Delacy Investments, Inc. v. Thurman & Re/Max Real Estate Guide, Inc.
693 N.W.2d 479 (2005)
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Rule of Law:
Under UCC § 9-404, an assignee's right to an account receivable is subject to all terms of the agreement between the account debtor and the assignor. An assignee cannot obtain greater rights to payment than the assignor possessed under the original contract.
Facts:
- Steven Thurman, a real estate agent, entered into a master agreement with Delacy Investments, Inc. (CE), assigning his future commissions to CE in exchange for immediate funds and granting CE a security interest.
- Thurman subsequently entered into an independent-contractor agreement with Re/Max Real Estate Guide, Inc. (Re/Max).
- This agreement stipulated that Thurman was only entitled to commission payments that exceeded any past-due financial obligations he owed to Re/Max.
- CE and Thurman later entered into a specific agreement for CE to purchase a $10,000 commission Thurman was expected to earn from the sale of the Keller Lake property.
- Re/Max terminated Thurman for poor performance at a time when he owed Re/Max $11,126.38 in overhead debts.
- When the Keller Lake commission became payable, Re/Max refused to pay CE and instead applied the commission funds to Thurman's outstanding debt, as permitted by its contract with Thurman.
Procedural Posture:
- Delacy Investments, Inc. (CE) filed a complaint against Re/Max Real Estate Guide, Inc. in district court to recover the assigned commission.
- Re/Max answered the complaint and filed a counterclaim against Steven Thurman.
- Both CE and Re/Max moved for summary judgment in the district court.
- The district court denied CE's motion for summary judgment and granted summary judgment in favor of Re/Max.
- CE, as the appellant, appealed the district court's grant of summary judgment to the Court of Appeals of Minnesota.
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Issue:
Does an assignee's right to an account receivable take precedence over an account debtor's contractual right to setoff debts owed by the assignor, when that right is part of the original agreement between the account debtor and assignor?
Opinions:
Majority - Judge Halbrooks
No. An assignee's right to an account receivable does not take precedence over an account debtor's contractual right of setoff that arises from the very agreement creating the receivable. The court's reasoning is grounded in the plain language of Minn. Stat. § 336.9-404(a)(1), which states that an assignee's rights are subject to 'all terms of the agreement between the account debtor and assignor.' The agreement between Re/Max (the account debtor) and Thurman (the assignor) made Thurman's right to a commission contingent upon his debts to Re/Max being paid first. The court affirmed the 'black-letter law' principle that an assignee stands in the shoes of the assignor and cannot acquire greater rights than the assignor possessed. Because Thurman's debts exceeded the commission, he had no right to payment from Re/Max. Consequently, CE, as the assignee, also had no right to the payment. The timing of the notice of assignment is irrelevant under subsection (a)(1) because Re/Max's claim arose from the same contract that created the receivable, not from a separate transaction.
Analysis:
This decision reinforces the fundamental principle of assignment law that an assignee's rights are derivative of the assignor's rights. It clarifies the application of UCC § 9-404, emphasizing that parties who purchase accounts receivable (factors like CE) bear the risk of any defenses or claims arising from the underlying contract. The ruling protects account debtors by allowing them to enforce the original terms of their bargains, even against third-party assignees. For future cases, this decision solidifies that a contractual right of setoff or recoupment, when integral to the agreement creating the receivable, will defeat the claim of an assignee, regardless of whether the account debtor had prior notice of the assignment.
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