18.2 Assignment of Rights & Delegation of Duties
Key Takeaways
- Most contract rights may be assigned without the obligor's consent unless the assignment would materially change the obligor's duty, burden, or risk, is forbidden by statute or public policy, or is validly precluded by contract; a gratuitous assignment is revocable unless made irrevocable by delivery, a signed writing, or reliance.
- A contract term prohibiting assignment of rights usually gives the obligor only a claim for damages, while a term making assignments void can defeat an assignment—except that terms restricting assignment of accounts and payment intangibles are ineffective under UCC § 9-406(d).
- The obligor may pay the assignor until it receives notice of the assignment; the assignee is subject to defenses arising from the contract whenever they arise and to other claims against the assignor that accrued before notice (Restatement §§ 336, 338).
- Among successive assignees for value, the first generally prevails unless a later assignee without notice first obtains payment, a judgment, a novation, or delivery of a token chattel (Restatement § 342); Article 9 filing rules govern many commercial assignments of payment rights.
- Duties may be delegated unless the obligee has a substantial interest in having the original obligor perform; the delegator remains liable absent a novation, and a delegatee who assumes the duties for consideration is liable to the obligee as an intended beneficiary.
18.2 Assignment of Rights & Delegation of Duties
Assignment and delegation transfer contract rights and duties after the contract is formed. An assignment transfers a right to receive performance; a delegation transfers a duty to perform. A general transfer of "the contract" usually does both.
1. Assignment of Rights
An assignment is a transaction whereby an obligee (assignor) transfers their present contractual rights to receive performance to a third party (assignee), extinguishing the assignor's rights.
┌───────────────────────────────┐
│ OBLIGOR │
│ (Owes duty of performance) │
└───────┬───────────────┬───────┘
│ │
Original Contract │ │ Performance runs directly
Duty of Obligor │ │ to Assignee after notice
▼ ▼
┌───────────────┐Assignment┌───────────────┐
│ ASSIGNOR │─────────▶│ ASSIGNEE │
│ (Obligee) │ of Right │ (New Holder) │
└───────────────┘ └───────────────┘
A. Mechanics & Validity of Assignment
- Present Manifestation of Intent: An assignment requires language demonstrating a present transfer of an existing right ("I hereby assign," or "I transfer to you"). A promise to assign in the future ("I will assign to you tomorrow") or a mere authorization to collect is not an assignment.
- Consideration NOT Required: Consideration is not required to make an assignment legally valid. Gratuitous assignments are completely enforceable, but differ in revocability.
B. Revocability of Assignments
- Assignments for Value (Irrevocable): An assignment is for value if it is given in exchange for consideration, or as security for or in satisfaction of an existing debt. An assignment for value is irrevocable.
- Gratuitous Assignments (Revocable): An assignment made without consideration is gratuitous and is freely revocable by the assignor.
- How Revocation Occurs: Assignor's death, incapacity, subsequent assignment of the same right to another party, or direct notice of revocation to assignee or obligor.
- Exceptions (Gratuitous Assignment Becomes Irrevocable):
- The assignment is set forth in a signed writing delivered to the assignee;
- The assignment is accompanied by delivery of a symbolic or indispensable document (e.g., bank passbook, stock certificate, negotiable promissory note); OR
- The assignee reasonably and foreseeably relies to their detriment on the assignment (promissory estoppel).
C. Contractual Restrictions: Prohibition vs. Invalidation
Contractual clauses attempting to restrict assignments are strictly construed on the MBE:
┌────────────────────────────────────────┬────────────────────────────────────────┐
│ CLAUSE PROHIBITING ASSIGNMENT │ CLAUSE VOIDING ASSIGNMENT │
├────────────────────────────────────────┼────────────────────────────────────────┤
│ Phrasing: 'Assignment of this contract │ Phrasing: 'Any assignment of rights │
│ is prohibited' or 'Party shall not │ under this contract shall be VOID, │
│ assign.' │ null, and of no legal effect.' │
├────────────────────────────────────────┼────────────────────────────────────────┤
│ Destroys the RIGHT to assign, but NOT │ Destroys the POWER to assign. │
│ the POWER to assign. │ │
├────────────────────────────────────────┼────────────────────────────────────────┤
│ Legal Effect: The assignment is VALID. │ Legal Effect: The assignment is VOID. │
│ Assignee can sue obligor. Obligor can │ Assignee acquires NO rights against │
│ sue assignor for damages for breach. │ the obligor. │
└────────────────────────────────────────┴────────────────────────────────────────┘
D. Rights That CANNOT Be Assigned
A contractual right cannot be assigned if the assignment would:
- Materially alter the obligor's duty or significantly increase the burden or risk imposed on the obligor (e.g., assigning insurance coverage on a house to a new owner, or assigning rights under a personal services contract);
- Materially impair the obligor's chance of obtaining return performance; OR
- Violate public policy or statute (e.g., assignment of future wages or personal injury claims).
