NATIONAL LAW INSTITUTE UNIVERSITY

LAW OF CONTRACTS – I
TRMESTER – II

ASSIGNMENT OF CONTRACT

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Table of Contents
CERTIFICATE...............................................................................................................................................................3
ACKNOWLEDGEMENT..............................................................................................................................................4
Cases...............................................................................................................................................................................5
INTRODUCTION..........................................................................................................................................................6
LAW AND EQUITY......................................................................................................................................................8
EFFECT OF THE JUDICATURE ACT 1873..............................................................................................................10
ASSIGNMENT OF LIABILITIES...............................................................................................................................11
ASSIGNMENT OF RIGHTS.......................................................................................................................................12
EFFECTS AND FORMALITIES OF ASSIGNMENT................................................................................................14
SUBJECT TO EQUITIES-...........................................................................................................................................16
NON ASSIGNABLE RIGHTS....................................................................................................................................19
ASSIGNMENT BY OPERATION OF LAW..............................................................................................................22
BIBLIOGRAPHY.........................................................................................................................................................24

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CERTIFICATE
This is to certify that research paper titled “Assignment of Contract”, has been prepared and
submitted by Vatsla Shrivastava, who is currently pursuing her B.A. LL.B (Hons.) at National
Law Institute University, Bhopal in fulfilment of Torts – I course. It is also certified that this is
her original research report and this paper has not been submitted to any other University, nor
published in any journal.

Date : 4 Dec. 2018

Signature of the Student :

Signature of the Research Supervisor :

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ACKNOWLEDGEMENT
This paper has been made possible by the unconditional support of many people. I would like to
acknowledge and extend my heartfelt gratitude to Prof. Neha Sharma for guiding me throughout
the development of this paper into a coherent whole by providing helpful insights and sharing
her brilliant expertise. I would also like to thank the officials of NLIU library, for helping me to
find the appropriate research material. I am deeply indebted to my parents, seniors and friends
for all the moral support and encouragement.

Vatsla Shrivastava

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Cases
Dawson v. GN and city Ry.............................................................................................................18
Kemp v. Baerselman................................................................................................................20, 21
Stoddart v. Union Trust Ltd...........................................................................................................16
Technotrade Ltd v. Larkstore Ltd..................................................................................................18
Tolhurst v. Associated Portland Cement Co..................................................................................20

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INTRODUCTION
An assignment of contract occurs when one party to an existing contract (the "assignor") hands
off the contract's obligations and benefits to another party (the "assignee"). Ideally, the assignor
wants the assignee to step into his shoes and assume all of his contractual obligations and rights.
In order to do that, the other party to the contract must be properly notified. 1

In a situation where the actual contractor cannot provide the services to the client that he
previously agreed, he asks the client to agree to work with another contractor that the actual or
contractor will hire. Once all the parties i.e. actual contractor, new contractor or obligor and the
client agrees to transfer the obligation to provide the services to a third party, they sign the
assignment of contract. By signing this contract, the actual contractor states that he has assigned
the responsibilities to provide services to the new obligor, the new obligor then states that he has
accepted the responsibilities and the client states that he has authorized this assignment and will
pay the remaining payment for the services to the new obligor.

Assignment of contract is quite analogous to subcontract agreement where the existing contractor
hires another contractor to work for him and get paid but in assignment of contract, there is only
one contractor; the new contractor (obligor) who after signing this contact, provides the services
to the client and receives compensation in return. There are many situations in which contracts
are assigned to third parties. For example, the actual obligor claims that he can’t provide the
services by himself and the client agrees to work with another contractor or obligor who then
takes the responsibility to provide the services to the client on behalf of the actual obligor and the
client also agrees that he will from now on, pay the compensation in return of the services to the
new obligor.

