Farmers Acceptance Corp. v. DeLozier

• Decision Date: 15 May 1972
• Docket Number: No. 23672,23672
• Parties: , 10 UCC Rep.Serv. 1099 FARMERS ACCEPTANCE CORPORATION, Plaintiff in Error, v. Howard K. DeLOZIER, d/b/a Howard K. DeLozier Construction Co., Defendant in Error.
• Court: Colorado Supreme Court

Page 1016

496 P.2d 1016

178 Colo. 291, 10 UCC Rep.Serv. 1099

FARMERS ACCEPTANCE CORPORATION, Plaintiff in Error, v. Howard K. DeLOZIER, d/b/a Howard K. DeLozier Construction

Co., Defendant in Error.

No. 23672.

Supreme Court of Colorado, En Banc.

May 15, 1972.

Phelps, Fonda, Hays, Farley, Abram & Shaw, Donald E. Abram, Pueblo, for plaintiff in error.

Warberg & Mast, Sonja E. Warberg, Fort Collins, for defendant in error.

ERICKSON, Justice.

This writ of error arises out of a complaint filed by a materialman, Ladd Lumber Company, against a general contractor, Howard K. DeLozier, to recover the cost of materials which were supplied to John Diviney, a subcontractor of DeLozier. A third-party complaint was filed by DeLozier against Farmers Acceptance Corporation (hereinafter referred to as 'FAC'), the assignee of Diviney's rights under the DeLozier-Diviney contract. DeLozier thereby sought to recover from FAC monies he had paid pursuant to the contract but which had not been applied in payment of the bill owed by Diviney for materials he used in performing the DeLozier contract. The trial court entered judgment in the amount of $2,865.63 in favor of Ladd Lumber Company and against DeLozier for all materials supplied to Diviney and judgment in the amount of $1,574.86 in favor of DeLozier and against FAC for the monies it had obtained pursuant to the assignment. Thereafter, FAC filed this writ of error.

The record reveals that DeLozier was engaged as the general contractor for the construction of the Lathrop Park Youth Camp. DeLozier contracted with Diviney to install drywall on the project. Before beginning work, Diviney obtained a personal loan of $1,500 from FAC, for which he executed a promissory note. As security for the loan, Diviney assigned to FAC all his right, title, and interest in his contract with DeLozier. DeLozier was notified of the assignment by FAC prior to making any payments under the contract. Thereafter, DeLozier made one payment by check in connection with the contract in the amount of $1,844. The check, which represented 35% Of the total contract, was made payable to Diviney Drywall and FAC. FAC applied $1,574.86 toward payment of Diviney's personal note and the balance of $269.14 toward Diviney's account with Ladd Lumber Company for materials used on the Lathrop Park job. Approximately one month later, DeLozier notified Diviney that he was cancelling the contract because of Diviney's failure to continue on the job. Thereafter, DeLozier received a bill from Ladd Lumber Company for materials supplied to Diviney for the Lathrop Park project. The bill was not paid, and the suit which precipitated this writ of error was instituted.

Whether or not FAC is entitled to retain the $1,574.86 which it obtained from DeLozier is wholly dependent upon the law governing assignments and FAC's status as the assignee of Diviney's contract rights with DeLozier. In Colorado, the law pertaining to the assignment of contract rights, such as are involved in this case, is set forth in the Colorado Uniform Commercial Code. C.R.S.1963, 155--9--102(2). Under the law of assignments, it is a well settled principle that the right to receive money due or to become due under an existing contract may be assigned even though the contract itself may not be assignable. This principle has been codified in the Colorado Uniform Commercial Code, which provides that '(a) term in any contract between an account debtor and an assignor which prohibits assignment of an account or contract right to which they are parties is ineffective.' C.R.S.1963, 155--9--318(4). Application of this rule of law to the facts in this case results in the conclusion that Diviney had an absolute right to assign to FAC the money he expected to earn under his contract with DeLozier. Since the assignment was valid, the remaining question to be determined is the value of the rights assigned.

It is a general rule that an assignee of contract rights stands in the shoes of the assignor and has no greater rights against the debtor than did the assignor. The assignee is also subject to all the equities and defenses which could have been raised by the debtor against the assignor, with the exception of those claims and defenses which are both unrelated to the underlying contract and arise after the debtor is notified of the assignment. See McCormick v. Diamond Shamrock Corp., Colo., 487 P.2d 1333 (1971); Matson & Mulhausen Const. Co. v. Boulevard Nat'l. Bank, 28 Colo.App. 427, 475 P.2d 356 (1970); Denver United States Nat'l. Bank v. Asbell Bros. Const., 294 F.2d 289 (10th Cir. 1961); Associates Loan Co. v. Walker,76 N.M. 520, 416 P.2d 529 (1966); Restatement, Contracts § 167(1) (1962). This position has been...