Delegation of Duties
A delegation transfers the delegator’s duties to the delegatee. The delegator is the party delegating duties.
The delegatee is the party to whom the duties are delegated.
What Duties are Delegable?
Most duties are delegable.
An obligor may delegate his duties unless
(a) delegation would violate public policy;
(b) the original contract prohibits delegation; or
(c) the obligee has a substantial interest in personal performance by the obligor.
Novation
Delegation does not by itself relieve the delegator of his own liability to perform the contract. A delegator
can be discharged of his duties under a contract by obtaining a novation. A novation is a three-way
agreement in which the obligor transfers all rights and duties to a third-party. The obligee agrees to look
only to that third-party for performance.
Case: Rosenberg v. Son, Inc.1
Facts: The Rosenbergs owned a Dairy Queen in Grand Forks, North Dakota. They agreed in writing to
sell the Dairy Queen to Mary Pratt. The contract required her to pay $10,000 down and $52,000 over 15
years, at 10 percent interest. Two years later, Pratt assigned her rights and delegated her duties under the
sales contract to Son, Inc. The Agreement between Pratt and Son contained a “Consent to Assignment”
clause that the Rosenbergs signed. Pratt then moved to Arizona and had nothing further to do with the
Dairy Queen. The Rosenbergs never received full payment for the Dairy Queen. They sued Mary Pratt.
The trial court gave summary judgment for Pratt, finding that she was no longer obligated on the original
contract. The Rosenbergs appealed.
Issue: Did Pratt obtain a novation relieving her of her duties under the original sales contract?
Decision: Reversed and remanded. Pratt did not obtain a novation.
Reasoning: One party to a contract does not escape liability simply by delegating duties and assigning
rights. To relieve itself of all responsibility, a party must obtain a novation, meaning an agreement from
the other side that all liability has now passed on to a third person.
1 491 N.W.2d 71, 1992 N.D. LEXIS 202 Supreme Court of North Dakota, 1992.
It is apparent from the language of this Agreement that the parties intended only an assignment, not a
novation. The document made no mention of discharging Pratt from her duties. In fact, the Agreement
included a clause in which Son indemnified Pratt; the only reason for such a provision was that Pratt
remained liable to the Rosenbergs.
The assignment did not become a novation merely because Rosenberg signed it. A creditor may
permit assignment without releasing the original obligor. That is what happened here, and Pratt remains
liable to the Rosenbergs.
Question: What should Pratt have done to avoid being sued for a debt she thought was behind her?
Answer: When Pratt delegated her duties to Son, Inc., she should have included a novation, in which
Additional Case: Braka v Travel Assistance International (TAI)2
Facts: David Braka purchased traveler’s emergency protection before embarking on his extended
around-the-world honeymoon. The Agreement between Braka and TAI provided, among other benefits,
$1,000,000 coverage in the event of emergency medical evacuation. On or about July 31, 2001, plaintiff
and his wife were seriously injured in a car accident while vacationing in Fiji. Upon learning of the
accident, Braka’s parents flew to Fiji. After his parents arrived, there was a determination made that Braka
was not receiving adequate medical treatment and needed transport via air ambulance back to the United
States for treatment. His parents paid for the transportation at a cost of approximately $350,000. A few
months after the accident, Braka wrote a letter to his father stating his intention to repay the monies his
father advanced on his behalf. To formalize this promise, Braka requested in the letter that his father sign
same. Thereafter, Braka submitted a claim for reimbursement of his travel expenses. The defendants
denied the claim and Braka commenced this action.
The defendants argue that because Braka’s parents paid this obligation, he has no damages and, thus
cannot maintain this suit. Specifically, the defendants contend that the letter that Braka wrote to his father
does not constitute an enforceable note and, as such, plaintiff has no obligation to repay his father.
Issue: Did Braka’s parents’ payment of his emergency transportation costs constitute a novation and
relieve defendants of their obligation under the traveler’s emergency protection policy?
Holding: The court does not agree with defendants and denies their motion to dismiss this action.
The defendants’ arguments focus exclusively on the fact that plaintiff did not pay the approximately
$350,000 himself and, therefore, they allege he has no damages. The issue in this case is not that
plaintiff’s parents, rather than plaintiff, paid for the medical evacuation. This expense was clearly
2 2005 NY Slip Op 50665U; 7 Misc. 3d 1019A; 2005 N.Y. Misc. LEXIS 876 Supreme Court of New
York, New York County, 2005.
undertaken on plaintiff’s behalf in what is alleged as an emergency situation. Under such circumstances,
an insurer is not relieved of its obligation to provide coverage for said medical expenses if the appropriate
procedures relative to the policy have been fulfilled.
