Personal Service Contract

“Term often imprecisely used to describe a contract that cannot be assigned because one of the parties is uniquely positioned, to the exclusion of all others, to perform it.

For example, a contract with Picasso to produce a work of art cannot be assigned to someone else to perform even if the contract does not expressly prohibit assignment. Section 365 recognizes this concept, and even broadens it considerably, by prohibiting “the trustee” (which usually also includes the debtor in a Chapter 11 case) from assuming or assigning a contract where “applicable law excuses a party, other than the debtor, to such contract or lease from accepting performance or rendering performance to an entity other than the debtor or the debtor in possession, whether or not such contract or lease prohibits or restricts assignment of rights or delegation of duties…” This language not only covers the Picasso situation but many others where state or federal law prohibits assignment. Ironically, it has also been interpreted by some courts to prevent the debtor, in this example Picasso himself, from assuming the contract in his bankruptcy case.”

This definition is courtesy of our friends at Polsinelli who publish the Devil’s Dictionary of Bankruptcy Terms. You can access the Devil’s Dictionary here.

For more information about personal service contracts, read A Non-Debtor Perspective on Executory Contracts.