valid contract dispute or to foreclose a contracting party from breaching a contract he no longer desires to consummate. With the exception of recovery of attorney fees, the aggrieved party has an adequate remedy in the recovery of compensatory damages. .

Id., at 380. This statement accurately reflects the present rule in Kentucky. The Uniform Commercial Code grants no new right to punitive damages. KRS 355.1-106(1).

Mr. and Mrs. Mayes were fully compensated by the award of actual damages and attorney’s fees, and they do not rely upon— any tort by Ford to support the award of punitive damages. Because their recovery under the Consumer Protection Act is for conduct which the act declares to be “unlawful,” they argue that any violation of the act will support a claim for punitive damages. We disagree. After authorizing civil actions for damages attributable to unlawful acts under the Consumer Protection Act, KRS 367.220(1) provides:

Nothing in this subsection shall be construed to limit a person’s right to seek punitive damages where appropriate.

This provision does not purport to expand the right to claim punitive damages. It only makes clear that the Consumer Protection Act did not limit a right to punitive damages where one previously existed.

Because the claim of Mr. and Mrs. Mayes is based upon breach of Ford’s warranty of the truck, we conclude that it was error to permit the jury to return a verdict for punitive damages.

IV

DAMAGES AWARDED

The jury awarded Mr. and Mrs. Mayes the following damages on a form verdict provided by the trial court:

(a) The difference between the cost of the truck as ordered ($6,566.34) and its market value on August 26,1976, $1,566.34
(b) The charges for official fees, usage tax and license and registration fees, contracted for by Plaintiffs: $ 436.14
(c) The finance charges contracted for by the Plaintiffs: ' $2,081.50
(d) Loss of use of the truck resulting from its defective condition: $ 480.00
(e) Time lost from work resulting directly from the defective condition of the truck: $ 317.00
(f) Incidental expenses for tires, gasoline and mileage: $ 255.00

Ford raises numerous questions on this appeal relating to this form verdict included in the trial court’s instructions to the jury. However, we will limit our consideration to those objections made known to the trial judge as required by CR 51.

Ford objected to that portion of the form verdict permitting the jury to award as damages all finance charges incurred by Mr. and Mrs. Mayes in financing the purchase of the truck. Ford argued to the trial court that the form verdict permitted the jury to award as damages all finance charges .over the entire life of the loan which had many months to run. There is merit in this argument.

Under the Consumer Protection Act, Mr. and Mrs. Mayes are entitled to recover their “actual damages” as a result of Ford’s unlawful conduct. KRS 367.220(1). On the basis of Riggs Motor Co. v. Archer, Ky., 240 S.W.2d 75 (1951), Mr. and Mrs. Mayes assert that actual damages included the finance charges. In the Riggs Motor Co. case, the plaintiff had financed the purchase of an automobile which was later determined to be stolen. The plaintiff was required to surrender the automobile to the true owner. In an action against the seller of the stolen automobile, the plaintiff was permitted to recover all finance charges on the purchase loan. The court held that the finance charges were a loss directly and naturally resulting from the breach of warranty of title.

The facts in this case can be distinguished from those in the Riggs Motor Co. case. Unlike the plaintiff in that case who was required to surrender the stolen automobile to the true owner, Mr. and Mrs. Mayes did have some use of the truck after August 26, 1976, the date on which they revoked acceptance and returned the truck to North City. Subsequently, possession of the truck was returned to Mr. and Mrs. Mayes with the understanding that they could use the truck pending the litigation. Mr. Mayes drove the truck for approximately 10 months until it was demolished in an accident on'July 30, 1977. There is no evidence that Ford was in any way responsible for the destruction of the truck in the accident. Mr. and Mrs. Mayes are not entitled to recover finance charges attributable to the period of time when they had the use of the truck or for any period following the destruction of the truck in the accident which was not the fault of Ford. Any recovery of finance charges should have been limited to those charges which accrued while the truck was in the possession of North City following the revocation of acceptance on August 26, 1976.

Ford asserts that the trial court erred in permitting recovery for loss of use. In its appellate brief, Ford relies upon the provision in its warranty including any “responsibility for loss of use of the vehicle.” There are several serious weaknesses to this argument.

