In February 1980, Mary Pratt entered into a contract to buy a Dairy Queen restaurant from Harold

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In February 1980, Mary Pratt entered into a contract to buy a Dairy Queen restaurant from Harold and Gladys Rosenberg. The terms of the contract for the franchise, inventory, and equipment were a purchase price totaling $62,000, a $10,000 down payment, and $52,000 due in quarterly payments at 10 percent interest over a 15-year period. The sales contract also contained a provision denying the buyer a right of prepayment for the first five years of the contract. In October 1982, Pratt assigned her rights and delegated her duties under this contract to Son Inc. The assignment between Pratt and Son contained a “Consent to Assignment” clause, which was signed by the Rosenbergs. It also contained a “save harmless” clause, in which Son promised to indemnify Pratt for any claims, demands, or actions that might result from Son’s failure to perform the agreement. After this transaction, Pratt moved to Arizona and had no further knowledge of or involvement with the Dairy Queen business. Also following the assignment, the Dairy Queen was moved from the mall to a different location. Son assigned the contract to Merit Corporation in June 1984. This assignment did not include a consent clause, but the Rosenbergs knew of the assignment and apparently acquiesced in it. They accepted a large prepayment from Merit, reducing the principal balance to $25,000. After the assignment, Merit pledged the inventory and equipment of the Dairy Queen as collateral for a loan from Valley Bank and Trust. Payments from Merit to the Rosenbergs continued until June 1988, at which time the payments ceased, leaving an unpaid principal balance of $17,326.24 plus interest. The Rosenbergs attempted to collect the balance from Merit, but Merit filed bankruptcy. The business assets pledged as collateral for the loan from Valley Bank and Trust were repossessed. The Rosenbergs brought an action for collection of the outstanding debt against Son and Pratt, claiming that they were still obligated on the contract and that there was no novation in either case. Are Son and/or Pratt liable to the Rosenbergs given Merit’s breach or was either or both released by the assignments and subsequent circumstances?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Business Law The Ethical Global and E-Commerce Environment

ISBN: 978-1259917110

17th edition

Authors: Arlen Langvardt, A. James Barnes, Jamie Darin Prenkert, Martin A. McCrory

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