Assignment of Contract Rights
A person cannot assign or off load his contractual obligations. He may be entitled to sub-contract his obligations, depending on the terms and type of contract involved.
A party to a contract may be able to assign or transfer certain rights such as money receivable, under it. The assignee cannot be in any better position than the assignor. If the debtor (or the equivalent the other party to the original contract) has a defence to the assignor’s claim, the assignee takes it subject to such defence.
When a debt or payment receivable under a contract is assigned by the creditor to an assignee, notice of the assignment must be given to the debtor in order to allow the assignee to enforce the debt directly. If this is not done the assignee is entitled to the benefit of the debt (assuming a valid assignment by contract) but the debt may only be enforced by the original debtor for the benefit of the assignee. The assignee may be able to compel the original debtor to enforce
Burden not Assignable
The burden of a person’s obligations under a contract may not be transferred without the other party’s consent. This is a very fundamental principle. A person who has contracted with another cannot lose the benefit that other’s full faith and credit and the implicit backing of all of the other party’s assets, unless the first party consents.
The discharge of the first party may arise in the context of novation or some other release of contractual rights.
It may be possible for a person to sub contract his obligations. The contractor is still responsible. It is a matter of interpretation of the contract whether and to what extent subcontracting is allowed.
The contract may expressly forbid sub-contracting. The identity of the performing party may be critical. If the contract is one to provide a personal service, it may not be capable of being subcontracted.
Personal Contract Not Usually Assignable
Where a contract between two parties requires personal skill or confidence, the contract cannot be assigned so as to be performed by another. A contractual obligation cannot be offloaded or assigned. This is a fundamental principle.
It may or may not be possible to sub-contract some of a party’s contractual obligations. Even where this is permitted, the original contracting party remains responsible. Otherwise, a party could get out of his contract. The only method by which an obligation can be released from his obligations is with the consent of the other party. This is novation; See below.
Benefit usually Assignable
In contrast to the burden, the benefit of a contract is commonly assignable. Where the performance of the other party is the obligation to pay a sum, provide something or perform a service that does not involve any personal element and it inconvertibly due, then the benefit of it may be presumptively assigned
A debt which is clear and undisputed is generally freely assignable. Other uncontested obligations may be assignable. In contrast assignments of personal claims such as for personal injuries or defamation, are not assignable.
Where the law accepts that there is a legitimate interest in the assignment of the right, such as the assignment of rights regarding structural defects in the case of sale of property, the assignment is generally legitimate.
Where the contract prohibits assignment, the prohibition is will generally effective, at least between the original parties. Where there has been an assignment in breach of the contract in beach of the prohibition, the assignor may be entitled to recover damages for breach of contract for the benefit of the assignee. The assignor would hold what he recovers for the benefit of the assignee.
Choses in Action
A “chose in action” is a class of legal right that can be given ultimate expression, only through legal action. There is no method of taking physical possession of it or asserting it directly. A contractual right in itself is a chose an action.
The principle of assignment applies generally to many rights that may be enforced by a legal claim. These rights are known as “choses in action” and include such things as bank accounts, debts, financial products, insurance policies, shares, bonds, intellectual property rights and many other categories of intangible right.
A chose in action is assigned by giving notice to the counterparty. If notice is not given to that party, the assignment is binding as between the assignor and assignee. This is an equitable assignment. The assignee will generally be able to require that the assignor enforces the contract for his benefit.
Proprietary Aspects of Chose in Action
Contractual rights and other “choses in action” have many of the characteristics of property rights. In the market economy, the law favours assignment and transferability of property rights including choses in action, to the extent reasonably possible.
As in other areas, the common law courts were more rigid and less adapted to the market economy, than the courts of equity. A chose in action could not be assigned so as to entitle the assignee to enforce it in its own name in the common law courts. The assignee obtained a right against the assignor, but no independent right against the third-party obligor. If legal action was required, it was requiring to be brought in the name of the assignor.
The chancery courts were always particularly concerned in relation to property matters. They more readily recognised that an assignment of a quasi-property right should be effective and binding on the conscience of the assignor. Once there was an intention or agreement to assign contractual rights, the courts of equity required the assignor to do all necessary to implement that intention.
