Court Opinion

ID: 9667734
Source: CourtListenerOpinion
Date Created: 2023-08-24 01:53:50.177688+00
Date Added: 2024-06-11T18:15:40.306260
License: Public Domain

Per Curiam.
This appeal deals with the validity of a provision in an installment sales contract whereby the purchaser of an automobile waived as against the assignee of the contract defenses which could have been asserted against the assignor-seller.' The trial court held that the assignment of the contract containing the waiver provision was unrelated to the actual sale of the automobile “in the usual sense” and that it was not “unconscionable” *458to enforce the waiver in the peculiar circumstances of the case. We agree and affirm.
In May 1967, plaintiff, Gail Holt, purchased a Dodge Charger automobile from Herzog Dodge, Inc. (Herzog). The purchase price was $4,046.65 and was to be paid by cash in the sum of $8,415.15 and by the equity of $631.50 in a Dodge Dart which plaintiff traded for the balance. At the time of the sale, plaintiff’s Dart was subject to a mortgage held by her credit union in the sum of $1,345.15.
Plaintiff looked to Herzog for assistance in financing the purchase of her new Charger. Herzog made appropriate arrangements with Drovers State Bank. The sale was consummated by plaintiff’s executing an installment contract for $3,906. The contract was thereupon assigned to Drovers bank which issued its money order to Herzog for $3,415.15, the balance of the purchase price less the equity in the Dart.
Critical to the disposition of this case is the fact that plaintiff and Herzog, by prearrangement, agreed that Drovers bank was to pay Herzog an amount which included the full value of the Dart without any deduction for the balance of the mortgage owed plaintiff's credit union. Under its agreement with plaintiff Herzog was to satisfy the chattel mortgage on plaintiff’s Dart. That arrangement, however, was not communicated to Drovers bank and they had no knowledge of the existence of the mortgage.
In performance of their agreement, Herzog drew a check to plaintiff’s credit union in the sum of $1,345.15 and delivered it to the credit union. After it was deposited by the credit union, the check was dishonored by the First National Bank of Minneapolis on which it was drawn because that bank had unsecured loans made to Herzog which it believed to be in jeopardy. Consequently, the bank retained Herzog’s deposits to secure its loans. Herzog thereafter was rendered insolvent and the chattel mortgage on plaintiff’s Dart in the sum of $1,345.15, held by plaintiff’s credit union, remained unsatisfied. By various assignments, both the mortgaged vehicle and the mortgage became the *459property of Midway Dodge, which instituted suit against plaintiff to recover the amount then due on the mortgage. That action was consolidated with one brought by plaintiff against Drovers State Bank, the credit union, the First National Bank of Minneapolis, and Midway Dodge. The relief sought was to enjoin enforcement of the mortgage by Midway Dodge) to recover from Drovers $592.35 paid by plaintiff as part of the balance of the installment contract representing the $1,345.15 which Herzog should have paid to plaintiff’s credit union; and to recover from each of the defendants except Midway Dodge $10,000 in damages including attorneys’ fees.
The issue presented J>y the parties is whether the following language in the installment contract running from plaintiff to Herzog and assigned to Drovers bank is contrary to public policy and unenforceable:
“No agreement, promise or warranty not expressed hereiihand no defect in condition or quality of the Property shall bind or afford a defense against any assignee hereof.”
Minn. St. 336.9 — 206(1) of the Uniform Commercial Code provides as follows:1
“(1) Subject to any statute or decision which establishes -^different rule for buyers or lessees of consumer goods, an agreement by a buyer or lessee that he will not assert against an assignee any claim or defense which he may have against the seller or lessor is enforceable by an assignee who takes his assignment for value, in good faith, and without notice of a claim or defense, except as to defenses of a typd which may be asserted against a holder in due course of a negotiable instrument under the article on commercial paper (article 3). A buyer who as part of one transaction signs both a negotiable instrument and a security agreement makes such an agreement.”
