No. 13506
I N THE SUPREME COURT OF THE STATE OF MONTANA
1977
MASSEY-FERGUSON CREDIT
CORPORATION, a c o r p o r a t i o n ,
P l a i n t i f f and A p p e l l a n t ,
-vs-
BRUCE BROWN,
Defendant and Respondent.
Appeal from: D i s t r i c t Court o f t h e Tenth J u d i c i a l ,
H o n o r a b l e LeRoy L. McKinnon, J u d g e p r e s i d i n g .
C o u n s e l o f Record:
For Appellant:
L e o n a r d H. McKinney a r g u e d , Lewistown, Montana
For Respondent :
James W i l k i n s a r g u e d , Lewistown, Montana
Submitted: May 26, 1977
JUL
~ecided: eg
Filed:
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Mr. Chief Justice Paul G. Hatfield delivered the Opinion of the
Court.
This is an appeal from an order of the district court,
Fergus County, awarding defendant his counterclaim of $2,450 and
costs of $279.85.
Defendant Bruce Brown is a local farmer and rancher in
the Lewistown, Montana area. Plaintiff Massey-Ferguson Credit
Corporation (M-F) is the assignee of the former Dan Morrison &
Sons, a now defunct Massey-Ferguson implement dealer in the city
of Lewistown.
The original district court action was brought by M-F
against Bruce Brown for a deficiency judgment. Brown answered
and counterclaimed for the price of a combine which plaintiff's
assignor, Dan Morrison & Sons, had taken as a trade-in.
The district court found for M-F. Defendant appealed.
This Court reversed and remanded for consideration of Brown's
counterclaim. Massey-Ferguson Credit Corporation v. Brown,
Mont . , 547 P.2d 846, 33 St.Rep. 314 (1976). On remand the
district court entered judgment for Brown in the amount of $2,450
with interest from August 8, 1972, and for costs in the sum of
$279.85. After denying the motion for new trial and to amend
findings of fact and conclusions of law, the district court cited
Brown saying M-F cannot be considered among those whose protection
is contemplated by section 87A-9-206(1), R.C.M. 1947. M-F ap-
peals from this decision on remand.
The findings of fact by the district court show:
"1. That defendant traded in to Dan Morrison &
Sons an International 141 combine valued at $2,450.00
on a secondhand New Holland 990 combine valued at
$7,700.00 as evidenced by a retail installment con-
tract dated October 1, 1970.
"2. That Dan Morrison & Sons concurrently assigned
the contract to plaintiff, Massey-Ferguson Credit
Corporation.
"3. That Dale K o c ~ ,Massey-Ferguson's Credit
Corporation representative, made certain rep-
resentations to the defendant concerning the
combine, and signed the contract as witness,
giving the plaintiff knowledge of the claims
and defenses which might arise from the con-
tract.
"4. That plaintiff and its assignor failed to
perform the required repair work on the New
Holland 990 combine and thereafter on the 8th
day of August, 1972, took possession of the
combine and thereby repudiated the contract.
"5. That defendant did not recover his trade-in
combine valued at $2,450.00, nor that sum of
money. "
The question on appeal is whether Brown is entitled to
receive from M-F the value of the trade-in over and above being
absolved from making any payments on the contract.
The parties to this appeal are bound by the law of the
case as determined on prior appeal. OtBrien v. Great Northern
R. Co., 148 Mont. 429, 421 P.2d 710. In Brown, 547 P.2d 849,
this Court stated:
"In our view, respondent Massey-Ferguson Credit
Corporation cannot be considered among those
whose protection is contemplated by section
87A-9-206(1). The evidence shows that respon-
dent's representative participated, at least
to some degree, in making the sale by orally
affirming the seller's promises to appellant
buyer. It is clear from the exhibits that the
contract was executed and assigned at about the
same time and upon the same instrument, and
the blank form sales contract employed was in
this case furnished by respondent corporation.