First, the only objection made to the trial court was based upon an absence of evidence to support a finding of loss of use of the truck. That ground for objection has been abandoned on appeal. Second, Mr. and Mrs. Mayes argue that this limitation applies only to the express warranty to repair and replace defective parts. According to them, the limitation has no application to the breach of the implied warranty of merchantability. See Water Works & Industrial Supply Co. v. Wilburn, Ky., 437 S.W.2d 951, 955 (1968). Once Mr. and Mrs. Mayes proved that the purpose of the limited remedy had failed within the meaning of KRS 355.2-719(2), there is a question whether they have also automatically shown that the exclusion of consequential damages was “unconscionable” under KRS 355.2-719(3). Most important, the Consumer Protection Act expresses a legislative intent to protect the consumer public. KRS 367.120(1). Public policy dictates that Ford not be permitted to limit the statutory remedy of consumers to recover “actual damages” under KRS 367.220(1) for a violation of the Consumer Protection Act.

V

ATTORNEYS FEES

In addition to authorizing the recovery of actual damages suffered as a result of an unlawful practice under the Consumer Protection Act, the statute provides:

In any action brought by a person under this section, the court may award, to the prevailing party, in addition to the relief provided in this section, reasonable attorney’s fees and cost.

KRS 367.220(3). The trial court awarded Mr. and Mrs. Mayes $5,000 for reasonable attorney’s fees and cost.

Ford claims that there is no evidence in the record to support this award. This argument is without merit for several reasons. First, awarding attorney’s fees was not an abuse of discretion on the part of the trial court. Unless attorney’s fees were awarded, the compensatory damages would in fact be inadequate. Persons such as Mr. and Mrs. Mayes having legitimate claims under the Consumer Protection Act would be deterred from enforcing their rights if they were required to absorb all costs of litigation. Second, the order awarding the attorney’s fees recites that it was entered by the court after “having heard evidence,” but there is no transcript of this hearing in the record. In the absence of a transcript or a narrative statement under CR 75.13, Ford has not demonstrated that the award of attorney’s fees is excessive. We also note that the attorney for Mr. and Mrs. Mayes was not made a party to this appeal. See Tyler v. Bryant, Ky., 394 S.W.2d 454 (1965). There was no error in the award of $5,000 in attorney’s fees to Mr. and Mrs. Mayes.

VI

RULING

That portion of the judgment awarding punitive damages is reversed; that portion of the judgment awarding damages for finance charges is reversed with directions to .limit such damages to the period between August 26,1976, and the date the truck was returned to the possession of Mr. and Mrs. Mayes; in all other respects the judgment of the circuit court is affirmed.

All concur.

      . Ford’s 1976 warranty was obviously drafted in light of the Magnuson-Moss Warranty Act (15 U.S.C. §§ 2301-2312). Because Ford did make a written warranty to consumers with respect to its products, Ford was prohibited from disclaiming or modifying any implied warranty other than to limit the duration of the implied warranty. 15 U.S.C. § 2308. We also note that Ford’s warranty is conspicuously designated as a “limited warranty” thereby avoiding the necessity of meeting the federal minimum standards for warranties applicable to a “full warranty.” 15 U.S.C. §§ 2303(a)(2) and 2304.

      . The seller may be entitled to an offset against the purchase price for any benefit to the buyer from use of the vehicle prior to revocation of acceptance. See Pavesi v. Ford Motor Co., 155 N.J.Super. 373, 382 A.2d 954 (1978), and cases cited therein.

      . We recognize that some courts have awarded punitive damages in contract actions without finding a separate tort. 11 Williston on Contracts § 1340 (3d ed. Jaeger 1968); G. Gilmore, The Death of Contract 83 (1974). However, this court has no authority to disregard the opinions of the Supreme Court of Kentucky or its predecessor court even if we desired to do so. SCR 1.030(8)(a). We also note that at least one member of that court favors abolishing punitive damages in all actions. Reed, Justice, concurring in Hensley v. Paul Miller Ford, Inc., Ky., 508 S.W.2d 759, 764 (1974).


text:
    STATE AUTOMOBILE MUTUAL INSURANCE CO., Appellant, v. Anna B. OUTLAW, Appellee.
    Court of Appeals of Kentucky.
    Nov. 10, 1978.
    Rehearing Denied Jan. 12, 1979.

      John G. Crutchfield, Louisville, for appellant.
    Freeman B. Blackwell, Louisville, for ap-pellee.
    Before HOWARD, HOWERTON and PARK, Judges.
   PARK, Judge.