An assignor is a person who assigns or transfers legal rights in a contract to another party or
person. The person to whom legal rights in a contract are transferred or assigned is called
the assignee.2

1
 Richard Stim, What Is an Assignment of Contract?, NOLO, (Nov. 29, 2018, 10:04 AM),
https://www.nolo.com/legal-encyclopedia/assignment-of-contract-basics-32643.html.
2
What is the Definition of Assignor and Assignee?, REAL ESTATE TUTOR, (Nov. 29, 2018, 10:04 AM),
http://www.realestatetutor.org/2011/08/14/what-is-the-definition-of-assignor-and-assignee/.

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Section 373 of the Indian Contract Act, 1872 enables parties to dispense with performance by
way of assignment. The consent of the debtor is not required as he is not a party to the
transaction.

The development of law on this topic had been profoundly influenced by the different
approaches to it adopted at common law and in equity. Even today, the subject cannot be
understood without some knowledge of the position before the merger of common law and
equity in 1875, when the Judicature Act 1873 came into force. 4

3
Obligation of parties to contract.—The parties to a contract must either perform, or offer to perform, their
respective promises, unless such performance is dispensed with or excused under the provisions of this Act, or of
any other law. —The parties to a contract must either perform, or offer to perform, their respective promises, unless
such performance is dispensed with or excused under the provisions of this Act, or of any other law." Promises bind
the representatives of the promisors in case of the death of such promisors before performance, unless a contrary
intention appears from the contract.
4
G. H. TREITEL, AN OUTLINE OF THE LAW OF CONTRACT 266 (6th ed. 2004).

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LAW AND EQUITY
There were different common law and equity substantive rule about assignment of contract
before 1875. Since the two systems were administered in different courts, this gave rise to
procedural hindrance in enforcing an assignee’s rights.

Substantive Difference

At common law choses in action couldn’t be assigned but assignment of choses in possession
was allowed. Choses in possession are the things that can be physically seized and choses in
action are rights that can be asserted only by bringing legal proceedings. It was said that
assignment of choses in action would cause officious intermeddling in litigation. On the other
hand, equity considered the assignee as a person who has acquired an interest in the property
rather than an officious intermeddler. Hence it enforced assignment of choses in action.
Therefore the general rule was that choses in action were not assignable at common law, but
were assignable in equity.

Procedural difficulties

There is a difference between legal and equitable choses in action. A legal chose in action was
one which could be sued for only in the Court of Chancery, such as the right to receive the
income trust fund. Where the assignment was of a an equitable chose, there was no procedural
difficulty in enforcing it. The assignee could simply sue the trustee in the Court of Chancery for
the income which has been assigned; and if the trustees were later sued in the same court by the
assigner he could make a good defence by relying on the assignment and his payment to the
assignee. Where, on the other hand, the assignment of a legal chose the position was more
complicated. Equity couldn’t simply allow the assignee to sue the debtor for the debt in Court of
Chancery. For one thing, that court did not enforce ordinary legal debts. For another, such a
course could cause hardship to the debtor. If he were later sued in common law court by the
assignor of the same debt, he would have to go to the trouble of taking separate proceedings in
Chancery to restrain the common law action. To avoid these difficulties, equity allowed the
assignee to use the name of the assignor for the purpose of suing the debtor in a common law
court, and if the assignor refused to allow his name to be so. In this way effect was given to the

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assignment without exposing the debtor to the risk of the second action by the assignor, whose
right against the debtor would have been consumed by the original action brought in his name.5

5
G. H. TREITEL, AN OUTLINE OF THE LAW OF CONTRACT 268 (6th ed. 2004).

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EFFECT OF THE JUDICATURE ACT 1873
The judicature affected the law related to assignment in two ways:

1. Removal of procedural difficulties:

This Act led to the formation of High Court that took over the functions of the old courts
of common law and equity and administered both systems concurrently. Both legal and
equitable claims were recognised by the newly formed High Court. Now, the debtor also
needed not to fear a subsequent action in a different court. The assignee was not needed
to sue in the name of assignor for a legal chose anymore.
2. Statutory assignment:
The state of affairs outlined above was recognised by a provision in the Judicature Act
1873. This provides that an assignment of a ‘debt or other legal things in actions’
transfers to the assignee the legal right to debt or thing in action; and that the assignee can
sue fir the debt in his own name. Three conditions must be satisfied for this assignment to
be effective: the assignment must be ‘absolute’, it must be ‘by writing under the name of
the assignor’, and written notice of the assignment must have been given to the debtor. If
these requirements aren’t satisfied the assignment may still be valid under the old riles of
equity. It is therefore still necessary to distinguish between statutory assignments and
equitable assignments. An equitable assignment may an assignment of a legal or an
equitable chose: it is simply one which fails to comply with the statutory requirements.
The most important effect of the distinction is this: if the assignment is statutory, the
assignee can sue the debtor alone, but if it is equitable he may have to join the assignor to
the action. He formerly had to do so where the chose was legal one, so that under the old
rule of equity he had to sue in the name of the assignor. In this situation, the joinder
requirement has become a mere historical survival and the courts no longer insist on it.
But the assignee must still join the assignor where the latter retains an interest in the
subject-matter. Here the joinder requirement reflects an important principle: that both the
assignor and assignee must be brought before the court when the absence of the one
might prejudice the debtor.6

6
G. H. TREITEL, AN OUTLINE OF THE LAW OF CONTRACT 269-270 (6th ed. 2004).

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ASSIGNMENT OF LIABILITIES
A significant principle affecting assignment is that the burden of liability under a contract cannot
be assigned. The promisor has the right to insist that performance shall be the responsibility of
the promisee. The promisor may have contracted with him by reason of the personal confidence
which he reposed in him and, therefore, the promisor, can object to the contract being performed
by any other person. This is more particularly true of cases in which the engagement is of
personal nature, such as, the engagement to sing or to paint. In such cases there is no question
vicarious performance. In other cases it should not matter to the promisor whether the
performance is offered by the promisee himself or by someone else acting for him, provided, of
course, that the promisee is responsible for the performance by his agent. Explaining this in
Davies v. Collins7 lord Greene said: “in many contracts all that is stipulated for is that the work
shall be done and the actual hand to do it need not be that of the contracting party himself; the
other party, will be bound to accept performance carried out by somebody else. The contracting
party, of course, is the only party who remains liable. He cannot assign his liability to a sub-
contractor, but his liability in those cases is to see that the work is done, and if it is not properly
done, he is liable.”8

It is a mistake to regard a vicarious performance as an assignment of the contract. It is not

assignment in real sense.

Where with the consent of the promisor, the promisee drops out and some other person takes
over his obligation that is also not an assignment. It is novation, that is, change of parties with
mutual assent. In the words of Venkataraman Aiyar J of the Supreme Court: “As a rule
obligations under a contract cannot be assigned except with the consent of the promisee, and
when such consent is given, it is really a novation resulting in a substitution of liabilities.9

7
(1954) 1 AII ER 247.
8
Krishnendu Kanungo & Pritisha Chakraborty, Assignment Of Rights And Its Practical Relevance In Financial
Transactions: A Lender’s Perspective, MANUPATRA, (Nov. 29, 2018, 10:04 AM), http://docplayer.net/50435804-
Assignment-of-rights-and-its-practical-relevance-in-financial-transactions-a-lender-s-perspective.html.
9
AVATAR SINGH, TEXTBOOK ON LAW OF CONTRACT AND SPECIFIC RELIEF 428(2006).

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ASSIGNMENT OF RIGHTS
10
In Khardah Company Ltd v. Raymon & Co. (India) Private, Ltd the Supreme Court held,
“rights under a contract are assignable unless the contract is personal in its nature the rights are
incapable of assignment either under the law or under an agreement between the parties”

The dispute arose out of a contract for the purchase by a mill of Pakistani raw jute from a dealer,
who failed to supply the goods as agreed.

