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Pennsylvania Court Holds That Anti Assignment Provision Precluded Assignment Before Contract Had Been Performed Only

In Gito, Inc. v. Axis Architecture, P.C., 2021 WL 5858467 (Pa. App. Dec. 10, 2021), a Pennsylvania Appellate Court held an anti-assignment provision in a contract between the Owner and Architect precluded the Owner from assigning the contract to a third party before the contract had been performed, but did not preclude a post-performance assignment to recover damages for breach of the contract.

In 2017, the Greater Latrobe School District (“Owner”) contracted with Axis Architecture, P.S. (“Architect”) to design an elementary school. Owner retained Gito, Inc., d/b/a Nello Construction (“GC”) as the general contractor. The agreement between the Owner and Architect included an anti-assignment clause.

The project was completed three (3) months after the contractual substantial completion date. The GC initiated arbitration against Owner to recover for unpaid work and the delays. Owner and GC settled the claim and, as part of the settlement, Owner assigned its contractual rights against Architect for the delays.

GC filed suit against Architect pursuant to the terms of the assignment. Architect moved to dismiss on the basis of the anti-assignment provision. The trial court granted the motion, and GC appealed.

This was an issue of first impression in Pennsylvania, and the Court looked to other jurisdictions for guidance. Other jurisdictions had reasoned the purpose of the anti-assignment clause is to prevent a contractual party from being forced, without its consent, into a contractual relationship with a third party – not for purposes of preventing an assignment of a breach of contract claim for damages after the contract had been performed. The Appellate Court reasoned that while courts do not want to force parties to accept assignments and be forced to contract with other parties, once the contract has been performed, the issue becomes moot, and it is irrelevant to the performing party whether a third party brings a claim for damages.

This decision was further supported by Section 322 of the Restatement (Second) of Contracts, which states: “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.”

The Superior Court of Pennsylvania reversed the dismissal, holding that a construction contract clause prohibiting the assignment of the contract does not prohibit the assignment after the contract has been performed.

This holding reinforces the position that Courts are not willing to interfere with whom parties contract, but also that parties may assign rights under the contract once performed. The Court did not address what effect an express bar against assignment after performance would have had, but Design Professionals should consider adding such language to their Design Service Contracts.