Articles Posted in Contracts

Assignment.jpgAn Assignment of a cause of action is useful where the cause of action is more valuable in the assignee’s hands. For example, a defendant who just lost a jury trial may lack the appetite or resources for a fight with the insurance company who wrongfully denied coverage to that defendant for the plaintiff’s claims. In this instance, the recovery from the insurance company may simply pass through to the plaintiff and the plaintiff’s only source of compensation may be the insurance company. Under this circumstance, an assignment of the defendant’s cause of action against the insurance company to the plaintiff in exchange for the plaintiff’s covenant not to execute the judgment against the defendant may increase both parties’ net economic position.

Assignments typically involve a contractual conveyance by the owner to another of 100% of a cause of action, including all associated rights such as the right to control litigation. Assignments are governed by contract and property law, as well as public policy. An assignment of a cause of action is a conveyance of personal property. Since a cause of action is property, a sale can be structured in the same manner as similar real property or business transactions. The general rule is that all of a cause of action is assignable. However, parties may agree the only parts of the cause of action will be assigned. Components of a cause of action include the right to the proceeds, the right to control the litigation, and the right to accept or reject settlement among others. Once a successful assignment is made, the assignor loses control of the rights assigned.

However, there are limits on assignments of causes of action. In State Farm Fire and Casualty Co. v. Gandy, 925 S.W.2d 696, 706 (Tex. 1996), the Texas Supreme Court voided an assignment in a settlement agreement by an insured defendant to a plaintiff against the insurance company on public policy grounds. The Court held that a defendant’s assignment of his claims against his insurer to a plaintiff is invalid if (1) it is made prior to an adjudication of plaintiff’s claim against the defendant in a fully adversarial trial, (2) the defendant’s insurer has tendered a defense, and (3) either (i) defendant’s insurer has accepted coverage, or (ii) defendant’s insurer has made a good faith effort to adjudicate coverage issues prior to the adjudication of plaintiff’s claim. But the Court made clear that, in no event, is a judgment for plaintiff against defendant, rendered without a fully adversarial trial binding on defendant’s insurer or admissible as evidence of damages in an action against defendant’s insurer by the defendant or the plaintiff as defendant’s assignee.

1221951_to_sign_a_contract_2.jpgMost people believe that that in order to be enforceable a contract must be in writing. However, when people are busy to meet a deadline they may not have time to get a written contract or they simply trust the other person and a hand shake is good enough. While oral contracts can be enforceable, particularly where there has been partial performance of the contract, there are certain contracts that must always be in writing. The Statute of Frauds originated under the English common law and has been codified by most states in this country. The purpose of the Statute of Frauds is to prevent the enforcement of an alleged oral contract with respect to certain transactions unless the contract is in writing.

In Texas, the Statute of Frauds is codified in Chapter 26 of the Texas Business and Commerce Code and provides that certain types of agreements are not enforceable unless they are in writing and signed by the person against whom the agreement is sought to be enforced or by someone lawfully authorized to sign for such person. The most common types of agreements that must be in writing include the following:

  • a promise by an executor to pay from his own property the debts of an estate;
  • a promise by a person to answer for the debt of another person;
  • a contract for the sale of real estate;
  • a lease of real estate for a term longer than one year;and
  • an agreement which cannot be performed within one year following the date of the agreement;

There are, however, some exceptions to the requirement of that these types of contracts be in writing and the case of Jose Antonio Avila v. Luisa Gonzalez 974 S.W.2d. 237 (Tex.App. –San Antonio 1998) discusses some of those exceptions. The lawsuit arose from a three-year domestic relationship between the parties and an agreement between the two regarding the purchase of the home they shared in San Antonio, Texas. Gonzalez verbally agreed to contribute $60,000 up front for the purchase of the home and Avila verbally agreed to make the monthly payments on the remaining debt. Gonzalez claimed that she fully performed her part of the agreement but that Avila ceased making the monthly mortgage payments after Gonzalez initiated legal action against him for breach of another unrelated contract.

Avila asserted that the agreement concerning the purchase of the home fell within the Statute of Frauds because it could not be performed within one year. The court disagreed and found that there was sufficient evidence that the Statute of Frauds did not apply because partial performance of the contract removed the contract from the Statute of Frauds. The court stated that when the application of the Statute of Frauds would injure the person relying on the contract and allow the other party to reap an unearned benefit, partial performance will allow a remedy even if the contract was required to be in writing under the Statute of Frauds. Additionally the court indicated that where one party has fully performed their duties under the contract, the Statute of Frauds may be unavailable to the other party if he knowingly accepts the benefits and partly performs his part of the agreement.
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The court found that Gonzalez had fully performed her part of the agreement when she put $60,000 of her own money down to purchase the house. In addition, the court found that Avila partly performed the agreement in that he paid the monthly mortgage on the home for almost two years and ceased to make the payments only after Gonzalez filed suit against him.
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