No. 13506 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1977 

MASSEY-FERGUSON CREDIT 

CORPORATION, a corporation, 

Plaintiff and Appellant, 

-vsBRUCE BROWN, 

Defendant and Respondent. 

Appeal from: District Court of the Tenth Judicial, 

Honorable LeRoy L. McKinnon, Judge presiding. 

Counsel of Record: 

For Appellant: 

Leonard H. McKinney argued, Lewistown, Montana 

For Respondent : 

James Wilkins argued, Lewistown, Montana 

Submitted: May 26, 1977 

~ecided: JUL e g 

Jut z 9 1m, 

Filed: 
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 appeals 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 contract dated October 1, 1970. 

"2. That Dan Morrison & Sons concurrently assigned 

the contract to plaintiff, Massey-Ferguson Credit 

Corporation. 
"3. That Dale Koc~, Massey-Ferguson's Credit 

Corporation representative, made certain representations 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 contract. 

"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 respondent'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 protection 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 substantial changes are made to prior law. Uniform Laws Annotated, 

Volume 3, 9-318. Section 87A-9-318(1) is Montana's incorporation 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 counterclaims. See also Hudson Supply & Equipment Co. v. Home Factors 1 A 

tu--4--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 defendant'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 Corporation (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 indebtedness 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 distinguishable. 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 affirming the seller's promises to defendant; the contract was executed 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 relationship 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 defendant 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 obligation 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 subject 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 circumstances is given support by the Kentucky court in MasseyFerguson 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 MasseyFerguson 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 transaction. 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 manufacturer-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 circumstances of the transaction, did conclude that M-F was acting 

as more than a mere assignee and impliedly accepted the obligations 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 fraudulent 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 participation between the assignor and assignee put M-F on notice of the 
claims which might arise. Due to this knowledge and participation, 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 inducement. 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 obligations, 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 87A9-317 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. ---- -7 

Chief Justice C