As from January 1, 2014 the new Civil Code (referred to as NCC) introduces a substantial innovation to assignment of claims and obligations, and thus the possibility to easily assign any and all rights and obligations of unfulfilled contract to another person without the necessity to make a new contract.

‘Contract assignment’ under the existing legislation

The current legislation does not allow for contract assignment as such. In practice, this legal institute is covered by contract which combines elements of assignment of debt and assumption of liabilities. Such contract is usually called ‘Contract of Cession and Assumption of Liabilities‘. Since the assumption of debt requires the creditor’s consent, clearly, such contract must be made as a three-party contract among the assignor of claims, assignee and the second contractual party to this ‘transferred contract’.

This practice is used fairly often and with various success in property development, facility management and construction. This method of a ‘contract transfer’ involves several problems. Firstly, it is a mandatory provision of Sec. 525 of the Civil Code (hereinafter referred to as ‘CC’) which excludes assignment of (i) personal claims and (ii) claims which cannot be disposed of by execution of judgement, i.e. claims consisting in creditor’s right to require a certain passivity from the debtor, such as refraining from or suffering something, for example refraining from asserting right to a contractual penalty, etc.

Contract assignment under the NCC
Once the NCC comes into force, the aforementioned issues will not be relevant, since it is going to be possible to assign a contract as a whole or in part. Valid assignment of a contract must meet three conditions:
1. Assignment must be permissible by the contract character
2. Assigned party must give consent with the assignment
3. The contact has not been fulfilled when it is being assigned

Contract character would rule out assignment in case the performance is bound to a certain person, their skills or qualities, for example performance by a sports man or an artist. The assigned party may give consent with assingment in advance. Hence, it is going to be possible to include a provision in the contracts that the party agrees with assignment thereof to the third person. The contract assignment will be effective for the assigned party as of their consent. If such consent is given in advance, it will be necessary to inform the assigned party of the assignment.

Contract to order

Any contract may be concluded ‘to order’ under the NCC. In such case, the contract might be assigned by a mere endorsement. This possibility may save costs of contractual process and is easily carried out. Assignment will be carried out by declaration (endorsement) about the transfer at the back of the contract, similarly as in case of transferring a draft. It is not clear, though, how to proceed when endorsing only a part of the contract and how to express corresponding consent of the assigned party.

Conclusion

The possibility to assign and dispose of the contract is undoubtedly a useful legal tool, which enterpreneurs in all business areas are going to appreciate. Legal advice will be necessary for effective use of this tool in order to prevent prospective disputes between the parties regarding validity and the scope of contract assignment.

Should you need to know more on the subject please contact partner to the firm, Mr. Jiří Kučera, tel: +420 273 134 333 or e-mail:jkucera@kuceralegal.cz