Universal C. I. T. Credit Corp. v. Superior Court of Puerto Rico

Mr. Justice Marrero delivered the opinion of the Court. José M. Gatell acquired from the Hull-Dobbs Co. of Puerto Rico a “Ford V8 Panel Delivery” automobile, by a conditional sales contract executed on May 29, 1952,. which contract was assigned by the vendor to the petitioner herein, Universal C. I. T. Credit Corporation.1 Inasmuch as Gatell failed to pay on time some of the installments due, the assignee filed in the District Court of Puerto Rico, San Juan Part, on February 20, 1953, an affidavit in which, after setting forth the execution of the contract and the assignment thereof by the vendor, as well as defendant’s failure to pay the installments corresponding to the months of December 1952, and of January and February 1953, and that according to the contract the whole deferred price became due and that the unpaid balance was $1,488.27, it moved the Court for the repossession of the vehicle in question. A copy of the contract subscribed by the parties was attached to said affidavit.2 It simultaneously prayed for the security of the effectiveness of the judgment that might be rendered and the District Court so ordered, upon the giving of a bond in the amount of $1,500, which was timely furnished. Later, on petition of the as-signee itself, the District Court transferred the proceeding to the Superior Court of Puerto Rico, San Juan Part. After the purchaser was summoned and the record sent up to the Superior Court, the former answered admitting the — 545 — assignment of the contract, denying the breach thereof and' alleging as a defense that he has not paid the installments as agreed because from the date the vehicle, object of the contract, was delivered to him, it has been out of use most of the time due to a defect in its engine which has never been repaired by the plaintiff’s mechanics and employees. He alleged as special defenses that when the vehicle was delivered he noticed that it had certain defects in the mechanism, of which he immediately notified the vendor, and the latter bound itself to fix them or to return to him the money paid or else deliver him a new vehicle in perfect condition, in case the aforesaid defects could not be repaired; that he took the vehicle more than eight times to the vendor’s repair shop and the mechanics therein were unable to repair it, informing him that repair was impossible; that he then demanded the return of his money or another vehicle and plaintiff (sic)3 refused to do so; and that on the day that the defendant’s vehicle was attached to secure the effectiveness of the judgment, the vehicle was at plaintiff’s repair shop. By way of “counterclaim” he likewise alleged that the plaintiff, against whom the counterclaim was filed, has not complied with the obliga-^ tions assumed under the contract thereby causing damages to defendant in the amount of $3,000. He moved for the resolution of the conditional sales contract, that plaintiff be ordered to surrender and return to the defendant the price and the installments paid by him, and that plaintiff be ordered to award him the amount of $3,000 for damages, plus interest, costs and attorney’s fees.. Universal answered the counterclaim alleging that the facts set forth therein do not constitute a cause of action, — 546 — and denied them. It also moved that the aforesaid counterclaim be stricken from defendant’s answer because: “(a) Said ‘cross complaint’4 is merely a claim for damages caused to Mr. Gatell by Hull-Dobbs Company of Puerto Rico, who is not a party to the action, on the ground that said Hull-Dobbs Company of Puerto Rico has not complied with a contract or agreement with Mr. Gatell, and such contract or agreement has nothing to do with the conditional sales contract involved in the action for repossession, all of which appears from the allegations of the cross complaint. “(b) Because an action for damages cannot be included within a summary proceeding for the Repossession of Chattels filed according to the provisions of the Conditional Sales Act. “(c) That inasmuch as said counterclaim was directed .against the Hull-Dobbs Company of Puerto Rico and inasmuch .as the Hull-Dobbs Company of Puerto Rico is not a party to the suit, plaintiff Universal C.I.T. Credit Corporation is not liable for the actions and contracts existing between Mr. Gatell and Hull-Dobbs Co. of Puerto Rico to which contracts petitioner herein was not a party and therefore it is not liable to Mr. Gatell in the sum of $3,000 which he claims for the breach of contract on the part of Hull-Dobbs Co. of Puerto Rico, which contract is not the one acquired by the petitioner from said Hull-Dobbs Co. of Puerto Rico, nor in which the petitioner was a party. . “(d) That insofar as the petitioner Universal C.I.T. Credit Corporation is concerned, Mr. Gatell was precluded from making any such claims by virtue of the provisions of the conditional sales contract itself, which he voluntarily signed and the authenticity of which he expressly admitted.” The motion to strike filed by Universal was dismissed by virtue of a lengthy decision of the trial court dated July 24 of last year. In order to review said decisions we issued a writ of certiorari on petition of the assignee. The latter’s contention is now that the trial court erred in concluding (1) that defendant’s cross complaint could be litigated within a proceeding for repossession, since its allegations constitute — 547 — on their face a cause of action against a person who was not a party to the suit, for damages arising