It was held by the court that the contract for the purchase of foreign jute was not assignable
because the goods had to be imposed under a licence which was not transferable and which also
required the utilisation of the imported raw material only by the mill in question. The only other
question was whether the dealer could assign his right to the price on the delivery of the goods.
The court conceded that ordinarily there is nothing personal about a contract for the sale of
goods. The court further pointed out that “it is settled law that an arbitration clause does not take
away the right of a party to assign if it is otherwise assignable”. In the opinion of the court the
rights of the unpaid seller also do not stand in the way of the assignability of a contract. There
was no provision in the contract prohibiting assignment, but even so the court held that the
contract involved so many personal obligations on the part of seller, which strongly suggested
that the intention of the parties was that neither of them should assign the contract. The court also
took occasion to point out: “There is in law a clear distinction between assignment of rights
under a contract by a party who has performed his obligation thereunder, and assignment of a
claim for compensation which one party has against the other for breach of contract. The letter is
a mere claim for damages which cannot be assigned in law, the former is a benefit under an
agreement, which is capable of assignment.”11

The rights under a lottery ticket are assignable. Explaining this, Tulzapurkar J said:12

“A sale of lottery ticket confers on the purchaser thereof two rights (a) a right to participate in
draw and (b) a right to claim a prize contingent upon his being successful in the draw. Both
would be beneficial interests in movable property, the former “in praesenti”, latter in future

10
AIR 1962 SC 1810: (1963) 3 SCR 183
11
Singh A, Textbook on law of contract and specific relief (Eastern book co 2006)
12
H. Anraj v. Govt of T.N.,(1986) 1 SCC 414, 432, 433: AIR 1986 SC 63

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depending on a contingency lottery tickets, not as physical articles, but as slips of paper or
memoranda, evidence, not one but both these beneficial interests in moveable property which
are obviously capable of being transferred, assigned or sold and on their transfer, assignment or
sale, both these beneficial interest are made over to the purchaser for a price.”

The matter arose after the Tamil Nadu Government tried to subject the sale of lottery tickets to
sales tax. Such tickets being goods within the meaning of the Sale of Goods Act, 1930, the state
was held to be competent to do so. Dealing with agreements which are in the nature of grants, the
court observed, “it is well settled that rights and benefits arising hereunder, unless of a personal
nature, partake of the character of per take of the character of personality as opposed to reality
and, therefore, movable property capable of being assigned or transferred.

Kemp v. Baerselman provides another example where a contract was unassignable because it
involved personal element.

The defendant agreed to supply a cake manufacturer with all the eggs that he might require for a
year and the latter was not to purchase elsewhere. Deliveries were to be made at three different
places and payment was to be by drawing bills of exchange on the manufacturer. The
manufacturer’s business was taken over by a company in which he was the principle shareholder,
but even so the defendant refused to continue with the supplies.

It was held that the contract, being of personal nature in that it involved the personal
reditworthiness of the buyer as to the mode of payment, was not capable of being assigned.

The Central Government assigned a piece of land to its own corporate undertaking with rights,
liberties and privileges one of which was exemption from land revenue. It was held that the
assignee became entitled to the exemption as a successor in interest of the central government.13

13
Singh A, Textbook on law of contract and specific relief (Eastern book co 2006).

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EFFECTS AND FORMALITIES OF ASSIGNMENT
 Consideration

The question whether an assignment must be supported by consideration is one of great

complexity. Two points must be made to clear the ground for the discussion. First, the dispute
concerns only the relative rights of assignor and assignee. The debtor cannot refuse to pay the
assignee on the ground that the assignment was gratuitous; he is liable to pay the debt in any
event and his only interest is to see that all possible claimants are before the court, so that he
does not run the risk of having to pay twice over. So long as this possibility of prejudice to the
debtor is removed by the joinder of all appropriate parties, it is only the assignor who can raise
an issue as to the validity of the assignment on the ground that no consideration was given for it;
indeed the only purpose of taking the point is to enable the assignor to claim payment of the debt
for himself. In practice this most frequently happens if the assignor has died or become bankrupt:
his representatives may, for the benefit of has estate or of his creditors, wish to challenge the
validity of the assignment. Secondly, the discussion concerns all gratuitous assignments, even
those made by deed or for a nominal consideration. The fact that an assignment is so made may
make an assignor who disputes it liable in damages for breach of contract, or make an agreement
to assign binding contractually but it does not, of itself, make the assignment effective as a
transfer of the debt.14

 Assignment of Future Property

An assignment is the transfer of an existing right. A right which do not yeat exist or belong to the
assignor cannot be assigned. Such rights are sometime called “future property”. An attempt to
assign future property may operate as an agreement to assign which must be supported by
consideration if it is to be binding.