The plaintiff-appellee, Anna B. Outlaw, was a pedestrian who suffered serious injuries when struck by an automobile driven by Jerry L. Taylor and owned by Allen L. Taylor. Therefore, Outlaw was entitled to basic reparation benefits under the Kentucky Motor Vehicle Reparations Act (MVRA). KRS 304.39-030(1). However, the Taylor automobile was uninsured, and Outlaw was not a “basic reparation insured” within the meaning of KRS 304.39-020(3). There being no policy of basic reparation insurance applicable to her injury, Outlaw filed a claim with the Kentucky Assigned Claims Bureau. KRS 304.39-160(l)(a). Outlaw’s claim was then assigned to the defendant-appellant, State Automobile Mutual Insurance Company, which had the same obligations as though it had issued a policy of basic reparation insurance applicable to her injury. KRS 304.-39-170(2).

The circuit court has entered two separate judgments against State Auto in an action brought by Outlaw. State Auto has prosecuted separate appeals from each summary judgment. A serious procedural question is presented because the second summary judgment was entered after State Auto had filed a notice of appeal from the first summary judgment. On the merits of the appeals, two issues are raised respecting the application of the MVRA: (1) the extent to which State Auto is subject to penalties under KRS 304.39-210 for delay in paying Outlaw’s claim; and (2) the extent to which State Auto is entitled to deduct benefits available to Outlaw from other sources in calculating net loss under the provisions of KRS 304.39-160(3).

I

The procedural problem can best be understood by considering the following chronology of events:

January 11,1978 Summary judgment entered against State Auto “for the sum of 18% interest on all over-due benefits.”
January 19,1978 State Auto files Notice of Appeal from the Summary Judgment of January 11.
January 20,1978 Outlaw files motion to amend the judgment entered January 11.
January 25,1978 State Auto files objection to further proceedings on the ground that the trial court lost jurisdiction of the case upon the filing of the notice of appeal on January 19.
January 30,1978 The circuit court enters a second summary judgment authorizing Outlaw to recover interest at the rate of 18% per annum on the sum of $7,467.69, being the amount of the bill of General Hospital.
March 1,1978 State Auto files notice of appeal from the second judgment entered on January 30.

The January 11 judgment recited that it was a final order and that there was no just cause for delay. CR 54.02(1). Despite the language used in an attempt to make it a final and appealable order, we conclude that the initial summary judgment of January 11 was only an interlocutory order which was non-appealable.

The January 11 judgment purports to grant Outlaw a judgment against State Auto “for the sum of 18% interest on all overdue benefits.” However, the January judgment does not state which payments were overdue, the amount of such overdue payments, or the date from which interest began to accrue. On its face, the January 11 judgment was so incomplete that it could be deemed no judgment at all. Wyrick v. Wyrick, Ky., 243 S.W.2d 1004, 1006 (1951). There was no final adjudication of Outlaw’s claim for interest. The circuit court had made no determination concerning the amount of overdue bills for which State Auto would be liable for interest. The January 11 judgment also left open for further determination the date upon which the bills became overdue and from which interest would accrue. The January 11 judgment was no more than an intermediate step toward a final determination of Outlaw’s claim for interest. The January 11 judgment was interlocutory, and the circuit court could not make it a final and appeala-ble order merely by reciting the language of CR 54.02(1). Hale v. Deaton, Ky., 528 S.W.2d 719 (1975). We conclude that the appeal from the January 11 judgment must be dismissed because there had not been a final determination of any claim asserted by Outlaw in the proceedings.

State Auto asserts that the circuit court lost jurisdiction when State Auto filed its notice of appeal from the January 11 judgment. Because the appeal was then pending in this court, State Auto asserts that the circuit court had no jurisdiction to amend its original January 11 judgment on the issue of interest by the entry of the second judgment of January 30. If the original judgment of January 11 had been a final and appealable order, State Auto’s argument would have merit. Hoy v. Newburg Homes, Inc., Ky., 325 S.W.2d 301 (1959); Monsour v. Humphrey, Ky., 324 S.W.2d 813 (1959); see also Johnson Bonding Co. v. Ashcraft, Ky., 483 S.W.2d 118 (1972).