Position between Assignor and Assignee
As between the assignor and the assignee, no formality or notice is required. However, notice must be given to the obligor, in order that the assignment is effective as against him. This accords with common sense.
Assignments of contractual rights may be absolute or they may be by way of security. An absolute assignment is an outright transfer or sale. A security assignment of an asset requires the asset to be re-assigned upon repayment of the assignor’s debt or obligation to the assignee. See generally the articles on mortgages and charges
There may be an outright assignment, which is in the nature of a mortgage. A charge is not an outright assignment. It is a proprietary right to be paid from a particular fund.
Legal and Equitable Assignments
The law distinguishes between legal choses in action and equitable choses in action. The former was enforceable at common law and included most contract rights. Equitable choses of action were rights enforceable in equity, such as the rights of beneficiaries under a trust or fiduciary relationship. Such rights are almost always associated with some kind of property.
An outright assignment of an equitable chose in action is fully effective and allows the assignee to bring legal action in its own name. An assignment which is not absolute but which amounts to an equitable assignment does not entitle the assignee to sue and enforce in his own name. He must join the assignor as a party to the litigation. This is considered reasonable because the obligor must know whom he must pay.
A non-absolute assignment of a legal chose in action does not give the assignee the right to sue in his own name. He must join the assignor. In the latter cases, he may be joined as co-plaintiff, if he is prepared to co-operate. If he is not, he may be sued as a defendant, such as if for example, he disputes the effectiveness of the assignment.
Uncompleted / Equitable Assignments
There may be a contract for the assignment of a chose in action between the assignor and assignee. If there is no contract, the assignment will be effective only if it is a completed gift. The courts of equity do not enforce an uncompleted gift. This reflects the principle that equity “does not aid a volunteer”. There must be some valuable consideration so that equity, as a court of conscience, can require the assignor to assign.
Technically, an equitable assignment is effective without notice. However, in the absence of notice to the obligor, the assignee is bound by payments made by the obligor to the assignor. The obligor has no means of knowledge without notice of the assignment. The assignee’s rights to the intangible asset, are not perfected without notice. This is because the assignor may make other assignments to assignees which might first notify the obligor and obtain priority.
The assignee takes subject to all rights and defences which the obligor e.g. debtor has against the assignor. The debtor’s position and rights cannot be prejudiced by the unilateral act of assignment by the assignor.
Mere Right to Claim Unassignable
Certain rights may not be assigned. The assignee must have a genuine commercial interest in taking the assignment and enforcing it for his benefit. A bare right to take a claim is not assignable. There is a public interest against trading in another person’s litigation. It is a civil wrong to support another person’s litigation and such arrangements are invalid
The assignment of a so called bare “right to litigate”, as opposed to one attached to a property interest is not deemed legitimate. Consistent with the civil wrong of champerty and maintenance, it reflected a policy of discouraging the financing of litigation by a third party. This was seen as potentially multiplying litigation, by allowing parties to trade in another’s claim.
In 1982, the UK House of Lords relaxed the principle and allowed for an assignment of a right to litigate in some limited cases. An assignment may be valid if the assignee has a genuine commercial interest in the subject matter of the assignment. A bare right to litigate by itself may not be assigned.
The principle prevents most litigation financing arrangements. A third party may not finance litigation in return for a share of what is recovered. The assignment of the right to litigate is inconsistent with the proper administration of justice.
Novation is where a party to a contract is substituted. The consent of all parties to the contract is required. The other party to the contract consents to the substitution of the new party and the release of the original party. It will not matter that the contract involves personal skill or confidence. It is, in reality, a new contract.
Novation in effect involves a new contract. Instead of A and B being in a contractual relationship, B may release A and substitute C as a new party with the rights and obligations of A. The obligation is now between B and C and A is discharged. The terms of the original contract may be agreed or implied in the circumstances.
A necessary part of the arrangement is that the old contract is agreed to be released in substitution. This differs from an assignment.
A novation does not involve the transfer of a chose in action. This may be significant in the context of restrictions on the transfer of property and in some cases, stamp duty.
Negotiable instruments are a category of obligation that are very freely transferable. Negotiable instruments include cheques, promissory notes bearer instruments and a wider category of unconditional financial obligations.
