Whether an agreed non-assignable debt could be assigned?

An effective transfer of debt usually requires four factors: 1) there is a valid debt; 2) the debt has assignability; 3) there is an effective debt assignment agreement; and 4) the debtor is notified. Otherwise, the assignment of debt shall not have any effect on the debtor.

Therefore, as long as the debt has assignability, and it is not prohibited to be assigned according to legal provisions, normally such debt could be assigned without the consent of the debtor. However, if both parties have agreed that the creditor’s rights cannot be assigned, whether such agreed non-assignable debt could be assigned?

Article 545 of the “Civil Code” stipulates that, “Where the parties have agreed that the non-monetary claims cannot be assigned, the parties shall not act against a bona fide third party. Where the parties agree that the monetary claims may not be assigned, such an agreement shall not be enforceable against any third party.” That is, if it is a monetary debt, the agreement between the creditor and the debtor shall not be against the assignee as a third party, regardless of whether the assignee is aware of it or not, and the assignment of the debt is effective. If it is a non-monetary debt, the assignment is effective only when the assignee is aware of it.

In view of the aforesaid, the key issue is what is the consequence to the creditor (i.e. the assignor), debtor, and assignee respectively if the agreed non-assignable creditor’s rights are assigned?

Firstly, the assignor shall bear the liability for breach of contract stipulated in the original contract related to the assigned debt. In the case (2022) Jing 0106 Min Chu No.15108, the court held that, “The circumstance in this case is that both parties agreed that the debt could not be assigned, since Company A assigned the debt to a third party, it constitutes a breach of contract, and should bear corresponding liability for breach of contract. In addition, if the defaulting party defends that the amount of liquidated damages agreed upon is excessively higher than the losses incurred, the court may appropriately reduce such amount case by case. In the aforementioned case, both parties agreed the amount of liquidated damages was CNY100,000, and the court held that Company B failed to prove its direct economic loss, so the amount could be reduced to CNY30,000. In view of this case, although the assignor has breached the contract, the effectiveness of the assignment is not affected. On the contrary, once the assignor has assigned the debt as agreed non-assignable, it shall bear the liability of breach of contract, even when the assignment is invalid according to Article 545 of the “Civil Code”.

Secondly, the debtor could claim for the liability for breach of contract, and it shall pay the debt to the assignee if the assignment is valid according to Article 545 of the “Civil Code”. If the debtor still pay the debt to the assignor on the grounds that the contract stipulates that the debt cannot be assigned, then the debtor may face the risk of being claimed by the assignee.

Thirdly, for the assignee, if the assignment is valid and effective for the debtor, the assignee can directly claim the debt from the debtor. If the assignment is invalid and can be attributed to the assignor in accordance with the contract, the assignee may claim liability for breach of contract from the assignor.