Money payable in the future under an existing contract is not necessarily future property, and a
disposition of the right to receive such money may be an assignment and not an agreement to
assign. If the contingency on which the money is payable is within the control of the creditor,
there is no difficulty in holding that the disposition is an agreement: thus a builder can assign

14
Treitel GH and Peel E, The law of contract ( Sweet and Maxwell 2015).

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instalments to become due to him under building contract as the work progresses, for here the
contingency on which the money will become due is simply his own performance. If, however,
the contingency is not within his control, the disposition is prima facie an agreement to assign:
this would be the position where a person purported to assign future dividends in a company
which was not under any obligation to him to declare any dividends. But even where the rights of
the assignor depends on a contingency outside his control, he may purport to assign either his
present right to future income from a specified source or the future income itself. A disposition
of the first kind may be regarded as an assignment and a disposition of the second kind as an
agreement to assign. The question into which category it falls turn on the construction of the
document purporting to effect the disposition.15

 Statutory Assignment

A statutory assignment, of both legal as well as of an equitable chose in action, are effective
although it is made without consideration.

15
Ibid.

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SUBJECT TO EQUITIES-
An assignee takes “subject to equities”, i.e. subject to any defects in the assignor’s title and
subject to certain claims which the debtor has against the assignor. He takes subjects to such
defects and claims whether they arise at law or in equity, and whether or not he knew of their
existence when he took his assignment. And he cannot recover more than the assignor could
have recovered. The object of these rules is to ensure that the debtor is not prejudiced by the
assignment.

 Defects of title

An assignor cannot confer any title if he had none himself. Thus if a builder assigns money to
become due to him under a building contracts, and then fails to perform the contract so that the
money never becomes due, the assignee takes nothing. Similarly, the assignee of a contract
which is affected by mistake or illegality generally takes no greater rights than the assignor
would have had. And the assignee of a contract which is voidable for a misrepresentation made
by the assignor takes subject to the right of the debtor to set the contract aside. Defences
available by the terms of the contract to the debtor against the assignor can similarly be raised
against the assignee. On the other hand payment of the debt to the assignor is a defence against
the assignee only if made before notice of the assignment was given to the debtor and the same is
presumably true of the rescission of the contract assigned by subsequent agreement between
debtor and assignor.16

 Rescission for misrepresentation.

If the debtor has been persuaded to contract by a misrepresentation on the part of the assignor, he
can rely against the assignee on the right to rescind the contract on the ground of
misrepresentation; but an additional problem appears where that right has been lost. In Stoddart
v. Union Trust Ltd, one Price induced the defendants to buy a business from him. Price made an
assignment of 800 pounds, part of the agreed price, and the assignees now claimed this sum from
the defendants. Two defenses were put. First, the defendants counterclaimed for damages for
Price’s fraud, but such a claim could not be made against the assignee, as they were not
16
Treitel GH and Peel E, The law of contract ( Sweet and Maxwell 2015)

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themselves guilty of fraud, nor responsible for the fraud of Price. Secondly, the defendant
pleaded that because of Price fraud they had sustained loss surpassing 800 pounds so that no
money was due from them. This defense would have succeeded against Price, however, it failed
against the assignee as the claim for damages did not “arise out of the contract in question at all”
but was “something dehors the contract”. The decision appears to lead to the regrettable results
that a contract may be worth more in the hands of the assignee than in the hands of the assignor,
and so to defeat the purpose of the rule that an assignee takes “subject to equities”. No attempt
was made by the defendants to rely simply on their right to rescind the contract. They had
disposed of the subject-matter and seem to have assumed that they could not rescind as they were
unable to make restitution. But the victim of a criminal fraud can rely on it by way of defense
without making restitution. This defense would seem to be “equity” and should have been
available against the assignee.

