Prince v. LeVan

• Decision Date: 09 July 1971
• Docket Number: No. 1184,1184
• Citation: 486 P.2d 959
• Parties: 9 UCC Rep.Serv. 367 Earl PRINCE et al., Appellants, v. Everett C. LeVAN and Vivian LeVan, Appellees.
• Court: Alaska Supreme Court

Page 959

486 P.2d 959

9 UCC Rep.Serv. 367

Earl PRINCE et al., Appellants, v. Everett C. LeVAN and Vivian LeVan, Appellees.

No. 1184.

Supreme Court of Alaska.

July 9, 1971.

Michael M. Holmes, of Faulkner, Banfield, Boochever & Doogan, Juneau, for appellants.

Thomas P. Blanton, of Robertson, Monagle, Eastaugh, Annis & Bradley, Juneau, for appellees.

Before BONEY, C. J., and DIMOND, RABINOWITZ and ERWIN, JJ.

OPINION

BONEY, Chief Justice.

The appellants, Earl Prince, Justin V. Fager, and John Steinbeck, were defendants below. They seek reversal of a superior court judgment granting rescission of a sale of a vessel, the CHARBUS, to the appellees who were plaintiffs below. In the interest of clarity, the parties on appeal will be designated in accordance with their respective relationships at trial.

Defendants were joint owners of the CHARBUS, a registered vessel of the United States. Defendants sold the CHARBUS to plaintiffs for $10,000 on May 8, 1968. Defendants executed the bill of sale in exchange for $3,000 cash and a promissory note for $7,000. The promissory note was secured by a marine mortgage, executed by plaintiffs in favor of defendants on May 8, 1968, the date of the sale. Under the terms of the marine mortgage, plaintiffs were required to obtain insurance coverage on the CHARBUS. This insurance inured to the benefit of defendants as security for the marine mortgage held by them.

Prior to the sale, the defendants had carried marine hull insurance with a $500 deductible clause on the CHARBUS. The annual premium was $825.00. This insurance coverage expired on May 6, 1968, two days before the sale. The parties both concede that at the time of the sale they believed adequate insurance coverage could be obtained on the CHARBUS. However, following the sale, the plaintiffs experienced considerable difficulty in obtaining what they considered to be satisfactory insurance, and although they did receive one offer of comparactively less adequate coverage which was subsequently withdrawn, they failed to insure. Defendants, as holders of the marine mortgage, continued to demand that the required coverage be obtained until at least August 28, 1968. Plaintiffs did not assert impossibility as a defense to the demand that they insure. However, in October of 1968, plaintiffs commenced the present action seeking rescission of the sale on two grounds.

As a first ground for relief, plaintiffs claimed that defendants had expressly warranted the condition of the engine of the CHARBUS, and that subsequent difficulties entitled them to rescission. However, the trial court found that plaintiffs had knowledge of the condition of the engine, and that subsequent difficulties did not amount to a breach of warranty. This finding is not contested on appeal.

Plaintiffs' second ground for relief prevailed, and forms the basis for the present appeal. Plaintiffs contended that the sale was conditioned on the CHARBUS being insurable as required by the marine mortgage, that the vessel was not insurable, and that they were entitled to a rescission of the sale. Defendants denied the vessel was not insurable and denied that insurability was a condition of the sale.

The trial court heard the evidence on the question of insurability and concluded that the CHARBUS was not insurable. In addition, the court found that because of the lack of available insurance, the CHARBUS was not usable as a commercial fishing vessel as the parties had intended. However, the court did not find that insurability was a condition of the sale.

Based upon these findings, the trial court decided that there was a mutual mistake of fact as to the insurability of the CHARBUS. In addition, the court concluded that the unavailability of insurance rendered performance of the insurance terms of the marine mortgage impossible, and that the impossibility of performance of the mortgage terms rendered the CHARBUS commercially useless so that the plaintiffs suffered both a frustration of purpose and a failure of consideration. Based upon these findings of fact and conclusions of law, the court determined that the plaintiffs were entitled to rescission of the sale. Judgment was entered accordingly on July 30, 1969. From that judgment, defendants have brought this appeal.

