Meyers v. Postal Finance Co.

• Decision Date: 07 December 1979
• Docket Number: No. 49274.,49274.
• Citation: 287 NW 2d 614
• Parties: Richard L. and Theresa M. MEYERS, etc., Appellants, v. POSTAL FINANCE COMPANY et al., Respondents.
• Court: Minnesota Supreme Court

287 N.W.2d 614 (1979)

Richard L. and Theresa M. MEYERS, etc., Appellants, v. POSTAL FINANCE COMPANY et al., Respondents.

No. 49274.

Supreme Court of Minnesota.

December 7, 1979.

Head & Truhn, Jerome Truhn, and Thomas V. Seifert, Minneapolis, for appellants.

Oppenheimer, Wolff, Foster, Shepard & Donnelly, Thomas P. Kane, Edward M. Laine, Carol J. Grant, and Paul R. Hannah, St. Paul, for respondents.

Heard before PETERSON, KELLY, and SCOTT, JJ., and considered and decided by the court en banc.

SCOTT, Justice.

Plaintiffs, as members of the United Buyers Union of California, Inc. ("UBU"), brought a class action against Postal Finance Company and Postal Thrift Loans, Inc., ("Postal") in September, 1975. Plaintiffs assert that Postal should be held affirmatively liable for the alleged fraudulent acts and deceptive practices of UBU on several theories: Postal's status as the assignee of contracts entered into between plaintiffs and UBU makes Postal affirmatively liable on these contracts; Postal and UBU were engaged in a joint venture; and Postal and UBU were so closely connected that Postal should be regarded as a party to the sales of UBU memberships. Plaintiffs also assert that Postal is independently liable to them under the Prevention of Consumer Fraud Act, Minn.Stat. §§ 325.78-80 (1978).

The case was tried in Hennepin County District Court in May, 1978. At the close of plaintiffs' case the trial court directed a verdict against the plaintiffs on all of the above theories of liability. Plaintiffs appeal from the directed verdict and from the trial court's order denying a new trial. Plaintiffs also challenge several of the trial court's evidentiary rulings. We affirm.

UBU began doing business in Minnesota in November, 1971. The theory behind such a buyers' club was that by aggregating their purchasing power, consumers could buy goods directly from manufacturers and thus avoid intermediary markups on their purchases.

Approximately two months prior to the time UBU began soliciting memberships in Minnesota, James Menning, president of UBU, came to Minnesota to arrange financing for the club by means of selling its installment membership contracts to finance companies. Lenny Olson, another principal of UBU, contacted M. G. Financial Services ("MG") to discuss the possibility of selling UBU membership contracts to MG. Sometime in the late fall of 1971, MG began purchasing UBU membership contracts from UBU. A contract between MG and UBU, effective November 15, 1971, was later signed. This contract did not obligate MG to purchase any UBU membership contracts but it did set out discount percentages for those contracts MG chose to purchase and gave MG full recourse against UBU.

In November, 1972, Postal acquired MG. Shortly thereafter, UBU contacted Postal about the purchase of UBU membership contracts. Postal did not purchase contracts from UBU until January 1973, because it was preoccupied with other business. Thereafter, Postal purchased contracts from UBU under procedures similar to those followed by MG. UBU salesmen obtained credit information from prospective members and filled out credit forms supplied by Postal. With this credit information, Postal made a preliminary decision whether to purchase the contract. If a contract was initially approved, Postal waited for the expiration of a three-day cooling off period and then contacted the applicant to verify that the applicant still wanted the contract and understood it.

Postal entered into a contract with UBU, similar to the one between MG and UBU, which governed the terms of Postal's purchases of UBU membership contracts. Postal was not obligated to purchase any UBU contracts under the agreement.

Testimony from several witnesses indicates that UBU misrepresented to them the discount percentages available on goods purchased through UBU. In addition, some listed merchandise was not available. Certain merchandise was not purchased directly from manufacturers, but instead was purchased at local discount houses by UBU employees. Free gifts offered at the time of joining UBU were never received. The service was often poor at the merchandise showroom.

Contacts between UBU and Postal personnel were frequent from the time Postal began purchasing UBU contracts. Postal employees regularly discussed complaints received from UBU members in the course of Postal's collections with UBU personnel. UBU relied heavily financially on the money it received from sales of membership contracts to Postal, but there is no evidence that Postal knew this. Generally, UBU would offer a contract first to Postal and then to another company if Postal rejected it. In early 1973, Postal purchased fewer and fewer UBU contracts because the applicants did not meet Postal's credit qualifications. When UBU questioned a Postal employee about this, the employee suggested that larger downpayments from the applicants would make them more satisfactory credit risks.