State Auto’s argument overlooks the fact that the original judgment of January 11 was interlocutory and non-appealable. A notice of appeal from an interlocutory judgment does not deprive the circuit court of jurisdiction to render a final judgment. O’Nan v. Broadus, Ky., 316 S.W.2d 220 (1958); see also Fruchtenicht v. United States Fidelity & Guaranty Co., Ky., 451 S.W.2d 835, 837 (1969). If we were to dismiss the appeal from the judgment of January 30 on the theory that the trial court had lost jurisdiction because of the pendency of the first appeal, the trial court would inevitably enter a third judgment resulting in a third appeal. There is no justification for such a waste of judicial energy involving needless expense and delay to the litigants. Therefore, we shall consider the merits of the appeal from the judgment of January 30 that adjudged State Auto liable for 18% interest on the original bill from General Hospital in the amount of $7,467.69.

II

The substantive issues are interrelated and may be discussed together. Outlaw contends that State Auto is liable for 18% interest under KRS 304.39-210(2) because its delay in paying medical bills was “without reasonable foundation.” State Auto asserts that it did have a “reasonable foundation” for delaying payment and that the trial court erred in granting summary judgment. State Auto argues that Outlaw failed to provide “reasonable proof of the fact and amount of loss” as required by subsection (1) of KRS 304.39-210 and that time was required to determine the amount of payments made under the state medical assistance program in order to calculate “net loss” under subsection (3) of KRS 304.-39-160.

Outlaw was injured on August 29, 1975. She incurred a bill of $7,467.69 at Louisville General Hospital for treatment between the date of the accident and October 31, 1975. On July 2,1976, the Department for Human Resources paid $3,308.06 to General Hospital on the Outlaw bill. This payment was made under the Kentucky Medical Assistance Act. KRS 205.510 et seq.

On August 16, 1976, Outlaw filed an application for benefits under the Assigned Claims Plan. On the claims form, Outlaw stated that she had been treated at General Hospital by “several doctors” and that her “medical bills to date” were in the amount of $7,467.69, which was the amount of the original bill from General Hospital. In her application for benefits under the Assigned Claims Plan, Outlaw stated that the only benefits she received from other sources as a result of her injuries were disability payments of $125 each for the three previous months under social security. No mention was made of the $3,308.06 paid on the General Hospital bill pursuant to the Kentucky Medical Assistance Act. Outlaw’s claim was assigned by the Assigned Claims Bureau to State Auto on August 23.

On August 17, 1976, Outlaw filed suit against the Taylors in the Jefferson Circuit Court. On May 27, 1977, a motion was made to amend her complaint to make State Auto an additional defendant. The motion was sustained on June 6. On September 13, 1977, State Auto issued a check payable to Outlaw, her attorney and General Hospital in the amount of the original bill, $7,467.69. This check was delivered to Outlaw’s attorney, but it was recalled by State Auto on October 5 when it learned that the amount of the hospital bill may have been reduced by payments under the Kentucky Medical Assistance Act. On October 13, General Hospital informed State Auto that it had received $3,308.06 from the state medical assistance program. One week later, State Auto paid $4,159.63 directly to General Hospital. See KRS 304.-39-210(1).

On September 30, 1977, Outlaw filed a motion for summary judgment against State Auto. In this motion, Outlaw sought attorney’s fees in the amount of $1,500 under KRS 304.39-220(1), interest on “all unpaid and late payments” and all “remaining and unpaid” benefits. The amount and nature of the “unpaid and late” payments was not specified in the tendered summary judgment accompanying the motion. However, the affidavits accompanying the motion stated that Outlaw had incurred a bill for treatment at Memorial Hospital in an undisclosed amount and that some kind of claim was being asserted for services rendered to Outlaw by her mother as a result of her injuries. Nevertheless, the only bill ever submitted to State Auto was the original bill of General Hospital. On January 11, 1978, the trial court granted summary judgment against State Auto “for the sum of 18% on all over-due benefits.” The question of awarding attorney’s fees was reserved. The amended judgment of January 30, 1978, provided:

IT IS FURTHER ORDERED AND ADJUDGED, That the plaintiff, Anna B. Outlaw, recover interest at the rate of 18% per annum on the sum of $7,647.69, for the period September 16,1976 to September 13, 1977, this being the amount of General Hospital’s bill that was overdue and the delay in payment was without reasonable foundation; .