 Claims arising out of other transaction

Claims against the assignor: The debtor may have claims against the assignor arising out of
some transaction other than the contract assigned: e.g. a debtor may owe money under a building
contract and in turn have a claim against the builder for the price of goods sold and delivered.
Such a claim can only be set up against an assignee of the debt due under the building contract if
it arose before notice of the assignment was given to the debtor. If the claims arise later, the
debtor is not prejudiced by being unable to raise it against the assignee. He knows that the
assignor is no longer his creditor in respect of the debt assigned and cannot therefore expect to
set off against it any claims which he may later acquire against the assignor.17

Provision of contract: The rule that claims to arise before notice of the assignment can be set-
off against the assignee may be excluded by the express provision of the contract creating the
debt. Such provisions are usually found in debentures issued by companies to secure loans since
the rule that an assignee takes subject to equities unduly restricts the transferability of such
instruments.

 Assignee cannot recover more than assignor

17
Treitel GH and Peel E, The law of contract ( Sweet and Maxwell 2015).

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The assignee cannot recover more from the debtor than the assignor could have. In Dawson v.
GN and city Ry a landowner had a statutory claim against a railway company for badly affecting
his land. He sold the land. The statutory claims were assigned to the buyer. It was held by the
court that the railway company’s liability to the buyer should be measured by the loss which
would have been sustained by the assignor and any extra loss suffered by the buyer because of a
trade carried on by him, but not by the assignor, must be disregarded.

An attempt to change the rather limited scope of this principle was made in Technotrade Ltd v.
Larkstore Ltd. The defendant provided a soil inspection report for the assignor in connection
with the development of a site which was later sold to the assignee by the assignor. During the
course of development by the assignee, a landslip occurred, after which the assignor assigned the
benefit of the soil report to the assignee. The defendant contended that the assignee was not able
to recover for the loss created by the landslip because the assignor had parted with the site for
full value and, having suffered no loss as a result of any breach by the defendant, could not itself
have recovered damages from the defendant. This contention was rejected by the Court of
Appeal because it was contrary to “legal principle and good sense” the principle that the assignee
cannot recover more than the assignor is meant to ensure that the debtor is no worse off as a
result of the assignment, as in the Dawson case, it is not meant to allow the debtor to rely on the
facts of the assignment in order to escape all legal liability for his breach of contract. In the
context of what was a transfer of land with the benefit of an assignment, the Court of Appeal
approved of the following dictum of Staughton L.J. in the Linden Garden case:

“the assignee can recover no more than the assignor could have recovered if there had
been no assignment, and if the building had not been transferred to the assignee”

More generally, the assignee recover to the same extent that the assignor could have done on the
hypothesis that there had been no assignment and the assignor had not disposed of the subject-
matter of the contract. On this basis, so far as assigning the benefit of a contract is concerned, it
makes no difference whether the breach, or the loss, occurs before or after the transfer of the
subject-matter, or the assignment.18

18
Treitel GH and Peel E, The law of contract ( Sweet and Maxwell 2015)

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NON ASSIGNABLE RIGHTS
 Contracts expressed to be not assignable

If it is provided in a contract that the rights arising under it shall not be assigned, a purported
assignment of such rights of this contract will constitute a breach of contract and will be
ineffective, in the sense that it does not give the assignee any ghts against the debtor. For
instance, if a hire-purchase agreement provides that the rights of the hirer shall not be assignable;
and still he purports to assign them, the assignee cannot enforce them against the owner. An
assignment of the benefit of a contract which is expressed to be non-assignable may be binding
as a contract or as a declaration of trust between assignor and assignee. Thus it has been held that
a settlement of an insurance policy that is expressed to be not assignable could be enforced by
the beneficiaries against the settler. The beneficiary may even be able to enforce the contract
against the debtor, albeit indirectly, by joining the trustee as a party to the action.

 Personal contract

In some contracts, it is obvious that the debtor is ready to perform only for one special creditor
and if it would be unfair to compel him to perform in favor of another, the benefit of such
contracts cannot be assigned. In such cases, the “personal” nature of the contract restricts
assignment.

