Opinion
November 7, 1949.
The action is by the assignee of five conditional bills of sale to recover from the purchaser of certain fruit juice machines the balances due on the contracts, and to recover from the individual defendants on a written guarantee. Defendants interposed an answer consisting of a general denial, together with affirmative defenses and counterclaims based on breach of implied warranty by the seller (plaintiff's assignor) of merchantability and fitness for use, and fraud on the part of plaintiff's assignor. Plaintiff moved for summary judgment on the ground that defendants were estopped from setting up the defenses by reason of a provision contained in the conditional sales contracts that the purchaser would not set up any claim against the seller as a defense, counterclaim, or offset against any assignee of the seller. Order granting summary judgment modified on the law and the facts (1) by striking from the first ordering paragraph the words "in all respects granted" and substituting therefor the word "denied"; (2) by inserting after the word "that" in the second ordering paragraph the words "the first affirmative defense and counterclaim and so much of the third affirmative defense and counterclaim which incorporates the first defense and counterclaim contained in", and by striking from said paragraph the words "and it is hereby further"; and (3) by striking out the third, fourth, fifth and sixth ordering paragraphs. As so modified, the order is affirmed, with $10 costs and disbursements to appellants. In view of the foregoing, the judgment entered on the aforesaid order is vacated. Although it is against public policy to waive a defense of fraud in an action between the parties to a contract ( Bridger v. Goldsmith, 143 N.Y. 424), it is not against public policy to waive such a defense in an action between the creditor's assignee and the debtor ( Wilcox v. Howell, 44 N.Y. 398). However, where, as in the case at bar, the waiver of defense clause is embodied within the contract which is claimed to have been fraudulently obtained, the fraud which vitiates the contract also vitiates the waiver of defense clause contained within it. ( Wilcox v. Howell, supra; Weyh v. Boylan, 85 N.Y. 394.) Even if defendants prove the fraud alleged so that there will be no estoppel by contract, the agreement in the contract not to plead defenses against an assignee may serve as the basis of estoppel by conduct ( American Nat. Bank v. A.G. Sommerville, Inc., 191 Cal. 364, cited with approval in Manhattan Co. v. Morgan, 242 N.Y. 38), despite the fact that the buyer had not discovered the fraud which defendants now assert vitiated the conditional sales contract ( Hubbard v. Briggs, 31 N.Y. 518). Summary judgment may not be granted on the issue of estoppel by conduct because questions of fact are present (1) whether the buyer signed the conditional sales contract with the knowledge that it was to be assigned ( Hubbard v. Briggs, supra); (2) whether the buyer signed the contract containing the agreement to waive defenses in order to induce plaintiff to purchase the conditional bill of sale or to enable the seller to negotiate it ( Wilcox v. Howell, supra); (3) whether plaintiff bought the conditional bill of sale relying on the representation ( Mechanics' Bank v. New York New Haven R.R. Co., 13 N.Y. 599, 638); (4) whether plaintiff had knowledge of the fraud of the seller (see 128 A.L.R. 729, and cases therein cited). In the absence of fraud, the defense of breach of implied warranty may be validly waived. ( Gutchess v. Daniels, 49 N.Y. 605; Lumbrazo v. Woodruff, 256 N.Y. 92; United States v. Troy-Parisian, Inc., 115 F.2d 224; Elzey v. Ajax Heating Co., 10 N.J. Misc. 281; Anglo-California Trust Co. v. Hall, 61 Utah 223.) A question of fact exists with respect to the defense of fraud. Carswell, Acting P.J., Johnston, Sneed, Wenzel and MacCrate, JJ., concur. [See post, p. 870.]