Opinion ID: 1139609
Heading Depth: 1
Heading Rank: 6

Heading: The Chicago Pneumatic Drill

Text: When M & M purchased the Drill Tech drill from Simmons, it received a credit of $41,000.00 toward the purchase price by its trade-in of a Chicago Pneumatic drill. Simmons subsequently attempted to sell the trade-in drill at auction. First Western Bank advised Simmons that it had an unsatisfied security interest in that drill. Subsequently, First Western Bank acknowledged to Simmons that it had authorized the trade-in of the drill and consequently it was claiming no interest in it. Simmons filed a counterclaim against M & M for breach of warranty of title under Code 1975, § 7-2-312. At the close of evidence, the trial court granted M & M's motion for a directed verdict in its favor on Simmons's counterclaim. Simmons appealed and argues that the granting of the directed verdict was erroneous. We disagree. Code 1975, § 7-2-312, provides in pertinent part: (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. (Emphasis added.) At trial Simmons's vice-president and general manager, William Brogdon, testified on direct examination to the following: Q. Did you have any conversation with either Mr. McDonald or Mr. McLellan before the transaction was closed about the condition of the title of that drill that was being traded in? A. Yes, sir, I spoke to both of them at the same time. Q. What did they tell you about the condition of title of that drill at the time? A. They informed me that there was a mortgage on the drill, but that they would take care of it. Q. Did they tell you who the mortgage was with? A. Not at the time, no, sir. On cross-examination M & M's attorney elicited the following testimony from Brogdon: Q. You are telling us, these ladies and gentlemen of the jury, that these two men came in and told you they wanted to buy a new drill and were going to trade in an old drill and it had a mortgage on it and you didn't even ask them who the mortgage was with? A. No, sir, I relied on their good faith. Q. My question is, you did not ask them who the mortgage was with? A. No, sir. Brogdon's testimony clearly establishes that Simmons had knowledge of a lien or encumbrance on the Chicago Pneumatic drill. The Official Comment to § 7-2-312, notes that The `knowledge' referred to in subsection 1(b) is actual knowledge as distinct from notice. There can be no doubt that Simmons had actual knowledge of the existence of a lien or encumbrance on the Chicago Pneumatic drill at the time of the transaction. Because of that knowledge, Simmons cannot complain that it later had difficulty with its title to the trade-in drill. The trial court properly directed a verdict in favor of M & M on Simmons's counterclaim.