Sumner v. Fel-Air, Inc., FEL-AI

Decision Date16 March 1984
Docket NumberINC,No. 5487,FEL-AI,5487
Citation680 P.2d 1109
Parties38 UCC Rep.Serv. 91 William SUMNER d/b/a Aviation Alaska, Appellant, v., Appellee.
CourtAlaska Supreme Court

Frederick W. Ledbetter, Coryell & Ledbetter, Anchorage, and Edgar Paul Boyko, Boyko, Davis & Dennis, Anchorage, and George E. Weiss, George E. Weiss & Associates, Anchorage, for appellant.

Charles K. Cranston, Cranston, Walters & Dahl, Anchorage, Thomas H. Dahl, Anchorage, for appellee.

Before BURKE, C.J., and RABINOWITZ, MATTHEWS and COMPTON, JJ.

OPINION

RABINOWITZ, Justice.

This appeal arises from a dispute over the sale of a Piper Navajo airplane by William Sumner, an Anchorage commercial aircraft dealer, to Fel-Air, Inc., a Barrow air taxi operator. In March 1976, Sumner and Fel-Air orally agreed to the basic terms of the sale, including the purchase price of $105,000.00. Sumner was to receive a Piper Aztec aircraft valued at $30,000 as a downpayment on the Navajo. Fel-Air was to remit the $75,000 balance of the purchase price in monthly installments of $2,000. Interest on the unpaid balance was to accrue at a rate of 12%. These terms were confirmed in a March 31, 1976, letter from Fel-Air's general manager to Sumner.

The Navajo was delivered to Fel-Air in April 1976. Sumner received the Aztec as a downpayment in accordance with the parties' agreement. The Navajo began to experience mechanical difficulties and was taken to Seattle Flight Service for repairs in the early summer of 1976. Two months later, after paying a repair bill of $20,000, Fel-Air regained use of the airplane.

Fel-Air sent the Navajo back to Seattle for repairs in October 1976. Two months later, while the plane was still in the custody of Seattle Flight Service, the president of Century Aircraft, Inc. informed Fel-Air that title to the Navajo was held by Century rather than by Sumner. Century's president had also told Seattle Flight Service that Century owned the aircraft. Sumner's interest in the Navajo was that of a lessee with an option to purchase. 1 After the discovery that Century was the record owner of the Navajo, Seattle Flight Service filed a mechanic's lien against the Navajo for unpaid repair bills.

Fel-Air asserted that it telephoned Sumner in December 1976 and requested either a conditional sales contract or bill of sale which would provide the Federal Aviation Administration with a record of Fel-Air's authority to operate the Navajo, or a full refund of payments made to date on the Navajo, including return of the Aztec. Fel-Air contended that Sumner assured it that the contract would be prepared within three days. Sumner testified that he did not remember such a conversation.

In May of 1977, Fel-Air ceased making monthly payments on the Navajo. On May 10, 1978, Sumner sent a telegram to Fel-Air demanding satisfaction of the lien Seattle Flight Service had filed and payment of monthly installments then due. Fel-Air did not respond. Sumner discharged the $8,000 lien himself and had the plane flown back to Anchorage.

Sumner arranged to have the Navajo's documents of title held in escrow to assure Fel-Air that it would receive title upon payment of the balance of the purchase price and upon compensation of Sumner for payments made to satisfy the Seattle Flight Service lien. On August 3, 1977, the escrow arrangement was completed. The balance then due on the aircraft, including the payment made to discharge the mechanic's lien, was $64,936.47.

Fel-Air subsequently filed suit against Sumner, alleging Sumner had breached implied warranties of merchantability and title and that he was liable to Fel-Air for fraud and misrepresentation. Sumner denied these claims and alleged that Fel-Air had abandoned the Navajo, requested that consideration paid by Fel-Air be deemed an offset for rent owed to Sumner for use of the Navajo, and filed a counterclaim for the $8,000 he had paid to discharge the lien.

The case was tried to the superior court sitting without a jury. The court rejected Fel-Air's claims for breach of the warranty of merchantability and negligent and intentional misrepresentation. However, it concluded that Sumner had breached a warranty of title to the aircraft and awarded Fel-Air $51,166.82 in damages. This sum represented the value of the Aztec used as a downpayment ($30,000), and $21,700 in monthly payments made by Fel-Air to Sumner, less the $533.18 expense of transporting the plane back to Alaska saved by Fel-Air as a result of the breach. Pre-judgment interest accruing at 8% per annum from February 1, 1977, to May 1, 1980, was also awarded, and totaled $13,300.16. Judgment against Sumner was entered for $64,466.98. Fel-Air was also awarded costs and attorney's fees. This appeal followed. 2

BREACH OF WARRANTY OF TITLE

Title 45 of the Alaska Statutes adopts Article 2 of the Uniform Commercial Code 3 as the applicable law of sales in Alaska. 4 Under AS 45.02.312, 5 an implied warranty of title accompanies the sale of goods in Alaska. 6 It may expressly be disclaimed. A focal point of the parties' dispute is whether Sumner excluded or modified by specific language the warranty of title. Sumner does not claim that he had good title to the Navajo, but rather alleges that he informed Fel-Air that he leased, but did not own, the Navajo. Fel-Air denies that it was so informed.