- Rights to Payment: A right to receive money is generally assignable. Under UCC § 9-406(d), a term restricting the assignment of an account (such as a right to payment for goods or services) or a payment intangible is ineffective, and at common law a prohibition does not bar assignment of a right to damages for breach of the whole contract or of a right arising from the assignor's full performance (Restatement § 322(2)(a)). Statutes may still restrict some assignments, such as assignments of future wages.
E. Priority Among Successive Assignments
1. Successive Gratuitous Assignments
- Rule: The LAST gratuitous assignee wins.
- Reasoning: Each subsequent gratuitous assignment automatically revokes all prior revocable gratuitous assignments.
2. Successive Assignments for Value
- Baseline Rule (First-in-Time): The FIRST assignee for value wins.
- The Four-Prong Exception (Subsequent Assignee for Value Wins): A subsequent assignee for value takes priority over a prior assignee for value ONLY IF the subsequent assignee:
- Paid value;
- Took without notice of the prior assignment; AND
- Was the first to accomplish any one of the following:
- Obtain actual payment or satisfaction from the obligor;
- Obtain a final judgment against the obligor;
- Enter into a new contract (novation) with the obligor; OR
- Obtain possession of the indispensable token document.
F. Obligor's Defenses Against Assignee
- The "Shoes of the Assignor" Rule: An assignee takes subject to any defense arising from the contract itself—such as the assignor's fraud or failure to perform—whenever that defense arises. The obligor may also assert claims or set-offs arising from other transactions with the assignor, but only if they accrued before the obligor received notice of the assignment (Restatement § 336; UCC § 9-404).
- Notice Requirement: The obligor can continue to pay the assignor until the obligor receives formal notice of the assignment. Once the obligor receives notice directing payment to the assignee, payment to the assignor does not discharge the debt; the obligor must pay the assignee.
2. Delegation of Duties
A delegation occurs when an obligor (delegator) transfers their performance obligation under a contract to a third party (delegatee).
┌────────────────────────────────────────┐
│ IS THE DUTY DELEGABLE? │
└───────────────────┬────────────────────┘
│
┌─────────────────────────┴─────────────────────────┐
▼ ▼
┌──────────────────────────┐ ┌──────────────────────────┐
│ NON-DELEGABLE │ │ FREELY DELEGABLE │
├──────────────────────────┤ ├──────────────────────────┤
│1. Personal skill, unique │ │Standard commercial │
│ taste, or reputation │ │performance, routine │
│2. Special trust/confid. │ │construction, ordinary │
│3. Anti-delegation clause │ │services, fungible goods. │
└──────────────────────────┘ └────────────┬─────────────┘
│
▼
┌──────────────────────────┐
│ LIABILITY OF PARTIES │
├──────────────────────────┤
│Delegator REMAINS LIABLE! │
│Delegatee liable ONLY if │
│assumed for consideration.│
└──────────────────────────┘
A. What Duties May Be Delegated?
- General Rule: All contractual duties are freely delegable without the obligee's consent.
- Exceptions (Non-Delegable Duties):
- Contracts involving personal skill, unique talent, artistic judgment, or special personal reputation (e.g., famous architect, skilled surgeon, renowned portrait painter);
- Contracts founded on special personal confidence or fiduciary relationship;
- Contracts where delegation materially alters the obligee's reasonable expectations; OR
- Contracts containing an express prohibition against delegation.
- Clause Prohibiting "Assignment": Under UCC § 2-210(4) and Restatement § 322, a clause prohibiting the assignment of "the contract" is construed as barring only the delegation of performance duties, not the assignment of rights.
B. Legal Liability of the Parties
┌────────────────────────┬───────────────────────────────────────────────────────┐
│ Party │ Scope of Continuing Legal Liability │
├────────────────────────┼───────────────────────────────────────────────────────┤
│ Delegator │ REMAINS SECONDARILY LIABLE on the contract! │
│ (Original Obligor) │ Delegation does NOT discharge the delegator. If the │
│ │ delegatee fails to perform, the obligee can sue the │
│ │ delegator directly. (Discharge occurs ONLY via │
│ │ NOVATION). │
├────────────────────────┼───────────────────────────────────────────────────────┤
│ Delegatee │ Liable to the obligee ONLY IF the delegatee has │
│ (New Performer) │ ASSUMED the performance duty supported by │
│ │ consideration. The obligee becomes an intended │
│ │ third-party beneficiary of the assumption agreement. │
├────────────────────────┼───────────────────────────────────────────────────────┤
│ Obligee │ Must accept conforming performance from a valid │
│ (Recipient) │ delegatee. Refusal of conforming tender is a breach. │
└────────────────────────┴───────────────────────────────────────────────────────┘
Comparison: 3PB vs. Assignment vs. Delegation
| Feature | Third-Party Beneficiaries (3PB) | Assignment of Rights | Delegation of Duties |
|---|---|---|---|
| Timing of Creation | At the time of original contract formation | After contract formation | After contract formation |
| What is Transferred? | Direct right created in third party | Existing contractual right transferred to assignee | Existing performance obligation transferred to delegatee |
| Consideration Needed? | Must support underlying contract; not needed from 3PB | Not required for validity (gratuitous valid, but revocable) | Required to hold delegatee liable to obligee |
| Original Party Liable? | Promisee liable only to creditor beneficiary | Assignor not liable if obligor defaults (unless warranty) | Delegator remains liable absent a formal Novation |
| Effect of Restrictive Clause | N/A | Prohibition = right barred; Voiding clause = power destroyed | Anti-delegation strictly enforced; bars transfer |
More Assignment & Delegation Rules
Additional Assignment Rules
- Partial assignments: A right may be assigned in part. An obligor sued by a partial assignee may require that all persons entitled to the right be joined, to avoid multiple suits.
