Royal Bank Export Finance Co. v. Bestways Distributing Co.

Opinion

HOLLENHORST, J.

Plaintiff, Royal Bank Export Finance Company, Ltd. (Bank) appeals from a judgment entered in favor of defendant, Best-ways Distributing Co. (hereinafter referred to as Bestways). Bank contends that as a bona fide purchaser of Bestways’s purchase orders from a company known as E.R.S. Technologies, Inc. (E.R.S.), its claim against Bestways for the money due under the purchase orders could not be defeated by claims Bestways may have against E.R.S. We disagree and uphold the court’s finding that as an assignee, Bank acquired no greater rights than its

[766]

assignor, E.R.S., and took subject to any defenses Bestways had against the assignor.

Facts

It was stipulated at trial that E.R.S. delivered to Bestways 10 units known as “Night Clerks.”

1

According to the invoices, these products had a unit price of $4,997. Also according to the invoices the “Night Clerks” were delivered in late July and early August 1986.

In June of 1986, E.R.S. and Bank entered into an agreement wherein Bank agreed to purchase Bestways’s purchase orders and invoices as a means of providing financing to E.R.S. Pursuant to that agreement, Bank filed the present action to recover for the 10 units delivered to Bestways. Bestways claimed, among other things, that the products were not merchantable and therefore it was not obligated to pay for the products.

In its statement of decision, the court found that the purchase orders and invoices were not negotiable instruments within the meaning of the California Uniform Commercial Code. It also determined that Bank was the assignee of E.R.S. and, as such, took the nonnegotiable instruments subject to any defenses Bestways had against E.R.S. Finally, it determined that because of the failure of consideration by E.R.S., Bestways was not obligated to pay for the products. Accordingly, judgment was entered in favor of Bestways.

Discussion

Bank contends that pursuant to Civil Code sections 955 and 955.1, Bank purchased the accounts due E.R.S by Bestways free and clear of any defenses Bestways may have against E.R.S. The sections do not support plaintiff’s position.