Court Opinion

ID: 8536854
Source: CourtListenerOpinion
Date Created: 2022-11-23 11:07:18.492423+00
Date Added: 2024-06-11T16:52:03.796848
License: Public Domain

Mr. Justice Belaval,
dissenting.
Hull-Dobbs Co. of Puerto Rico sold an automobile to José M. Gatell under a conditional sales contract. The contract was subsequently assigned to the Universal C.I.T. Credit Corporation. It seems that Mr. Gatell failed to pay some of the installments under the conditional sales contract, and the as-signee, Universal C.I.T. Corporation, filed in the Superior Court of Puerto Rico, San Juan Part, a proceeding for repossession of chattels, authorized by § 6 of Act No. 61 of April 18, *5521916, (Sess. Laws, p. 12B) as amended by Act No. 40 of June :27,1925, (Sess. Laws, p. 246). The trial court summoned the parties to a hearing in order to determine the breach of - the stipulations of the contract. Mr. Gatell appeared and pleaded the following special defenses and counterclaim:
“1: When defendant obtained from plaintiff the vehicle, object of the conditional sales contract, he noticed that it had ■certain defects in the mechanism, of which he immediately notified the conditional vendor, Hull-Dobbs Company of Puerto Rico.
“2. The conditional vendor, Hull-Dobbs • Company of Puerto Rico, bound itself with defendant to repair the defects in mechanism and also to return the payments which he made upon obtaining the vehicle or deliver a new vehicle that would be in perfect condition, in case the defects could not be repaired.
“3. Defendant took the vehicle, object of the conditional sales ■contract, more than eight times to the repair shop of the ■conditional vendor, and the mechanics therein were unable to fix the defective condition and informed him that repair was impossible.
“4. The defendant then requested the delivery of his money or another vehicle, which plaintiff refused..
“5. On the day the defendant’s vehicle was attached in order to secure the effectiveness of the judgment, the same was at plaintiff’s repair shop.
“2. The plaintiff against whom the counterclaim is filed has not fulfilled the obligations assumed under the contract and personally with the defendant, causing him damages in the amount of $3,000.00.”
He moved the trial court: (a) to order the resolution of the conditional sales contract, (6) to order the assignee to surrender and deliver to the purchaser the purchase price and the installments already paid by said purchaser, (c) to order the assignee to pay to purchaser the amount of $3,000 for damages plus interest, costs, and attorney’s fees.
The assignee moved the Court to strike from the conditional purchaser’s answer the aforesaid counterclaim on the following grounds:
*553“(a) Said ‘cross complaint’ is merely a claim for damages caused to Mr. Gatell by Hull-Dobbs Company of Puerto Rico, who is not a party to the action, on the ground that said Hull-Dobbs Company of Puerto Rico has not complied with a contract or agreement with Mr. Gatell, and such contract or agreement has nothing to do with the conditional sales contract involved in the action for repossession, all of which appears from the allegations of the cross complaint.
“(b) Because an action for damages cannot be included within a summary proceeding for the Repossession of Chattels filed according to the provisions of the Conditional Sales Act.
“(c) That inasmuch as said counterclaim was directed against the Hull-Dobbs Company of Puerto Rico and inasmuch as the Hull-Dobbs Company of Puerto Rico is not a party to the suit, plaintiff Universal C.I.T. Credit Corporation is not liable for the actions and contracts existing between Mr. Gatell and Hull-Dobbs Co. of Puerto Rico to which contracts petitioner herein was not a party and therefore it is not liable to Mr. Gatell in the sum of $3,000 which he claims for the breach of contract on the part of Hull-Dobbs Co. of Puerto Rico, which contract is not the one acquired by the petitioner from said Hull-Dobbs Co. of Puerto Rico, nor in which the petitioner was a party.
“(d) That insofar as the petitioner Universal C.I.T. Credit Corporation is concerned, Mr. Gatell was precluded from making any such claims by virtue of the provisions of the conditional sales contract itself, which he voluntarily signed and the authenticity of which he expressly admitted.”