- Future rights: A right expected to arise under an existing contract or employment may be assigned; a purported assignment of a right that does not yet exist under any contract operates only as a promise to assign when the right arises.
- Assignor's implied warranties: An assignor for value impliedly warrants that it will do nothing to defeat or impair the assigned right, that the right exists and is not subject to undisclosed defenses, and that it knows of no fact that would impair the right's value. The assignor does not warrant that the obligor will actually perform (Restatement § 333).
- Modifications after assignment: Before notice, the obligor and assignor may modify the contract, and the modification binds the assignee. Even after notice, a good-faith modification made in accordance with reasonable commercial standards binds the assignee to the extent the right to payment has not already been earned by performance (Restatement § 338; UCC § 9-405).
- Article 9: Sales of accounts and payment intangibles are within UCC Article 9, so priority among competing buyers of those rights is often determined by filing or perfection rather than by the common-law rules summarized above.
Assignment of "the Contract" and Assumption
- An assignment of "the contract" or of "all my rights under the contract" is both an assignment of rights and a delegation of duties unless the circumstances indicate otherwise. The assignee's acceptance is a promise to perform, enforceable by the other party to the original contract (UCC § 2-210(5); Restatement § 328).
- A delegation of performance for goods gives the obligee reasonable grounds for insecurity, so it may demand adequate assurance from the delegatee (UCC § 2-210(6)).
- An obligee is not required to accept performance from a delegatee when it has a substantial interest in having the original promisor perform, as with a famous artist, a lawyer, or a requirements contract whose volume would change with a different buyer.
| Question | Assignment of a Right | Delegation of a Duty |
|---|---|---|
| Consent of the other party needed? | No, unless the assignment materially changes the obligor's burden or is validly prohibited | No, unless performance is personal or delegation is validly prohibited |
| Original party's status afterward | Assignor's right is extinguished (assignor gives warranties) | Delegator remains liable unless there is a novation |
| Effect of notice | Obligor must pay the assignee after notice | Obligee may demand assurances |
| Who may sue whom? | Assignee sues obligor | Obligee sues delegator, and delegatee if it assumed the duty |
A commercial graphic design firm entered into a written contract with an office furniture manufacturer to design an advertising campaign for $40,000. The contract contained the following clause: 'Neither party may assign this contract, and any assignment of rights hereunder shall be void and of no legal effect.' Prior to performing the work, the design firm needed immediate operating capital. The firm executed a written document assigning its right to receive the $40,000 payment to a commercial finance company in exchange for an immediate cash advance of $35,000. The design firm fully and flawlessly completed the advertising campaign. The finance company gave written notice to the manufacturer directing that the $40,000 payment be made directly to the finance company. The manufacturer refused to pay the finance company and paid the $40,000 to the design firm instead. Can the finance company recover the $40,000 from the manufacturer?
A commercial property owner contracted with a master painter to paint a three-story commercial office building for $30,000. The contract was silent regarding delegation. Due to a scheduling conflict with another commercial project, the master painter delegated the painting job to an experienced, licensed commercial painting company. The painting company accepted the delegation and agreed to do the work. The delegatee company completed the painting project, but used low-grade, thinning paint and failed to apply primer, causing the paint to blister and peel within two weeks. The property owner incurred $15,000 in repair expenses to scrape and repaint the building. Can the property owner recover the $15,000 in damages from the master painter?
On March 1, a supplier assigned for value its $50,000 right to payment from a customer to Bank A. Bank A did not notify the customer. On March 10, the supplier assigned the same right for value to Bank B, which had no knowledge of the earlier assignment. Bank B immediately notified the customer, and on April 1 the customer paid Bank B in full. Bank A then demanded payment from Bank B. Applying the common-law priority rules of the Restatement (Second) of Contracts, which bank is entitled to the $50,000?
A contractor agreed to renovate a store for a retailer for $60,000, payable on completion. The contractor assigned its right to payment to a lender for value, and the lender promptly notified the retailer. The contractor later abandoned the job after doing work worth $20,000 under the contract, and the retailer paid another contractor $45,000 to finish. Separately, after receiving notice of the assignment, the retailer acquired a $5,000 claim against the contractor for unpaid rent on an unrelated equipment lease. The lender sued the retailer for $60,000. Which defenses may the retailer assert against the lender?