Court Opinion

ID: 9755838
Source: CourtListenerOpinion
Date Created: 2023-08-28 20:53:35.763291+00
Date Added: 2024-06-11T07:28:12.015676
License: Public Domain

KELLY, Associate Judge:
In October 1961, appellant General Electric Credit Corporation and Le-Wood Homes, Inc., a builder of shell homes, entered into an agreement under which Le-Wood would sell to Credit Corporation installment notes secured by mortgages or other written instruments on real property. These notes represented commitments by various buyers to pay the purchase price of houses built by Le-Wood. In the years that followed, Le-Wood regularly contracted to sell houses to various individuals and accepted secured installment notes for the sales price. After the houses were built by Le-Wood, the notes were sold to Credit Corporation. The agreement provided that if any buyer failed to pay two installments on his note, Le-Wood was required to repurchase the overdue note for cash upon demand by Credit Corporation. In the event Le-Wood failed to repurchase any note or carry out any of its other obligations under the agreement, Credit Corporation was authorized to hold, as security for performance of those obligations, any property of Le-Wood in its possession. During the course of their dealings, it was not unusual for Credit Corporation to make demands upon Le-Wood to buy back overdue notes.
In 1963 Le-Wood contracted to build a house for one Peyton Bailey and Credit Corporation promised to pay Le-Wood $8,200 for Bailey’s note in the face amount of $14,603. Le-Wood at this time needed interim financing to complete construction and approached appellee Security Bank of Washington, D. C. with an offer to assign the right to receive the payment of $8,200 as security for a loan by the bank of money needed to finish building the house.
On December 3, 1963, Credit Corporation wrote the bank that Le-Wood had requested that the proceeds of certain approved contracts be sent directly to the bank and stated that upon receipt of all documentation and evidence of completion its drafts would be made payable to Le-Wood and the bank. The letter listed seven contracts, one being that of P. Bailey in the sum of $8,200. There was at this time no commitment by the bank to Le-Wood. The bank later agreed to make the loan to Le-Wood only on condition of an acknowledged and accepted assignment by Credit Corporation.
On December 16, 1963, the bank telephoned Credit Corporation to discuss the proposed assignment and the testimony as to what transpired during that conversation is conflicting. A vice president of the bank testified that before extending the loan to Le-Wood he had telephoned Credit Corporation “to find out that everything was all right” with the proposed assignment and was told “it was okay”. The witness insisted that in making the loan he “was not relying on Le-Wood’s credit or on Peyton Bailey’s credit” but rather upon the assignment and Credit Corporation’s oral assurances on the telephone.1 He further stated that he did not know, nor did he try to find out, the terms of any agreement between Le-Wood and Credit Corporation.
On the other hand, a former officer of the Credit Corporation testified that when the bank’s representative telephoned to discuss the assignment Credit Corporation took the position that it “saw no objection to executing the assignment at that particular time, providing Le-Wood Homes met all of their obligations to General Electric Credit Corporation.” The bank representative allegedly replied at that time that *922“he had no fear of that because he had done previous business with these people and that he had no worries in that respect.”
At the time of this telephone conversation $20,000 in repurchase requests had been issued and were outstanding. As an explanation for Credit Corporation’s failure to inform the bank of this fact the witness stated that such requests were normal occurrences in its business and were no cause for particular concern as long as Le-Wood was a going business. Such requests had been issued to Le-Wood previously and had been honored, and Credit Corporation did not know that the requests would be of interest to the bank. The witness further testified that the fact that repurchase requests were outstanding did not mean that Le-Wood had defaulted on any of its obligations, although the agreement did require Le-Wood to make payment upon receipt of each demand for repurchase. Normally some period of time elapsed before payments were actually made and technically, Le-Wood was not in default at the time of the assignment. The witness stated he told the bank that as of that date everything was all right because in his opinion it was.
The same day, after the telephone conversation, the bank sent a letter to Credit Corporation enclosing copies of the assignment for its files. The letter referred to Credit Corporation’s commitments to purchase certain listed accounts, including that of Peyton 'Bailey in the sum of $8,200, and requested that Credit Corporation “signify your acceptance of the assignment by signing and returning the enclosed copy.” A copy of the letter was returned to the bank endorsed by Credit Corporation as “Received and accepted this 20th day of December 1963.”
In the assignment by Le-Wood to the bank of the account of Peyton Bailey in the sum of $8,200 Le-Wood represented that the account “correctly sets forth an undisputed account and contract” and that upon completion Le-Wood was entitled to “the full amount of the designated account from General Electric Credit Corporation.” It was further represented that Credit Corporation “has full knowledge of this assignment and has consented thereto, and that General Electric Credit Corporation has agreed to disburse any and all funds due Le-Wood Homes, Inc. in payment of said account” directly to the bank “at the time said funds are due and payable” to Le-Wood.
Le-Wood subsequently went out of business and was no longer able to meet its obligations to repurchase overdue notes. Credit Corporation gained possession of the Bailey note but refused to pay the bank the amount of its assignment, arguing that under its agreement with Le-Wood it had the right to hold the $8,200 as security for the performance of Le-Wood’s obligations to Credit.2
