Klimate-Pruf Paint and Varnish Co. v. Klein Corp. , 1 N.C. App. 431 ( 1968 )

161 S.E.2d 747 (1968) 1 N.C. App. 431

KLIMATE-PRUF PAINT AND VARNISH COMPANY
v.
KLEIN CORPORATION, Max Klein and wife, Sarah Klein.

No. 68SC132.

Court of Appeals of North Carolina.

June 19, 1968.

Moseley & Edwards, Greensboro, for plaintiff appellant.

Falk, Carruthers & Roth, Greensboro, for defendants appellees.

BRITT, Judge.

In its brief, appellant raises two questions: (1) Did plaintiff introduce sufficient evidence to raise a jury question under the theory of a breach of implied warranty of validity? (2) Did plaintiff introduce sufficient evidence to raise a jury question under the express warranty contained in the contract between the parties?

The paragraph of the bill of sale most pertinent to this appeal reads as follows:

"The seller covenants that it has the right to convey the assets and properties set forth above; that the said assets and properties are free and clear of all liens and encumbrances and claims of every nature; and that it will warrant and defend the title to these assets and properties against the lawful claims of all persons whomsoever."

The first question posed by appellant must be answered in the negative.

"There can be no implied warranties when the contract of sale contains express warranties upon the subject." 4 Strong, N.C. Index, Sales, § 6, citing Primrose Petroleum Co. v. Allen, 219 N.C. 461, 14 S.E.2d 402.

The bill of sale set forth in the complaint contains an express warranty from the seller to the buyer (plaintiff) on the subject in controversy in this action; therefore, we hold that in this case there was no implied warranty.

Answering appellant's second question is more difficult, but it too must be answered in the negative.

It is plaintiff's contention that the uncollected accounts constitute a breach of that portion of the bill of sale which reads: "The seller covenants * * * that the said assets and properties are free and clear of all liens and encumbrances and claims of every nature. * * *" With commendable candor, appellant's counsel admit in their brief that the covenant contained in the contract was not a warranty of collectibility as to accounts receivable. Clearly, the two accounts against debtors who filed bankruptcy proceedings fall within this admission and, as to them, nonsuit was proper.

Payment has been refused on the other three accounts on the grounds that the merchandise was defective. Plaintiff argues that this constitutes a breach of the covenant that the "assets and properties are free and clear of all * * * claims of every nature." This requires a construction of those words, and the context in which they were used must be considered.

An examination of the contract of sale indicates that there are three distinct covenants or warranties. First, to borrow a real estate term, there is a covenant of right to convey by which the seller provided assurance that it had sufficient capacity and title to convey the property which it, by its bill of sale, undertook to convey.

Second, there is the covenant or warranty against "liens and encumbrances and claims of every nature." Liens and encumbrances obviously embrace mortgages, tax liens, and the like. Then, without even a comma to break the connotation, follow the words, and claims of every nature. We think the effect of these words was to warrant the title to the property conveyed, including the accounts receivable, against liabilities that might not be considered a lien or an encumbrance, but which would affect or infringe on the title; a possible example would be the violation of the bulk sales statutes. A debtor's right of setoff or counterclaim for defective merchandise cannot be considered as affecting or infringing defendant's title to the accounts receivable.

Third, there is the warranty to defend which relates to the two proceeding sections.

The defenses asserted by the three debtors do not create a lien, encumbrance or claim against the title of the accounts, but rather they relate to collectibility. If the parties intended that the accounts receivable be warranted to be free from any right of setoff or counterclaim, they should have so covenanted. See Warner v. Seaboard Finance Co., 75 Nev. 470, 345 P.2d 759.

The judgment of involuntary nonsuit entered by the Superior Court is

Affirmed.

CAMPBELL and MORRIS, JJ., concur.