Travertine Corp. v. Lexington-Silverwood, No. A03-210.

• Decision Date: 01 July 2004
• Docket Number: No. A03-210.
• Citation: 683 N.W.2d 267
• Parties: TRAVERTINE CORPORATION, Appellant, v. LEXINGTON-SILVERWOOD, a Minnesota Limited Partnership, Respondent.
• Court: Minnesota Supreme Court

683 N.W.2d 267

TRAVERTINE CORPORATION, Appellant, v. LEXINGTON-SILVERWOOD, a Minnesota Limited Partnership, Respondent.

No. A03-210.

Supreme Court of Minnesota.

July 1, 2004.

Rehearing Denied July 22, 2004.

Donald R. McNeil (# 200840), Steven F. Buterin (# 248642), Coleman, Hull & Van Vliet, PLLP, Minneapolis, MN, for Travertine Corporation.

Curtis D. Smith (# 102313), Peter A. Koller (# 150459), Moss & Barnett, Minneapolis, MN, for Lexington-Silverwood.

Heard, considered, and decided by the court en banc.

OPINION

ANDERSON, RUSSELL A., Justice.

We are asked to determine whether a nonassignment clause precludes assignment of the right to payment under a contract if the clause does not explicitly limit, beyond the express nonassignment terms contained in that clause, the power of assignment, or provide that any purported assignment shall be invalid or void. We hold that such a nonassignment clause does preclude assignment, and therefore reverse the court of appeals' decision to the contrary.

The underlying dispute in this case concerns the claim of respondent Lexington-Silverwood, L.P. that it was assigned the compensation that James E. Lennon was due under a "management agreement" to which Lennon, George Berkey, and appellant Travertine Corporation, a real-estate development venture, were parties. In August 1989, Travertine entered into the management agreement with Lennon and Berkey. The agreement provides that Lennon and Berkey would serve as the board of directors and officers of Travertine and would "provide all of the management services necessary to undertake the land acquisition, assembly and disposition" described in Travertine's business plan. Lennon subsequently served as President of Travertine. In return for their services, Travertine agreed to pay Lennon and Berkey a percentage of its net profits.

The management agreement further provides that if Travertine terminated the agreement, Lennon and Berkey would be entitled to compensation for their services up to the termination date. Disputes under the agreement are subject to an arbitration clause, which provides that "[i]n the event of a dispute between the parties with reference to the interpretation of this Agreement or their rights hereunder, the same shall be submitted to arbitration." The nonassignment clause at issue provides in its entirety that:

This Agreement shall be binding on the parties and their respective personal representatives, successors and assigns; provided, however, that the rights and obligations of Berkey/Lennon shall not be assignable except that Berkey may assign to Lennon or Lennon assign to Berkey such rights and obligations.

In February 1992, Berkey assigned all of his rights under the management agreement to Lennon. In May 1996, Lexington-Silverwood obtained a judgment against Lennon in a matter unrelated to Travertine. In settlement of the judgment, Lennon purported to assign to Lexington-Silverwood his rights to compensation under the management agreement with Travertine. The assignment agreement¹ provided that Lexington-Silverwood "has an equitable assignment of Lennon's stock in Travertine" and that "Lennon agrees to transfer all other compensation, including anything due Lennon from his management agreement with Travertine."

On November 12, 1999, Travertine's Board of Directors terminated Lennon as President and "suspended" the management agreement. Not having secured a willing and able buyer for the real estate it had acquired, Travertine cancelled the management agreement on January 15, 2001. Lexington-Silverwood filed a demand for arbitration in March 2002, alleging that, as Lennon's assignee, it was entitled to the compensation due him under the management agreement and that Travertine had refused to pay it. Travertine moved the district court for an order staying arbitration. The court determined that Lennon's transfer of his right to compensation was not a valid present assignment, concluding that even if the assignment was enforceable, it was only an assignment of Lennon's right to receive compensation and not his right to demand arbitration. The court granted Travertine's motion to stay arbitration, but the court of appeals reversed. We granted Travertine's petition for further review, and now reverse.

I.