The superior court specifically found that Sumner did not inform Fel-Air prior to the sale that he had neither title to the Navajo nor the right to sell it, and that the circumstances surrounding the transaction did not give Fel-Air any reason to know that Sumner did not claim title to the plane in himself. The court concluded that Sumner had therefore breached the warranty of title imposed by AS 45.02.312.

Sumner concedes that the superior court's conclusion that there was no express or implied disclaimer of the AS 45.02.312 warranty was a finding of fact which may be reversed only if clearly erroneous. Alaska R.Civ.P. 52(a); 7 Uchitel Co. v. Telephone Co., 646 P.2d 229, 233 (Alaska 1982); Strack v. Miller, 645 P.2d 184, 186 (Alaska 1982). In the case at bar, the superior court's factual finding was based upon an assessment of the credibility of conflicting testimonial evidence. We have observed that "[i]t is the trial court's function, and not that of a reviewing court, to judge the credibility of the witnesses and to weigh conflicting evidence. This is especially true where the trial court's decision depends largely upon oral testimony." Penn v. Ivey, 615 P.2d 1, 3 (Alaska 1980) (citations omitted). Thus, particular deference must be accorded to the superior court's finding that Sumner did not disclaim the AS 45.02.312 warranty of title. After review of the entire record before us, and guided by these principles of appellate review, we conclude that the superior court's finding that an implied warranty of title accompanied the sale of the Navajo must be upheld. The question now becomes whether or not Sumner breached that warranty. 8

Since Sumner did not have good title to the plane when he purported to convey it to Fel-Air, the answer to this question may seem obvious. Yet both parties agree that Century "entrusted" the plane to Sumner within the meaning of AS 45.02.403. 9 Under the UCC a merchant to whom goods have been entrusted may give a buyer a better title than the merchant himself possessed. To quote AS 45.02.403(b):

An entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in ordinary course of business.

Because Sumner had possession of the Navajo and was a dealer in airplanes, he had the power to transfer all of Century's rights, including its good title to the airplane. Given the facts as the parties have presented them, Fel-Air could have defeated any attempt by Century to regain possession of the Navajo.

It does not follow from the fact that the parties now agree that Fel-Air's title was good that Sumner did not breach the implied warranty of title. This question has divided the commentators. Compare 1 Anderson, Uniform Commercial Code § 2-312:36 (3d ed. 1982) (warranty not breached) with 1 Alderman, A Transactional Guide to the Uniform Commercial Code § 1.53-52 (2d ed. 1983) (warranty breached, seller should have chance to cure). Alderman emphasizes the full text of UCC 2-312(a)(1), which provides:

(a) Subject to (b) of this section there is in a contract for sale a warranty by the seller that (1) the title conveyed shall be good, and its transfer rightful.

AS 45.02.312(a) and (a)(1) (emphasis added). As Alderman states, the entrustee's "wrongfulness (lack of right) in making the conveyance ... is unquestionable, for the transfer of title [is] not made pursuant to any 'right' ". Alderman, supra, at 266-67. Here Sumner's lease-purchase arrangement with Century did not authorize him to transfer title to Fel-Air. The transfer he made to Fel-Air was wrongful, and thus we conclude that the warranty UCC 2-312(a)(1) establishes was breached.

Wright v. Vickaryous, 611 P.2d 20 (Alaska 1980), supports this conclusion. Wright suggests that a court attempting to determine whether or not a warranty of title was breached must consider the facts as they appeared to the buyer at the time title was called into question. If a reasonable buyer would conclude that "marketable title" had not been conveyed to him, the seller--assuming that he does not save the transaction by showing that the facts are not what the buyer believes them to be--has breached the warranty of title. A "substantial shadow" on title is enough to justify the buyer's refusal to proceed with his contractual performance. 10 Similarly in the instant case the revelation of Century's interest in the Piper Navajo cast such a shadow on the transaction between Sumner and Fel-Air.

To dispel a similar shadow, the buyer in Wright would have had to call all the people he believed to be lienholders; had he...

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