The January 30 judgment made no disposition of the claim for attorney’s fees. Consequently, the only issue before this court is the award of interest on the bill of General Hospital.

To encourage prompt payment of claims, the MVRA provides that a reparations obli-gor may be liable for the payment of 18% interest and attorney’s fees if its delay in the payment of “overdue” benefits was “without reasonable foundation.” KRS 304.39-210(2) and 304.39-220(1). Whether a payment is “overdue” must be determined under KRS 304.39-210(1) which provides that the time for payment does not commence until the reparations obligor “receives reasonable proof of the fact and amount of loss realized.” State Auto asserts that Outlaw failed to provide reasonable proof of loss. State Auto then reasons that no payments could be “overdue” in the absence of proof of loss and that it could not be liable for the 18% interest if no payments were overdue.

A proof of loss is intended to provide insurance companies with an opportunity to investigate the claim and to make an intelligent estimate of the company’s rights and liabilities before becoming obligated to pay the claim. 14 Couch on Insurance 2d § 49.373 (1965); Commercial Travelers Mutual Accident Ass’n v. Witte, Ky., 406 S.W.2d 145, 148 (1966). The initial claim filed by Outlaw revealed the amount of the original bill at General Hospital, but the statement of the claimant alone would not, as a matter of law, satisfy the statutory requirement of “reasonable proof of the fact and amount of loss realized.” In order for an insurance company to make an intelligent evaluation of its obligation to pay a bill for medical expenses, a copy of the bill itself should be furnished to the company. The importance of the medical bill was recognized by the legislature. There is a statutory presumption that any medical bill submitted is reasonable. KRS 304.39-020(5)(a). Indeed, in asserting her claim, Outlaw used a form which provided: “Return promptly with any medical bill you have received to date.” According to State Auto, it did not receive a copy of the original bill of General Hospital until May 31, 1977, some nine months after Outlaw’s claim was assigned to State Auto. The statute placed the burden on the claimant to provide reasonable proof of the fact and amount of loss realized. In this case, Outlaw cannot require State Auto to assume her statutory burden of providing reasonable proof of loss simply by arguing that State Auto could have obtained a copy of the bill from General Hospital.

Nevertheless, State Auto’s argument with respect to proof of loss has one fatal flaw. Its argument assumes that the insurance company may sit indefinitely on a claim without incurring any liability for 18% interest or attorney’s fees so long as the claimant’s proof of loss is inadequate. State Auto ignores the requirement of subsection (5) of KRS 304.39-210 that:

A reparation obligor who rejects a claim for basic reparation benefits shall give to the claimant prompt written notice of the rejection, specifying the reason.

Implicit in this statute is a duty on the part of the insurance company to make some response to a claim within the time limits contemplated by subsection (1) of KRS 304.-39-210. Otherwise, the claimant may be lulled into the false assumption that he has furnished reasonable proof of loss and that the claim will be paid. If the insurance company does not intend to pay a claim for medical expenses because the claimant has not furnished copies of the medical bills, the company should give the claimant “prompt notice” of the reason why the claim is not being paid. In the absence of such “prompt notice” of the reason for non-payment, the insurance company must be deemed to have waived any question of the sufficiency of the proof of loss for the purpose of determining when an otherwise valid claim became “overdue.”

In this ease, there are genuine issues of material facts. With the present state of the record, it is not possible to determine when Outlaw first submitted a copy of the bill from General Hospital. Likewise, we cannot determine when State Auto first requested copies of medical bills from Outlaw. These issues of fact must be resolved before there can be a finding that Outlaw had furnished “reasonable proof of fact and amount of loss” or that the requirement had been waived. It was error for the trial court to grant summary judgment finding that payment of the General Hospital bill was overdue.

Moreover, the judgment must be reversed on grounds not related to the question whether payment of the General Hospital bill was “overdue” within the meaning of subsection (1) of KRS 304.39-210. Assuming for purposes of argument that the bill was overdue, the question remains whether State Auto’s delay in payment was “without reasonable foundation.” Overdue payments ordinarily bear interest at the rate of 12% per annum. Subsection (2) of KRS 304.39-210 imposes the higher rate of 18% per annum only if the delay in payment was “without reasonable foundation.” In this case, State Auto asserts that it had a reasonable foundation for delaying payment of ■ the bill of General Hospital. We agree.

