Law for Business 10th Edition by James Barnes,Terry Dworkin,Eric Richards

Exercise 3

In 1980, Pratt contracted to buy the Rosenbergs's Dairy Queen in Grand Forks, N.D., for $62,000-$10,000 down payment and the remaining $52,000 in quarterly payments at 10 percent interest. In 1982 Pratt assigned her rights and delegated her duties under the contract to Son, Inc. (Son), and moved to Arizona. The Rosenbergs consented to the assignment. In the assignment contract Son promised to indemnify Pratt against all claims brought under the contract. In 1984 Son assigned the contract to Merit Corporation. Merit used the inventory and equipment of the Dairy Queen as collateral on a loan. Merit paid the Rosenbergs the quarterly payments due until 1988, when it filed for bankruptcy. At the time $17,326.24 was due. The bank repossessed the Dairy Queen equipment to satisfy the loan, and the Rosenbergs sued Pratt and Son for the $17,326.24. Pratt defended by arguing that there had been a novation, and only Son, Inc., was liable. Is Pratt correct? Explain.