from the breach of contracts wherein the petitioner is not a party nor are said contracts a part of the conditional sales contract which gave rise to the proceeding for repossession, thus making it liable for damages which it did not cause; and (2) that a claim for damages filed by the conditional purchaser against the petitioner could be litigated within an action for repossession of chattels filed according to the provisions of the Conditional Sales Act. Petitioner as well as intervener Gatell place great emphasis on our decision in Mattei & Co. v. Maldonado, 70 P.R.R. 443. However, that case is clearly distinguishable. There, the litigants signed a conditional sales contract in connection with an electric cooler. When the purchaser failed to pay some of the installments on time, the vendor filed a proceeding for repossession. The purchaser answered in writing admitting that the plaintiff was owner of the said cooler, denying having purchased it and stating that the cooler delivered to him was not the one sold to him and that it was delivered with dents and had a price different from that stipulated and that, when he protested, the vendor told him that it would deduct the sum of $100 from the agreed price. After the proper hearing was held, the lower court rendered judgment dismissing the “complaint” and imposing costs and attorney’s fees. The conditional vendor appealed to this Court. Upon deciding the case, we stated in the course of our opinion: “The decisions are conflicting as to whether in an action of replevin brought by the vendor to recover the possession of a chattel sold on conditional sale, for breach of contract by the purchaser, the latter may raise the defense of patent or latent defects in the goods, or of breach of warranty on the part of the vendor. (Citations). The specific question involved herein has not been decided by this Court. Our Conditional Sales Act, No. 61 of 1916, is silent as to whether or not in an action to recover the possession to which we have already referred such — 548 — defense may be raised. However, if it were decided that being the proceeding to recover possession special and summary on raising a defense such as the one pleaded herein by the purchaser, the petition for repossession should be dismissed, very little or nothing would be gained by it. An order to that effect would leave the parties in the same situation as that in which they were before the affidavit was filed as required by § 6 for instituting the action to recover the possession and would compel them to bring one or more independent suits to decide any existing conflict between them. We think, therefore, that since the parties are before the court and said court has jurisdiction over them and over the matter and that as the parties are given the opportunity to appear and be heard regarding their claims and rights, the better practice should be to determine within the very action for recovery of possession such claims or rights, rather than to confine itself to the single fact of whether or not there has been noncompliance with the contract of conditional sale by the purchaser and, therefore, whether the restitution sought lies.” (Italic^ ours). However, the situation in the instant case is completely different. Here we are dealing not only with defenses raised by the purchaser on the basis of latent defects of the thing but also with affirmative claims which can not be established within this special proceeding and which are also based on promises made to the purchaser by the original vendor. A conditional sales contract, such as the one herein, is not a negotiable instrument. 47 Am. Jur. 139, ^ 929. However, it may be assigned to a third party. The contract-in issue could be so assigned by virtue of its own terms.5 When a contract of this kind is assigned, the assignee is subrogated to the rights of the assignor and in turn assumes the obligations that the latter has contracted with the purchaser at the time, of the assignment. That is to say, he -accepts the- instrument subject to the infirmities that the same may have and is liable for any warranties for which, by law or by the terms of the contract, the seller (assignor) is liable to — 549 — the purchaser up to the time the contract'is assigned. State Nat. Bank v. Cantrell, 143 P.2d 592, 152 A.L.R. 1216; Jegen v. Berger, 77 C. A.2d 1, 174 P.2d 489; Bogert, Uniform, Laws Annotated, Vol. 2A, p. 48; op. cit., Cumulative Annual Pocket Part, 1953, pp. 36, 37; Parker v. Funk, 197 Pac. 83. Cf. §§ 1374 and 1418 of the Civil Code, 1930 ed. By virtue of said assignment and of the rights involved therein, the as-signee of said contract is authorized to file a proceeding for repossession. 78C.J.S. 452; 47 Am. Jur. 138; 57 Yale L. J. 1414, 1417. Said proceeding is regulated by § 6 of Act No. 61 of April 13,1916 (Sess. Laws, p. 123) as amended by Act No. 40 of June 27,1925 (Sess. Laws, p. 246). Section 6 supra provides in brief that whenever articles are sold upon the condition that the title thereto shall remain in the vendor or in any other person until the payment of the purchase price, the same may be retaken by the vendor or his successor in interest on the breach of the conditions of sale; that in such case they shall be retained by the vendor for a period of 30 days from the time of such retaking, and during such period the vendee, or his successor in interest, may comply with the terms of such contract and thereupon receive the property; that after the expiration of said period if the vendee or his successor in interest does not comply with