On July 25, 1966, Mr. and Mrs. Cecilio Molina signed a retail installment contract whereby they bought a freezer from Peoples Foods, Inc. for $1,222.15. On the next day, Peoples Foods, Inc., assigned the contract to Star Credit Corporation (for convenience, called "Star").
On July 30, 1966, Mr. Molina signed another retail installment contract, this time obliging himself to pay $445.82 to Peoples Food Packaging Corporation for a quantity of frozen and packaged foods. On the same day, Peoples Food Packaging Corporation assigned the contract to Star.
The freezer and one third of the frozen and packaged foods were delivered to the Molinas, who made payments of $169.75 on account of the first contract and of $111.47 on account of the second. They never received the remaining two thirds of the foods because Peoples Food Packaging Corporation went out of business. When they stopped making payments, Star brought this action against the Molinas to recover the balance due on both contracts, together with late charges and attorneys' fees. The Molinas counterclaimed for the payments of $169.75 made on account of the first contract.
Star contends that the commercial law of New York renders it immune to any claims or defenses the Molinas may have against Star's assignors, Peoples Foods, Inc., and Peoples Food Packaging Corporation. The first part of this opinion deals with Star's argument.
The Molinas contend that they should be excused from performing their agreements because of fraud in the inducement, unconscionability, and breach of contract. The second part of this opinion deals with the Molinas' argument.
Subdivision (1) of section 9-206 of the Uniform Commercial Code provides: "Subject to any statute or decision which establishes a 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 and in good faith and without notice of a claim or defense". A statute "which establishes a different rule for buyers or lessees of consumer goods" is subdivision 3 of section 403 of the Personal Property Law: "No contract or obligation shall contain any provision by which: (a) The buyer agrees not to assert against an assignee a claim or defense arising out of the sale, but it may contain such a provision as to an assignee who acquires the contract * * * in good faith and for value and to whom the buyer has not mailed written notice of the facts giving rise to the claim or defense within ten days after such assignee mails to the buyer * * * notice of the assignment".
Grasping what the statutes offer, the sellers included in each of the contracts with the Molinas a printed clause as follows: "This agreement may be assigned without notice to Buyer. The Buyer agrees not to assert against an assignee a claim or defense arising out of the sale under this contract provided that the assignee acquires this contract in good faith and for value and has no notice of the facts giving rise to the claim or defense in writing within ten days after such assignee mails to the Buyer at his address shown above notice of the assignment of this contract."
Star urges that it is the assignee of both contracts, that it acquired them in good faith and for value, that it gave the Molinas notice of the assignments, and that the Molinas did not within 10 days send Star a written statement of the facts giving rise to their claims and defenses, from all of which Star concludes that the Molinas' claims and defenses are not cognizable against Star. We turn to the question whether Star acquired the contracts in good faith.
It is impossible to define "good faith" comprehensively and exactly. The draftsmen of the Uniform Commercial Code, in subdivision (19) of section 1-201 offer a succinct formulation -- "'Good faith' means honesty in fact in the conduct or transaction concerned" -- and, in their Official Comment on the section, add that the phrase "means at least what is here stated." In short, "good faith," as used in the code, stands for "honesty" and perhaps more. (Cf. Meinhard v. Salmon, 249 N. Y. 458.)
Star argues that it is an entity separate from both Peoples Foods, Inc., and Peoples Food Packaging Corporation; that it never sold anything to the Molinas; and that it did not participate with the sellers in the behavior which gives rise to the Molinas' claims and defenses. Hence, Star urges, its conduct has been "honest in fact."
Were this a case of businessman dealing with businessman, Star's argument would have considerable appeal. The Uniform Commercial Code is a charter for the ordering of economic life, and it is not unreasonable to expect a businessman to inform himself of all the rules coiled within the code and to protect himself against their springing out. This, however, is not a case which can be decided on the principle of caveat emptor. It is more than a commercial event. Although the Molinas are literate, they are hardly sophisticated enough to understand the "cut-off" provision of the contracts they signed. There was no parity of bargaining power between the Molinas and their sellers. If the Molinas are indeed "cut off" from asserting their claims and defenses, they will be required without further remedy to pay for foods they will never receive. For these reasons, we hold that "good faith," as used in section 9-206, means more than "honesty in fact" when, in circumstances such as those presented here, an assignee seeks to bar a consumer from asserting against the assignee claims and defenses to the underlying obligation.
We need not pause to search in the abstract for a definition of "good faith" appropriate to this case. The ...