Remedy for breach of contract with a "No Assignment" clause

Question

It is common for written contracts between entities to contain a "No Assignment" clause, which essentially states that, for a contract between entities A and B, the benefits or rights under the contract A cannot be assigned to another entity C without the consent of B.

It is possible for a breach of contract by B to precipitate the dissolution of A. (Examples: If B poaches a key member of A, or if the existence of A as a going concern depends entirely on its contract with B.) In such an event, it appears that a "No Assignment" clause would in effect make B immune to any liability claims, because A no longer exists and the contract could not be assigned to any beneficiary of A.

Not a perfect analogy, but in playground terms this is sort of like Bob and Al agreeing, "Let's build a sandcastle. But (here's the No Assignment clause) your friends don't get to play with it unless I agree." Once the sandcastle is complete Bob kills Al (yeah, it's a tough playground). Per the contract, Bob can invite all his friends to play and reject all of Al's friends.

Is there a legal doctrine that prevents a scenario like this?

I.e., can a contract clause indirectly render a contract party immune to liability for that party's breach of contract? I have a notion that there is something like the obverse of the "unclean hands" doctrine that would prevent this.

Answer 1

Is there a legal doctrine that prevents a scenario like this?

Yes. The particulars of the scenario would determine the grounds on which a non-assignment clause would be null and void. The Restatement (Second) of Contracts roughly classifies these alternative grounds for unenforceability as grounds of undue influence and of public policy. Additionally, by default a non-assignment clause "does not forbid assignment of a right to damages for breach of the whole contract". See Restatement at § 322(2)(a). Invoking this principle seems pertinent where, inter alia, a party breaches the covenant of good faith and fair dealing.

In the scenarios outlined in the 2nd paragraph of your question (i.e., B poaching a key member of A, or A's existence depending entirely on its contract with B), the contract is voidable by A if A "is justified in assuming that [B] will not act in a manner inconsistent with [A's] welfare", Restatement at § 177(1) (brackets added).

Although undue influence typically involves some sort of fiduciary duty that is unlikely to exist in an arm's-length agreement between A and B, the Restatement certainly elaborates in terms of domination. That choice of term affords to A the argument that B's abuse of its domination warrants voiding the non-assignment clause insofar as it frustrates A's ultimate purpose of entering that contract.

In the playground scenario, B's intentional killing of the counterparty with whom B partnered constitutes serious and deliberate misconduct that renders the clause unenforceable on grounds of public policy. See Restatement at § 178(3)(c). Moreover, the connection between the killing and the non-assignment clause would be evident as to timing and motive, Id at (d).

Lastly, notwithstanding the premise of "breach of the whole contract" (emphasis added) in Restatement at § 322(2)(a), the multiple references to "grant[ing] relief as justice requires" and similar phrases suggest that other principles would supersede said premise in order to preempt an absurd outcome. That is, the interests of justice would outweigh B's allegation that his compliance with other portions of the contract should bar an assignment [to A's beneficiaries] of a right to damages.