 Employment contract:

One of the essential applications of this principle is that the benefits of his employee’s promise to
serve cannot be assigned by the employer. It is the most important difference between a servant
and a serf that a servant has the right to choose his employer. But in the case of an employee of a
company, his right of choice will often depend on distinctions which are somewhat technical. If
the shares in the company are sold, and its directors are replaced by other in the course of a take-
over bid, the employee is, it seems, bound to go on serving the company. In law he still has the
same employer but his right of choice is in such cases of more theoretical than real importance.
If, on the other hand, the company sells its business, then at common law rule has in turn been
modified by delegated legislation, by which certain transfer of undertaking do not terminate the

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contracts of their employees.”Each contract of employment is kept inbeing as if it had originally
been made between the employee and the transferee of the undertaking. The transferee can
enforce the contract against the employee, but if the employee gives notice to the transferor or to
the transferee that he objects to becoming employed by the transferee, he can avoid the
consequence. Therefore his legal right to choose his employer is preserved.

 Contracts involving personal confidence:

The common law principle applies to all contracts involving personal confidence. The holder of
a motor insurance policy cannot assign it since the insurer relies on the holder’s ability and
experience as a driver. It may be contended that even the benefit of a builder’s promise under a
building contract cannot be assigned since such contracts are “pregnant with disputes” so that the
builder may be willing to deal only “with the particular employer with whom he has chosen to
enter into a contract”.

 Sale of goods:

The principle may be applicable even to the contracts for the sale of goods. In Kemp v.
Baerselman a farmer entered into a contract with a baker to supply him eggs that he needed for
his business for a particular period of time where the baker agreed not to buy eggs elsewhere
during that period. Subsequently, a company bought the business of the baker and the baker
purported to assign the benefit of his contract with the farmer to this company. The farmer
refused to supply eggs to the company which the court held was justified. One of the reasons for
the decision was that the baker’s promise to deal exclusively with the farmer would not be
enforced against the company. Thus if the farmer were forced to provide eggs to the company he
would be subject to all the burdens of the original contract but would lose the privilege of
exclusive trading for which he had originally bargained.

The benefits of a long-term contract for the sale of goods can be assigned if it was expressly or
impliedly made with the buyer or his assignee. In Tolhurst v. Associated Portland Cement Co.,
Tolhurst agreed to supply chalk to Imperial needed for the manufacture of cement on a particular
land for 50 years. Imperial sold its business. The decision of the court was in favor of the
Associated Portland Cement Co. The court held that Tolhurst's refusing to supply chalk to
Associated Portland Cement Co. was not justified since the contract was impliedly made

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between the parties and their respective assignees. The fact that Associated Portland Cement Co.
was a larger company than Imperial didn't increase Tolhurst’s burden as the contract required
him only to supply as much chalk as was needed on the land that was originally occupied by
Imperial.

 Accrued right to a fixed sum of money:

It seems that in a situation where the creditor has an accrued right to a fixed sum of money, the
principle in opposition to assignment of “personal” contract is not applicable. Therefore an
individual indebted to an indulgent creditor cannot apparently complain if the creditor assign the
debt to the debtor’s trade rival, or to a debt-collecting agency.

 Benefit assignable by one party:

In the case of personal contracts, one party might be able to assign the benefit of the contract
while the other cannot do so. Therefore in Kemp v. Baerselman, the farmer could have assigned
the benefit of the baker’s promise to pay for the eggs.

 Effect between assignor and assignee:

When a purported assignment fails due to the “personal” nature of the debtor’s obligation, still
the transaction can take effect between assignor and assignee by way of contract between them
or way of trust.

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ASSIGNMENT BY OPERATION OF LAW
 Death

Rights generally pass to personal representatives: On the death of one of the parties to the
contract, his rights are generally passed to his personal representatives, who can recover a sum
due under the contract or damages for its breach. The representatives may sometimes recover
less and sometimes more what the deceased would have recovered.

