Continental Purchasing v. Van Raalte

Mrs. Potter, an employee of the Van Raalte Co. ("Van Raalte"), owed money to a sporting goods store. Later, Continental Purchasing Co. ("Continental") took over the debt.

• Van Raalte = sends wages to creditor (sporting goods store).
• Potter = original debtor
• Continental = new debt owner; new creditor; assignee; 3rd party

However, Potter still agreed to $1.50 wage garnishments by Van Raalte. This occurred 6 times. Van Raalte sent 6 wage garnishments to Continental.

Suddenly, Van Raalte decided to forgive the debt.

Continental sued Van Raalte in New York state court. Continental sought $19.20 owed on the debt.

Van Raalte answered Continental by explaining that Van Raalte had paid $19.20 directly to Potter.

Van Raalte won in the trial court.

A debt is assigned to a 3rd party, the assignee. So, what if the original debtor continues to pay the creditor instead of the assignee?

Namely in this case, is a debtor (Potter) who receives notice that her debt has been assigned to a 3rd party (Continental) but continues to pay the original creditor (Van Raalte) liable for the resulting damage to the assignee (Continental)?

Continental's argument: Van Raalte had received notice that the new debt owner was Continental. The ownership of the debt was assigned to Continental instead of the original sporting goods store.

Yes. A debtor (Potter & Van Raalte) who receives notice that her debt has been assigned to a 3rd party (Continental) but continues to pay the original creditor (Van Raalte for the sporting goods store) is liable for the resulting monetary damage to the assignee (Continental).

Reversed.

Justice Edgcomb: A debtor [Potter] is not affected by the assignment of her debt to a 3rd party [Continental] until the debtor [Potter & Val Raalte that was collecting the debt by wage garnishments] received notice of that assignment.

If after the notice, the debtor continues to pay the original creditor, then the debtor is liable for compromising the new assignee's [Continental] rights.

Of course, the original actor on behalf of the creditor (Van Raalte) is in no position to forgive the debt that has been assigned to the new creditor (Continental).