Facts
- A debtor sold real and personal property to Marvin Copeland.
- As part of the purchase consideration, Copeland agreed with the debtor to assume and pay specified debts of the debtor, including a debt owed to Mrs. B. V. Beard.
- On the same day, before Beard assented to or relied on Copeland’s assumption, Copeland resold the property to a subpurchaser.
- The subpurchaser agreed to assume and pay the same debts.
- The debtor then released Copeland from his promise to pay the debts.
- Beard later sued Copeland in assumpsit to recover her debt based on Copeland’s original assumption agreement.
- The trial court entered judgment for Beard, and the Alabama Court of Appeals affirmed.
- The Alabama Supreme Court granted certiorari to review the Court of Appeals’ judgment.
Issues
- Whether a creditor-beneficiary may maintain an assumpsit action against an original purchaser who assumed the debtor’s debts when, before the creditor assented to or relied on the promise, the debtor and purchaser mutually rescinded the assumption and substituted a new assuming promisor.
Decision
- The Alabama Supreme Court granted certiorari, reversed the Court of Appeals, and remanded.
- Beard could not maintain assumpsit against Copeland because the debtor and Copeland effectively rescinded Copeland’s assumption before Beard assented to or relied on the promise.
Legal Principles
- A creditor-beneficiary’s rights under a debtor–promisor assumption agreement are derivative of the debtor’s rights against the promisor.
- The promisor may assert defenses available against the debtor, including mutual rescission, so long as the creditor has not accepted the promise or relied on it in good faith so as to change position.
- If the debtor no longer has a right of action against the promisor due to a valid rescission before creditor assent or detrimental reliance, the creditor has no enforceable claim against the promisor.
Conclusion
Because the debtor and Copeland rescinded Copeland’s assumption agreement and replaced it with a subpurchaser’s assumption before Beard assented to or detrimentally relied on Copeland’s promise, Beard had no enforceable right against Copeland, requiring reversal and remand.