## Facts

- A contractor installed a heating plant in Bessie Winston’s home; Winston signed an installment promissory note for the purchase price.
- The note was guaranteed by the Federal Housing Administration (FHA) and later transferred to a bank.
- Winston sold the house to John W. Rouse; the sales contract stated that Rouse would “assume payment of $850 for heating plant.”
- Winston defaulted on the note; the FHA paid under its guaranty and took an assignment of the note, after which the United States sued Rouse for $850 plus interest.
- Rouse asserted defenses that (1) Winston fraudulently misrepresented the condition of the heating plant in the home sale and (2) the contractor improperly installed the plant.
- The district court struck Rouse’s defenses and entered summary judgment for the United States.

## Issues

1. When a purchaser promises the seller to “assume payment” of the seller’s debt to a third-party creditor, may the creditor-beneficiary (or its assignee) enforce the promise free of defenses the purchaser could assert against the seller?
2. May Rouse assert against the United States, as assignee of the creditor’s claim, defenses based on (a) Winston’s fraud in the home sale and (b) alleged defective installation by the contractor?

## Decision

- The court held that a promisor who agrees with a promisee to pay the promisee’s creditor may assert against the creditor any defenses the promisor could assert against the promisee.
- Because Rouse’s potential liability to the creditor depended entirely on the scope and enforceability of his promise to Winston, the creditor (and the United States as assignee) could recover only “if and so far as” Rouse was liable to Winston on the assumption clause.
- The court ruled that the district court erred in striking the fraud defense tied to Winston’s conduct and reversed the summary judgment to that extent.
- The court affirmed the striking of defense theories that attempted to assert obligations or warranties running directly from the contractor to Rouse, to the extent those theories were not part of or did not defeat Rouse’s assumed obligation to Winston.
- The case was remanded for further proceedings.

## Legal Principles

- A creditor-beneficiary’s right to enforce a promise to discharge the promisee’s debt is limited by the promisor’s defenses against the promisee arising out of the same transaction.
- A third-party creditor-beneficiary (and an assignee suing in that capacity) generally takes subject to defenses that would defeat or reduce the promisee’s ability to enforce the promisor’s undertaking.
- An assignee “stands in the shoes” of the assignor and cannot acquire greater rights than the assignor had under the promise being enforced.
- Defenses that negate the promisor’s liability to the promisee (e.g., fraud by the promisee affecting the promise) may be asserted against the creditor-beneficiary; separate claims based on independent duties owed by the creditor to the promisor do not automatically limit enforcement of the assumption promise.

## Conclusion

The D.C. Circuit held that the United States, enforcing an assumption clause as assignee of the creditor’s claim, could recover only to the extent Rouse was liable to the seller on the promise; therefore, Rouse could assert defenses against the government that he could have asserted against the seller, and summary judgment was reversed in part and remanded.


Rouse v. United States, 215 F.2d 872 (D.C. Cir. 1954)