Citation. 76 N.M. 520 416 P. 2d 529 (Supreme Court of New Mexico, 1966)
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Brief Fact Summary.
A written contract between the owners of a dairy farm and a salesman of water softeners was assigned to a third party. Prior to executing the written contracts, the owners of the dairy farm allegedly entered into an oral agreement with the salesman providing for a trial period of the water softener. At the end of the trial period, if the cows were not producing more milk, there would be no contractual obligation owed by the dairy farmers, and the water softener would be removed from the farms premises.
Synopsis of Rule of Law.
An assignee takes a contract subject to any oral condition precedents binding on the assignor.
The Appellees, Earl Walker and Billie Walker ("Appellees"), were the owners of a dairy farm. The Appellees wished to purchase a mechanical water softener if in fact it increased the milk production on their farm. A salesman named Daniel R. Partin ("Mr. Partin"), doing business under the trade name Lindsay Soft Water Company of Portales, agreed orally on or about May 1, 1962 to install a water softener at the Appellees farm on a contingent basis. If the water softener did not increase milk production, it would be removed from the farm. After making the oral agreement, Mr. Partin requested that the Appellees execute a document entitled "All Goods Retail Installment Contract." This suit was brought pursuant to this document, which read that the Appellees "purchased the water softener for a stated sum to which was added a finance charge." The contract amount was to be paid in monthly installments commencing June 6, 1962. The agreement also provided that title to the product "would remain in the sel
ler until the price was fully paid." Mr. Partin also orally agreed the contract would not be assigned or transferred. However, after the Appellee's executed the document, Mr. Partin assigned it to the Appellant, Associates Loan Company (the "Appellant"). After installation of the device, it was clear it did not assist in increasing milk production. As such, the Appellees never made any payments. However, Mr. Partin and his successor in interest, Stirman Rivers, made certain payments to the Appellant. The trial court entered judgment for the Appellees.
Can an oral agreement be a condition precedent to a written contract becoming a valid obligation?
Yes. The court observed "an assignee of a chose in action acquires by virtue of his assignment nothing more than the assignor had and all equities and defense which could have been raised by the debtor against the assignor are available to the debtor against the assignee." Further, under both Sec. 50A-9-318(1), N.M.S.A., 1953 (New Mexico's codification of the UCC) and the rule of law "if the contract in Partin's hands was subject to a condition precedent under which it was not to become effective until the happening of a contingency, upon assignment the assignee took the contract subject to the same condition."
This case provides a good discussion of how both the common law and the Uniform Commercial Code are important when analyzing the validity of assignments.