There is no dispute in this case that Lennon attempted to transfer his right to receive compensation under the management agreement, in violation of the anti-assignment clause; the issue before us is what effect that assignment should be afforded. Contract rights are generally assignable, except where the assignment is (1) prohibited by statute;² (2) prohibited by contract; (3) or where the contract involves a matter of personal trust or confidence. Vetter v. Sec. Cont'l Ins. Co., 567 N.W.2d 516, 521 (Minn.1997); Wilkie v. Becker, 268 Minn. 262, 267, 128 N.W.2d 704, 707 (1964); see also Klotz v. Jeddeloh, 201 Minn. 355, 358, 276 N.W. 244, 245 (1937); 6 Am.Jur.2d Assignments §§ 17, 28 (1999). Contract interpretation is a question of law which we review de novo. Employers Mut. Cas. Co. v. A.C.C.T., Inc., 580 N.W.2d 490, 493 (Minn.1998). The primary goal of contract interpretation is to determine and enforce the intent of the parties. Motorsports Racing Plus, Inc., v. Arctic Cat Sales, Inc., 666 N.W.2d 320, 323 (Minn.2003). Where there is a written instrument, the intent of the parties is determined from the plain language of the instrument itself. Metro. Sports Facilities Commn. v. General Mills, 470 N.W.2d 118, 123 (Minn.1991). We have consistently stated that when a contractual provision is clear and unambiguous, courts should not rewrite, modify, or limit its effect by a strained construction. Telex Corp. v. Data Products Corp., 271 Minn. 288, 295, 135 N.W.2d 681, 687 (1965); Anderson v. Twin City Rapid Transit Co., 250 Minn. 167, 178, 84 N.W.2d 593, 601 (1957); Grimes v. Toensing, 201 Minn. 541, 545, 277 N.W. 236, 238 (1938).

The primary purpose of clauses prohibiting the assignment of contract rights is to protect the contracting party from dealing with parties he has not chosen to do business with. See generally 6 Am.Jur.2d Assignments § 29 (1999). Travertine contends that the management agreement prohibits the assignment of the rights and obligations of the parties. Lexington-Silverwood argues that the antiassignment clause in the management agreement only creates a covenant not to assign because it does not specifically state that any attempted assignment will be "void" or "invalid," or that Lennon "lacks the power" to assign the contract. Travertine counters that the use of these terms is not required because the contract expressly prohibits Lennon from assigning his rights.

Lexington-Silverwood contends that the assignment should be upheld despite the antiassignment clause because the modern trend of authority disfavors contractual prohibitions on assignments, especially in this case where the clause failed to expressly make the assignment void. Lexington-Silverwood urges us to adopt the default interpretive rules provided by the Restatement (Second) of Contracts:

(1) Unless the circumstances indicate the contrary, a contract term prohibiting assignment of "the contract" bars only the delegation to an assignee of the performance by the assignor of a duty or condition.

(2) A contract term prohibiting assignment of rights under the contract, unless a different intention is manifested,

(a) does not forbid assignment of a right to damages for breach of the whole contract or a right arising out of the assignor's due performance of his entire obligation;

(b) gives the obligor a right to damages for breach of the terms forbidding assignment but does not render the assignment ineffective;

(c) is for the benefit of the obligor, and does not prevent the assignee from acquiring rights against the assignor or the obligor from discharging his duty as if there were no such prohibition.

Restatement (Second) of Contracts § 322 (1981).

We will not adopt a provision of a Restatement of the Law if our precedent is to the contrary and we believe that our precedent still reflects the proper rule of law. See Coyle v. Richardson-Merrell, Inc., 526 Pa. 208, 584 A.2d 1383, 1385 (1991) ("Where the facts of a case demonstrate that the [Restatement] rule outruns the reason, the court has the power, indeed the obligation, to refuse to apply the rule, a power for the most part unavailable where the rule is legislatively ordained. Were it otherwise, our recognition of the work of the American Law Institute would approach an improper conferral of legislative authority.").

In this case, we need not adopt the default interpretive rules provided by the Restatement (Second) of Contracts § 322 because our precedent that parties may agree that their contractual rights and obligations are not to be assigned is well-established. Vetter, 567 N.W.2d at 521; Wilkie, 268 Minn. at 267, 128 N.W.2d at 707. In our 1964 decision of Wilkie v. Becker, we explained

The general rule is that the right to receive money due or to become due under an existing contract may be assigned even though the contract itself may not be assignable. A contract to pay money may be assigned by the person to whom the money is payable, unless there is something in the terms of the contract manifesting the intention of the parties that it shall not be assigned.

Wilkie, 268 Minn. at 267, 128 N.W.2d at 707 (quoting 6 Am.Jur.2d Assignments § 16) (emphasis added). The language emphasized above is crucial. We did not require that the parties use specific terms to preclude assignment, but merely required the parties to include something expressing their intent that the contract not be assignable. Because there was nothing in the terms of the contract manifesting the intention of the parties that it was not to be assigned, we upheld the assignment. Wilkie, 268 Minn. at 268, 128 N.W.2d at 708. We rearticulated this same general rule in our 1997...