As may be seen, the assignee’s position before the trial •court was, (1) that the assignee of a conditional sales contract is not liable for the damages caused by the conditional vendor to the conditional purchaser for having sold a defective automobile; (2) that a cause of action for damages caused by the conditional vendor to the conditional vendee for having sold a ■defective automobile can not be litigated within the summary proceeding for repossession, authorized by the Conditional Sales Act of Puerto Rico; (3) that the conditional purchaser was precluded, by virtue of the waiver contained in the conditional sales contract itself, from filing any claim whatsoever *554against the conditional vendor or his assignee, for the defect in mechanism of the automobile.
1. The invulnerability of an assignee’s position under a conditional sales contract against the defenses of the conditional purchaser was originally based on the possible negotiability of the promissory notes which they signed together with the conditional sales contract. The first distinction established by the jurisprudence was that the conditional sales contract per se was not a negotiable instrument, pursuant to the provisions of the Negotiable Instruments Act adopted by the different states, and therefore, the assignee of said conditional sales contract was not a holder in due course, free from any defects in the title of prior parties, and free from the defenses available to former parties among themselves and able to enforce the payment of the instrument for the full amount thereof against all parties liable thereon. (See §§ 52, 53, 54, 55, 56, 57, and 58 of Act No. 17 of April 22, 1930 (Sess. Laws, p. 172), known as the “Uniform Negotiable Instruments Act” of Puerto Rico, identical in its context with that prevailing in the United States). The second distinction established by the authorities was that the notes signed jointly with the conditional sales contract were not negotiable instruments per se unless the complete text of conditions of the conditional sale appears in said promissory note, inasmuch as an instrument, to be negotiable “must be complete and regular upon its face” (<§ 53 of our Act), that is, that the requirement arises from the instrument itself, but it was soon discovered that if the conditions of the conditional sale appeared in the promissory note, it was unquestionable that the assignee or the holder in due course would receive notice of the conditions under which the negotiable instrument had been issued and could not plead ignorance with regard to notice of any infirmity in the instrument or defect in the title of the person negotiating the same (§ 55 of our own Act). Therefore, the possibility of turning the *555notes, issued together with the conditional sales contract, into negotiable instruments was discarded.
At present, it can be said with enough assurance that either in the case of (1) the assignment of the conditional sales contract alone, or (2) of a conditional sales contract with promissory notes representing the different installments jointly, the assignee of a conditional sales contract takes it subject to the defenses which the conditional purchaser would have for any breach of the contract by the conditional vendor. In the first case the doctrine has been established that the assignee assumes the same obligations — to avoid the use of that ugly phrase sanctioned by poor judicial taste, “stands in the shoes” — as the conditional vendor with regard to the breach of his obligations by the conditional vendor under the contract. In the second case the doctrine has been established that the conditional sales contract and the notes signed according to the different installments of said contract must be examined jointly, considering it as a single transaction between the same parties.
With the creation of the so-called finance companies, which are actually auxiliary agencies of the sales departments, it was attempted for some time to follow the theory that, since it was the case of two different organizations, the finance company which was the assignee, should not be subject to the claims which the conditional purchaser might have against the conditional vendor and assignor. Previous experience has established the theory of close relationship (too intimate to be a holder in due course), (identity of interest), by virtue of which the assignee finance company is subject to the same defenses which the conditional purchaser would have against the conditional vendor and assignor.
The adverse jurisprudence which takes shape as the institution of law becomes integrated is based sometimes on the variety of the statutes recognizing possessory actions for the recovery of chattels, on the confusion as to the negotiable or non-negotiable character of conditional sales contracts or the *556notes, subscribed jointly with such contracts,-! on'the express waivers of the contracts which we shall hereinafter discuss, and occasionally on the purely personal attitude of the judges, which never constitutes a good reason at law, despite the pragmatic boastings of the realistic school.
