Gramatan Home Investors Corp. v. Lopez, 46 N.Y.2d 481 (1979)
An assignee of a contract is not bound by a judgment against the assignor in a subsequent action if the assignment occurred before the commencement of that action.
Summary
Gramatan Home Investors Corp. sued the Lopezes to recover money due on an installment sales contract that had been assigned to them. The Lopezes argued that a prior consumer fraud action by the Attorney General against Gramatan’s assignor, Vinyl Engineering, voided the contract. The New York Court of Appeals held that because the assignment occurred before the Attorney General’s suit, Gramatan was not in privity with Vinyl Engineering in that suit and was not collaterally estopped from enforcing the contract. The court reversed the lower courts’ grant of summary judgment to the Lopezes.
Facts
In August 1974, Barbara and Louis Lopez bought vinyl siding from Vinyl Engineering, Inc. They financed the purchase with a retail installment contract and a mortgage on their home. Vinyl Engineering assigned the contract and mortgage to Home Investors Trust (later Gramatan Home Investors Corp.) in September 1974. Almost two years later, the Attorney General sued Vinyl Engineering for consumer fraud. Vinyl Engineering did not appear in the action, and the court voided several contracts, including the one with the Lopezes.
Procedural History
Gramatan Home Investors Corp. sued the Lopezes to recover money due under the installment sales contract. The Lopezes asserted affirmative defenses, including fraud and unconscionability. Following the judgment in the Attorney General’s consumer fraud action, the Lopezes moved for summary judgment, arguing collateral estoppel. The Saratoga County Court granted the motion. The Appellate Division affirmed. The New York Court of Appeals granted leave to appeal.
Issue(s)
Whether a judgment against an assignor in a consumer fraud action collaterally estops the assignee from enforcing the assigned contract, when the assignment occurred before the consumer fraud action was commenced.
Holding
No, because the assignee’s rights vested before the commencement of the action against the assignor, the assignee is not in privity with the assignor in that action and is not collaterally estopped by the judgment.
Court’s Reasoning
The Court of Appeals reasoned that collateral estoppel applies only to parties and those in privity with them. Privity requires a mutually successive relationship to the same rights in the same property. In the context of an assignor-assignee relationship, privity must arise after the event out of which the estoppel arises. The Court cited Masten v. Olcott, 101 N.Y. 152, 161, stating that an assignee is not privy to a judgment where the succession to the rights affected thereby has taken place prior to the institution of the suit against the assignor. Because the assignment occurred before the Attorney General’s suit, Gramatan was not in privity with Vinyl Engineering in that suit. The court also rejected the Lopezes’ reliance on Personal Property Law § 403(5), which makes assignees subject to claims and defenses against the seller. The court stated that this statute was intended to remove the holder in due course defense and does not alter the principles of collateral estoppel. The court emphasized that “one of the fundamental principles of our system of justice is that every person is entitled a day in court notwithstanding that the same issue of fact may have been previously decided between strangers.”