540 N.W.2d 172, 30 UCC2d 206 (S.D. 1995)
In 1984 Lee Decker purchased a repossessed 1975 Peterbilt truck Model 359 from a Minnesota bank.1 The truck had a VIN of 60596P on the Minnesota title, but its rails had been extended and it had previously been wrecked.2 Decker transferred title to South Dakota and rebuilt the truck from the frame up.3
Over nine months in 1989 John Colton drove the truck nearly 100,000 miles while working for Decker.4 In late December 1989 Colton offered to buy the truck for $22,000.5 Decker supplied a signed list of features stating he spent three months rebuilding it from the frame up with 90 percent of the work performed by himself.6 Marquette Bank of Sioux Falls financed the purchase and the South Dakota title transferred to Colton on March 8, 1990.7
On August 22, 1991 Colton was stopped by the Wyoming Highway Patrol near Rock Springs for speeding.8 After noting logbook discrepancies the trooper found the VIN stamped on the right frame rail did not match the registration.9 The truck was impounded and Wyoming authorities disassembled it over nine months, discovering three different VINs including one indicating a glider kit and hand-stamped numbers that did not match the title.10
Wyoming authorities concluded Colton was the true owner.11 A Wyoming court ordered a new title issued upon payment of a $1,000 storage fee.12 Colton borrowed the money from Marquette Bank, paid the fee, and found the truck inoperable after remaining dismantled and unsheltered through the winter.13 He towed it back to Sioux Falls on April 11, 1992.14
Colton stored the truck while seeking a new title, but Marquette Bank refused to surrender the South Dakota title.15 Colton sued Decker alleging breaches of warranty of title, merchantability, and express warranty of description.16 The trial court heard the case on November 4 and 5, 1993 and awarded Colton damages for breach of warranty of title.17 Both parties appealed.18
Whether the trial court erred in holding that Decker breached warranty of title?19
Under SDCL 57A-2-312, a seller warrants that the title conveyed shall be good and its transfer rightful.20 The seller also warrants that 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.21 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 to protect it.22 A colorable challenge to title, regardless of outcome, is sufficient to violate the warranty.23
Yes. Wyoming Highway Patrol officials questioned Colton’s ownership due to contradictory VINs thus casting a colorable challenge to its title.24 This was sufficient for a breach of title warranty claim.25 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.26
Once breach of good title is established, good faith is not a defense nor is a lack of knowledge of the defect.27 As the undisputed facts reveal, Colton was forced into a contest over ownership because of conflicting VINs and an improper title.28
The trial court did not err in holding that Decker breached the warranty of title.29
Whether the trial court erred in its assessment of damages for breach of title warranty?30
Under SDCL 57A-2-714, 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 they had been as warranted, unless special circumstances show proximate damages of a different amount.31 Incidental and consequential damages under SDCL 57A-2-715 may also be recovered, including expenses reasonably incurred in inspection, receipt, transportation, and care and custody of goods.32
Yes. The trial court properly awarded $14,000 for the truck’s diminution in value from $22,000 at impoundment to $8,000 in salvage after the Wyoming winter under the special circumstances provision.33 Towing back to Sioux Falls and attorney fees incurred in Wyoming were reasonable expenses incident to the breach.34 Storage fees of $2,375 after retrieval were unreasonable and not reasonably foreseeable.35 Prejudgment interest was properly awarded only on the readily ascertainable amounts of $4,810.10 and towing costs.36
The trial court erred in part in its assessment of damages for breach of title warranty and the case must be remanded for reassessment of specific damages.37
Related opinions on this issue
Justice Amundson disagreed with the majority’s calculation of damages. The truck was impounded on August 22, 1991, and Colton towed the truck from Wyoming on April 11, 1992.38 Wyoming authorities offered release of the truck in January 1992 if Colton would pay the $1,000 storage fee and forfeit the South Dakota title so that a new Wyoming title could be issued.39 Decker should not be responsible for the diminution in value of the truck between January and April.40
Colton’s proper remedy is recovering this loss from Marquette Bank.41 Forcing Decker to pay for the unreasonable delay caused by Marquette Bank’s actions is unjust.42 Colton had a duty to mitigate his damages, and any damages resulting from his failure to take reasonable steps to mitigate or prevent damages cannot be recovered from Decker.43
Justice Sabers concurred on Issues I, III and IV.44 On Issue II concerning damages, he concurred in result only because it appears that Decker may be paying for Colton’s failure to mitigate his own damages.45
However, Decker has failed to establish that the trial court abused its discretion in awarding damages, except as stated and modified in the majority opinion.46 Sabers therefore concurred in the result on the damages issue while agreeing with the majority on the other issues.47
He noted the potential mitigation concern but found no abuse of discretion beyond the modifications already made.48
Whether Decker breached warranty of merchantability?49
Under SDCL 57A-2-314(1) a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. Merchant status is a question of fact.50
No. Decker was involved in a one-man trucking business which he started in 1980. From time to time he bought and fixed a total of five trucks. The 1975 Peterbilt at issue here he bought and drove for five years before selling it to Colton. The court found Decker was not a merchant and Colton has failed to show how the trial court’s ruling was clearly erroneous.51
Decker did not breach warranty of merchantability.52
Whether Decker breached express warranty of description?53
Under SDCL 57A-2-313, any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.54 A description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.55
No. Colton knew he bought a restored truck and knew the truck’s characteristics before purchasing it.56 He drove it for nine months and almost 100,000 miles while working for Decker.57 After purchasing it he drove it for many months.58 He never made any claim the truck was defective until after he recovered it from Wyoming.59 No evidence established that this truck was anything other than a 1975 Peterbilt Model 359 Tractor.60
Decker did not breach an express warranty of description.61