Hagerty Ins. Agency, LLC v. Luxury Asset Capital, LLC

536 P.3d 346

2023 COA 57

HAGERTY INSURANCE AGENCY, LLC, as subrogee of Robert W.J. Mortenson; and Robert W. J. Mortenson, Plaintiffs-Appellees,

v.LUXURY ASSET CAPITAL, LLC, a foreign limited liability company, Defendant-Appellant.

Court of Appeals No. 22CA0916

Colorado Court of Appeals, Division V.

Announced June 22, 2023

Rehearing Denied August 10, 2023

Dworkin, Chambers, Williams, York, Benson & Evans, P.C., Steven York, Sean O'Brien, Denver, Colorado, for Plaintiffs-Appellees

Campbell, Killin, Brittan & Ray, LLC, Bruce Rohde, Margaret Pfluegar, Denver, Colorado, for Defendant-Appellant

Opinion by JUDGE NAVARRO

¶ 1 Defendant, Luxury Asset Capital, LLC (Luxury Asset), appeals the judgment entered in favor of plaintiffs, Hagerty Insurance Agency, LLC (Hagerty) and Robert W.J. Mortenson, on Mortenson's breach of contract claim and Hagerty's equitable subrogation claim. We affirm in part, reverse in part, and remand for further proceedings. In doing so, we hold, as a matter of first impression in Colorado, that contractual language announcing that a good is sold "as is" and without any express or implied warranties is not sufficient to exclude the warranty of title imposed by section 4-2-312, C.R.S. 2022.

I. Procedural History and Summary of Holding

¶ 2 In January 2019, Luxury Asset, a pawnbroker doing business in Colorado, provided a loan to Kathryn Lee Thompson secured by a 2015 Rolls Royce. When Thompson pawned the car, Luxury Asset took possession of it but agreed that she could reclaim it by paying a certain sum in a timely fashion. After Thompson failed to make the required payments, Luxury Asset advertised the car for sale online.

¶ 3 Mortenson responded to the advertisement and negotiated purchase of the car with Richard Shults, Luxury Asset's Chief Underwriting Officer. After agreeing on a purchase price of $127,000, Mortenson paid to transport the car to Nevada, where he resided. Shults went to Nevada to complete the transaction, including transferring title of the car to Mortenson.

¶ 4 In February 2020, the Nevada Department of Motor Vehicles (DMV) informed Mortenson that the vehicle identification number (VIN) on the car was forged and a search using the authentic VIN from the car's on-board computer revealed that the car was stolen. The car was impounded and never returned to Mortenson. The car had been insured under a policy issued by Hagerty, which paid Mortenson the policy limit of $50,000.

¶ 5 Mortenson sued Luxury Asset for breach of contract (specifically, for breach of the warranty of good title), promissory estoppel, negligence, negligent misrepresentation, and negligence per se. Hagerty brought a claim for equitable subrogation against Luxury Asset.

¶ 6 After discovery, the parties filed motions for partial summary judgment. The district court granted Mortenson's motion and denied Luxury Asset's motion. The court decided, as matters of law, that (1) Luxury Asset had not disclaimed the statutorily imposed warranty of title by specific language, and (2) the warranty had not been disclaimed by the circumstances of the transaction. Therefore, the court granted summary judgment for Mortenson on his breach of contract claim and for Hagerty on its equitable subrogation claim. The court denied Luxury Asset's motion for summary judgment on Mortenson's remaining claims, and those claims have since been dismissed pursuant to the parties’ stipulation.

¶ 7 Luxury Asset appeals the grant of summary judgment in favor of Mortenson and Hagerty. We conclude that, although the district court was correct that the warranty of title was not excluded by specific language, disputed issues of material fact remain as to whether the warranty was excluded by the circumstances. Hence, we affirm the summary judgment in part and reverse it in part.

II. Exclusion of Warranty of Title by Specific Language

¶ 8 Luxury Asset first argues that the grant of summary judgment in favor of plaintiffs was improper because specific language in the bill of sale between Luxury Asset and Mortenson excluded the warranty of title imposed by law. Like the district court, we disagree.

A. Standard of Review and Preservation

¶ 9 Summary judgment is appropriate if the pleadings and supporting documents establish that no genuine issue of material fact exists and judgment should be entered as a matter of law. Doe v. Wellbridge Club Mgmt. LLC , 2022 COA 137, ¶ 12, 525 P.3d 682 ; C.R.C.P. 56(c). We review de novo a summary judgment ruling. Doe , ¶ 12. We also review de novo any questions of statutory interpretation. Coyle v. State , 2021 COA 54, ¶ 10, 492 P.3d 366.