the terms of the contract, the vendor, or his successor in interest may cause such articles to be sold at public auction and if such articles are not sold within 30 days after the expiration of such period, the vendee may recover from the vendor the amount paid on account, less a reasonable charge for the use of the articles. It also provides that to enable the conditional vendor to recover the goods, the object of the conditional sale contract, he shall file in the corresponding court an affidavit showing that the conditional vendee has failed to observe the terms of the contract and that the claim is made in good faith, attaching to such affidavit a copy of the contract containing a statement of its registration in the Conditional Sales Register. It also provides that upon receipt by the judge of the — 550 — affidavit and of the copy of the contract, he shall cite the parties to a hearing which shall be held within the 10 days following and that “if he deems the buyer has failed to comply with the condition, he shall issue an order directing the marshal to seize the claimed property which the marshal shall deliver to the conditional vendor, subject to the provisions of this Act.” The proceeding for repossession is a special proceeding instituted by filing a simple affidavit and not by virtue of an ordinary complaint. Furthermore, it is a summary proceeding not subject to the technicalities or delays which generally occur in ordinary civil suits. The purpose of the statute, undoubtedly, is that once the vendee fails to comply with the conditional sales contract, the vendor (or assignee) may recover summarily the chattel, the possession of which he had surrendered but title of which he had always retained. That was precisely the proceeding followed in the instant case by the assignee. Although the purchaser — intervener herein — alleges that the conditional sales contract was not assigned to the petitioner on the same date of its execution but much later,6 the defenses raised by said purchaser are not directed against the actions of the assignee itself,, but rather against the actions and promises made by the assignor Hull-Dobbs Co. of Puerto Rico, possibly after having assigned the conditional sales contract. Although the assignee acquired the contract subject to the infirmities and liabilities existing at the time it was transferred, any subsequent promises made by the assignor (vendor) to the purchaser, Gatell, may in no way affect the rights of the assignee to recover through a proceeding for repossession any unliquidated money demanded by virtue of the contract. Cf. North American Acceptance Corporation v. Bihlmeier, 74 N. E. 2d 831; Refrigeration Discount Corporation v. Chronis, 117 Conn. 457; Saranac Mach. — 551 — Co. v. Nants & Co., 51 S. W. 2d 479, 480; 6 C.J.S. 1161 and 1162, §§ 105 and 107; First Acceptance Corp. v. Kennedy, 95 F. Supp. 861, 872; Apple v. Edwards, 16 P. 2d 700, 87 A.L.R. 179; 44 Ill. L. Rev. (1949-50) p. 227. To permit questions like the ones pleaded by the intervener to be raised, argued and decided within a proceeding for repossession filed by an assignee, would be tantamount to adulterating altogether said proceeding and to interpolating issues completely extraneous to the proceeding. The motion to strike filed by the assignee should have been sustained.7 Although the purchaser, intervener herein, may not raise such defenses within the proceeding for repossession, he is not entirely defenseless. Nothwithstanding the summary proceeding filed against him at present, he may file, if he so wishes, an' independent action against the Hull-Dobbs Company in connection with the breach of the alleged promises which it made. Whether or not the assignee in the case at bar should appear as defendant in said suit .is a matter which we must not anticipate. The decision appealed from will be set aside and the case remanded to the Superior Court, San Juan Part, for further proceedings consistent with this opinion. Mr. Chief Justice Snyder dissented. Footnotes [1] Hereinafter we shall refer to it as the assignee or Universal. [2] In the conditional sales contract the following clauses appear among others: “3. The purchaser has received from the vendor, on this day, the vehicle which has been examined and tried by the purchasers and accepted to his complete satisfaction. “(a) The full title of the vehicle shall remain in the vendor until after the purchaser has paid the total amount of the installments stipulated. ... “ (f) Should the purchaser fail to pay any of the installments stipulated in this contract ... then the vendor may take possession of the vehicle ... “ (1) This contract may be assigned or conveyed by the vendor with or without notice to the purchaser.” [3] Upon referring to the “plaintiff” we do not exactly know whether defendant wishes to refer to the assignee, who was the entity resquesting the repossession of the vehicle, or to the assignor, who sold it to him and who according to defendant had made him the promises referred to in his. answer. [4] The claim that appears in defendant’s answer is indistinctly classified by the parties as a counterclaim or as a cross complaint. Cf. The Juncos Central Co. v. Rodríguez, 16 P.R.R. 286, 292. [5] See clause (1) of the conditional sale contract copied early in this opinion. [6] The assignee alleges that the' contract was assigned to it on the same date of its execution. [7] Of course, our conclusion would differ if it were -an ordinary action for collection of money, or an action to recover the possession of chattels, etc.