Cheney v Jemmett
S. Ct ID [1984]
Author:- Sam Biers

Limitations on Assignment

Relevant Facts: Pls Cheney, entered into a real estate K w/ Dfs Jemmett.  Pls agreed to sell certain property for $32,500 w/ $5K paid by 1^st of the next mo.  The balance plus interest to be paid per annum to bank.  A non-assignment clause was added to the K, but could be overridden by written consent of Pl.   Dfs wanted to sell the property and their broker requested Pls’ consent which was refused.  Dfs, after speaking with atty, drafted a separate and independent agreement, where the payments from the new owners would automatically be tendered to the escrow account of Pl/Df until paid in full.  During the final transaction w/ Dfs and new owners an encumbrance was found where Pls had assigned their interest to obtain a loan.  Pl delivered a satisfaction of encumbrance.

Legal Issue(s):   Whether the Pls can unreasonably and arbitrarily withhold consent for Dfs to assign the real estate contract which has a non-assignment clause subject to written consent?

Court’s Holding: No, reasonable and in good faith only.

Procedure: @ trial Dfs moved for involuntary dismissal, judge granted; S. Ct ID Affirmed with atty fees (concurrence opted to refused atty fees); Pet Rehearing denied but atty fee award reversed.

Law or Rule(s): Where a K provides that the matter of approval of performance is reserved to a party, he must “act fairly and in good faith in exercising that right. He has no right to withhold arbitrarily his approval; there must be a reasonable justification for doing so.”  When a matter in a K is left to the determination of one party alone, that party’s determination is conclusive if he acts in good faith.

Court Rationale: A lessor may not unreasonably withhold his consent, under a sublease agreement, to a prospective subleasee or such result would nullify the right of a lessee to sublet.  When a K grants the purchaser the right to assign his interest in the K, or in the property in issue, conditioned upon obtaining the consent of the seller, the seller must act reasonably and in good faith in withholding his consent to a proposed assignment.  This applies only to those cases where the K specifically conditions the proposed assignment on obtaining the seller’s consent.

 Plaintiff’s Argument: The Dfs assigned their rights and interests in the property without consent of the Pl which was required per the agreement for sale.

Defendant’s Argument: The Dfs and new owners entered into a separate and independent agreement and did not constitute an assignment of the rights and interests under the agreement between the Pl and Dfs.

Concurrence: Agrees with majority as to reasonableness and good faith. The language of the agreement called for an award of atty fees if the a dispute arises and the agreement must be interpreted. While a dispute did arise, the resolution thereof did not hinge on an interpretation of the agreement. 

Dissent: A contract should be carried out as the parties negotiated it, and not as the majority of this ct thinks they should have negotiated it.  If a good faith or reasonability requirement was desired, it was for the parties , not this court, to make that determination.