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

Exercise 11

In 1917, a building in Des Moines was leased for 99 years, the annual rent to be $18,000 for the final 45 years payable in gold coin at the lessor's option. Monetary policy changed, and Congress in 1933 declared that gold clauses were against public policy and were therefore payable in U.S. currency. In 1977, policy changed again, and gold clauses were made enforceable if they were part of an obligation issued after October 27, 1977. The lease was assigned to American Life Casualty Insurance Co. in 1990. The assignment stated that American Life "hereby accepts, assumes and agrees to be bound by all of the terms and conditions to be performed by the lease... from and after August 1, 1990." In 1993 the lessor, Trostel, demanded that American Life pay its rent in gold coin. In 1996, Congress passed an amendment that specifically prohibited gold clauses dated before 1977 unless both parties agreed to them. When American Life refused to pay in gold coin, Trostel sued. Was the assignment of the lease a novation of the old contract, and the agreement to assume the terms of the old contract a new agreement to pay in gold?