Sign, Sign, Everywhere Assignments

What You Need to Know About Assigning Construction Contracts and Claims

This provides a foundation for construction lawyers navigating their way through assignments and pass-through claims. Readers will gain clarity on which claims can and cannot be assigned, the types of pass-through claims allowed in Texas, and the statutory schemes and equitable doctrines crucial for advising clients effectively.

I. INTRODUCTION
This is not the first paper about assignments to be presented at the annual State Bar of Texas Construction Law Conference, 2 and it won’t be the last. As construction lawyers, most of us have already run into assigning contracts, assigning claims, or drafting liquidating agreements for pass-through claims. And if you haven’t yet, you probably will. This paper is intended as a starting point.

II. ASSIGNMENTS GENERALLY
In Texas, claims can be freely assigned unless doing so is prohibited by statute or public policy. City of San Antonio v. Valemas, Inc., No. 04-11-00768-CV, 2012 WL 2126932, at *8 (Tex. App.—San Antonio Jun. 13, 2012, no pet.) (mem. op.) (citing State Farm Fire & Cas. Co., v. Gandy, 925 S.W.2d 696, 705–07 (Tex. 1996)). Historically, the common law prohibited assignment of most claims.3 Over time, Texas courts eroded this prohibition, and carved out exceptions to effectively reverse the rule in Texas so that parties could freely assign claims, unless prohibited.4 In sum, the free assignability of claims remains the default rule, subject to specific prohibitions set forth by the Legislature or through public policy (as dictated by the courts). When courts evaluate whether an assignment is allowed under new circumstances (especially when a statute is silent on the issue), they still return to older common-law principles to determine whether public policy prohibits the assignment.5

A. Collateral versus Absolute Assignment
Texas courts differentiate between so-called collateral assignments and absolute assignments. Collateral assignment means assigning some right or claim as collateral to a 2 E.g., John C. Warren, Mind If I Pass-Through?, presented at the 32nd Annual State Bar of Texas Construction Law Conference (2019); Jeffrey A. Ford, What’s In Your Assignment?, presented at the 33rd Annual State Bar of Texas Construction Law Conference (2020).

3 Gandy, 925 S.W.2d at 706.

4 PPG Indus., Inc. v. JMB/Houston Centers Partners Ltd. P’ship, 146 S.W.3d 79, 86–87 (Tex. 2004) (“In some cases of statutory silence, we have also looked to related common-law principles.
With respect to the assignment of claims, we have recognized the collapse of the common-law rule that generally prohibited such assignments. But the assignability of most claims does not mean all are assignable; exceptions may be required due to equity and public policy.”).

5 Jackson v. Thweatt, 883 S.W.2d 171, 175 (Tex. 1994) (“As the Fifth Circuit noted in Bledsoe, ‘[a]s the statute at hand is silent as to the rights of assignees, we turn to the common law to fill the
gap.’”) (cleaned up).

4 debt owed. For example, assigning property as collateral security for a loan. Coffey v. Singer Asset Fin. Co., 223 S.W.3d 559, 566 (Tex. App. Dallas—2007, no pet.). In the construction context, this comes up most often as a subcontractor selling (or factoring) their accounts receivable in exchange for a loan from a factoring company. Courts seldom consider a collateral assignment to be a true assignment of claims or rights.6 While the terms are confusing, focus on first principles. The importance of something being a collateral assignment versus an absolute assignment is that the former is not an assignment at all. The salient feature of an actual assignment is that the assignee can sue for the assigned claim. A mere collateral assignment (not really an assignment!) may give the collateral assignee the right to sue the collateral assignor, but does not give the collateral  assignee the right to sue the person who owed the collateral assignor the money. Marhaba Partners, 457 S.W.3d at 219 (“An ‘absolute’ assignment occurs when the assignor ‘loses all control over the property assigned and can do nothing to defeat the rights of the assignee.’”). Example: general contractor hires subcontractor and owes them $100K. Some factoring company receives an “assignment” from the subcontractor entitling the factoring company to the $100K. If courts decide this is a “collateral assignment,” the factoring company’s sole relief may be from the subcontractor, and not from the general contractor. This is an oversimplification of a wildly confusing area of law, which I have tried to illuminate more below.

For access to the full report: https://www.allensworthlaw.com/wp-content/uploads/2024/05/Assigning-Claims-and-Contracts-in-Texas-37th-Construction-Law-Conference-Karly-Houchin.pdf

By Karly A. Houchin