As an initial index of the jurisprudential evolution- of the doctrine establishing the right of the conditional purchaser to plead against the assignee all the defense which he might have against the conditional vendor and assignor, see: First & Lumbermen’s Nat. Bank of Chippewa Falls v. Buchholz, 18 N. W. 2d 771, 774, 775 (Youngdahl) (1945); State Nat. Bank of El Paso, Tex v. Cantrell, 143 P. 2d 592, 594 (Saddler) (1943); Taylor v. Atlas Security Co., 249 S. W. 746, 748 (Bland) (1923); Palmer v. Associates Discount Corporation, 124 F. 2d 225, 227 (Miller) (1941); C.I.T. Corporation v. Emmons, p. 663 (Hamiter) (1940); Commercial Credit Co. v. Childs, 137 S. W. 2d 260, 262 (Humphreys) (1940); Mutual Finance Co. v. Martin, 63 So. 2d 649, 652 (Drew) (1953); Commercial Credit Corporation v. Orange County Machine Works et al., 214 P. 2d 819, 821 (Edmonds) (1950); Public Nat. Bank & Trust Co. v. Fernandez, 121 N.Y.S. 2d 721, 724, 725, 726, 727 (Schweitzer) (1952); Battle Creek B. Wrapping Mach. Co. v. Paramount B. Co., 39 P. 2d 323, 326 (Pratt) (1934).
2. Within a proceeding for claim and delivery of personal property (repossession) the conditional purchaser may plead, as one of his defenses against the assignee of the conditional vendor, any damages which he has sustained because "of defective functioning or condition of - the thing sold unden the conditional sales contract. Although generally speaking, the statutes in force prior to the Uniform Conditional Sales Act; from which ours issues, had no provision as to the kind of defenses which a conditional purchaser could allege against the conditional vendor or his assignee, using as suppletory proceedings, the general provisions of the Codes of procedure, in our case, the Code of Civil Procedure of Puerto Rico, the *557theory has been uniformly established that the conditional purchaser may plead against his conditional vendor or as-signee all the defenses that he would have under an ordinary civil action, either cross complaints, counterclaims, claims in equities, or any other reasons whereby he should not surrender the thing bought. The best discussion regarding the use of the suppletory code provisions when the conditional sales statute is silent as to the kind of defenses that the conditional purchaser may plead is found in the cases of Marks v. Frigidaire Sales Corporation, 54 F. 2d 974, 975 (Hits) (1931); United States Hoffman Machinery Corporation v. Ebenstein, 96 P. 2d 661, 663 (Allen) (1939); Harrolds Motorcar Co. v. Gordon, 221 N.Y.S. 486, 487 (Gibbs) (1927), where the general Code of civil procedure is applied as to the defenses, counterclaims and cross complaints in more or less the same terms as the provisions of §§ 110, 111, 112, 113,114, and 115 of the Code of Civil Procedure of Puerto Rico. This with respect to the purely procedural aspect of the question. Thus, even assuming that the Rules of Civil Procedure of Puerto Rico were not applicable as a suppletory provision to the proceeding for repossession established by our Conditional Sales Act, we could but conclude that the Code of Civil Procedure of Puerto Rico would be the suppletory code provision for the repossession proceeding of our Conditional Sales Act.
As to the cause of action for damages, there is no question that any damages suffered by the purchaser from the breach of contract on the part of the conditional vendor, either by refusing to deliver the chattel sold or by delivering it unfit for a particular purpose, or by delivering another of inferior quality or price (latent defect of the thing) may be alleged by the conditional purchaser as a defense in order to achieve two purposes: (1) to be relieved from the obligation of paying the balance due under the conditional sales contract because the total amount of damages is higher than the unpaid balance, or (2) to obtain the reduction of the unpaid balance according to the numerical computation of the damages made *558by the court: Mercantile Trust Co. v. Roland, 288 P. 300, 303, 304 (Leach) (1930); Marks v. Frigidaire Sales Corporation, supra; Pump Co. v. Harper, 247 P. 985 (Estes) (1926); W. H. Bintz Co. v. Mueggler, 516 (Ailshie) (1945); U. S. Machinery Co. v. International Metals Dev., 168 P. 2d 37, 40 (Adams) (1946); Pioneer Engineering Works v. McConnell, 212 P. 2d 641, 652 (Metcalf) (1950); Jegen v. Berger, 174 P. 2d 489, 498 (Scholtky) (1946) (damages for loss of profits) 120 A.L.R. 759 (Ed. of the Lawyer’s Cooperative Publishing Company) (1941).
