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Court Holds Assignment Vitiates Contract Provision Limiting Damages

Yesterday, a division of the California Court of Appeal came to the rather surprising conclusion that an assignment of a contract deprived the assignor of the benefit of a contractual limitation on liability.  Gietzen v. Covenant Re Management, Inc., 2019 Cal. App. LEXIS 913.  In this case, the contract was a lease that included a provision limiting the landlord's liability for breach of the lease to its interest in the premises.  After the lessee sued and obtained a judgment against the landlord, the lessee sought to amend the judgment to include the landlord's general partner pursuant to Corporations Code § 15904.04(a).  The general partner argued that it had no liability by virtue of the lease's provision limiting liability.  In the meantime, the landlord had lost the property to its lender in foreclosure.

The Court of Appeal held that the lease's limitation on liability was not rendered meaningless by the foreclosure.  The foreclosing lender instead enjoys the benefit of that provision as the landlord's successor in interest.  The landlord lost the benefit of the provision when the lease was assigned in foreclosure.  Because the general partner cannot have greater rights than the landlord, it too lost the benefit of the lease's limitation on liability.  The landlord's loss of the property turns out to have been the lessee's gain vis-a-vis its judgment.

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