Unassignable Rights Introduction



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Unassignable Rights

Introduction


  1. The topic of unassignable rights has in recent years been the subject of intense judicial and academic consideration. It pitches against each other two fundamental principles, namely, freedom of contract and freedom to dispose of one’s property. The collision of these two principles is compounded by long-standing difficulties of characterising assignment: is it an exception to privity of contract or part of the law of personal property, or both at the same time? In addition, so far as we are concerned with the assignment of debts, the topic raises important considerations about the use of present and future book debts to provide cash flow for businesses charging or discounting those debts. The topic of unassignable rights, moreover, may be seen as one where English law has taken a more restrictive line on assignment than American law, civil law systems and uniform law instruments.1 Given the general openness of English law to proprietary security and to discounting arrangements, its recognition of some broad categories of unassignable rights appears to go against the grain.




  1. I do not propose to cover the entire field of unassignable rights and shall therefore have nothing to say about champerty and maintenance (or about the special issues arising from dealings with property in insolvency). My principal areas of concern will be personal rights and no-assignment clauses. As a starting-point, it may be said that English law has little to say about public policy, whether to support or to restrict assignment. At one end, we have Lord Browne-Wilkinson denying the existence of a policy promoting the assignment of book debts;2 at the other, restrictions on the assignment of future income or pension payments are provided only in specific cases by statute and not in general terms by the common law.3




  1. Many, perhaps most, forms of contractual performance call for cooperation on the part of obligor and obligee. This throws light on an aspect of assignment that seems to have excited little consideration. If, an obligor, A, is bound to pay or render performance to B, an assignment of B’s right to payment to C effects a variation of the A-B contract. The subject matter of the assignment is the right and not the proceeds, monetary or otherwise, of that right. From what source issues the contractual legitimacy of B’s assignment? And what is the contractual relationship, if any, between A and C?




  1. In discussing unassignable rights, it is easy to cumulate the assignment of both monetary and non-monetary rights. Yet, arguments in favour of clauses restricting assignment are surely stronger in the case of non-monetary rights.4 Has a no-assignment clause ever been opposed successfully to a debt collector?5


Debts and Contract Rights: Are They Property?


  1. The source of an entitlement to assign, if it is not a simple rule that overrides contractual freedom – a positive rather than a negative rule of public policy, as it were – is likely to be an implied term of the contract. The type of implied term that seems to fit best is a Moorcock term, necessary to give business efficacy to the contract. For many decades, this was seen as a high barrier to judicial intervention in contracts, though recent developments in the interpretation of contracts seem to have had the predictable consequence of blurring the distinction between interpretation and implied terms and compromising the Moorcock barrier. The recognition of no-assignment clauses in English law might quell concerns about intervention in contracts: a contracting party keen to avoid assignment need only insist on a clause repelling assignment.




  1. It has been firmly recognised that equitable assignment effects a transfer of the property in the assigned chose in action. In the words of Scrutton LJ in Ellis v Torrington:6 “The common law treated debts as personal obligations and assignments of debts merely as assignments of the right to bring an action at law against the debtor and, except in a strictly limited number of cases, did not recognize any such, assignments. Courts of equity always took a different view. They treated debts as property, and the necessity of an action at law to reduce the property into possession they regarded merely as an incident which followed on the assignment of the property.”




  1. The recognition of assignment as having proprietary consequences is not inconsistent with the assignor having to seek justification in the contract for the right to assign. Property rights are more or less expansive, more or less limited, and some property rights are not freely transferable at all.7 So far, nevertheless, as a right to assign a contractual right, including a right to receive payment, is to be derived from the contract – as opposed to the contract being the source of potential barriers to assignment – it is remarkable that English law does not say when assignment might occur but rather says when it might not. It should here be contrasted with the Unidroit Principles of Commercial Contracts (2004), which bite the bullet of interference in contract by providing that “a right to non-monetary performance may be assigned only if the assignment does not render the obligation significantly more burdensome”.8 It is not the restriction on assignment that is noteworthy, so much as the express recognition that assignments may take place even if they impose burdens on the obligor.9




