Nassau Discount Corp. v. Allen

• Decision Date: 08 January 1965
• Citation: 255 N.Y.S.2d 608,44 Misc.2d 1007
• Parties: NASSAU DISCOUNT CORP. v. Elizabeth ALLEN.
• Court: New York City Court

Page 608

255 N.Y.S.2d 608

44 Misc.2d 1007

NASSAU DISCOUNT CORP. v. Elizabeth ALLEN.

Civil Court of the City of New York, Kings County, Trial Term, Part XIX.

Jan. 8, 1965.

Milton Kostroff, Brooklyn, for plaintiff; by Joseph Untermeyer, New York City, of counsel.

Mary B. Tarcher, New York City, for defendant; by Sigmund S. Semon, Flushing, of counsel.

LOUIS B. HELLER, Judge.

This is an action by an assignee of an instalment contract for the purchase price of goods sold and delivered. The parties have stipulated to the following facts: On April 22, 1963, a salesman representing the seller, Educational Guild, Inc., presented himself to the defendant at defendant's home. Claiming to be connected with the Board of Education and emphasizing his official position, he convinced the buyer that she was required to purchase certain books for the use of her school-age child. In reality, the seller was in no way connected with the Board of Education but because of these misrepresentations the defendant was induced to enter into an instalment sales contract for the purchase of the books. The books covered by the contract were never delivered to defendant.

On April 30, 1963, the plaintiff, Nassau Discount Corp., took an assignment of the contract for value. The reverse side of the contract contains several conditions one of which directly relates to the assignment and states:

'Buyer will settle all mechanical, service and other claims of whatsoever character with respect to the sale evidenced hereby, directly with Seller (and not with any such Assignee) and will not set up any such claim(s) as a defense or counterclaim to any action for payment or possession which may be brought by an Assignee who acquires this Contract in good faith and for value * * *.'

Thereafter, on May 5, 1963, plaintiff mailed to defendant a Notice of Assignment in conformance with Section 403, subdivision 3(a) of the Personal Property Law requesting the buyer to notify the assignee in writing within ten days from the date of the mailing of the notice of any defense that she might have arising out of the sale or otherwise be barred from asserting such defense in an action by the assignee. Plaintiff received no written response to its Notice of Assignment. However, defendant upon receipt of the notice immediately returned plaintiff's coupon payment book by mail. Defendant has since refused to pay any instalments of the contract and thereupon plaintiff instituted this law suit.

The broad issue presented for determination by this court is whether defendant is barred by the waiver of defenses clause contained within the contract from asserting her defenses of fraud and non-delivery against plaintiff assignee. Subsidiary to the determination of this broad issue is whether the fraud alleged is fraud in factum, the real defense of fraud, or fraud in the inducement, and furthermore, whether plaintiff takes subject to the real defense of fraud.

Fraud in the factum exists where one is induced to sign an instrument of a different nature or character than that he was led to believe was before him. Chapman v. Rose, 56 N.Y. 137, 140; First National Bank of Odessa v. Fazzari, 22 Misc.2d 351, 353, 193 N.Y.S.2d 367, 369. In the present case defendant does not assert that she was deceived as to the nature of the paper she was signing but rather that she was induced to sign the contract through the fraudulent misrepresentations of the salesman. Therefore, the fraud involved in this case is fraud in the inducement of the contract and we need not decide whether plaintiff takes subject to the real defense of fraud.

More accurately phrased, the issue is whether defendant has waived her defenses of fraud in the inducement of the contract and non-delivery. The controlling statute in the resolution of this issue is Section 403, subdivision 3(a) of the Personal Property Law which provides in substance that no contract shall contain any provision whereby the buyer agrees not to assert against an assignee a claim or defense arising out of the sale, but it may contain such a provision as to an assignee who acquires the contract in good faith and for value and to whom the buyer has not mailed written notice of the facts giving rise to a claim or defense within ten days after the assigness has mailed notice of the assignment to the buyer. Subdivision 3(a) further provides stringent requirements for the contents of the notice of assignment, all of which have been complied with by plaintiff.

In response to plaintiff's Notice of Assignment defendant merely returned plaintiff's coupon booklet. This could hardly be said to amount to the mailed written notice of facts giving rise to a claim or defense which the statute prescribes that the buyer give in order to preserve his defense against the assignee. At best, the return of the booklet might only inform the assignee that defendant was breaching her contract and would refuse to make any payments thereunder. This, the assignee might imply, but not the facts giving rise to the purchaser's refusal. Therefore, on the technical ground of giving the assignee proper notice of a defense, the defendant cannot succeed.

However, more important questions involving public policy and social justice come to the foreground of this case. Does Section 403 permit a waiver of the defense of fraud in the inducement, and assuming that this be answered in the affirmative, does plaintiff measure up to the standard of a good faith purchaser of the contract? A perusal of the common law preceding the enactment of Section 403 is helpful in resolving the above.

Under case law, New York courts adhered to the majority view that a waiver of defenses clause is valid. National City Bank v. La Porta, Sup., 109 N.Y.S.2d 143. This view proceeded on the theory that the buyer was estopped by contract from asserting his defenses. However, it was firmly held that where fraud permeated the contract so as to vitiate it, the estoppel by contract was ineffectual. In such a case the buyer could only be estopped by his conduct which required (1) that the buyer signed the contract with the knowledge that it was going to be assigned; (2) that the assignee relied on the representation; (3) that the assignee had no knowledge of the fraud of the seller; and (4) that the buyer signed the contract in order to induce the assignee to purchase the contract or to enable the seller to assign it. President and directors of the Manhattan Co. v. Monogram Associates, Inc., 276 App.Div. 766, 92 N.Y.S.2d 579; 44 A.L.R.2d 196, 201, 220. Seldom could it be found that a buyer affirmatively, knowingly and intentionally made such a waiver and thus the unwary buyer or the buyer lacking the legal ability to analyze the intricate and minute conditions contained in the usual printed from contract was adequately protected from the operation of estoppel by conduct where fraud was involved. The fear of the consequences of indiscriminately allowing such waivers by unknowing purchasers, especially those in the lower income classes who are barely able to maintain their own subsistence and who most heavily rely on instalment purchases, pervaded the thinking of our courts.

Unfortunately waivers of defenses that the buyer might assert against the assignee of an instalment contract for the purchase of a motor vehicle or other goods are now sanctioned by statute providing the requirements of the statute are strictly adhered to. Personal Property Law, Section 302(9); Section 403(3)(a). Such waivers are permitted even where the defense of fraud in the inducement is involved and where there would have been no estoppel by conduct under prior law. Mohawk National Bank v. Chalifaux, 18 A.D.2d 864, reversing 33 Misc.2d 987, 227 N.Y.S.2d 526; ...