In May, 1973, UBU went out of business and informed Postal that it was doing so. The principals of UBU left Minnesota. Soon afterward, Postal agreed to stop collecting from UBU members. This action by plaintiffs, therefore, does not seek to prevent Postal from making further collections from plaintiffs on the contracts assigned to Postal by UBU; rather, it seeks to hold Postal affirmatively liable for the return of money paid by plaintiffs to Postal on those contracts in the past, and for money damages.

The following issues are therefore presented:

(1) Was the trial court correct in directing a verdict for defendant at the close of plaintiffs' case on the ground that plaintiffs had failed to present sufficient evidence on any of the proposed theories of liability?

(2) Did the trial court act within its discretionary authority in excluding some of plaintiffs' offered evidence?

1. At the time of trial, the parties to this action stipulated that Postal was not a holder in due course of negotiable instruments from UBU.¹ Postal's liability to plaintiffs must therefore originate in its status as an assignee of contracts from UBU on which plaintiffs are account debtors.

Generally, when contract rights are assigned, the assignee's right to collect under the contract from the account debtor (here, plaintiffs) is subject to those defenses, set-offs, and counter-claims which the account debtor could assert against the assignor. See, e. g., First & Lumbermen's National Bank v. Buchholz, 220 Minn. 97, 18 N.W.2d 771 (1945); First National Bank v. Consolidated School District No. 28, 184 Minn. 635, 240 N.W. 662 (1932). Minn.Stat. § 336.9-318(1) (1978) merely codifies this rule, and states in part:

The rights of an assignee are subject to

(a) all the terms of the contract between the account debtor and the assignor and any defense or claim arising therefrom;

Thus, in the instant case, UBU's alleged fraud and deceptive practices would probably be a valid defense to any further collections under the contract by Postal. However, as noted above, Postal has ceased to collect on these contracts, and plaintiffs instead seek to hold Postal affirmatively liable for the return of money paid by plaintiffs on these contracts in the past and for money damages. The law in Minnesota, as in most jurisdictions, holds that the assignment of a contract does not impose upon the assignee the duties or liabilities imposed by the contract on the assignor in the absence of the assignee's specific assumption of such liabilities. Pioneer Loan & Land Co. v. Cowden, 128 Minn. 307, 150 N.W. 903 (1915); Farmers Acceptance Corp. v. DeLozier, 178 Colo. 291, 496 P.2d 1016 (1972); Walker v. Phillips, 205 Cal.App.2d 26, 22 Cal.Rptr. 727 (1962). Here, plaintiffs have introduced no evidence of an assumption by Postal of any of UBU's obligations or liabilities to plaintiffs on these contracts. Therefore, although UBU may have failed to perform on the contracts or made misrepresentations to plaintiffs, Postal is not consequently liable solely because of its status as an assignee.

Plaintiffs contend, as a second theory of liability, that UBU and Postal were engaged in a joint venture. As such, they should be held jointly liable for the debts of the venture.

Joint venture is a remedial status imposed by a court to hold a party responsible for the results of an enterprise over which the party has effective control even though it is not nominally responsible. In Rehnberg v. Minnesota Homes, Inc., 236 Minn. 230, 52 N.W.2d 454 (1952), this court stated that a joint adventure is created when two or more persons combine their money, property, time, or skill in a particular business enterprise and agree to share jointly, or in proportion to their respective contributions, in the resulting profits and, usually, in the losses. We further held that:

An enterprise does not constitute a joint adventure unless each of the following four elements are present, namely:

(a) Contribution — the parties must combine their money, property, time, or skill in some common undertaking, but the contribution of each need not be equal or of the same nature.

(b) Joint proprietorship and control — there must be a proprietary interest and right of mutual control over the subject matter of the property engaged therein.

(c) Sharing of profits but not necessarily of losses — there must be an express or implied agreement for the sharing of profits (aside from profits received in payment of wages as an employee) but not necessarily of the losses.

(d) Contract — there must be a contract, whether express or implied, showing that a joint adventure was in fact entered into.

236 Minn. 235, 52 N.W.2d 457 (citations omitted).

In this case, Postal provided UBU with cash, but only as an incident to its business of purchasing and holding discounted commercial paper; Postal contributed money only in the sense that every buyer contributes money to a seller. This is not sufficient to satisfy the contribution requirement....