Negotiable instruments are recognised as freely assignable by commercial custom and statute. They must be in such a form that they can be freely assigned by the delivery without anything more.
In some cases, the person transferring the negotiable instrument can obtain a better t entitlement than the person who transferred it. Where there is a default, there are rules in relation to the order in which persons who have signed and assigned the negotiable instruments can be enforced against.
Bill of Lading
The bill of lading has special characteristics. Its assignability is supported by statute. This enables it to become one of the key instruments in international trade.
Every Consignee of the goods named in a Bill of Lading, and every endorsee of a Bill of Lading to whom the property in the goods mentioned in it shall pass, upon or by reason of such consignment or endorsement, has transferred to and vested in him all rights and is subject to the same liabilities in respect of such goods as if the contract contained in the Bill of Lading had been made with himself.
The bill of lading is said to be a negotiable document of title. They are not negotiable documents in the full legal sense, but they have some of the relevant legal characteristics, such as transferability by endorsement They are transferable.
The bill of lading represents the goods and therefore its transfer has the same effect as a transfer of what it represents. Possession of a bill of lading has the same effect as possession of the goods.
References and Sources
Irish Textbooks and Casebooks
Clark, R. Contract Law in Ireland 8th Ed. (2016)
Friel, R. The Law of Contract 2nd Ed, (2000)
McDermott, P. Contract Law (2001) 2nd Ed (2017)
Enright, M. Principles of Irish Contract Law (2007)
Clark and Clarke Contract Cases and Materials 4th Ed (2008)
English Textbooks and Casebooks
Poole, J. Casebook on contract law. (2014) 12th edition
Stone and Devenney, The Modern Law of Contract 10th Ed (2015)
McKendrick, Contract Law 10th Ed (2013)
Chen-Wishart, Contract Law 5th Ed (2015)
Anson, Reynell, Beatson, J., Burrows, Cartwright, Anson’s law of contract. 29th Ed (2010)
Atiyah and Smith, Atiyah’s introduction to the law of contract. 6th Ed.
Chen-Wishart, M. (2015) Contract law. 5th Ed.
Cheshire, Fifoot and Furmstons, Furmstons and Fifoot Cheshire, Fifoot and Furmston’s law of contract. OUP.
Duxbury, Robert (2011) Contract law. 2nd Ed.
Halson, Roger (2012) Contract law. 2nd Ed.
Koffman & Macdonald’s Law of Contract. 8th Ed. (2014)
O’Sullivan, Hilliard, The law of contract. 6th Ed. (2014)
Peel, and Treitel, The law of contract. 13th Ed. (2011).
Poole, J.Casebook on contract law. 12th Ed. (2014).
Poole, J. Textbook on contract law. 12th Ed. (2014)
Richards, P Law of contract. 10th Ed. (2011)
Stone, R. The Modern law of Contract. 10th Ed. (2013)
Treitel, G. H. An outline of the law of contract. 6th Ed (2014).
Turner, C Unlocking contract law. 4th Ed. (2014).
Upex, R. V., Bennett, G Chuah, J, Davies, F. R. Davies on contract. 10th Ed. (2008).
Stone,Devenney, Text, Cases and Materials on Contract Law 3rd Ed (2014)
McKendrick, Contract Law Text, Cases and Materials 6th Ed (2014)
Stone, R, Devenney, J Cunnington, R Text, cases and materials on contract law. 3rd Ed (2014)
Burrows, A. S. A Casebook on Contract. 4th Ed.
Beale, H. G., Bishop, W. D. and Furmston, M. P. Contract: cases and materials. 5th ed. (2008)
Blackstone’s Statutes on Contract, Tort & Restitution 2017 (Blackstone’s Statute Series)
UK Practitioners Texts
Chitty on Contracts 32nd Edition, 2 Volumes & Supplement (2016)
The above are not necessarily the atest edition.
- Assignment of Contract Rights
- Burden not Assignable
- Personal Contract Not Usually Assignable
- Benefit usually Assignable
- Choses in Action
- Proprietary Aspects of Chose in Action
- Position between Assignor and Assignee
- Legal and Equitable Assignments
- Uncompleted / Equitable Assignments
- Mere Right to Claim Unassignable
- Negotiable Instruments
- Bill of Lading
- References and Sources