Associates Loan Company v. Walker
76 N.M. 520, 416 P.2d 529 (1966)
Rule of Law:
An assignee of a non-negotiable contract acquires no greater rights than the assignor had and takes the contract subject to all existing equities and defenses, including oral conditions precedent, that the account debtor could assert against the assignor.
Facts:
- Daniel R. Partin, selling water softeners under the name Lindsay Soft Water Company, solicited Earl and Billie Walker, dairy farmers, to purchase a water softener, representing it would increase their dairy herd's milk production.
- Walkers orally agreed with Partin that he would install a water softener on a trial basis, conditional on it actually increasing milk production; if it did, Walkers would buy it, but if not, Partin would remove it without obligation from Walkers.
- At Partin's request, Walkers executed a written "All Goods Retail Installment Contract" for the water softener, stating a purchase price, finance charge, and monthly installments, with title remaining in the seller until fully paid.
- Partin orally agreed with Walkers that he would not assign or transfer the contract to another party.
- Partin subsequently assigned the written installment contract to Associates Loan Company.
- After the water softener was installed on the Walker farm, both Walkers and Partin determined that it did not, and would not, increase milk production as represented.
- Walkers made no payments on the contract to Associates Loan Company.
- Partin, and later Stirman Rivers (who acquired Partin's business), made a number of payments to Associates Loan Company, treating the contract as Partin's obligation, and Rivers eventually removed the water softener from the Walker farm.
Procedural Posture:
- Associates Loan Company (appellant) sued Earl Walker and Billie Walker (appellees) in the trial court (district court) for payment on a written installment contract.
- The trial court found the issues in favor of Walkers and entered judgment against Associates.
- Associates Loan Company appealed the trial court's judgment to the Court of Appeals of New Mexico.
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Issue:
Does an assignee of a non-negotiable retail installment contract take the contract subject to an oral condition precedent agreed upon between the account debtor and the assignor, which stipulates that the contract would only become effective upon the happening of a certain contingency?
Opinions:
Majority - Spiess, Judge
Yes, an assignee of a non-negotiable retail installment contract takes the contract subject to an oral condition precedent agreed upon between the account debtor and the assignor. The court affirmed the trial court's decision, holding that an assignee acquires no greater rights than the assignor possessed. Under the fundamental rule of law, which the Uniform Commercial Code (specifically Section 50A-9-318(1), N.M.S.A., 1953) did not substantially change, all equities and defenses available to a debtor against the assignor are equally available against the assignee. Because Partin and Walkers had orally agreed to a condition precedent—that the contract would only become effective if the water softener increased milk production—and this condition failed, the contract never came into existence as a valid obligation. Consequently, Associates, as the assignee, took the contract subject to this same condition, and Walkers could assert the failure of that condition as a defense against Associates. The court also noted that Associates' arguments regarding the parol evidence rule and estoppel were not raised in the trial court and thus could not be considered on appeal.
Analysis:
This case reinforces the long-standing principle that assignees 'step into the shoes' of their assignors, taking assigned rights subject to all existing defenses and equities, even those arising from oral agreements that establish conditions precedent. This is crucial for protecting debtors from losing valid defenses simply because their contract has been assigned. While the court explicitly states that the UCC did not change this rule, it highlights that the code codified existing common law, ensuring continuity in commercial transactions. This ruling ensures that the enforceability of contracts, particularly those with conditions precedent, remains tied to the original agreement between the primary parties, regardless of subsequent assignments.