Under these circumstances, it has been held
the assignee does not take the assignment
'without notice of a claim or defense' and is
therefore not entitled to the enforcement pro-
tection provided by section 87A-9-206(1), R.C.M.
1947."
Since the defense of section 87A-9-206(1) is not applicable to
M-F, the remaining question to be determined is to what extent
an assignee is liable to the buyer for claims against the assignor.
3 U.L.A.-U.C.C. S9-318(1) incorporates the general
rule that an assignee of contract rights stands in the shoes
of the assignor and has no greater rights against the account
debtor than the assignor. The assignee is also subject to all
the equities and defenses which could have been raised by the
debtor against the assignor. Farmers Acceptance Corporation
v. DeLozier, 178 Colo. 291, 496 P.2d 1016, 1018. See also the
official comment to section 9-318(1) which states that no sub-
stantial changes are made to prior law. Uniform Laws Annotated,
Volume 3, 9-318. Section 87A-9-318(1) is Montana's incorpor-
ation of this section. Section 87A-9-318(1) provides that the
rights of an assignee. of contract rights. are subject to all
terms of the contract between the account debtor and assignor,
and any defense or claim arising therefrom. The term "claim"
includes set-offs and counterclaims. See DeLozier, 496 P.2d 1018,
where the Colorado Supreme Court, while interpreting a like
statute, concluded that "claim" includes set-offs and counter-
claims. See also Hudson Supply
1 A
& Equipment Co. v. Home Factors
t - 4 - ,
u - - e
Corp.,/210 A.2d 837 (D.Ct.App. 1965).
By virtue of the assignment, M-F was subject to the same
defenses and claims of Brown as would be the assignor, Dan
Morrison & Sons. This Court in Brown determined that the seller
breached its oral contract to Brown, and that this defense could
be applied against the assignee M-F. M-F's rights under this
assignment of the sales contract are subject to claims arising
out of the sales contract.
Plaintiff alleges that he is not liable for the defen-
dant's counterclaim since the transaction, where the assignor
accepted the trade-in, arose between defendant and Dan Morrison
& Sons. Plaintiff cites DeLozier as a correct pronouncement on
the law. In DeLozier, the plaintiff, Farmers Acceptance Cor-
poration (FAC), accepted assignment of the right to monies under
the assignor's contract with DeLozier. When the assignor failed
to perform DeLozier cancelled the contract and sued FAC for the
assignor's indebtedness arising out of the contract. The Colorado
Court resolved this question of claims arising out of the
contract according to the Uniform Commercial Code, 496 P.2d at
" * * * Consequently, FAC was not entitled
to any payments which were made pursuant to the
underlying contract and which were conditioned
upon performance.
"FAC was not, however, obligated to perform the
contract upon Diviney's failure to perform.
Neither was FAC liable for Diviney's indebted-
ness to DeLozier arising out of the contract.
The reason is that an assignee of contract rights
is not subject to the contract or tort liabilities
imposed by the contract on the assignor, in the
absence of an assumption of such liabilities.
C.R.S. 1963, 155-9-317; 6 Am.Jur.2d Assignments
S109.
"In instances such as this, where the assignee
obtains money which the assignor could only
retain upon performance of a contract, the
following rule applies: '[Wlhere the assignor
fails to perform the contract, the assignee
cannot retain mistaken, or even negligent,
payments made to it by the [debtor] unless there
has been a subsequent change of position by the
assignee.bilmore, The Assignee of Contract
Rights and His Precarious Security, 74 Yale L.J.
217, 235, n. 35 (1964-65); see Firestone Tire
& Rubber Co. v. Central Nat'l Bank, 159 Ohio
St. 423, 112 N.E.2d 636 (1953). See also,
Westing v. Marlatt, 124 Colo. 355, 238 P.2d
193 (1951)."
See corresponding Montana sections 87A-9-318(1), 87A-9-317.
