Assignability of Contract Rights

Generally, the law does not preclude the assignment of a contractual right unless the substitution of rights would materially change the duty of the obligor, materially increase the burden or risk imposed on the obligor by the contract, materially impair the chance of obtaining return performance, or materially reduce the value of the performance to the obligor.[i]  Further, if the contract specifically precludes assignment, the contractual right is not assignable.[ii]  Whether a contract is assignable is a matter of contractual intent and one must look to the language used by the parties to discern that intent.

In the absence of an express provision to the contrary, the rights and duties under a  bilateral executory contract that does not involve personal skill, trust, or confidence may be assigned without the consent of the other party.  However, an assignment is invalid if it would materially alter the other party’s duties and responsibilities.  Once an assignment is effective, the assignee stands in the shoes of the assignor and assumes all of assignor’s rights.[iii]  Hence, after a valid assignment, the assignor’s right to performance is extinguished, transferred to assignee, and the assignee possesses the same rights, benefits, and remedies assignor once possessed.[iv]

On the other hand, an assignee’s right against the obligor is subject to “all of the limitations of the assignor’s right, all defenses thereto, and all set-offs and counterclaims which would have been available against the assignor had there been no assignment, provided that these defenses and set-offs are based on facts existing at the time of the assignment.”[v]

A party to the contract cannot, by way of assignment, materially change the performance to be rendered by the other party.  One is  limited to substitution of a new party as holder of the right and has no power to change the performance that the right requires.  For instance, if the obligor has promised to perform only upon the happening of some event that is not certain to occur and that is not within the control of either party, an assignment should not be made that will materially increase the risk to the obligor.  Thus, an owner’s purported assignment to a general contractor of a contract clause obligating a subcontractor to indemnify the owner of claims for accident and injury was void since the subcontractor’s risk significantly increased as a result of the assignment.[vi]

The assignability of a contract is determined by the nature of the obligations set out in the contract. “In the matter of assignability as affected by the supposed ‘personal’ nature of the contract, . . . or by the existence of a relation of ‘trust and confidence,’ it will be helpful to consider the following questions: (1) What was the performance required of the defendant obligor? (2) What were the conditions on which it was the defendant’s duty to render that performance? (3) What performance, if any, was the assignor under a duty to render?”[vii]

Thus, the assignability of a contract depends upon the nature of the contract and the character of the obligations assumed by the parties rather than the supposed intent of the parties, except as that intent is expressed in the agreement.

[i] Restat 2d of Contracts, § 317(2)(a)

[ii] Delacroix v. Lublin Graphics, 993 F. Supp. 74, 81 (D. Conn. 1997)

[iii] Wilcox v. Regester, 417 Pa. 475 (Pa. 1965)

[iv] Robert Lamb Hart Planners & Architects v. Evergreen, Ltd., 787 F. Supp. 753 (S.D. Ohio 1992)

[v] Smith v. Cumberland Group, 455 Pa. Super. 276, 285-286 (Pa. Super. Ct. 1997)

[vi] Kingston v. Markward & Karafilis, Inc., 134 Mich. App. 164, 172 (Mich. Ct. App. 1984)

[vii] Rovak v. Parkside Veterans’ Homes Project, Inc., 8 Ill. App. 2d 310, 313 (Ill. App. Ct. 1st Dist. 1956)


Inside Assignability of Contract Rights