Opinion ID: 2054163
Heading Depth: 3
Heading Rank: 3

Heading: Whether Midland's Damages Should Be Reduced by the Payments Owed Mercy by FDC Under the Expansion Agreement

Text: The expansion agreement was part of the original agreement between Mercy and West Roads. Under the expansion agreement, West Roads was required to construct an addition to the shopping center to provide additional space for Mercy's clinic. The agreement provided that if West Roads did not begin construction on the addition within twenty-four months, it was required to pay the negative cash flow on a building in Indianola owned by Mercy. West Roads never constructed the addition and thus the terms of the expansion agreement were already activated when FDC purchased the shopping center in 1990 and assumed this obligation. Mercy contends that it should receive a credit against the damages it owes Midland for the amount due under the expansion agreement. As part of the loan agreement between FDC and Midland in January 1990, FDC was required to execute an assignment of rents and leases. This document assigned all of FDC's interest in leases with its various tenants to Midland. As long as no default had occurred, FDC was granted a revocable license to collect and receive all rents, revenues, profits and income. In the event of a default, the license would be automatically revoked by Midland. We begin our analysis with the general principles of assignment and delegation. An assignment is a transfer of rights. See 6A C.J.S. Assignments § 2 (1975). By an assignment, the obligee as assignor ... transfers to an assignee ... a right that the assignor has against an obligor.  E. Allan Farnsworth, Farnsworth on Contracts § 11.1, at 58 (1990). In such transfers, the assignee assumes the rights, remedies and benefits of the assignor. Red Giant Oil Co. v. Lawlor, 528 N.W.2d 524, 533 (Iowa 1995). Duties or liabilities under a contract, however, are not assigned, they are delegated, a concept distinct from assignment. An obligor's empowering of another to perform the obligor's duty is known as a delegation of the performance of that duty. Farnsworth § 11.1, at 58-59. Often, parties do not distinguish between these words of art. Barker Dev. Co. v. Unibank & Trust Co., 314 N.W.2d 175, 178 (Iowa App.1981). The effect of the failure to distinguish between these terms is addressed by the Restatement: Unless the language or the circumstances indicate the contrary, ... an assignment of the contract or of all my rights under the contract or an assignment in similar general terms is an assignment of the assignor's rights and a delegation of his unperformed duties under the contract. Restatement (Second) of Contracts § 328(1) (1979). In the assignment agreement between Midland and FDC, FDC assigned its right, title and interest in, to and under all leases,... together with all rights, powers, privileges, options and other benefits ... and all the rents, revenues, profits and income. Unlike many parties, FDC and Midland did distinguish between the concepts of assignment and delegation in the assignment agreement. A clause at the end of the agreement provides: The assignment made hereby is an absolute and unconditional assignment of rights only, and not a delegation of duties. The execution and delivery hereof shall not in any way impair or diminish the obligations of [FDC] under the provisions of each and every Lease nor shall any of the obligations contained in the Leases be imposed upon [Midland]. (Emphasis added.) Mercy contends that FDC's assignment of rents and leases to Midland was also a delegation of FDC's duties and obligations under the expansion agreement. We conclude that Mercy's argument cannot prevail for two reasons. First, even if the language of the assignment agreement could be construed as a delegation as well, this would only operate to delegate FDC's duties under the lease agreement with Mercy. Any alleged delegation found in the assignment of rents and leases would not affect the rights and obligations as between Mercy and FDC contained in the expansion agreement. The lease agreement and expansion agreement were two separate and distinct contracts. Therefore, we find that even if the assignment of rents could be construed as a delegation of duties as well, that delegation would not apply to the duties established between the parties in the expansion agreement. Second, the language in the assignment of rents and leases indicates that the parties did not intend for the document to constitute a delegation of duties. This is evidenced clearly by the language of the agreement, which states: The assignment made hereby is an absolute and unconditional assignment of rights only, and not a delegation of duties. The language of the assignment agreement indicates that no delegation of duties was to occur. See Farnsworth § 11.10, at 126. Furthermore, the assignment is not written in general terms such as all rights under the contract, which could generate confusion as to the intent of the parties. Mercy also argues the principle that an assignee takes precisely what the assignor had, and assumes not onlythe advantages, but is subject to the same defenses that would be available against the assignor. While we have previously recognized this principle, see Smith v. Brown, 513 N.W.2d 732, 733-34 (Iowa 1994), it is not applicable to Mercy's argument that Midland is liable for FDC's duties under the expansion agreement. This principle means that the assignee is vulnerable to defenses of the obligor that affect the enforceability of the obligor's agreement with the assignor. These include unenforceability for lack of consideration, reasons of public policy, or failure to satisfy the statute of frauds. Farnsworth § 11.8, at 106 (emphasis added). The claim Mercy is raising does not affect the enforceability of the expansion agreement between Mercy and FDC. Rather, Mercy is contending that Midland assumed FDC's duties and obligations, an entirely different claim to which the principle advanced by Mercy does not apply.