At the conclusion of all the evidence the trial judge ruled that if the jury found Le-Wood was in default on the outstanding repurchase requests on which Credit Corporation bases its claimed set-off at the time the bank and Credit Corporation discussed the assignment over the telephone, Credit Corporation had the duty to inform the bank that such repurchase requests were in default and, having failed to do so, Credit Corporation was estopped from subsequently claiming a set-off based on repurchase requests that antedated the assignment. Alternatively he ruled that if the jury found that the repurchase requests were not issued and in default until after the date of the assignment, Credit Corporation’s claim was acquired subsequent to *923the assignment and could not be set off against the assignee bank. The trial judge concluded that no matter how the jury determined this question of fact, Credit Corporation could not prevail on its claimed set-off as a matter of law and directed a verdict in favor of the bank. On appeal, Credit Corporation contests both of these rulings.
We are cognizant of the general rule that an assignee of a chose in action takes it subject to all defenses, including any valid set-off based on facts existing at the time of the assignment, Hudson Supply & Equipment Co. v. Home Factors Corp., D.C.App., 210 A.2d 837, 838 (1965); Restatement of Contracts § 167(1) (1932), but not to set-offs acquired after notice thereof to the obligor. Glassman Construction Co. v. Fidelity and Casualty Co. of New York, 123 U.S.App.D.C. 1, 3 n. 3, 356 F.2d 340, 342 n. 3, cert. denied, 384 U.S. 987, 86 S.Ct. 1890, 16 L.Ed.2d 1005 (1966). We are also aware that the adequacy of the defense of equitable estoppel to a claimed set-off is almost always a question of fact for the jury. Hardison v. Shirlington Trust Co., D.C.Mun.App., 148 A.2d 88, 90 (1959). These principles are not controlling here, however, for in our view Credit Corporation was estopped to claim a set-off against the bank by its own unqualified commitment to pay the assigned debt.3 We therefore attach little significance to the disputed telephone conversation, discussed at length in the dissent.
Acknowledgment and acceptance of an assignment by the debtor is not necessary to establish its validity, and the acceptance may be in such form as to create a direct primary obligation to pay. Batavi-an Bank v. Minneapolis, St. P. & S. S. M. Ry., 123 Wis. 389, 101 N.W. 687 (1904).4 As was said in Kanawha Valley Bank v. Nello L. Teer Co., 128 F.Supp. 325, 330 (S.D.W.Va.), aff’d, 227 F.2d 306 (4th Cir. 1955),
No one, I think, would dispute the proposition that a debtor may freely contract with his creditor’s assignee with reference to the assigned debt. If by the contract the debtor agrees unconditionally to pay the debt to the assignee, the assignee no longer stands in the shoes of the assignor, and is not chargeable with offsets which would have been available to the debtor in the absence of such a contract.
Similarly, in Security State Bank of Great Bend v. Midwest Foundry, Inc., 177 Kan. 151, 153, 277 P.2d 629, 630-631, 51 A.L.R. 2d 882, 885 (1954), the court explained that
The plaintiff concedes that a set-off cannot be defeated by mere assignment. It argues, however, that there is an added element in this case, that is, the so-called acceptance of this assignment by defendant. It argues such acceptance brings this case under the rule announced in 47 Am.Jur. p. 723, § 19, that:
Where a debtor by his conduct induces an assignee of a claim against him to believe that the obligation will be met, and that there is no defense thereto, he will be held to have waived the right to avail himself of a setoff against the assignor in an action by the assignee.’
Plaintiff concedes the defendant as a debtor was under no obligation to seek out the assignee and advise him of an offset or counterclaim, but argues that *924this acceptance was an affirmative act, acknowledging the debt.
This argument is good. When defendant accepted this assignment it had the effect of advising the assignee bank that defendant owed the assignor the debt assigned and would pay it when due.
All of the evidence in this case points up the fact that in making the loan to Le-Wood the bank placed sole reliance on Credit Corporation’s assurances that the loan would be repaid. It was for this reason that prior to making the loan, but subsequent to the letter of December 3, in which there was no qualification with respect to any of the listed contracts, the bank placed a telephone call to Credit Corporation to see that everything was all right. That same day the bank wrote the letter in which it enclosed copies of the assignment with the request that it be acknowledged and accepted by Credit Corporation. Whether or not Credit Corporation had a duty to inform the bank of the underlying agreement it had with Le-Wood or, at the very least, of the outstanding repurchase requests, which we think it clearly had, the fact is that the accepted assignment represented that the Peyton Bailey account correctly set forth an undisputed account, and that upon completion Le-Wood was entitled to receive the full amount of the designated account from Credit Corporation. It is true that the assignment contains no specific waiver of defenses, yet in the face of the unequivocal representations made it can hardly be said that Credit Corporation’s agreement to “disburse any and all funds due” Le-Wood was a qualification upon the promise to pay which allows it a set-off against the bank’s claim.
For the reasons given we are of the opinion that the bank is entitled to the funds due under the Bailey assignment and hold that the trial judge properly directed a verdict for the bank against Credit Corporation.
Affirmed.

. Even as late as April 17, 1964, after the note was past due, the bank was told by Credit Corporation that “things were still all right” and that “the assignment was still in effect”.

. Payments received on the Bailey note were put in a general loss reserve fund maintained as a contingency against loss under the agreement with Le-Wood. At the time Credit Corporation refused payment to the bank, the reserve fund had a balance of $100,000 and there were outstanding repurchase requests in the sum of $60,000.

. An appellate court may affirm for reasons other than those given by the trial court. Paton v. District of Columbia, D.C.Mun.App., 180 A.2d 844 (1962).

. State Investment Co. v. Cimarron Insurance Co., 183 Kan. 190, 326 P.2d 299 (1958); Merchants’ & Manufacturers’ Bank v. Terrace Realty Co., 171 Wis. 109, 177 N.W. 329 (1920). See also School Board of Carroll County v. First Nat’l Bank of Wytheville, 161 Va. 127, 170 S.E. 625 (1933); Isaac Eberly & Co. v. Gibson, 107 Va. 315, 58 S.E. 591 (1907).