Colton v. Decker

• Decision Date: 13 December 1995
• Docket Number: 18710,Nos. 18709,s. 18709
• Parties: 30 UCC Rep.Serv.2d 206, 47 A.L.R.5th 951 John COLTON and Pamela Colton, Plaintiffs and Appellees, v. Lee DECKER and Betty Decker, Defendants and Appellants.
• Court: South Dakota Supreme Court

Page 172

540 N.W.2d 172

30 UCC Rep.Serv.2d 206, 47 A.L.R.5th 951

John COLTON and Pamela Colton, Plaintiffs and Appellees, v. Lee DECKER and Betty Decker, Defendants and Appellants.

Nos. 18709, 18710.

Supreme Court of South Dakota.

Argued March 21, 1995.

Decided Nov. 15, 1995.

Rehearing Denied Dec. 13, 1995.

Thomas J. Johnson, Sioux Falls, for plaintiffs and appellees.

Gail E. Fisher, Sioux Falls, for defendants and appellants.

KONENKAMP, Justice.

After his truck was seized by law enforcement officials for having multiple serial numbers the owner sued and recovered damages from the seller. Both parties appeal. We affirm the breach of warranty of title but reverse and remand a portion of the damages award.

FACTS

Lee Decker, an over-the-road trucker, purchased a repossessed 1975 Peterbilt truck, Model 359, from a Minnesota bank in 1984. The truck's history is not completely known, but its rails or frame had apparently been extended from its original length to accommodate a double sleeper and it had also been wrecked at one time. The vehicle identification number (VIN) listed on the Minnesota title was 60596P. Decker transferred the truck's title to South Dakota. Although he claims not to have made any major structural changes, on several occasions Decker has acknowledged he rebuilt the truck "from the frame up."

Over a nine-month period in 1989, John Colton, who worked as a driver for Decker, ¹ drove the 1975 Peterbilt nearly 100,000 miles. In late December of that year, he offered to purchase the truck for $22,000. To help obtain financing Decker provided Colton with a list of the truck's features. On the list he wrote, "I spent 3 months rebuilding from the frame up when I first got the truck. 90% of the work was performed by myself." Decker's signature immediately followed. Assured of the truck's good condition, Marquette Bank of Sioux Falls financed Colton's purchase. On March 8, 1990, Decker's South Dakota truck title was transferred to Colton.

On August 22, 1991, Colton was stopped by the Wyoming Highway Patrol near Rock Springs, Wyoming and cited for speeding. After noting discrepancies in his logbook, the trooper inspected the rig and discovered that the VIN stamped on the right frame rail did not match the VIN listed on the registration. Conflicting VINs commonly indicate a stolen vehicle or stolen parts. The truck, but not the loaded trailer, was then impounded. Colton hired another trucker to haul the cargo in his trailer to Salt Lake City and retained a Wyoming attorney, but the attorney could not obtain immediate release of his truck. Colton returned to South Dakota. During the months waiting to recover his vehicle, he found some work driving trucks for other companies.

Meanwhile, Wyoming authorities disassembled Colton's truck in search of other serial numbers. The letter "K" in one conflicting number indicated that a glider kit ² had been used. A third VIN, stamped with a manufacturer's die, was also discovered. Although more numbers matching the VIN on the title were found at various points on the truck (some hidden beneath paint and body putty), the numbers had not been imprinted by the manufacturer, but had been stamped by hand, apparently with a hardware store die. For example, a VIN matching the title was hand-stamped on a crudely fashioned rectangular piece of tin and affixed to the fire wall just above the clutch pedal.

Upon completing their nine-month investigation, Wyoming authorities determined Colton was indeed the true owner. A Wyoming court ordered a new Wyoming title to be issued clarifying the conflicting serial numbers. The truck would then be released upon payment of a $1,000 storage fee. Colton, who was now behind on loan payments, borrowed the money from Marquette Bank, traveled to Wyoming, and paid it. Unfortunately, the truck was inoperable, because while in Wyoming's possession, it remained dismantled and unsheltered throughout the winter. On April 11, 1992, Colton towed the truck from Wyoming back to Sioux Falls.

Once home, Colton placed the truck in storage until he could raise the money to repair it. Despite the court order, Colton was unable to obtain a new title in Wyoming because Marquette Bank refused to surrender the South Dakota title--its collateral--to Wyoming authorities. The bank also refused to exchange the faulty title for a new South Dakota "rebuilder's" title. Colton filed suit against Decker alleging breaches of warranty of title, warranty of merchantability, and express warranty of description. He also sent Decker a notice of intent to rescind the sale of the truck.

