An assignment is
a term used with similar meanings in the law of
contracts and in the law of real estate. In both
instances, it encompasses the transfer of rights
held by one party - the assignor - to another
party - the assignee. The legal nature of the
assignment determines some additional rights and
liabilities that accompany the act.
Assignment
of contract rights
Assignment of rights under a contract is the
complete transfer of the rights to receive the
benefits accruing to one of the parties to that
contract. For example, if party A contracts to
wash party B's car for $10, party A can later
assign the benefits of the contract - the right
to be paid $10 - to party C. In this scenario,
party A has become the assignor, party B has
become an obligor, and party C is the assignee.
Such an assignment may be donative (essentially
given as a gift), or it may be contractually
exchanged for consideration. It is important to
note, however, that party C is not a third party
beneficiary, because the contract itself was not
made for the purpose of benefitting party C.
When assignment will be permitted
The common law favors the freedom of assignment,
so an assignment will generally be permitted
unless there is an express prohibition against
assignment in the contract. Where assignment is
thus permitted, the assignor need not consult the
other party to the contract. An assignment can
not have any effect on the duties of the other
party to the contract, nor can it reduce the
possibility of the other party receiving full
performance of the same quality. Certain kinds of
performance, therefore, can not be assigned,
because they create a unique relationship between
the parties to the contract. For example, if
party A contracts to hire an attorney to
represent party A in a civil case for a fee of
$1000, party A can not then assign his
contractual right to legal representation to
another party.
Requirements for an effective assignment
For assignment to be effective, it must occur in
the present. No specific language is required to
make such an assignment, but the assignor must
make some clear statement of intent to assign
clearly identified contractual rights to the
assignee. A promise to assign in the future has
no legal effect. Although this prevents a party
from assigning the benefits of a contract that
has not yet been made, a court of equity may
enforce such an assignment where an established
economic relationship between the assignor and
the assignee raised an expectation that the
assignee would indeed form the appropriate
contract in the future.
A contract may contain a non-assignment clause,
which prohibits the assignment of specific
rights, or of the entire contract, to another.
However, such a clause does not necessarily
destroy the power of either party to make an
assignement. Instead, it merely gives the other
party the ability to sue for breach of contract
if such an assignment is made. However, an
assignment of a contract containing such a clause
will be ineffective if the assignee knows of the
non-assignment clause, or if the non-assignment
clause specifies that "all assignments are
void".
Two other techniques to prevent the assignment of
contracts are recission clauses or clauses
creating a condition subsequent. The former would
give the other party to the contract the power to
rescind the contract if an assignment is made;
the latter would rescind the contract
automatically in such circumstances.
Requirement of a writing
There are certain situations in which the
assignment must be in writing.
1. Assignment of wages
2. Assignment of any interest in real property
3. Assignment of choses of action worth over
$5,000
4. Assignment as collateral for a loan or debt
Revocability
Assignments made for consideration are
irrevocable, meaning that the assignor
permanently gives up the legal right take back
the assignment once it has been made. Donative
assignments, on the other hand, are generally
revokable, either by the assignor giving notice
to the assignee, taking performance directly from
the obligor, or making a subsequent assignment of
the same right to another. There are some
exceptions to the revocability of a donative
assignment:
1. The assignment can not be revoked if the
obligor has already performed
2. The assignment can not be revoked if the
assignee has received a token chose (chose being
derived from the French word for
"thing", as in a chose of action) - a
physical object that signifies a right to
collect, such as a stock certificate or the
passbook to a savings account.
3. The assignment can not be revoked if the
assignor has set forth in writing the assignment
of a simple chose - a contract right not embodied
in any for of token.
4. Estoppel can prevent the revocation of a
donative assignment if the asignee changed their
position in reliance on the assignment.
Finally, the death or declaration of bankruptcy
by the assignor will automatically revoke the
assignment by operation of law.
Breach and defenses
A cause of action for breach on the part of the
obligor lie with the assignee, who will hold the
exclusive right to commence a cause of action for
any failure to perform or defective performance.
At this stage, because the assignee "stands
in the shoes" of the assignor, the obligor
can raise any defense to the contract that the
obligor could have raised against the assignor.
Furthermore, the obligor can raise against the
assignee counterclaims and setoffs that the
obligor had against the assignor. For example,
suppose that A makes a contract to paint B's
house in exchange for $500. A then assigns the
right to receive the $500 to C, to pay off a debt
owed to C. However, A does such a careless job
painting the house that B has to pay another
painter $400 to correct A's work. If C sues B to
collect the debt, B can raise his counterclaim
for the expenses caused by the poor paint job,
and can reduce the amount owed to C by that $400,
leaving only $100 to be collected.
When the assignor makes the assignment, he makes
with it an implied warranty that the right to
assign was not subject to defenses. If the
contract had a provision that made the assignment
ineffective, the assignee could sue the assignor
for breach of this implied warraney. Similarly,
the assignee could also sue under this theory if
the assignor wrongfully revoked the assignment.
Successive assignments
Occasionally, an unscrupulous assignor will
assign the exact same rights to multiple parties
(usually for some consideration). In that case,
the rights of the assignee depend on the
revocability of the assignment, and on the timing
of the assignments relative to certain other
actions.
In a quirk left over from the common law, if the
assigment was donative, the last assignee is the
true owner of the rights. However, if the
assignment was for consideration, the first
assignee to actually collect against the assigned
contract is the true owner of the rights. Under
the modern American rule, now followed in most
U.S. jurisdictions, the first assignor with
equity (i.e. the first to have paid for the
assignment) will have the strongest claim, while
remaining assignees may have other remedies.
1. Earlier donative assignees for whom the
assignment was revocable (because it had not been
made irrevocable by any of the means listed
above) have no cause of action whatsoever.
2. Earlier donative assignees for whom the
assignment was made irrevocable can bring an
action for the tort of conversion, because the
assignment was technically their property when it
was given to a later assignee.
3. Later assignees for consideration have a cause
of action for breaches of the implied warranty
discussed above.
Compare: Delegation
A parallel concept to assignment is delegation,
which occurs when one party transfers his duties
or liabilities under a contract to another. A
delegation and an assignment can be accomplished
at the same time, although a non-assignment
clause also bars delegation.
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