First American Commerce Co. v. Washington Mut. Sav. Bank

• Decision Date: 21 September 1987
• Docket Number: No. 860404,860404
• Citation: 743 P.2d 1193
• Parties: FIRST AMERICAN COMMERCE COMPANY, a Utah general partnership; W. Claude Smith; Francis H. Suitter; James R. Dickson, Jr.; Sam D. Battistone; Carla Nan Battistone; Merrill Turnbow; Kurt Larsen; Sandra Lynn Larsen; Glenn A. Powell; and Carol A. Powell, Plaintiffs and Appellants, v. WASHINGTON MUTUAL SAVINGS BANK, a Washington corporation, and First Security Realty Services, Inc., a Utah corporation, Defendants and Respondents.
• Court: Utah Supreme Court

Page 1193

743 P.2d 1193

FIRST AMERICAN COMMERCE COMPANY, a Utah general partnership W. Claude Smith; Francis H. Suitter; James R. Dickson Jr.; Sam D. Battistone; Carla Nan Battistone; Merrill Turnbow; Kurt Larsen; Sandra Lynn Larsen; Glenn A Powell; and Carol A. Powell, Plaintiffs and Appellants, v. WASHINGTON MUTUAL SAVINGS BANK, a Washington corporation and First Security Realty Services, Inc., a Utah corporation, Defendants and Respondents.

No. 860404.

Supreme Court of Utah.

Sept. 21, 1987.

David R. Olsen, Salt Lake City, for plaintiff and appellant Francis suitter.

Reed L. Martineau, Stephen J. Hill, Ryan Tibbitts, Salt Lake City, for other plaintiffs and appellants.

Kent H. Murdock, Larry G. Moore, Ira B. Rubinfeld, Salt Lake City, for defendants and respondents.

DURHAM, Justice:

In this interlocutory appeal, First American Commerce (Borrower) seeks relief from a summary judgment entered against it dismissing all but its claim for fraud against First Security Realty Services (Lender).

In evaluating the appropriateness of summary judgment, we do not defer to the decision of the trial court, but rather apply the same standard used by that court. Durham v. Margetts, 571 P.2d 1332, 1334 (Utah 1977). We view the facts in the light most favorable to the party opposing the summary judgment and grant summary judgment only if the moving party is entitled to judgment as a matter of law. Themy v. Seagull Enterprises, 595 P.2d 526, 528-29 (Utah 1979).

The facts as asserted by Borrower are that Borrower received a loan from Lender, ¹ securing repayment with a deed of trust and an assignment of rents on a commercial building owned by Borrower. Under the loan documents, Lender's written approval was required on new leases and a percentage of the loan was withheld in a "hold-back" fund pending the completion of certain tenant improvements. On the day the loan documents were signed, Lender assigned the loan to Washington Mutual Savings Bank (Assignee). The assignment was made with the knowledge and consent of Borrower. Borrower desired to lease space in the building and contacted both Lender and Assignee, neither of which would give written consent. Borrower lost the opportunity to lease the space. Upon completion of the tenant improvements, Borrower made a written request that Lender release the held-back funds. Lender refused to release the funds on the theory that its duty to do so had been delegated to Assignee. Borrower sued Lender and Assignee.

Lender obtained summary judgment on the theory that when it assigned the loan documents to Assignee, it ceased to have any responsibility to Borrower, including the duty to release the held-back funds. Borrower argues that although Lender assigned its right to receive payments, it remained obligated to perform its duties under the loan agreement. In the absence of a novation agreement between Lender and Borrower whereby Assignee's performance would be substituted for that of Lender, Lender remained responsible for its duties under the loan. We believe that Borrower is correct.

A review of basic contract law vocabulary is helpful to a resolution of the issue. An assignment is the transfer of rights; a delegation is the transfer of duties. J. Calamari & J. Perillo, Contracts § 18-24 (2d ed. 1977). The term "assignment" is often used imprecisely by courts. We agree with the Second Circuit Court of Appeals that "lawyers seem prone to use the word 'assignment' inartfully, frequently intending to encompass within the term the distinct [concept] of delegation...." Contemporary Mission, Inc. v. Famous Music Corp., 557 F.2d 918, 924 (2d Cir.1977) (quoting J. Calamari & J. Perillo, Contracts § 254 (1970)). Cf. Pemberton v. Arkansas State Highway Commission, 268 Ark. 929, 97 S.W.2d 605 (Ark.Ct.App.1980) (demonstrating an imprecise use of the terminology). Regardless of the terminology they use, courts agree that a party who delegates his duties under a contract to a third person is not relieved of his responsibilities, but rather remains ultimately responsible to the party with whom he contracted for guaranteeing the successful execution of the contractual duties. See, e.g., Cuchine v. H.O. Bell, Inc., 682 P.2d 723, 725 (Mont.1984); Smith v. Wrehe, 199 Neb. 753, 760, 261 N.W.2d 620, 625 (1978).

Lender contends that ordinary contract law principles do not apply to bank loans and that the language of the loan documents contemplated a novation rather than an assignment. Lender's argument is that while the usual rules of contract law should apply when a party delegates a duty to provide goods or services, a bank that delegates duties under a loan agreement should have no further liability. In support of this contention, Lender cites dicta in cases concerning assignments of mortgages on failed low income housing projects to the Secretary of Housing and Urban Development under a federal guarantee program. See, e.g., Marcus Garvey Square, Inc. v. Winston Burnett Construction Co. of California, 595 F.2d 1126 (9th Cir.1979). Those cases, none of which directly treat the issue before us, have no bearing on the case at bar. An examination of the policy underlying the general rule demonstrates the weakness of Lender's position. The usual rule requiring that a delegating party remain liable is designed to protect the expectations of the party receiving the performance. The delegating party should not be able to foist upon the other party to the contract a performer whose skills, goods, reliability, or solvency might differ from those of the delegator. See Foster v. Cross, 650 P.2d 406,...