While this Court agrees with the general law cited by
the Colorado Court, the case in question is factually distin-
guishable. In DeLozier the assignee, FAC, did not have a close
relationship, nor participate in the transaction with Howard
DeLozier. The only contact FAC had with DeLozier came from
the assignment of the assignor's right to monies under the
contract between DeLozier and the assignor. In Brown, M-F's
representative participated in making the sale by orally affirm-
ing the seller's promises to defendant; the contract was exe-
cuted and assigned concurrently to M-F; the blank form sales
contract employed was furnished by M-F. The Colorado Court
denied the assignee a payment that the debtor had made to it,
but the Court did not order the assignee to make additional
payments due to debtor from the assignor after all set-offs
had been made, nor to perform the contract as the assignor
was obligated to. Under section 87A-9-317, R.C.M. 1947, this
Court agrees with Colorado. In the case at bar the close re-
lationship and participation between the assignor and assignee
requires a departure from the general rule of law.
Under certain circumstances an assignee has been held to
have impliedly assumed the contractual obligations of the
assignor. In Northern Pac. Ry. Co. v. Sunnyside Valley Irr.
Dist., 11 Wash.App. 948, 527 P.2d 693, 694, the Washington Court
considered all facts pertaining to the conduct of the assignee:
" * * * While there is no express assumption of
the underlying agreement, a consideration of all
the facts compels the inference that the defen-
dant assumed the conditions of the permit. McGill
v. Baker, 147 Wash. 394, 266 P. 138 (1928). * * *
The defendant argued that it had not assumed any
of the duties of the dissolved corporation and
that it was not an assignee under the contracts
containing the indemnity agreements. In answer,
the court stated:
"A third person may, of course, assume the obli-
gation expressly in writing, or he may do so by
implication where his conduct manifests an intent
to become bound * * *.In the latter event all the
circumstances must be considered, such as the sub-
ject matter of the contract, the third person's
acts and words, whether he acquiesced in the terms
of the contract, performed its obligations, or
accepted its benefits."
In Thompson v. Lincoln Ins. Co., 114 Mont. 521, 530, 138 P.2d
951, this Court reached the same conclusion:
"The dissent perforce admits the undeniable rule
that the assignment of a contract does not ordinarily
operate to cast the contract liabilities upon the
assignee in the absence of an assumption thereof by
him. The dissent further says, what is obvious, that
the assignee may assume the assignor's liabilities,
that under certain circumstances and conduct the law
will imply such assumption, and that he may not
enforce the contract without performing its terms.
* * *"
The facts and circumstances surrounding M-F's acceptance of
Brown's contract put M-F in the position of more than a mere
assignee accepting rights to monies under a sales contract.
The ability of a court to consider all facts and circum-
stances is given support by the Kentucky court in Massey-
Ferguson v. Utley, (Ky. 1969), 439 S.W.2d 57, 59:
"However, Massey-Ferguson maintains that a
breach of any implied warranty made by the
dealer cannot be asserted against Massey-
Ferguson as assignee of the sales contract
* * *.
"In a substantial number of cases, annotated
in 44 ALR2d 8 @ 157 to 161, it was held that
a manufacturer to whom a dealer had assigned
commercial paper was not a holder in due course.
As indicated in the annotation, it appears
that in most of the cases the circumstances
were held to warrant a conclusion that the
manufacturer was the real vendor in the trans-
action. The circumstances most frequently
held to be significant were (1) a manufacturer's
representative assisted or participated in the
sale by the dealer, and (2) the manufacturer's
course of dealing was for it to furnish blank
sales contracts to its dealer, and for the
dealer to immediately and routinely assign the
contract to the manufacturer as soon as a sale
was made.
"In the instant case the evidence was that a
factory representative visited Utley with the
dealer and participated in making the sale.
Also, that Massey-Ferguson followed the course
of dealing above described as to supplying blank
forms and receiving immediate and routine
assignments. So we have present here the two
circumstances most frequently relied upon by
other courts as a basis for holding the manu-
facturer-assignee not to be a holder in due
course.