A creditor’s acceptance of the obligation of a third person constitutes a novation where it is agreed or
intended by the parties that the third person is to be substituted in place of the original debtor. There was
clearly no arrangement between the parties that would have discharged the defendants’ obligation upon
the plaintiff’s parents paying for his medical evacuation.
Multiple Choice Questions
1. CPA QUESTION Yost contracted with Egan for Yost to buy certain real property. If the contract is
otherwise silent, Yost’s rights under the contract are:
(a) Assignable only with Egan’s consent
(b) Nonassignable because they are personal to Yost
(c) Nonassignable as a matter of law
(d) Generally assignable
2. CPA QUESTION One of the criteria for a valid assignment of a sales contract to a third-party is that
the assignment must:
(a) Not materially increase the other party’s risk or duty
(b) Not be revocable by the assignor
(c) Be supported by adequate consideration from the assignee
(d) Be in writing and signed by the assignor
3. Amanda agrees to pay Jennifer $300 for a pair of tickets to see Jerry Seinfeld. “Seinfeld is my
boyfriend Octavio’s favorite comedian, and the tickets will be a great birthday present for him,” she
tells Jennifer. Amanda pays up and tells a delighted Octavio about the tickets, but Jennifer never
delivers them. Octavio is a(n) ________________ beneficiary of the agreement, and as such, he
______________ have a right to enforce the contract himself.
(a) donee; does
(b) donee; does not
(c) incidental; does
(d) incidental; does not
4. A novation completely releases an ____________ from any further liability. To be effective, it
__________ require the agreement of both the obligor and obligee.
(a) obligor; does
(b) obligor; does not
(c) obligee; does
(d) obligee; does not
5. Will misses three straight payments on his SUV, and his bank repossesses it. The right to repossess
____ a security interest. Security interests are governed by Article _____ of the Uniform Commercial
Code.
(a) is; 2
(b) is; 9
(c) is not; 2
(d) is not; 9
Essay Questions
1. Intercontinental Metals Corp. (IMC) contracted with the accounting firm of Cherry, Bekaert & Holland
to perform an audit. Cherry issued its opinion about IMC, giving all copies of its report directly to the
company. IMC later permitted Dun & Bradstreet to examine the statements, and Raritan River Steel
Co. saw a report published by Dun & Bradstreet. Relying on the audit, Raritan sold IMC $2.2 million
worth of steel on credit, but IMC promptly went bankrupt. Raritan sued Cherry, claiming that IMC
was not as sound as Cherry had reported, and that the accounting firm had breached its contract with
IMC. Comment on Raritan’s suit.
Answer: Raritan was hoping to be a third-party beneficiary of the contract between IMC and Cherry,
Bekaert. But the court was unpersuaded. It found that the accountants had no intention of benefiting
2. Woodson Walker and Associates leased computer equipment from Park Ryan Leasing. The lease said
nothing about assignment. Park Ryan then assigned the lease to TCB as security for a loan. Park Ryan
defaulted on its loan, and Walker failed to make several payments on the lease. TCB sued Walker for
the lease payments. Was the assignment valid, given the fact that the original lease made no mention
of it? If the assignment was valid, may Walker raise defenses against TCB that it could have raised
against Park Ryan?
Answer: The assignment was valid. Nothing in the contract prohibited it, and there is no common law
rule against assigning leases. The obligor is generally entitled to raise defenses against the assignee
3. C. Gaston Whiddon owned Gaston’s LP Gas Co., Inc. Curtis Dufour purchased the company. Since
Whiddon had personally operated the company for many years, Dufour was worried about
competition from him and insisted on a noncompetition clause in the sales contract. The clause stated
that Whiddon would not “compete with Gaston’s LP Gas Co. anywhere south of Interstate Highway
20 for nine years.” Three years later, the Herring Gas Co. offered to buy all of Dufour’s gas business,
assuming that Whiddon would not be a competitor for six more years. Dufour sold all of the assets to
Herring, keeping the actual corporation “Gaston’s LP Gas Co.” for himself. What mistake in drafting
have Dufour and Herring made?
Answer: Dufour and Herring assumed that Dufour was assigning to Herring not only the retail
business but also Whiddon’s agreement not to compete. But Whiddon had agreed not to compete with
4. You Be the Judge: WRITING PROBLEM David Ricupero suspected his wife Polly of
having an affair, so he taped her phone conversations and, based on what he heard, sued for divorce.
