Fairfield Credit Corp. v. Donnelly

• Decision Date: 09 December 1969
• Citation: 158 Conn. 543,264 A.2d 547,39 A.L.R.3d 509
• Court: Connecticut Supreme Court
• Parties: , 39 A.L.R.3d 509, 7 UCC Rep.Serv. 4 FAIRFIELD CREDIT CORPORATION v. John E. DONNELLY et al.

Page 547

264 A.2d 547

158 Conn. 543, 39 A.L.R.3d 509, 7 UCC

Rep.Serv. 4

FAIRFIELD CREDIT CORPORATION v. John E. DONNELLY et al.

Supreme Court of Connecticut.

Dec. 9, 1969.

Frank J. McIntosh, Groton, with whom, on the brief, was Robin W. Waller, Groton, for appellants-appellees (defendants).

William B. Rish, Bridgeport, with whom was Grove W. Stoddard, Bridgeport, for appellee-appellant (plaintiff).

Before KING, C.J., and ALCORN, HOUSE, THIM and RYAN, JJ.

KING, Chief Justice.

This controversy arises out of a retail sales instalment contract providing for the sale of a color television set by D.W.M. Advertising, Inc. (hereinafter referred to as D.W.M.) to the defendants John E. and Mary E. Donnelly and D.W.M.'s assignment of its rights under that contract to the plaintiff, the Fairfield Credit Corporation.

In January, 1965, the defendants were approached by a friend who arranged for a salesman of D.W.M. to meet with the defendants. Shortly thereafter, one of D.W.M.'s salesmen went to the defendants' home and discussed with them a plan whereby the defendants could 'make extra money' by promoting the sale of color television sets for D.W.M.

After persuading the defendants to agree to enter into the plan, the salesman told them that in order to join the program they would have to sign a retail sales instalment contract, hereinafter referred to as the instalment contract, for the purchase of a television set from D.W.M. at a total price of $1210.95. The defendants would then be entitled to participate in a program whereby they would arrange for meetings between salesmen of D.W.M. and potential customers. The defendants were to receive $50 for each person they referred who enrolled in the program, and, if a person so referred in turn enrolled another in the program, the defendants would receive an additional $50. This scheme is known in the trade as a 'two-step referral system'. In addition, the defendants were given three 'Bonus Appointment Guarantees' each of which guaranteed that the defendants would receive $400 for each group of twenty names submitted of persons who would allow a presentation of the program by D.W.M., even though these people did not join in the program. The defendants also received a contract, hereinafter referred to as a service contract, wherein D.W.M. guaranteed the television set and agreed to supply all parts and labor necessary to maintain the television set for a period of one year beginning on the date of delivery, which was January 30, 1965.

The instalment contract consisted of a blank form provided to D.W.M. by the plaintiff, which D.W.M. filled out and had the defendants sign. The defendants filled out a credit application on a form supplied by the plaintiff. After an investigation, the plaintiff approved their credit and so notified D.W.M. Thereupon D.W.M. deliversed the television set to the defendants and so notified the plaintiff. The plaintiff then called the defendant John E. Donnelly on the telephone, confirmed the fact that the set had been delivered, and ascertained from him that the television set was working properly. The plaintiff then accepted the assignment of the instalment contract.

The defendants made two payments to the plaintiff under the instalment contract and, on the advice of their attorney, made no further payments. After the defendants ceased making payments, the plaintiff instituted suit as assignee of the instalment contract. The defendants pleaded a number of special defenses, including a breach of the service contract. The court found that the instalment contract was unconscionable as to sales price only and adjudged that the plaintiff recover only the reasonable value of the television set which, with financing charges, came to $941.85. From this judgment both the defendants and the plaintiff have appealed.

Because of the view we take of this case, only one of the defendants' special defenses need be considered, and that is the claim that D.W.M. breached the service contract and that this breach excused the defendants from further payments on the instalment contract.