"It is our opinion that under the circumstances
of this case Massey-Ferguson cannot be considered
to be within the class of those who are protected
by the covenant against assertion of defenses, at
least as to the defense of breach of an implied
warranty of fitness. We base our conclusion on
the proposition that Massey-Ferguson's conduct
put it in the status of a 'seller' and that its
status as a 'seller' outweighs its status as an
'assignee,' as those terms are used in KRS 355.9-
206 and were used in the contract. It should not
be accorded the protection of an assignee
against defenses that derived from its actions
as a seller."
Utley was cited by this Court in Brown, 547 P.2d at 850. The
facts of this case in question are similar to Utley. M-F's
representative participated in the sale, M-F furnished the blank
sales contract, and M-F received the concurrently executed and
assigned contract. Based on Sunnyside Valley Irr. Dist. and
Utley, the district court, in looking at the facts and circum-
stances of the transaction, did conclude that M-F was acting
as more than a mere assignee and impliedly accepted the obliga-
tions of its assignor.
The plaintiff looks to the pre-code situations in Montana
for support to limit his liability. Apple v. Edwards, et al.,
92 Mont. 524, 16 P.2d 700. Apple, as discussed in 87 A.L.R. 179,
shows that in an action by an assignee of a conditional sales
contract, the breach of the contract, occurring after assignment
and notice thereof, might be shown by way of recoupment. The
account debtor's right to claim damages existed at the time the
contract was made and continued as a defense against the assignee.
Apple is factually distinguishable in the same manner
as was DeLozier. No close relationship nor participation between
the assignor and the assignee was present. The false and fraud-
ulent representations relied on by defendant for rescission of
the contract arose during dealings with the assignor. The facts
show that when defendant became aware of the falsity of the
assignor's representations, he also learned of the assignment
to plaintiff. Plaintiff had not participated in the formation
of the contract between the assignor and defendant, nor was any
close relationship shown between plaintiff and the assignor.
In the case at bar, the close relationship and partici-
pation between the assignor and assignee put M-F on notice of the
claims which might arise. Due to this knowledge and partici-
pation, M-F was vulnerable to defendant's counterclaim.
This Court is confronted with a situation similar to
that faced by the Supreme Court of Texas. Dallas Farm Machinery
Company v. Reaves, 158 Tex. 1, 307 S.W.2d 233. The facts are
similar, except that in Reaves, the plaintiff was the implement
seller suing on the installment sales contract. M-F and Dallas
Farm Machinery Company are similar in that, according to the
criteria of Utley, M-F is more a seller than an assignee and
from Brown, M-F is without the protection of section 87A-9-206(1).
In Reaves the Texas Supreme Court allowed the defendant
to recover the value of the trade-in tractor and rescinded the
contract due to plaintiff's fraudulent representations and induce-
ment. Reaves, though a pre-code Texas case, is relied on today
for authority. See Robert v. Sumerour (Tex. 1976) 543 S.W.2d
890; Johnson v. Buck (Tex. 1976) 540 S.W.2d 393.
Plaintiff also submits that the counterclaim is not a
proper claim against M-F and that there is no basis to afford
Brown relief. This claim is without merit. Plaintiff is an
assignee. An assignee stands in the shoes of the assignor and
is liable for the claims arising out of the contract. Under
these particular facts, M-F is more than a mere assignee.
The Court agrees with the handling of the claim against
the assignee in DeLozier. Section 87A-9-317 would control in
the normal case. As has been established, this case requires an
exception to the general rule as a result of M-F's representative
orally affirming the seller's promises and participating in the
sale. Had M-F not taken the assignment under these circumstances,
participation in the sale and knowledge of the seller's obliga-
tions, the assignee would not be obligated to perform the contract
upon the assignor's failure to perform, nor liable for the
assignor's indebtedness arising out of the contract. Had M-F
not taken the assignment under these circumstances, section 87A-
9-317 would have applied. Brown's recourse would have then been
against the assignor for the indebtedness arising out of the
contract. This was not the case.
The judgment of the district court is affirmed. The
defendant may recover from M-F the value of the trade-in over
and above being absolved from making any payment on the contract.
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Chief Justice
C