On appeal, defendants make three basic contentions. First, they assert that the trial court erred in findings, as a fact, that insurance coverage was not available on the CHARBUS. Second, they claim that the trial court erred in finding, as a fact, that the lack of available insurance rendered the CHARBUS useless as a commercial vessel. Third, it is contended that even if the CHARBUS was in fact uninsurable, the trial court erred in concluding that rescission was available under the applicable law.

While defendants' first contention, that the CHARBUS was in fact insurable, may have considerable merit in light of the fact that one offer of coverage was obtained, we find it unnecessary to reach this issue. For even assuming, for purposes of analysis, that insurance was not available on the CHARBUS, we have concluded that rescission was not available under the applicable law.

Defendants' second contention, that the CHARBUS was not rendered commercially useless by uninsurability, will be discussed in its turn, in relation to the applicable law. We turn now to a consideration of the dispositive issues of law.

In their brief, defendants point out that the trial court decided this case without reference to the Uniform Commercial Code. The trial judge relied instead upon general principles of contract law which defendants assert was improper. The first question confronting us is whether the code is applicable to the sale of a vessel, and if it is, whether reliance upon general contract principles alone, to the exclusion of the code, was improper.

Alaska Statutes, title 45, Trade and Commerce, adopts Article 2 of the Uniform Commercial Code ¹ as the applicable law of sales in Alaska. ² It is this article which concerns us here. AS 45.05.038 provides that the sales article shall 'apply to transactions in goods.' AS 45.05.044(a) defines goods:

'Goods' means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (§§ 612-688) and things in action. (Emphasis supplied.)

By the plain meaning of the words of the statute, a vessel is covered. ³ Moreover, the official code comment makes it explicit that '(t)he definition of goods is based on th concept of movability * * *.' ⁴, and it is self evident that a vessel is within that definition and concept. We conclude that the code was applicable to the sale of the CHARBUS.

We turn now to a consideration of whether the trial court erred in attempting to apply general contract principles to the total exclusion of the code.

Defendants contend that the Uniform Commercial Code provided the exclusive basis for a remedy in this case. Plaintiffs respond by asserting that the trial court was authorized to rely upon basic contract principles by AS 45.05.006, which provides:

Unless displaced by the particular provisions of this chapter, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause supplement its provisions.

Under this provision the principles of equity, including mistake, misrepresentation, and other invalidating grounds 'supplement' the code provisions and apply 'unless displaced by the particular provision of this chapter'. It appears then, that general principles of contract law remain in effect, to some extent, under the code. ⁵ Nevertheless, even when general principles remain operative, they merely supplement the code; they do not displace it so as to exclude application of its specific provisions where relevant.

Where both the code and general principles are available, the former should always be considered and applied if applicable. By legislative declaration the code is the law, and if general principles appear inconsistent, they must be considered displaced under AS 45.05.006. Moreover, even where inconsistency does not exist, the code must be regarded as supreme; general principles even when consistent with the code are merely supplementary.

Specific code provisions were available to deal with the present case; they should have been applied. We proceed to do so. ⁶

At the outset, it should be noted that the code does not employ the term 'rescission', a word with numerous non-code meanings, in establishing a buyer's remedial courses of action for a seller's default. ⁷ Other remedies are provided, however, by AS 45.05.214 and AS 45.05.220.

AS 45.05.214 applies when a buyer rightfully rejects ⁸ or revokes acceptance ⁹ of non-conforming goods; under paragraph (a) of this provision 'cancellation' of the contract and restitution of 'so much of the price as has been paid' is available. ¹⁰ This remedy is, in effect, one form of rescission, and a notice of rescission may be given effect as a revocation of acceptance and a cancellation, thus giving effect to the intent of the buyer to terminate the contract within the terminology of the code. ¹¹

The remedies available under AS 45.05.220 are to be distinguished from the rescission type remedy provided by AS 45.05.214. The former applies when a buyer neither rejects nor revokes acceptance of non-conforming goods, but seeks instead to accept them and recover damages for the nonconformity. ¹² Under this provision, a buyer who has accepted goods under AS 45.05.172(a) ¹³ has no remedy at all unless he notifies the sellers of breach within a reasonable time as required by AS 45.05.174(c)(1). ¹⁴ If proper notification is given following acceptance, damages but not cancellation is...