B. Relevant Facts

¶ 10 The bill of sale for the car¹ contains the following language:

The sale and transfer of this motor vehicle is made on "AS IS" basis, without any express or implied warranties, with no recourse to the Seller. The Buyer has been given the opportunity to inspect, or has inspected, the vehicle described above and agrees to purchase it in its existing condition.

When granting plaintiffs’ motion for partial summary judgment, the district court decided that this "as is" language applied only to the car's physical condition and, therefore, did not disclaim any warranty of title.

C. Foundational Law

¶ 11 Colorado has adopted the Uniform Commercial Code (UCC), see § 4-1-101(a), C.R.S. 2022, and section 4-2-312 of the UCC governs the warranty of title for the sale of goods. As pertinent here, section 4-2-312 provides as follows:

(1) Subject to subsection (2) of this section, 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) of this section 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.

Because this section is based on a uniform act, we may consider, when construing this section, authorities from other jurisdictions that have also adopted the act. See § 4-1-103(a)(3), C.R.S. 2022 (explaining that the UCC must be construed to promote its underlying purposes, one of which is "[t]o make uniform the law among the various jurisdictions"); West v. Roberts , 143 P.3d 1037, 1041-42 (Colo. 2006) (construing the UCC and recognizing that "[w]hen a Colorado statute is patterned after a model code, this court may draw upon outside authority in interpreting the provision").

¶ 12 Article 2 of the UCC is "generally applicable to problems arising from transactions involving transfer of automobile ownership." Hudson v. Gaines , 199 Ga.App. 70, 403 S.E.2d 852, 853 (1991) (citation omitted). In particular, the UCC section on which section 4-2-312 is modeled has been interpreted "to extend liability to a seller who sells a stolen car." Marvin v. Connelly , 272 S.C. 425, 252 S.E.2d 562, 563 (S.C. 1979). Moreover, the seller need not be a merchant, and the seller is not saved by their ignorance of the defect in the title. Id. ; see Colton v. Decker , 540 N.W.2d 172, 176 (S.D. 1995) ("Once breach of good title is established, good faith is not a defense, nor is a lack of knowledge of the defect."). In other words, even though the seller may have acted innocently in the sale of a car that turned out to be stolen, the seller may be liable to the buyer for breach of warranty of title. See Crook Motor Co. v. Goolsby , 703 F. Supp. 511, 520 (N.D. Miss. 1988).

D. Application

¶ 13 Luxury Asset argues that the "as is" language in the bill of sale excluded the warranty of title imposed by statute. Luxury Asset asserts that " ‘as is’ has been the ‘go to’ language for sellers when they want to make it clear to the buyer that ‘what you see is what you get’ for generations." Whether the warranty of title imposed by section 4-2-312 can be excluded by "as is" language in a contract appears to be a matter of first impression in Colorado. We conclude that such "as is" language is not sufficient to exclude the warranty of title.

¶ 14 According to comment 6 to section 4-2-312, which the UCC drafters authored and our legislature adopted, the warranty of title "is not designated as an ‘implied’ warranty, and hence is not subject to Section 2-316(3) [of the UCC]. Disclaimer of the warranty of title is governed instead by subsection (2), which requires either specific language or the described circumstances." § 4-2-312 cmt. 6. Comments to a uniform law that are adopted by our legislature are pertinent to construing the statute modeled on the uniform law. See West , 143 P.3d at 1041 ("Comments to a statute are relevant in its interpretation."); In re Estate of Runyon , 2014 COA 181, ¶ 12, 343 P.3d 1072 (considering a uniform act's comment that was adopted by the legislature); see also Copper Mountain, Inc. v. Poma of Am., Inc. , 890 P.2d 100, 106 (Colo. 1995) ("Without more, we accept the intent of the drafters of the uniform law as that of our own General Assembly by its verbatim enactment of the uniform act provision.").

¶ 15 Our legislature incorporated section 2-316(3) of the UCC into section 4-2-316(3), C.R.S. 2022. Section 4-2-316(3)(a) provides that, unless the circumstances indicate otherwise, "all implied warranties are excluded by expressions like ‘as is’ ... or other language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty."

¶ 16 Considering these various provisions together, it is clear that "as is" language is not sufficient to exclude the warranty of title imposed by section 4-2-312(1). The purpose of noting in comment 6 to section 4-2-312 that this warranty is not an implied warranty is to emphasize that language commonly used to exclude an implied warranty—such...