Is the no-assignment clause in our contract effective to stop an assignment, or does it only give us a damages claim?
Contract rights are generally assignable except where the assignment is prohibited by statute, prohibited by contract, or where the contract involves a matter of personal trust or confidence (Travertine). Minnesota does not require magic words: the Supreme Court declined to impose formulaic restraints on the language parties may use and held that when a contract prohibits assignment in very specific and unmistakable terms, any purported assignment is void. A clause providing that 'the rights and obligations of Berkey/Lennon shall not be assignable' satisfied that standard, and the purported assignment of the right to compensation was held void.
The trap
Minnesota is on the minority side of a real split, and drafting to the majority rule can mislead you in both directions. Travertine did not adopt Restatement (Second) of Contracts § 322's default rules (it said it 'need not' because Minnesota's own precedent governs), under which a prohibition on assignment 'gives the obligor a right to damages for breach of the terms forbidding assignment but does not render the assignment ineffective'; the separate 'void' or 'invalid' magic-words requirement is the Third Circuit's in Bel-Ray, which Travertine also declined; Minnesota applies the plain meaning of the words the parties used instead. What the Court did NOT require is specific terms (it required 'something expressing their intent that the contract not be assignable'), so a clause that merely says the agreement binds successors and assigns, with no prohibition, is not enough. Travertine reserved Minn. Stat. § 181.05 (assignment of unearned wages) on the record before it; that section is not quoted here. Nothing in this rule establishes a Minnesota rule for accounts and other receivables under UCC Article 9: Minn. Stat. ch. 336 is not among the Minnesota statutes available for this research, so § 336.9-406's override of anti-assignment terms is not verified here and a receivables financing question is not answered by this rule. Travertine is a management-contract case; the Supreme Court later held that its analysis does not carry over to insurance policies governed by a statutory scheme (Star Windshield, 2009).
9 authorities
The words that state the rule
Contract rights are generally assignable, except where the assignment is (1) prohibited by statute; 2 (2) prohibited by contract; (3) or where the contract involves a matter of personal trust or confidence.
The words that state the rule
The primary purpose of clauses prohibiting the assignment of contract rights is to protect the contracting party from dealing with parties he has not chosen to do business with.
The words that state the rule
We did not require that the parties use specific terms to preclude assignment, but merely required the parties to include something expressing their intent that the contract not be assignable. Because there was nothing in the terms of the contract manifesting the intention of the parties that it was not to be assigned, we upheld the assignment.
The words that state the rule
According to the Bel-Ray court, in order to limit the parties’ power to assign, “the assignment provision must generally state that nonconforming assignments (i) shall be ‘void’ or ‘invalid,’ or (ii) that the assign-ee shall acquire no rights or the nonassign-ing party shall not recognize any such assignment.” Id. at 442 (citations omitted). “In the absence of such language, the provision limiting or prohibiting assignments will be interpreted merely as a covenant not to assign * * Id. Breach of the covenant may give rise to damages, but it will not render the assignment invalid or unenforceable. Id. Finally, the Supreme Court of Oklahoma has held that the following contract language “clearly and unambiguously precludes assignment”: “Plaintiffs agree that they maintain no right to * ⅜ * have power to sell, mortgage, encumber, or anticipate the future payments, or any part thereof by assignment or otherwise.” In re Kaufman, 37 P.3d 845, 855 (Okla.2001) (emphasis added). The Seventh Circuit, however, has rejected the requirement of using such “magic words,” classifying them as “empty verbiage.” Bank of America, N.A v. Moglia, 330 F.3d 942, 948 (7th Cir.2003) (applying law of Illinois, which had adopted Restatement (Second) of Contracts § 322). We agree with the Seventh Circuit. We will not impose formulaic restraints on the language that contracting parties may employ to craft an anti-assignment clause that limits the power to assign. We believe the best approach is to simply apply the plain meaning of the words employed by the parties. When a contract prohibits assignment in very specific and unmistakable terms, any purported assignment is void.
The words that state the rule
In this case, we need not adopt the default interpretive rules provided by the Restatement (Second) of Contracts § 322 because our precedent that parties may agree that their contractual rights and obligations are not to be assigned is well-established.
The words that state the rule
With the exception that Berkey may assign to Lennon and Lennon may assign to Berkey, the management agreement provides that “the rights and obligations of Berkey/Lennon shall not be assignable.” (Emphasis added.) We hold that the anti-assignment clause is a valid and enforceable term of the management agreement, and that the parties intended to deny Lennon the power to assign his rights under the management agreement to anyone but Berkey. Therefore, Lennon’s purported assignment of his right to compensation to Lexington-Silverwood is void.
The words that state the rule
Lexington-Silverwood urges us to adopt the default interpretive rules provided by the Restatement (Second) of Contracts: (1) Unless the circumstances indicate the contrary, a contract term prohibiting assignment of “the contract” bars only the delegation to an assignee of the performance by the assignor of a duty or condition. (2) A contract term prohibiting assignment of rights under the contract, unless a different intention is manifested, (a) does not forbid assignment of a right to damages for breach of the whole contract or a right arising out of the assignor’s due performance of his entire obligation; (b) gives the obligor a right to damages for breach of the terms forbidding assignment but does not render the assignment ineffective; (c) is for the benefit of the obligor, and does not prevent the assignee from acquiring rights against the assign- or or the obligor from discharging his duty as if there were no such prohibition. Restatement (Second) of Contracts § 322 (1981). We will not adopt a provision of a Restatement of the Law if our precedent is to the contrary and we believe that our precedent still reflects the proper rule of law.
The words that state the rule
We are cognizant of the fact that Minn.Stat. § 181.05 (2002) provides that an assignment of unearned wages or salary is void: No assignment, sale, or transfer, however made or attempted, of any unearned wages or salary shall be in any manner valid or effectual for the transfer of any salary or wages to be earned or accruing after the making of such assignment, sale, or transfer, unless the person, firm or corporation from whom such wages or salary are to accrue shall consent thereto in writing. Any employer or agent of such employer accepting or charging any fee or commission for collecting the amount due on any such assignment, sale, or transfer shall be deemed guilty of a misdemeanor. The record before us, however, is inconclusive with regard to (1) Lennon’s employment relationship with Travertine; and (2) the time period over which Lennon earned the compensation he purported to assign to Lexington-Silverwood. For these reasons, we decline Travertine's invitation to decide this case based upon application of Minn.Stat. § 181.05.
- case768 N.W.2d 346Star Windshield Repair, Inc. v. Western National Insurance Co.Minn.decided 2009read it at the source ↗
The words that state the rule
The insurers contend that their interpretation of the anti-assignment clauses is supported by our decision in Travertine Corp. v. Lexington-Silverwood, 683 N.W.2d 267 (Minn.2004). In Travertine, we held that an "anti-assignment clause is a valid and enforceable term" that precludes the assignment of a right to payment under a contract. Id. at 269, 274 . But the contract at issue in Travertine was a management contract rather than an insurance policy. Id. at 269 . While we have stated that insurance policies follow general principles of contract law unless there are statutory laws to the contrary, Bobich, 258 Minn. at 294 , 104 N.W.2d at 24 , we conclude our analysis in Travertine is not helpful in resolving the issues presented because the statutory framework regarding auto glass insurance, as laid out above, makes the insurance policies at issue sufficiently different from management contracts.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.