Public Policy Limits on Assignments (Law of Contracts)

1. Introduction

An assignment is the transfer of contractual rights (and sometimes obligations) from one party (assignor) to another (assignee). While assignment promotes commercial flexibility, it is not absolute—courts restrict assignments that conflict with public policy.

Public policy limits ensure that assignments do not:

• Undermine justice
• Encourage illegality
• Violate personal or fiduciary relationships
• Harm public interest

2. General Rule: Assignability vs Non-Assignability

Assignable Rights

• Debt claims
• Contractual benefits
• Property-related rights

Non-Assignable Rights (Public Policy Limits)

• Personal service contracts
• Rights involving personal skill, trust, or confidence
• Rights prohibited by statute or contract
• Litigious rights (in certain cases)

3. Key Public Policy Limitations

(a) Assignment of Personal Service Contracts

Contracts involving personal skill, confidence, or trust cannot be assigned.

Rationale:
The identity of the contracting party is essential.

📌 Example:

• Employment contracts
• Artistic or professional services

(b) Assignment of Bare Right to Sue

A mere right to litigate (without any proprietary interest) cannot be assigned.

Rationale:
Prevents:

• Trafficking in litigation
• Champerty and maintenance

(c) Assignment Involving Illegality

Assignments that:

• Promote illegal acts
• Circumvent statutory prohibitions

are void.

(d) Assignment of Public Offices or Duties

Public offices or duties cannot be assigned.

Rationale:
Public responsibilities must not be commercialized.

(e) Restrictions Based on Contractual Terms

Parties may include non-assignment clauses, which courts enforce if reasonable.

(f) Assignment Affecting Public Interest

Assignments that:

• Harm third parties
• Disturb public welfare
  may be invalidated.

4. Statutory Basis (India)

Relevant provisions under the Transfer of Property Act, 1882:

• Section 6(e): Prohibits transfer of mere right to sue
• Section 6(f): Public office is non-transferable
• Section 6(h): Transfers opposed to public policy are void

5. Leading Case Laws

1. Tolhurst v. Associated Portland Cement Manufacturers Ltd.

Principle:

• Contracts involving personal confidence cannot be assigned
  Significance:
• Established test of personal nature of contract

2. Khardah Company Ltd. v. Raymon & Co. (India) Pvt. Ltd.

Principle:

• Assignment valid unless contract is personal in nature
  Significance:
• Distinguished between assignable commercial rights and personal obligations

3. Glegg v. Bromley

Principle:

• Assignment of property with incidental right to sue is valid
  Significance:
• Clarified difference between:
  • Bare right to sue (invalid)
  • Proprietary right with remedy (valid)

4. Champerty Case: Ram Coomar Coondoo v. Chunder Canto Mookerjee

Principle:

• Champertous agreements not per se void in India
• But invalid if:
  • Unfair
  • Against public policy
    Significance:
• Balanced approach to litigation funding

5. Venkata Subba Rao v. Jagannadha Rao

Principle:

• Assignment of mere right to sue is void
  Significance:
• Reinforced statutory rule under TPA

6. Trendtex Trading Corporation v. Credit Suisse

Principle:

• Assignment of contractual rights valid if not purely personal
  Significance:
• Modern commercial approach supporting assignment

7. Linden Gardens Trust Ltd. v. Lenesta Sludge Disposals Ltd.

Principle:

• Non-assignment clauses are enforceable
  Significance:
• Protects contractual freedom

8. ICICI Bank Ltd. v. Official Liquidator of APS Star Industries Ltd.

Principle:

• Assignment of debts is valid and common in banking
  Significance:
• Recognized legitimacy of financial asset assignment

6. Key Doctrinal Distinctions

(a) Assignment vs Novation

• Assignment → transfer of rights
• Novation → substitution of contract (requires consent)

(b) Legal vs Equitable Assignment

• Legal → complete transfer with notice
• Equitable → partial or informal transfer

7. Public Policy Justifications

Courts restrict assignments to:

1. Prevent commercialization of justice
2. Protect personal relationships
3. Avoid trafficking in litigation
4. Preserve integrity of public offices
5. Ensure fairness and morality

8. Modern Trends

• Increasing acceptance of commercial assignments
• Recognition of third-party funding (with safeguards)
• Narrow interpretation of public policy to promote business efficiency

9. Conclusion

Public policy limits on assignments strike a balance between:

• Freedom of contract
• Protection of societal and legal values

While modern law favors free assignability, courts continue to invalidate assignments that:

• Undermine justice
• Involve personal obligations
• Encourage litigation abuse

Thus, public policy acts as a necessary control mechanism, ensuring that assignments serve legitimate commercial purposes without harming the broader legal system.