At trial on November 4-5, 1993, Decker disputed that his reconstruction of the truck required a rebuilder's title. SDCL 32-3-1(17), 32-3-53. After noting in its memorandum opinion (incorporated into the findings of fact and conclusions of law) that the man who assisted Decker in rebuilding the truck had noticed differing serial numbers, the trial court wrote:

[Decker] bought it as a wrecked truck, tor[e] it down and rebuilt it. Even though he did not replace the parts which bore the different VINs, the discrepancies were obvious and discovered at the time he was rebuilding the vehicle.

The court awarded Colton $27,572.71 for breach of warranty of title. His other alleged breaches and offer to rescind were rejected. Both parties appeal raising the following issues:

I. Did the trial court err in holding that Decker breached warranty of title?

II. Did the trial court err in its assessment of damages for breach of title warranty?

III. Did Decker breach warranty of merchantability?

IV. Did Decker breach express warranty of description?

We affirm the court's ruling on breach of warranty of title, but reverse and remand for reassessment of certain damages.

DECISION

I. Warranty of Title

Wyoming authorities challenged the authenticity of Colton's title as the truck had three different VINs engraved at various points. Under these circumstances Colton averred Decker breached the warranty of title under SDCL 57A-2-312:

(1) Subject to subsection (2) there is in a contract for sale a warranty by the seller that

(a) The title conveyed shall be good, and its transfer rightful; and

(b) The goods shall be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge.

(2) A warranty under subsection (1) will be excluded or modified only by specific language or by circumstances which give the buyer reason to know that the person selling does not claim title in himself or that he is purporting to sell only such right or title as he or a third person may have.

Comment 1 to UCC § 2-312 states a buyer is entitled to "receive a good, clear title transferred ... in a rightful manner so [the buyer] will not be exposed to a lawsuit in order to protect it." A split of authority persists on the scope of § 2-312. Decker relies on those cases which hold that a breach of warranty of title occurs only when an outstanding superior title exists. ³ See, e.g., C.F. Sales, Inc. v. Amfert, Inc., 344 N.W.2d 543 (Iowa 1983); Johnston v. Simpson, 621 P.2d 688 (Utah 1980). Other courts hold that under § 2-312 mere initiation of a colorable challenge, one which is not spurious, regardless of the outcome, is sufficient to violate the warranty of title. Jefferson v. Jones, 286 Md. 544, 408 A.2d 1036, 1042 (1979) (law enforcement seizure of motorcycle when its VIN did not correspond to VIN in title document was colorable claim thus seller breached title warranty); American Container Corp. v. Hanley Trucking Corp., 111 N.J.Super. 322, 268 A.2d 313 (1970) (law enforcement seizure of semi-trailer as stolen sufficient to cast substantial shadow thus violating warranty of good title). "Good title" typically means "the title which the seller gives to the buyer is 'free from reasonable doubt, that is, not only a valid title in fact, but [also] one that can again be sold to a reasonable purchaser ...' " Jefferson, 408 A.2d at 1040 (quoting Langford v. Berry, 68 Ga.App. 193, 22 S.E.2d 349, 351 (1942)). We find the latter to be the better rule.

Wyoming Highway Patrol officials questioned Colton's ownership due to contradictory VINs thus casting a colorable challenge to its title. This was sufficient for a breach of title warranty claim. American Container Corp., 268 A.2d at 318; City Car Sales, Inc. v. McAlpin, 380 So.2d 865 (Ala.Civ.App.1979); Ricklefs v. Clemens, 216 Kan. 128, 531 P.2d 94 (1975). Indeed, the majority view holds that a purchaser can recover for a breach of warranty of title by merely showing the existence of a cloud on the title. Maroone Chevrolet, Inc. v. Nordstrom, 587 So.2d 514, 518 (Fla.Dist.Ct.App.1991). Once breach of good title is established, good faith is not a defense, nor is a lack of knowledge of the defect. James A. White & Robert S. Summers, UNIFORM COMMERCIAL CODE § 9-12 (3d ed. rev. 1993); Smith v. Taylor, 44 N.C.App. 363, 261 S.E.2d 19 (1979). Purchasers should not be required to enter into a contest on the validity of ownership over a titled motor vehicle. Frank Arnold Contractors v. Vilsmeier Auction Co., Inc., 806 F.2d 462, 464 (3rd Cir.1986); Maroone Chevrolet, 587 So.2d at 518; American Container, 268 A.2d at 318; Ricklefs, 531 P.2d at 100. As the undisputed facts reveal, Colton was forced into a contest over ownership because of conflicting VINs and an improper title. Thus, we uphold the circuit court's ruling that Decker breached the warranty of title. Maroone Chevrolet, 587 So.2d at 518.

II. Damages

Colton was awarded total damages of $27,572.71, consisting of $14,000 for the value of the truck and $13,572.71 for costs incurred retrieving it from Wyoming and storage. Breach of warranty damages are calculated under SDCL 57A-2-714:

(2) The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if t...