Schupack v. McDonald's System, Inc.

• Decision Date: 05 April 1978
• Docket Number: No. 41114,41114
• Citation: 200 Neb. 485,264 N.W.2d 827
• Parties: Eli I. SCHUPACK and Julian J. Wineberg, Appellees and Cross-Appellants, v. McDONALD'S SYSTEM, INC., an Illinois Corporation, McDonald's Corporation, aDelaware Corporation, Appellants and Cross-Appellees, Impleaded with Robert A.Edwards, Appellee and Cross-Appellee.
• Court: Nebraska Supreme Court

Page 827

264 N.W.2d 827

200 Neb. 485

Eli I. SCHUPACK and Julian J. Wineberg, Appellees and Cross-Appellants, v.McDONALD'S SYSTEM, INC., an Illinois Corporation, McDonald's Corporation, aDelaware Corporation, Appellants and Cross-Appellees, Impleaded with Robert A.Edwards, Appellee and Cross-Appellee.

No. 41114.

Supreme Court of Nebraska.

April 5, 1978.

Syllabus by the Court

1.In an appeal in an equity action, it is the duty of this court to try issues of fact de novo upon the record and to reach an independent conclusion thereon without reference to the findings of the District Court.Such independent conclusions of fact must be determined by this court in accordance with the ordinary rules governing the burden of proof and the competency and materiality of the evidence.

2.Subject to certain exceptions in case of contracts involving relations of personal confidence or trust or being for personal services all contracts are assignable.

3.A contract, which shows by its nature or terms that it is personal in character, that is, that reliance for its performance is placed on the integrity, credit, or responsibility of a party, or that confidence or trust is reposed in him personally for its performance, is not assignable, even in the sense of its performance being delegated to another without the consent of the other party to the contract.

4.Rights arising out of a contract cannot be transferred if they are coupled with liabilities or if they involve a relation of personal confidence such that the party whose agreement conferred those rights must have intended them to be exercised only by him in whom he actually confided.

5.Whether rights and duties under a contract are too personal in character to permit assignment is a question of construction to be resolved from the nature of the contract and the express or presumed intention of the parties.

6.Whether a duty is personal such that it cannot be delegated is a question of the intention of the parties to be ascertained from the contract, its nature, and attending circumstances.

Kutak, Rock, Cohen, Campbell, Garfinkle & Woodward, Omaha, for appellants and cross-appellees.

Abrahams, Kaslow & Cassman, Omaha, for appellees and cross-appellants.

McGrath, North, O'Malley, Kratz, Dwyer, O'Leary & Martin, P.C., Omaha, for appellee and cross-appelleeRobert Edwards.

Heard before WHITE, C. J., and SPENCER, BOSLAUGH, McCOWN, CLINTON, BRODKEY, and WHITE, JJ.

PAUL W. WHITE, Chief Justice.

This is an action by the plaintiffs against the defendants, McDonald's Corporation and McDonald's System, Inc., its wholly owned subsidiary (hereinafter referred to as McDonald's), for a declaratory judgment to determine the respective rights and obligations of the parties to and under a certain Right of First Refusal (or Right) originally granted by McDonald's to Bernard L. Copeland and now allegedly possessed by the plaintiffs, and for specific performance and injunctive relief requiring McDonald's to accord the plaintiffs the Right of First Refusal to acquire a McDonald's unit in Bellevue, Nebraska, and any additional units which might be in the future developed by McDonald's in the Omaha, Nebraska, or Council Bluffs, Iowa, area.After commencement of this action McDonald's granted the franchise for the Bellevue unit to Robert A. Edwards who was subsequently joined as a defendant.

The case was tried to the court which, on September 28, 1976, found that: The Right given to Copeland by McDonald's was not a personal contract and was freely transferable or assignable without McDonald's consent; the Right was transferred and conveyed to the plaintiffs in 1964 by Copeland and John Skoog when they sold all their interest in various McDonald's franchises in Omaha and Council Bluffs to the plaintiffs; McDonald's consented (although their consent was not necessary) to this transfer of the Right by their knowledge of the transfer and their conduct subsequent to the transfer; and the area encompassed by the Right includes only that area which is within the corporate limits of the cities of Omaha and Council Bluffs as those boundaries may be fixed from time to time by appropriate ordinance, and specifically that the Right does not encompass Bellevue.

Accordingly, the District Court held that under the Right McDonald's is obligated to accord the Right of First Refusal to the plaintiffs to acquire any additional units which may hereafter be developed in the geographical area within the corporate limits of the cities of Omaha and Council Bluffs as now existing or as may hereafter be extended; and enjoined McDonald's from granting or operating franchises in the Omaha and Council Bluffs area without according the plaintiffs the Right of First Refusal to acquire such units.