3. A waiver in advance of all rights of the purchaser under the contract is not favored by the jurisprudence because it is against public policy since it is designed to oust the courts of their jurisdiction to determine such rights: Progressive Finance & Realty Co. v. Stempel, 95 S.W. 2d 834, 836 (Sulton) (1936).
The law is always an implied agreement in every written contract. Acts executed contrary to statutory provisions are void, except when the law preserves their validity, first pro-’ visions of § 4 of the Civil Code of Puerto Rico. Rights granted by the laws may be renounced, provided such renunciation be not contrary to law, to public interest or public order, or prejudicial to the interest of a third person, second provision of § 4 of the Civil Code of Puerto Rico.
The waiver of the rights granted by the law by virtue of a contract must be expressly authorized by the law itself. Inasmuch as the contracting parties can not create their own law under a contract, contracts must follow the statutory provisions except when the law authorizes the waiver of the corresponding right. The same law which authorizes the waiver of rights can establish the conditions whereby such rights may be waived.
For example, § 1055 of the Civil Code of Puerto Rico provides that “liability arising from fraud is demand.able in all obligations” and that “the renunciation of the action to enforce it is void”, which shows that any advance renunciation-*559of an action for the fraud or deceit of a vendor in order to compromise the will of the purchaser is null and void. For example, § 1374 of the Civil Code of Puerto Rico provides that “the vendor is liable to the vendee for the warranty against faults or hidden defects in the thing sold, even when they should be unknown to him”, but that “this provision shall not obtain if the contrary should have been stipulated and the vendor should not have been atoare of said faults or hidden defects”, which shows that in order for the renunciation of the right of warranty against faults or hidden defects to be valid, the vendor has to prove that he was not aware of those faults or hidden defects in the thing sold, because if he is aware of them, then the sale is considered fraudulent or deceitful and the renunciation is forbidden. 10 Manresa 225, fourth paragraph (5th Ed. Instituto Editorial Reus) (1950).
The disadvantage of the vendors who rely on their renunciations of warranty against faults or hidden defects is that their knowledge of the defective workmanship or conditions which render the thing sold “unfit for the use to which it was destined” (§ 1373 of the Civil Code of Puerto Rico), is always presumed, for the vendor has the superior knowledge with regard to the thing sold, inasmuch as he is habitually engaged in the sale of a specific type of merchandise and is, in turn, guaranteed by the manufacturer or distributor of the thing sold against any defect or hidden fault thereof, as explained in case after case of the decisions copied above, the majority of which deal with the defenses of the purchaser of a defective thing (failure of consideration for breach of warranty), or the purchaser of a thing unfit for the use for which it is intended (failure of consideration for breach of warranty of fitness). Besides, whenever it is the case of the sale of a defective thing or a thing unfit for the use for which it is intended, there is always an element of fraud open to inquiry by the judicial conscience.
But now referring to this particular case, it is impossible to consider the clause of the contract which provides: “the *560purchaser has received from the vendor, on this day, the vehicle which has been examined and tried by the purchaser and accepted to his complete satisfaction,” as an express waiver of the implied warranty of good workmanship or fitness for the use intended, unless the evidence shows that the purchaser is an expert who by reason of his trade or profession could have easily detected said faults or hidden defects, according to the provisions of § 1373 of the Civil Code of Puerto Rico.
I am well aware of the important role that conditional sales play in our times in the economics of consumption. The same soundness of an economic institution which allows the-acquisition of chattels by low-income consumers demands the adoption by the courts of a universal rule, that every defective thing or one unfit for the use to which it was intended, sold under a conditional sales contract, may not be retaken until the courts adjust the price according to the depreciation of the thing sold. The waiver of such rights must not be favored, because it is contrary to public policy.
I dissent.