*460If the waiver is invalid, the Uniform- Commercial Code makes the following section effective (§ 836.9 — 318 [1] [a]):
“(1) Unless an account debtor has made an enforceable agreement'not to assert defenses or claims arising out of a sale as provided in section 836.9 — 206 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; * * $ >9
Finally, the Uniform Commercial Code makes this provision for dealing with unconscionable contracts (§ 336.2 — 302 [1]):
“ (1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.”
Plaintiff cites as authority for reversal a number of cases which have held waivers to be contrary to public policy. Unico v. Owen, 50 N. J. 101, 232 A. 2d 405 (1967); Dean v. Universal G. I. T. Credit Corp. 114 N. J. Super. 132, 275 A. 2d 154 (1971); Fairfield Credit Corp. v. Donnelly, 158 Conn. 543, 264 A. 2d 547, 39 A. L. R. 3d 509 (1969); Quality Finance Co. v. Hurley, 337 Mass. 150, 148 N. E. 2d 385 (1958).2
Although plaintiff sought relief against all of the parties to whom we have alluded, the issue has been narrowed to her right to deduct from the installment contract held by Drovers the sum of $1,345.15 included in that contract to satisfy her mortgage with the credit union.
Plaintiff seeks in these proceedings to invalidate application of Minn. St. 336.9 — 206 to consumer goods transactions as con*461trary td public policy. As we have indicated, the legislature has now made that portion of the Uniform Commercial Code inapplicable, in certain instances, in the following language (§ 325.941, subd. 2 [a] ) :
“No contract or obligation relating to a consumer credit sale shall contain any provision by which:
“(a) The consumer agrees not to assert against an assignee any claim or defense arising out of the transaction.”
Since July 1, 1971, the effective date of § 325.941, subd. 2(a), lending agencies have been on notice of their obligation to scrutinize assignments in consumer transactions with the same degree of caution they would exercise in dealing directly with consumers were such agencies vendors. Drovers bank, in the instant case, had no such duty. Nor is there any evidence that Drovers and Herzog entertained the kind of relationship we held in International Finance Corp. v. Kieger, 272 Minn. 192, 137 N. W. 2d 172 (1965), deprived the lending agency of the protections accorded a holder in due course. We are not disposed to hold the statute contrary to public policy for all purposes. There may be fact situations which will justify that conclusion in particular cases. This is not one of them. Indeed, the claims of plaintiff are not directly related to a “consumer credit sale” on which the statutes focus. j
The cases which are cited by plaintiff deal with a variety of contract breaches pertaining to goods sold. The conduct of the seller in each instance was manifestly “unconscionable.” The waiver provisions which were set aside in those cases would have protected the assignees from defenses based on conduct which approached fraud. That is not the situation before us in this case. There is no suggestion that either Herzog or Drovers bank did not act in good faith. The bank had no information which should have put it on notice that plaintiff had delegated to Herzog the responsibility for satisfying her mortgage to the credit union out of the proceeds of the loan. While, of course, we recognize *462the hardship which has resulted to plaintiff, it was brought about by a collateral arrangement which she herself made with Herzog in which the bank took no part and for which it had no responsibility. In effect, she designated Herzog her agent to satisfy an outstanding mortgage. Herzog became as to her simply a creditor in a fiduciary capacity. The situation is no different from what it would have been had the bank paid plaintiff the $1,345.15 and she had turned that sum over to Herzog with directions to satisfy the mortgage out of it. Where one of two innocent persons must assume the loss, it is not unconscionable to permit the person to suffer the loss who had knowledge of all the facts and was in a position to protect against the loss.
For the reasons indicated, we have concluded that the waiver-of-defenses clause in the case at hand is not unconscionable, and it was proper for the trial court to give it effect.
Affirmed.

 That statute has been made inapplicable to consumer credit transactions by Li. 1971, c. 275, § 2.

 The. cases dealing with the validity of waivers are exhaustively annotated at 39 A. L. R. 3d 518, 526.