McDonald's appeal from that portion of the decree which finds and holds that the Right was not personal to Bernard L. Copeland and was assignable and was assigned and transferred to the plaintiffs and that McDonald's acknowledged and consented to this transfer.Plaintiffs cross-appeal from that portion of the decree which finds and holds that the Right is limited in scope to the corporate limits of Omaha and Council Bluffs and that it does not encompass Bellevue.For the reasons stated below, we reverse the judgment of the District Court and remand the cause for further proceedings in accordance with this opinion.

This is an equity action.The following rules govern our review of the trial court's action."In an appeal in an equity action, it is the duty of this court to try issues of fact de novo upon the record and to reach an independent conclusion thereon without reference to the findings of the District Court."Marfisi v. Spagnola, 197 Neb. 211, 248 N.W.2d 24(1976)."Such independent conclusions of fact must be determined by this court in accordance with the ordinary rules governing the burden of proof and the competency and materiality of the evidence."Shirk v. Schmunk, 192 Neb. 25, 218 N.W.2d 433(1974).See, also, § 25-1925, R.R.S.1943.

The Right in question was granted to Bernard Copeland by McDonald's in a letter dated July 1, 1959, which reads:

"This letter, Mr. Copeland, will confirm our understanding regarding any additional McDonald's units that may be developed in the Omaha, Nebraska, or Council Bluffs, Iowa area.

"Providing you or any corporation you are involved with, is not in default on a McDonald's franchise, or a franchise Realty Corporation lease; any locations that we might develop in the Omaha, Nebraska or Council Bluffs, Iowa area will be offered to Bernard L. Copeland first."This letter was signed by Donald R. Conley, then vice president of McDonald's.

The initial question for us to decide is whether the Right was assignable as transferable without the consent of McDonald's."Subject to certain exceptions in case of contracts involving relations of personal confidence or trust or being for personal services all contracts are assignable."6A C.J.S.Assignments§ 29, p. 626."A contract, which shows by its nature or terms that it is personal in character, that is, that reliance for its performance is placed on the integrity, credit, or responsibility of a party, or that confidence or trust is reposed in him personally for its performance, is not assignable, even in the sense of its performance being delegated to another, without the consent of the other party to the contract, * * * ."6A C.J.S.Assignments§ 33, p. 635.

In Rice v. Gibbs, 40 Neb. 264, 58 N.W. 724(1894), we stated: " 'Rights arising out of a contract cannot be transferred if they are coupled with liabilities or if they involve a relation of personal confidence such that the party whose agreement conferred those rights must have intended them to be exercised only by him in whom he actually confided.' "

Whether the Right granted to Copeland was personal to him, and thus not assignable without the consent of McDonald's, is a question to be resolved by ascertaining the intent of the parties to the transaction."Whether rights and duties under a contract are too personal a character to permit assignment is a question of construction to be resolved from the nature of the contract and the express or presumed intention of the parties, * * * ."6A C.J.S.Assignments§ 33, p. 636.In Rossetti v. City of New Britain, 163 Conn. 283, 303 A.2d 714(1972), it is stated: "Whether a duty is personal such that it cannot be delegated, however, is a question of the intention of the parties to be ascertained from the contract, its nature, and attending circumstances."

McDonald's was founded in 1954 by Mr. Ray A. Kroc.Kroc licensed and later purchased the name McDonald's and all proprietory rights thereto from two brothers named McDonald, who were operating a hamburger restaurant in San Bernardino, California.In 1955 Kroc embarked on a plan to create a nationwide standardized system of franchised fast-food restaurants.During the period 1955 to 1959, five individuals operated McDonald's.These were Kroc, who was the founder and controlling stockholder, its president and "the head man" and "boss"; June Martino, Kroc's former secretary; Harry Sonneborn; Fred L. Turner; and Donald R. Conley.

At the trial, Kroc testified about the image he sought to create with McDonald's.He stated that he wanted "to take the joint out of hamburgers."He wanted to create "An image people would have confidence in.An image of cleanliness.An image where the parents would be glad to have the children come and/or have them work there."

Kroc testified that careful selection of franchisees was to be the key to success for McDonald's and the establishment of this image.He stated, "The way to get the image across, was that the kind of peoplewe had in there * * * ."People were selected, "who had a great deal of pride, and had an aptitude for serving the public, and had dedication."Kroc testified, "we knew that if we had people that were going to...