  1. One way that exercised some appeal to me at one time was the idea that, to anticipate the latter treatment of no-assignment clauses, a clause of that nature might strike a contractual right at source so as to prevent it from acquiring proprietary characteristics. For various reasons, I am far from persuaded by this now. First, it accepts as given the efficacy of no-assignment clauses. An interesting question is whether these might work only to the extent of insulating the obligor from personal dealings with the assignee. Secondly, a declaration of trust over a chose in action might be effective even against a clause that seeks to prevent a trust. Thirdly, restrictions, even extreme restrictions, on transfer may not prevent an asset from being treated as an item of property. The no-assignment clause, then, merely defines the subject matter of the assignment in a restrictive manner.




  1. Since it frames the discussion of unassignable rights, the contractual or other relationship between obligor and assignee needs to be considered. The same goes for the continuance of any contractual relationship between obligor and assignor, even in those cases where all rights have been assigned and no contractual duties remain to be performed by the assignor. Assignment does not create a new contract between the obligor and the assignee: assignment transfers only contractual rights and not duties10 (though certain contracts, unilateral in character, may contain duties only on one side). Nor in an ordinary case does assignment make an assignee party to any contract between obligor and assignor for the limited purpose of acquiring rights thereunder (though it is possible for a person to be a contracting party without owing contractual duties).11 Where a benefit is assigned, the requirement of an intention to create legal relations between obligor and assignee is not without more ado present. If that benefit takes the form of a debt, the assignee will have a debt claim against the obligor, and not a claim for breach of contract in the case of default.




  1. The position may be different where an obligor contracts with an obligee or his assigns.12 There is then an arguable case that an assignee will at a later date become parties to the contract13 for the purpose of acquiring rights, on the ground that A has made a standing offer to them in the contract. The question whether the assignee is a party to the original contract would normally lack practical significance, unless the assignee as a contracting party might have a claim for specific performance of the contract that would not be available to a mere assignee. In this case, the assignee, as a member of the class of assigns, should be a third party beneficiary for the purpose of the Contracts (Rights of Third Parties) Act 1999, where specific performance by the third party is an available remedy.14 So even in this case, it may not be necessary to answer the question.




  1. The contractual position of the assignee qua the obligor is the mirror image of the continuing contractual relationship of obligor and assignor. Since the assignee does not stand in for the assignor in the contract with the debtor, it should follow that the assignor retains a contractual right against the debtor for the debtor to pay the assignee.15 This should be regardless of any continuing duties the assignor might have under the contract with the obligor. If the relations between assignor and assignee give the assignee a recourse right against the assignor in the event of debtor default, then the assignor's continuing right to contractual performance is a valuable right that should sound in a substantial damages award if the debtor defaults.


Personal Obligations


  1. Where the identity of the obligee is integral to the obligation undertaken by the obligor, the obligation, being of a personal character, may not be assigned.16 It will be a matter of construing the contract to determine whether its obligations or some of them17 are of a personal character. The law should be slow to conclude that particular categories of contract invariably give rise to non-assignable rights. An obligor seeking to deal only with a particular obligee may protect himself by having a no-assignment clause inserted in the contract.18




  1. The obligation of an employee is to work for the employer who has engaged him; he may not be transferred without his consent to a new employer.19 It has been said that, to rule otherwise, would be to treat the employee as a “serf”,20 but rhetoric defeats logic if the employee remains at the same place of work, surrounded (broadly) by the same personnel and working for a company that is essentially anonymous, whose character might change from time to time anyway according to the identity of senior management and controlling shareholders.21




  1. A similar case is the contract for personal services. If a principal consigns goods to an agent for resale, this contract involves a high degree of trust so that the consignee might not assign the right to receive goods.22 Similarly, performing artists and sportsmen, engaging agents and promoters to further their careers, enter into contractual obligations that may not be assigned by the agent or promoter. This is said to be because obligations involving personal skill and confidence may not be assigned,23 but this only expresses why the artist or sportsman may not delegate performance of his duties. It does not express why the right to receive such performance may not be assigned. A better reason is that the personal skill of, say, a boxer is reciprocally related to the personal skill of the promoter, so that the latter might not assign his rights to the boxer’s performance to another promoter.24 It is therefore common in such cases of skill and confidence to speak of contracts, rather than particular obligations, being unassignable. Personal skill and confidence define and link the rights of both parties to such contracts. The boxer is entitled to the personal skill of the promoter and the promoter to the personal skill of the boxer.




