## Facts

- A consumer responded to a seller’s advertisement offering 140 stereo record albums for $698, financed by installments, with a stereo record player represented as included “without separate charge.”
- The consumers executed a retail installment contract for a “new Motorola” stereo unit and 140 albums, with partial delivery at signing and additional deliveries scheduled over time.
- The consumer executed a promissory note for the time price; the seller immediately endorsed and assigned the note to a financing partnership.
- The financing partnership was formed to finance the seller’s installment sales, routinely took assignments of the seller’s consumer notes, and participated in setting standards and forms used in the seller’s sales-financing program.
- The consumer made payments for approximately one year; the seller then stopped delivering albums and failed to complete performance under the contract.
- The assignee demanded continued payment on the note; the consumer refused and asserted failure of consideration based on the seller’s nonperformance.

## Issues

1. Whether the assignee took the consumer’s promissory note as a holder in due course under U.C.C. Article 3.
2. Whether the assignee’s close, ongoing involvement with the seller’s sales-financing program defeated holder-in-due-course status by negating good faith and/or “without notice.”
3. If the assignee was not a holder in due course, whether the consumer could assert failure of consideration to defeat enforcement of the note.

## Decision

- The Supreme Court of New Jersey affirmed judgment for the consumer.
- The court held the assignee was not a holder in due course of the promissory note.
- Because the assignee lacked holder-in-due-course protection, it took the note subject to the consumer’s contract defenses, including failure of consideration.
- Given the seller’s undisputed nonperformance, the assignee could not recover the unpaid balance on the note.

## Legal Principles

- Holder-in-due-course status requires taking an instrument for value, in good faith, and without notice of defenses or claims.
- In consumer credit sales, an assignee’s close participation in or planned, routine connection with the seller’s financing scheme can defeat holder-in-due-course status by undermining the good-faith and no-notice requirements.
- Where the sale and financing are effectively part of one integrated transaction, the assignee may be treated as subject to defenses arising from the seller’s failure to perform.
- A non-holder-in-due-course assignee takes the instrument subject to defenses that would be available in an action on the underlying contract, including failure of consideration.

## Conclusion

The court refused to extend holder-in-due-course protection to a financing assignee that was closely connected to the seller’s consumer installment program, holding that the assignee could not enforce the note free of the buyer’s failure-of-consideration defense stemming from the seller’s nonperformance.


Unico v. Owen, 232 A.2d 405 (N.J. 1967)