## Facts

- John E. and Mary E. Donnelly purchased a color television from D.W.M. Advertising, Inc. under a retail installment sales contract on a preprinted form supplied by Fairfield Credit Corporation.
- D.W.M. immediately assigned the contract to Fairfield; Fairfield had arranged in advance to supply the forms and verified delivery before accepting the assignment.
- The contract contained, in fine print on the reverse side, a waiver-of-defenses clause requiring the buyers to resolve claims solely with the seller and not to assert seller-related defenses against the assignee.
- At the sale, D.W.M. also executed a one-year service agreement to maintain and repair the television.
- The television soon malfunctioned, required repeated repairs, and D.W.M. ceased providing service and effectively disappeared.
- The Donnellys stopped making installment payments, asserting that the seller’s nonperformance excused further payment.
- Fairfield, as assignee, sued to recover the unpaid balance; the trial court found the sales price unconscionable, refused to enforce the waiver clause, and limited Fairfield’s recovery.

## Issues

1. Whether an assignee of a nonnegotiable retail installment contract takes subject to the buyer’s defenses against the seller.
2. Whether a waiver-of-defenses clause in a consumer installment contract is valid and enforceable to bar the buyer from asserting seller-related defenses against the assignee.
3. Whether the seller’s material breach of a contemporaneous service obligation excused further installment payments and correspondingly limited the assignee’s right to recover.

## Decision

- The Supreme Court of Connecticut held that Fairfield, as assignee of a nonnegotiable installment contract, acquired no greater rights than the seller and was subject to defenses the Donnellys could assert against D.W.M.
- The court held the waiver-of-defenses clause invalid and unenforceable as an effort to give a nonnegotiable instrument the functional effect of negotiability, contrary to statute and consumer-protection policy.
- Because D.W.M.’s failure to perform the service obligation constituted a material breach integral to the transaction, the Donnellys were justified in ceasing payments; Fairfield could not enforce the contract beyond what D.W.M. could have enforced.
- The court affirmed the essential ruling that the assignee could not cut off the buyers’ defenses and could not recover more than its assignor could have recovered.

## Legal Principles

- An assignee of a nonnegotiable contract generally takes subject to existing equities and defenses that the obligor could assert against the assignor at the time of assignment.
- In consumer retail installment sales, a contractual clause purporting to waive defenses against an assignee is unenforceable when it attempts to confer negotiability-like immunity from defenses on a nonnegotiable obligation and conflicts with statutory limits and public policy.
- Where a contemporaneous service/maintenance commitment is part of the bargain, the seller’s material breach may excuse further installment payments, and the assignee’s recovery is correspondingly limited because the assignee stands in the seller’s shoes.
- An assignee-finance company’s involvement in structuring and promptly taking assignment of consumer contracts supports application of ordinary assignment rules rather than enforcement of fine-print terms that would eliminate buyer defenses.

## Conclusion

The court held that a finance company that takes assignment of a nonnegotiable retail installment contract is subject to the consumer’s defenses against the seller, and it invalidated a waiver-of-defenses clause that attempted to cut off those defenses; because the seller materially breached an integrated service obligation, the buyers were excused from further payment and the assignee could not recover beyond the seller’s enforceable rights.


Fairfield Credit Corp. v. Donnelly, 158 Conn. 543, 264 A.2d 547 (Conn. 1969)