  1. A case similar to employment and personal services and closer to my heart is the author who is under contract to provide a manuscript for a particular publisher. The author’s obligation may not be assigned without the consent of the author,25 whether the publisher is an individual or a limited liability company.26 The particular imprint may be important to the author as a matter of prestige.27




  1. Nokes v Doncaster Amalgamated Collieries Ltd28 is the high water point of the rule that personal obligations may not be assigned. In that case, judicial observations are made about sale of goods contracts that appear to take an unduly expansive view of personal obligations. They start from the proposition that obligations of a personal character may yet be assigned under contract if the contract expressly or impliedly provides that they be assignable. Hence, the decision of the House of Lords in Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd29 is explained as a case where the court treated the contract, because of its long-term character, as containing an implied obligation to supply chalk to the buyer or the buyer’s assigns.30 Otherwise, there are dicta in Nokes to the effect that an ordinary trading contract for the supply of business materials is a personal contract, so that rights arising thereunder might not be assigned without the consent of the other party. So Lord Tomlin31 asserts, on the basis of Tolhurst, that a trading “contract” is not assignable unless it provides expressly or by necessary implication that it is.32 Distinguishing Tolhurst in the same way, Viscount Simon LC states that a seller is entitled to rely upon the credit of the purchaser and refuse to recognise a substitute.33 This assumes that the sale takes place on credit; the presumptive rule in sale of goods cases, though very frequently ousted, is that it does not.34 As though by analogy with the principle of mutuality in specific performance,35 Viscount Simon asserts that: “Similarly, the purchaser is entitled to rely upon the seller and to hold him responsible for due performance.”36




  1. For a number of reasons, it is submitted that these dicta in Nokes v Doncaster Amalgamated Collieries Ltd37 should not be taken to lay down a general rule that sale of goods contracts create non-assignable personal rights. First, especially given the relative impersonality and expedition of most sale of goods contracts, the dicta come close to proposing that most contract rights are not assignable, unless the contract, by expressly or impliedly mentioning the obligee’s assigns, provides that they are.38 Secondly, there is a failure to distinguish the assignment of rights and the purported assignment of duties, or at least a failure to recognise the continuing liability of the assignor in the performance of contractual duties when contractual rights have been assigned. Thirdly, the above dicta compel the introduction of a variable standard of what constitutes personal contractual performance. A seller’s duty to supply might not be assigned by the buyer, yet that same duty might be delegated by the seller to a third party to perform.39 Fourthly, the references in Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd40 to the contract impliedly having been concluding between the appellant and his assigns, on the one hand, and the respondents and their assigns, on the other,41 were designed for the particular circumstances of that case, where the contract called for the supply of chalk requirements between a quarry and an adjoining factory over a very lengthy period, and not for sale of goods contracts in general. The contract provided for credit as the chalk was periodically supplied, but the seller’s real security lay, not so much in its assessment of the creditworthiness of the original contracting party, as in its ability to withhold the next instalment of chalk in a contract designed to last between thirty-five and fifty years.




  1. The obligations in some sale of goods cases, however, may be defined by the person and characteristics of the obligee so as not to be assignable. In Kemp v Baerselman,42 Tolhurst was distinguished. A farmer contracted to supply a baker’s eggs requirements and the baker sold his business to a company, to which he purported to assign the benefit of the sale contract. The assignment failed for two reasons. First, unlike the Tolhurst case, there was no physical limitation on the size of the assignor’s business that would put a protective cap on the extent of the obligor’s duty to supply eggs. It therefore mattered who was carrying on the assignor’s business in a way that was not the case in Tolhurst.43 It might therefore be said that an assignment of the benefit of the contract could expose the obligor to a risk that it could not fairly be said to have undertaken. Secondly, if the assignment were effective, the farmer would not have been able to enforce the requirements obligation against the assignee, for it would have taken a novation to impose such an obligation on the assignee.44 Moreover, the requirements obligation could not have been enforced against the assignor, because he never had any requirements in connection with the place where the assignee carried on business. It was the assignor’s personal requirements, and not the requirements of the business, that were the subject of the requirements obligation.45