Personal contract: If at times of death of a contracting party the contract is still partly executed,
the personal representatives are usually entitled to complete its performance and to claim the
agreed remuneration. But they cannot do so if the contract is “personal” in the sense that one
party places confidence in the judgment, skill, ability or integrity of the other. Therefore if either
party to a contract of employment dies, his right to keep on serving, or to be served, is not passed
to his representatives. Another instance is that if a painter agreed to paint a house and died when
the work was half-done, his representatives might not be authorized to complete the work and
claim the consideration; but in case of death of the homeowner, his representatives might be
entitled to ask for further performance from the painter.

 Bankruptcy

Deemed assignment to trustee in bankruptcy: When a person is adjudged bankruptcy, things

in action forming part of his estate at the commencement of the bankruptcy are “deemed to have
been assigned” to his trustee in bankruptcy. Thus the trustee can recover debts due to the
bankrupt and claim damages for breach of any contract with the bankrupt. Where the contract is
executor, the trustee may be entitled to perform it and claim payment from the other party.

Personal contracts: Some “personal” rights do not pass to the trustee in case of bankruptcy of
the original contractor. The word “personal” is here used in two senses. First, rights do not pass
to the trustee if they are concerned with the person or personal affairs of the bankrupt. Thus a
right to claim damages for injury to reputation does not pass, nor does the benefit of a contract
“to carry him in safety to cure his person of a wound or disease, such rights do not pass to the
trustee, even though they have accrued before bankruptcy. The basis of this rule is the view that
only the bankrupt’s property is divisible between his creditors: they are not authorized to benefit

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from injuries to his person. The “property” of the bankrupt that vests in his trustee include
“things in action” without limitation; it comprises contractual rights even if the contract giving
rise to them in terms forbids their assignment. The bankruptcy may have a single cause of action
giving rise to a right to damage in respect both of personal loss and economic loss. The cause of
action is then vested in his trustee but the trustee must account to the bankruptcy for such part of
the amount recovered as relates to the bankrupt’s personal loss, and to earnings lost after the
bankrupt’s discharge. The proceeds of insurance against permanent disability, on the other hand,
do pass to the trustee since the purpose of such policy is to protect the insured against economic
loss by the payment of premiums which, had they not been used for this purpose, would have
been available for the payment of his debts. By status, rights under certain pension schemes are
excluded from the bankrupt’s estate.

Secondly: the benefit of an executory contract does not pass to the trustee if it was “personal” in
the sense that the other contracting party relied on the skill and judgment of the bankrupt. In such
a case the other party cannot be required to accept performance from the trustee or someone
employed by him. Thus where a contract to build a house was “personal” in this sense, the
trustee was not entitled to finish the house and then to demand payment. But the trustee may
employ the bankrupt to finish the work, and if the other party in this way gets exactly what he
bargained for, the trustee can enforce the contract against him.

Income to which the bankrupt is from time to time entitled: Special rules apply to payment in
the nature of income to which the bankrupt is from time to time entitled. Such entitlement may
not vest in the trustee because the bankrupt’s right to the payment may not arise until after the
commencement of the bankruptcy, typically where the income consists of the bankrupt’s
earnings after the date of the bankruptcy. In respect of such earnings, the trustee may apply to the
court for an “income payment order” requiring either the bankrupt or the person from whom the
payment are due to pay to the trustee so much of the income as may be paid over to the trustee,
the court takes account of “what appears to be necessary for meeting the reasonable domestic
needs of the bankrupt and his family”. An income payment order must not be made if its effect
would be to reduce the income of the bankrupt below this level. These provisions are not based
on the “personal” nature of the contract under which the income is earned but on the need to
allow the bankrupt to work to maintain himself and his family.

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BIBLIOGRAPHY
 Avtar Singh.,Textbook On Law Of Contract And Specific Relief, 12 edition, Eastern
Book Company, 2017.
 Edvin Peel, Law of Contract,12 edition, Sweet and Maxwell, 2007.
 G. H. TREITEL, AN OUTLINE OF THE LAW OF CONTRACT (6th ed. 2004).

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