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Assignability of Indemnity and Surety Agreements

Under the general principles of the law of contracts, the rights of an obligee to a guaranty contract can be assigned.[i]  However, if the assignment is prohibited by statute, public policy, the terms of the contract, or where the contract is one for personal services or arose out of  one party’s personal confidence in the other party to the contract, then it cannot be assigned.[ii]

In Salmon Lake Seed Co. v. Frontier Trust Co., 130 Me. 69, 74 (Me. 1931), the court held that “when rights arising out of contract are coupled with obligations to be performed by the contractor, and involve such a relation of personal confidence that it must have been intended that the rights should be exercised and the obligations performed by him alone, the contract, including both his rights and his obligations, cannot be assigned without the consent of the other party to the original contract.”  The court further held that an executory contract for personal services or a contract otherwise involving personal credit, trust, or confidence, cannot be assigned by the act of only one party to that contract.[iii]

In Haggarty v. Pitman, 1 Paige, 298, the chancellor held that “where a debtor makes an assignment to his surety for his indemnity, the creditor has an equitable claim upon the fund for the payment of his debt, and the surety has no right to divert it to any other object.”[iv]  This is because a contract to indemnify one for the debt of another is personal in nature and therefore is not assignable by the actions of one party.[v]  However, if the contract requires only one party to “indemnify, defend or save” another party from any legal responsibilities, then such a contract is assignable.[vi]

[i] Kraft Foodservice v. Hardee, 340 N.C. 344, 347 (N.C. 1995)

[ii] Id.

[iii] See also, Lucas v. J. H. Gross Motor Car Co., 32 Ohio App. 183, 184-185 (Ohio Ct. App., Hamilton County 1927)

[iv] See also Hampton v. Phipps, 108 U.S. 260 (U.S. 1883)

[v] Chadwick-Baross, Inc. V. Martin Marietta Corp., 483 A.2d 711, 715 (Me. 1984)

[vi] See Cc-California Plaza Assocs. v. Paller & Goldstein, 51 Cal. App. 4th 1042, 1052 (Cal. App. 1st Dist. 1996)

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