  1. The decision in Kemp v Baerselman is not easy to reconcile with Tolhurst, where there was also an obligation on the part of the buyer to purchase its requirements only from the seller. The critical factors supporting a distinction between the two cases, as a matter of construction of the two contracts, were, first, that in Tolhurst the size of the assigned rights was defined by the land occupied first by the assignor and later by the assignee. Secondly, in Tolhurst, that same consideration justified a continuing liability on the part of the assignor in respect of the requirements of the business carried out on that land. Apart from these considerations, as Tolhurst itself best illustrates, an assignment can be effective though disadvantageous for assignees.46 Finally, if, as in Tolhurst itself, a contract might be interpreted as implicitly concluded with a company and its assigns, it cannot have the personal character that precludes an assignment of rights.


No-assignment Clauses


  1. It may suit an obligor not to have the obligee assign the right to performance. An obligor might have a personal preference for dealing with the obligee rather than with a third party assignee; or not wish to become embroiled in a dispute between obligee and assignee; or prefer not to deal with multiple assignees; or wish not to staunch the flow of set-off rights against the obligee; or seek to avoid the risk of paying the obligee instead of the assignee.47 The law has to tread a fine line between recognising the practical interests of the obligor, together with freedom of contract that led to a no-assignment clause in a contract, and the vital importance of obligees being able to alienate and encumber present and future property in order to generate cash flow in their businesses. In general terms, the law leans against the inalienability of property rights, though this policy is most keenly applied in the case of land.




  1. A clause in a contract, debenture, insurance policy or other instrument may prohibit the assignment of rights arising under the instrument. The extent of the prohibition is a matter of interpretation.48 Instead of prohibiting assignment outright, the clause may provide that rights may not be assigned without the consent of the obligor. In some cases, the clause will go on to provide that the obligor’s consent may not unreasonably be withheld. It is an open question whether an assignment is nevertheless effective where consent has been unreasonably refused.49 As a matter of construction, such a clause might for example be read as preventing assignment where the obligor reasonably withholds consent or is reasonably entitled to withhold consent, so that the assignment without consent is potentially defeasible rather than ineffectual. A clause might also, with or without a consent provision, stipulate that rights might only be assigned to particular classes of assignee.




  1. The issue of no-assignment clauses came to the fore in Helstan Securities Ltd v Hertfordshire County Council,50 where a construction contract provided that the contractor was not to “assign the contract or any part thereof or any benefit or interest therein or thereunder”51 without the written consent of the council employer. The contractor, nevertheless, assigned the amount due from the council to the plaintiff, which brought an action to recover the amount due.52 The clause was held to be effective to prevent the assignment.53 It was not unjust for assignees to have to make inquiries about no-assignment provisions before accepting an assignment; inquiries were needed anyway to see if the debtor had the means to pay or had a set-off defence to payment. The no-assignment clause, therefore, was not applied just as a matter of contract between obligor and assignor so as to make the latter’s assignment a breach of contract, yet an effective proprietary transfer.




  1. A similar clause came before the House of Lords in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd,54 where Lord Browne-Wilkinson,55 departing from the court below, interpreted the no-assignment clause as dealing, not only with an assignment of the right to require future performance, but also with an assignment of the benefits arising under the contract (namely, payments that had accrued due and accrued causes of action).56 No distinction could therefore be drawn between the two assignments in the present conjoined appeals, where the assignment in one case occurred prior to the obligor’s breaches of contract and in the other after them. The purpose of the clause was to ensure that the obligor had contractual dealings only with the obligee, which was a legitimate aim to pursue. The parties could not have intended a confused state of affairs whereby the right to future performance was vested in the obligee and the right to pursue causes of action was vested in the assignee to whom this right has been assigned by the obligee.
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