The facts in the finding giving rise to the breach of the service contract are not attacked. The defendants were given the service contract at the time of delivery of the set. Three times within the two weeks following the delivery of the set it required service which was provided by D.W.M. When the set required further service, in March, 1965, however, the defendants were unable to get in touch with D.W.M. They did succeed in reaching the plaintiff but were told that it did not know how to reach D.W.M., and, although the defendants did reach 'someone' from D.W.M. through the New Haven Better Business Bureau, they received no service and were unable to reach D.W.M. again. D.W.M. disappeared, and its corporate existence was dissolved the next year for failure to file its annual report. The plaintiff had discontinued financing D.W.M.'s contracts, and this in turn had caused D.W.M. to cease its selling operations in late February or early March, 1965. Thereafter the defendants had the set repaired a number of times by a local repairman but finally abandoned attempting to use it. By that time the service contract had expired.

The trial court found the foregoing facts but concluded only that '(t)he defendants failed to prove their special defense as to invalidity of the television service contract'. The defendants' claim of breach of the service contract, however, was not a claim that the contract was invalid. Rather, the claim depends on the very validity of that contract since no one can breach an 'invalid' contract. Thus, the meaning of the court's conclusion is unclear, but whatever the court had in mind, the only reasonable conclusion which can be reached on the foregoing subordinate facts in the finding was that D.W.M. breached the television service contract. Indeed there is no support in the facts as found for any other conclusion, and such a conclusion must be drawn as a matter of law.

The more difficult question and the question to which the parties especially direct their attention in the briefs is whether this breach by D.W.M. excess the defendants from their obligation to make payments to the plaintiff on the instalment contract. The service contract, although contained in a separate writing, is not independent of the instalment contract. The parties did not assent to the two contracts separately but treated them as a single whole. See 6 Williston, Contracts (3d Ed.) § 863. The service contract was delivered with the television set and is supported by the same consideration as is the instalment contract, that is, the defendants' promise, made in the instalment contract, to pay $1210.95. The plaintiff had actual knowledge of the existence of the service contract and makes no claim that it was misled by the fact that the service contract was not referred to in the instalment contract. D.W.M., had there been no assignment to the plaintiff, could not have enforced the instalment contract in the face of its material breach of the service contract, which, as already set forth, was inextricably connected with the instalment contract. Automobile Ins. Co. v. Model Family Laundries, Inc., 133 Conn. 433, 437, 52 A.2d 137, 170 A.L.R. 975; Pratt v. Dunlap, 85 Conn. 180, 183, 82 A. 195. In other words, D.W.M. could not have prevailed in an action such as this to recover the unpaid balance of the contract price.

Ordinarily an assignee of a contract takes it subject to all defenses which might have been asserted against the assignor. General Statutes (Rev. to 1962) § 42a-9-318(1)(a); Bridgeport-City Trust Co. v. Niles-Bement-Pond Co.,128 Conn. 4, 10, 20 A.2d 91, 135 A.L.R. 690; Mereness v. De Lemos, 91 Conn. 651, 655, 101 A. 8; 4 Corbin, Contracts § 892. Thus, without more, there would be no question that the plaintiff would not be able to enforce this contract against the defendants.

The plaintiff claims, however, that it is not subject to any of the defenses which could have been asserted against D.W.M., including the breach of the service contract, because of the following language, in fine print, on the reverse side of the instalment contract: 'The Buyer will settle all claims against the named Seller (the assignor) directly with such Seller and will not assert or use as a defense any such claim against the assignee.'

Such a provision is generally referred to as a waiver of defense clause and is specifically dealt with in the Uniform Commercial Code in General Statutes (Rev. to 1962) § 42a-9-206(1), which provides that '(s)ubject to any statute or decision which establishes a different rule for buyers or lessees of consumer goods, an agreement by a buyer or lessee that he will not assert against an assignee any claim or defense which he may have against the seller or lessor is enforceable by an assignee who takes his assignment for value, in good faith and without notice of a claim or defense, except as to defenses of a type which may be asserted against a holder in due course of a negotiable instrument under article 3....