David’s lawyer, William Wuliger, had the recorded conversations transcribed for use at trial. The
parties settled the divorce out of court and signed an agreement that included this clause:
Except as herein otherwise provided, each party hereto completely and forever releases the other and
his attorneys from any and all rights each has or may have. .. to any property, privileges, or benefits
accruing to either by virtue of their marriage, or conferred by the Statutory or Common Law of Ohio
or the United States of America.
After the divorce was final, Polly sued William Wuliger for invasion of privacy and violation of
federal wiretapping law. Wuliger moved to dismiss the case based on the clause quoted. Polly argued
that Wuliger was not a party to the divorce settlement and had no right to enforce it. May Wuliger
enforce the waiver clause from the Ricuperos’ divorce settlement? Argument for Wuliger: The
contract language demonstrates that the parties intended to release one another and their attorneys
from any claims. That makes Wuliger an intended third-party beneficiary, and he is entitled to enforce
the Agreement. If Polly did not want to release Wuliger from such claims, she was free not to sign the
agreement. Argument for Polly Ricupero: A divorce agreement settles the affairs between the
couple. That is all it is ever intended to do, and the parties here never intended to benefit a lawyer.
Wuliger is only an incidental beneficiary and cannot use this contract to paper over his violation of
federal wiretapping law.
Answer: Wuliger wins. David intended that Wuliger benefit from Polly’s promised release. The
contract expressly included the attorneys in the release. Further, Polly’s divorce attorney indicated in
5. Judith and John Brooks hired Wayne Hayes to build a house. The contract required Hayes to “provide
all necessary labor and materials and perform all work of every nature whatsoever to be done in the
erection of the residence.” Hayes hired subcontractors to do all of the work. One of Hayes’s
employees checked on the work site daily, but neither Hayes nor any of his employees actively
supervised the building. The Brookses were aware of this working arrangement and consented to it.
The mason negligently installed the fireplace, ultimately leading to a serious fire. The Brookses sued
Hayes for breach of contract. Hayes contended that when the Brookses approved of his hiring of
subcontractors to do all work, that created a novation, relieving him of any liability. Discuss.
Answer: Hayes loses. He has indeed delegated his duties, but that in itself does not remove his own
Discussion Questions
1. A century and a half ago an English judge stated: “All painters do not paint portraits like Sir Joshua
Reynolds, nor landscapes like Claude Lorraine, nor do all writers write dramas like Shakespeare or
fiction like Dickens. Rare genius and extraordinary skill are not transferable.” What legal doctrine is
the judge describing? What is the ethical basis of this rule?
Answer: The judge is giving examples of why a party may not delegate his duties if the obligee has a
substantial interest in personal performance by the obligor. It is only fair that if someone contracts
2. Nationwide Discount Furniture hired Rampart Security to install an alarm in its warehouse. A fire
would set off an alarm in Rampart’s office, and the security company was then supposed to notify
Nationwide immediately. A fire did break out, but Rampart allegedly failed to notify Nationwide,
causing the fire to spread next door and damage a building owned by Gasket Materials Corp. Gasket
sued Rampart for breach of contract, and Rampart moved for summary judgment. Comment.
Answer: Rampart’s motion was allowed. Gasket was merely an incidental beneficiary of the
3. If a person promises to give you a gift, there is usually no consideration. The person can change his
mind and decide not to give you the present, and there is nothing you can do about it. But if a person
makes a contract with someone else and intends that you will receive a gift under the agreement, you
are a donee beneficiary and you do have rights to enforce the deal. Are these rules unacceptably
inconsistent? If so, which rule should change?
4. Imagine that you hire your trusted friend Fran to paint your house, and that you do not include a
nondelegation clause in the agreement. Fran delegates the job to Sam, who is a stranger to you. The
delegation is legal, but should it be? Is it reasonable that you must accept the substitute painter?
5. In our society, a person can buy and sell almost anything. But as the chapter describes, you cannot sell
personal injury claims. Should you be able to do so? Imagine that you are injured in a car wreck. You
are told that you might eventually win $100,000 in a lawsuit, but that you might not receive payment
for years, and you might also lose the case and recover nothing. If someone is willing to pay you
$20,000 cash-on-the-barrelhead today for the rights to your claim, is it fair that public policy concerns
prohibit you from taking the money?