Under the MVRA, the basic rule for treatment of collateral source payments is set forth in KRS 304.39-120. In determining reparation benefits, only social security and workmen’s compensation benefits are deductible in calculating the claimant’s net loss. State medical assistance payments are not considered “social security” benefits within the scope of KRS 304.39-120. Even though such benefits are provided under Title XIX of the Social Security Act, the actual payments are not made through the Social Security system. See the Commissioner’s Comment to Section 11 of the Uniform Motor Vehicle Accident Reparations Act (1972 version). In the ordinary case, the reparations obligor would not be entitled to deduct the amount of any state medical assistance payments in calculating net loss. However, the credit for collateral source payments is much broader when the benefits are being paid through the assigned claims plan.

If benefits are payable through the assigned claims plan, the special rule of KRS 304.39-160(3) authorizes the deduction of “all benefits or advantages” received by the claimant in calculating net loss. None of the exceptions to this special rule are applicable in this case. Therefore, State Auto asserts that it was entitled to delay payment of the bill of General Hospital until it ascertained the amount of the state medical assistance payments to be deducted under KRS 304.39-160(3). On the other hand, Outlaw contends that no deduction was permissible because General Hospital was under an obligation to refund medical assistance payments to the extent it recovered such sums from third parties.

Whether State Auto was entitled to deduct the state medical assistance payments from the amount of the General Hospital bill is determined by the sequence of events. The hospital bill was incurred between August 29 and October 31, 1975. The medical assistance payments were not made until July 2, 1976. Basic reparation benefits are payable monthly as loss accrues. KRS 304.-39-210(1). Assuming that Outlaw had filed a claim for benefits soon after the accident and that the assigned claims bureau had promptly assigned her claim to State Auto, State Auto would not have had any right to make any deduction for any future medical assistance payments. KRS 304.39-210(3) provides:

A claim for basic or added reparation benefits shall be paid without deduction for the benefits which are to be subtracted pursuant to the provisions on calculation of net loss if these benefits have not been paid to the claimant before the reparations benefits are overdue or the claim is paid. The reparation obligor is entitled to reimbursement from the person obligated to make the payments or from the claimant who actually receives the payments.

However, Outlaw made no claim for benefits under the MVRA until August 16,1976, after the state medical assistance payment of $3,308.06 had been made to General Hospital on July 2, 1976. The medical assistance payments constituted “benefits” and “advantages” actually received by Outlaw.

We conclude that the trial court erred in holding that State Auto’s delay in paying the hospital bill was “without reasonable foundation.” Outlaw’s application for benefits under the assigned claims program failed to reveal the medical assistance payments although the application form requested information on “Benefits Received From Any Other Source.” Whatever may be the relative rights of State Auto and the Department for Human Resources as administrator of the medical assistance program, the record does not indicate that any demand is being put on Outlaw by General Hospital or the Department for any further payments on the original bill. State Auto acted reasonably in delaying payment until it ascertained the net amount due General Hospital at the time it received the assignment of Outlaw’s claim.

The judgment of the circuit court is reversed with directions to dismiss any claim for interest at the rate of 18% per annum but without prejudice to any claims for interest at the rate of 12% per annum for the period any amount is determined to have been overdue and unpaid.

All concur.

      . Likewise, a reparation obligor would be liable for attorney’s fees only if its denial or delay in payment of a claim for benefits was “without reasonable foundation.” KRS 304.39-220(1).


author: HARBISON, Justice.

text:
    Jack FOWLER, Defendant-Petitioner, v. The HAPPY GOODMAN FAMILY and Top Billing Inc., Respondents-Plaintiffs.
    Supreme Court of Tennessee.
    Dec. 29, 1978.
    Tom H. Williams, Jr., Nashville, for defendant-petitioner.

      Aubrey B. Harwell, Jr., Thomas H. Dun-don, Nashville, for respondents-plaintiffs.
   OPINION

HARBISON, Justice.

In this action the trial court rendered summary judgment against petitioner for fees owed by him to'the respondents under contracts for musical performances. The Court of Appeals affirmed. Although other defenses were presented in those courts, the only question raised in the petition for cer-tiorari is whether petitioner offered sufficient evidence in opposition to the motion for summary judgment to create a genuine fact issue on his claim of fraud in the inducement.

