Rosenberg v. Son, Inc.
491 N.W.2d 71 (1992)
Rule of Law:
A party who delegates their duties under a contract remains liable for performance unless the obligee agrees to a novation releasing them. Subsequent alterations to the contract by the assignee and obligee will only discharge the original party if the alterations are prejudicial to their position.
Facts:
- On February 8, 1980, Harold and Gladys Rosenberg sold their Dairy Queen business to Mary Pratt under a contract for sale requiring quarterly payments over 15 years.
- On October 1, 1982, Pratt assigned her rights and delegated her duties under the contract to Son, Inc.
- The Rosenbergs signed a 'Consent To Assignment' clause as part of the agreement between Pratt and Son, Inc., which also contained a clause where Son, Inc. agreed to indemnify Pratt.
- On June 1, 1984, Son, Inc. assigned the contract to Merit, Corporation. The Rosenbergs had knowledge of this second assignment and accepted a large prepayment from Merit.
- Merit subsequently pledged the business's inventory and equipment as collateral for a bank loan.
- In June 1988, Merit ceased making payments to the Rosenbergs, leaving an unpaid principal balance of $17,326.24.
Procedural Posture:
- The Rosenbergs brought an action against Son, Inc., and Mary Pratt in the district court for collection of the outstanding debt.
- The trial court initially denied a summary judgment motion filed by the Rosenbergs.
- Pratt and Son, Inc., renewed their motions for summary judgment.
- The trial court granted Pratt's summary judgment motion and subsequently granted Son, Inc.'s summary judgment motion, dismissing the Rosenbergs' claims.
- The Rosenbergs (appellants) appealed the trial court's grants of summary judgment to the Supreme Court of North Dakota.
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Issue:
Does a party who assigns their rights and delegates their duties under a contract remain liable for its performance when the other original party consents to the assignment but does not expressly release the assignor from liability, and subsequent modifications are made to the contract?
Opinions:
Majority - Erickstad, Chief Justice
Yes, a party who assigns and delegates their contractual duties remains liable. A mere assignment of a contract does not relieve the assignor of their obligations. To be discharged from liability, there must be a novation, which is a new contract substituting a new party for an original party with the consent of all parties involved. In this case, the Rosenbergs' simple consent to the assignment did not constitute a novation, as there was no express language indicating an intent to release Pratt. In fact, the indemnity clause in the assignment agreement shows Pratt contemplated remaining liable. The trial court erred by applying guaranty law; an assignor is not a guarantor in relation to the original creditor but rather a surety in relation to the assignee. An assignor is only discharged from liability due to subsequent alterations to the contract if those changes materially prejudice their position or increase their burden, which is a question of fact to be determined on remand.
Analysis:
This case clarifies the critical distinction between an assignment and a novation, reinforcing the principle that an assignor's liability is presumed to continue unless explicitly discharged. The court rejected the trial court's application of guaranty law, which would exonerate a party for any alteration to the underlying obligation. Instead, it established a more specific standard for assignors, holding that only prejudicial modifications can discharge their liability. This decision protects obligees by ensuring the original contracting party remains liable, thereby preserving the security of the original bargain unless the obligee expressly agrees to a substitution.
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