## Facts

- The Rosenbergs sold a Dairy Queen business to Mary Pratt under a 1980 contract for $62,000: $10,000 down and the balance payable quarterly with 10% interest over 15 years, with no prepayment right for five years.
- In 1982, Pratt assigned her contract rights and delegated duties to Son, Inc.; the Rosenbergs signed a written consent to the assignment, and Son, Inc. agreed to indemnify Pratt.
- Pratt moved away and had no further involvement with the business.
- In 1984, Son, Inc. assigned the contract to Merit, Corporation; the assignment lacked a written consent for the Rosenbergs, but they knew of the assignment and accepted payments from Merit.
- The Rosenbergs accepted a substantial prepayment from Merit that reduced the principal balance.
- Merit later defaulted, leaving an unpaid principal balance, and filed bankruptcy, preventing collection from Merit.
- The Rosenbergs sued Pratt and Son, Inc. for the unpaid balance; the district court granted summary judgment for both defendants.

## Issues

1. Whether Pratt’s assignment and the Rosenbergs’ consent constituted a novation that discharged Pratt from liability on the sales contract.
2. Whether the district court erred by treating Pratt as a guarantor and concluding that later changes and assignments exonerated her as a matter of law.
3. Whether Son, Inc. was discharged from liability to the Rosenbergs by assigning the contract to Merit.

## Decision

- The Supreme Court of North Dakota reversed the summary judgments for Pratt and Son, Inc. and remanded.
- The court held that Pratt was not released because the record did not show a novation or clear intent by the Rosenbergs to discharge her.
- The court rejected the district court’s guaranty-based analysis; Pratt remained a principal obligor absent a novation.
- The court held that Son, Inc.’s assignment to Merit did not automatically eliminate Son, Inc.’s potential liability to the Rosenbergs.
- The court concluded that unresolved fact questions made summary judgment improper.

## Legal Principles

- Assignment and delegation do not, by themselves, discharge the original contracting party; discharge requires a novation.
- Novation requires an agreement and clear intent to substitute a new obligor and release the original obligor; consent to assignment alone is insufficient absent evidence of release.
- An assignor of contractual duties remains a principal obligor to the promisee unless a novation is established; indemnity between assignor and assignee does not prove the promisee released the assignor.
- Materiality and effect of later changes (including dealings with later assignees and acceptance of prepayment) may present fact questions and generally cannot be resolved as a matter of law on an incomplete record.
- Summary judgment is inappropriate when intent and the legal effect of the parties’ conduct regarding release or substitution remain genuinely disputed.

## Conclusion

The court held that the original buyer and an intermediate assignee could remain liable on a business-sale contract after assignments because consent and subsequent dealings did not establish a novation or clear release, and factual disputes over intent and effect of later events required further proceedings.


Rosenberg v. Son, Inc., 491 N.W.2d 71 (N.D. 1992)