After careful consideration of the record, we affirm the judgment of the courts below.

Respondents, The Happy Goodman Family, are a group of ten performing musicians. Respondent Top Billing, Inc., is their booking agent, receiving a percentage of their fees for performances. Petitioner is engaged in promoting musical concerts. On May 14, 1975, he contracted with Top Billing, Inc., to be sole representative of the latter for personal appearances of The Happy Goodman Family within a four-state area. Petitioner agreed to guarantee a minimum of fifty personal appearance for The Happy Goodman Family in the prescribed territory at a set price for each engagement. The fifty performances were to be promoted between the dates of July 1, 1975 and June 30, 1976. The promotion contract itself is not at issue in this litigation.

Subsequent to the execution of this agreement, petitioner entered into five separate contracts with The Happy Goodman Family for performances in his franchised territory, to be given on dates between October 30 and November 28, 1975. Petitioner was to pay to the performers and their agent a specified fee for each of these engagements.

The first of these contracts was entered into on June 18, 1975. The other four were executed a number of weeks later, their respective dates being September 3, 9, 12, and 30, 1975.

This action was instituted by respondents on May 14, 1976, alleging that The Happy Goodman Family had given each of the performances required- by the September contracts, and that they had been ready, willing and able to give the other performance, called for by the June 18 contract, but that this engagement had been cancelled by petitioner without just cause. Respondents alleged that they had been paid nothing under any of the contracts.

In his answer, petitioner admitted signing the contracts, admitted that nothing had been paid under any of them, conceded that four of them had been performed by respondents and admitted cancellation of the fifth. He denied any breach on his part. In addition to questioning the jurisdiction of the Tennessee courts, he raised several defenses on the merits, including lack of consideration. He also alleged misrepresentation and fraud in the inducement, without elaboration or statement of any supporting fact.

Respondents filed a motion for a more definite statement with respect to the allegations of fraud and misrepresentation, citing Rule 9.02, Tennessee Rules of Civil Procedure, which states that “the circumstances constituting fraud or mistake shall be stated with particularity.” This motion was sustained. In response thereto, on October 4, 1976, petitioner filed an amended and supplemental answer, detailing a number of representations allegedly made to him by respondents in connection with the May 1975 contract and the subsequent entertainment contracts. Petitioner pled “on information and belief” that all of these representations had been false and that they were calculated to mislead him. The representations consisted of promises of future conduct by respondents, rather than past or existing facts.

No further challenge to the sufficiency of the pleadings was made. On June 15, 1977, more than eight months after the amended answer had been filed, respondents moved for summary judgment in the amount of the contract fees. This motion was supported by affidavits which generally reiterated the allegations of the complaint.

The motion for summary judgment was not acted upon until August 24, 1977, an interval of more than two months after its filing. The only defense to the motion interposed by petitioner was a single affidavit, executed by him, and filed on the day of the hearing. Although the case had by then been pending for over a year, if petitioner took advantage of any of the various pre-trial procedures available under the Tennessee Rules of Civil Procedure, such as depositions, interrogatories or requests for admissions, the results of none of them were filed. Nor were there supporting affidavits from any person other than himself.

A motion for summary judgment goes to the merits of the litigation. One faced with such a motion may neither ignore it nor treat it lightly. As stated in Rule 56.05, T.R.C.P.:

“When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of his pleading, but his response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If he does not so respond, summary judgment, if appropriate, shall be entered against him.”

Petitioner was faced with a motion for summary judgment upon five contracts which he had admittedly executed, and four of which he conceded had been performed by the adverse parties. It was therefore incumbent upon him, in order to establish a defense of fraud in the inducement, to come forward with specific factual information or run the risk of being cast in judgment.

Rule 56.05 expressly provides:

“Supporting and opposing affidavits shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein.”

The affidavit filed by the petitioner does not meet these criteria. It details a number of representations and promises allegedly made to him by respondents when the May 14, 1975 promotion contract was executed. There is no' reference to any further communication or conference with respondents until “late July of 1975”—a date subsequent to the execution of the first of the performance contracts now in issue, that agreement having been signed on June 18.

The affidavit alleges further representations made by respondents at the unspecified date in July—several weeks before the other four contracts were signed. The affidavit then concludes:

“Upon the information I have, I believe that all of the aforementioned representations of the plaintiffs were made by them knowing that they were false and they were intended to mislead me.” (Emphasis added).

The sources of the “information” upon which petitioner based this “belief” are not revealed. Petitioner’s own belief does not constitute “such facts as would be admissible in evidence” as required by Rule 56.05, supra. Nor does the affidavit show “affirmatively that the affiant is competent to testify to the matters stated therein,” as required by the Rule.

Tennessee has long adhered to the rule that in order for a fraudulent misrepresentation to be actionable, it must consist of a statement of an existing or past material fact, made with knowledge of its falsity or with reckless disregard of the truth. Although a minority view, the rule established by the cases in this state has been that a misrepresentation of intention or a promise without intent to perform is legally insufficient to support a claim for rescission or damages. See A. Landreth Co. v. Schevenel, 102 Tenn. 486, 52 S.W. 148 (1899). This rule has been adhered to in a number of decisions, including the fairly recent case of Bolan v. Caballero, 220 Tenn. 318, 417 S.W.2d 538 (1967).

In the latter case, however, this Court indicated that it would be willing to consider adopting the rule followed in a majority of jurisdictions with respect to the subject “in a proper case where justice demands . . . .” 220 Tenn. at 326, 417 S.W.2d at 541.

Under the majority view, in order for actionable fraud to be based upon a promise of future conduct, it must be established that such a promise or representation was made with the intent not to perform. A statement of intention must be false and the intention not actually held. See Prosser, Law of Torts § 109, at 728-730 (4th ed. 1971); Restatement (Second) of Torts § 530 (1977); Annot., 51 A.L.R. 46 (1927); 68 A.L.R. 635 (1930); 91 A.L.R. 1296.(1934); 125 A.L.R. 879 (1940).

We recognize that where a claim of fraud is presented, ordinarily only upon a full trial of the action can the issue properly be developed. As a general rule, summary judgment is not an appropriate procedure for the disposition of such an issue. See Long v. State Farm Fire & Casualty Co., 510 S.W.2d 517, 519 (Tenn.App.1974).

Nevertheless, it is incumbent upon the party asserting fraud, when confronted by a motion for summary judgment, to produce some competent and material evidence legally sufficient to support his claim or defense. The affidavit of petitioner in the present case does not contain any evidence which would sustain a defense of fraud in the inducement under the existing Tennessee rule referred to above.

Apparently conceding this, petitioner strongly urges us to use the present case as a vehicle for changing the rule with reference to “promissory fraud” and to adopt the view followed in the majority of other jurisdictions. However, we are of the opinion that the affidavit, tested by the majority rule, is legally insufficient and wholly fails to establish by any competent and material evidence that the promises and representations of respondents as to their future conduct were made without any intention on their part to perform. Their failure to perform is sufficiently stated, but only petitioner’s subjective belief and his unspecified “information” are advanced in support of the claim of fraudulent intent to deceive and not to undertake performance.

Absent any admissions in the respondent’s pleadings which would support a claim of inducing fraud under either the majority or the minority view, petitioner was obligated to take depositions, demand answers to interrogatories, submit requests for admissions or, at a minimum, to file supporting affidavits containing facts which, in the language of Rule 56.05, “would be admissible in evidence” in support of his contention. His subjective belief and his other unspecified information are legally insufficient.

For these reasons, the judgment of the Court of Appeals is affirmed at the cost of petitioner. The cause will be remanded to the trial court for enforcement of the judgment.

HENRY, C. J., COOPER and FONES, JJ., and HUMPHREYS, Special Judge, concur.

      . Primarily the alleged representations consisted of promises to protect petitioner from advertising by a former promoter and to make financial concessions to him by reduction of future performance fees or the making of percentage agreements.

      . Petitioner filed no counterclaim for rescission or other affirmative relief. He simply interposed a defense of fraud in avoidance of the contracts, predicated upon deliberate misstatements of intention and promises of future conduct, as previously mentioned.

      . “The intention of the promisor not to perform an enforceable or unenforceable agreement cannot be established solely by proof of its nonperformance, nor does his failure to perform the agreement throw upon him the burden of showing that his nonperformance was due to reasons which operated after the agreement was entered into. The intention may be shown by any other evidence that sufficiently indicates its existence, as, for example, the certainty that he would not be in funds to carry out his promise." Restatement (Second) of Torts § 530, Comment (d) (1977).