Third parties: assignment

Question 1

Assignment

Answer 1

Assignment is the transfer of the rights under a contract.

An assignee takes:

• all the rights of the assignor as the contract stands at the time of assignment,
• subject to any defenses that could be raised against the assignor.

Question 2

Assignment: requirements

Answer 2

No formalities are needed for an assignment, but there must be:

• a present intent to transfer the right immediately and
• assent by the assignee.

Question 3

Assignment: contractual restrictions

Answer 3

Contracts are presumptively assignable, in whole or in part, unless:

• the contract so prohibits—meaning that assignment is a breach, but the third party can still recover; or
• the contract invalidates assignments—meaning that assignment is both a breach and prevents the third party from recovering.

Question 4

Prohibited assignments

Answer 4

Assignments are not permitted when they:

(1) are against public policy or statute,
(2) materially increase the duty or risk of the obligor, or
(3) materially reduce the obligor’s chance of obtaining performance.

Question 5

Revocable assignments

Answer 5

An assignment is revocable if:

• The assignment is without consideration, and no exception prevents revocation; or
• The assignment is with consideration, but:(i) The second assignee does not know about the initial assignment; and
  (ii) The second assignee is the first to obtain a payment or judgment.

If the assignment is revocable, the last assignment generally wins.

Question 6

Irrevocable assignments

Answer 6

An assignment is not revocable if:

• The assignment is without consideration, but:

(a) The obligor has already performed;
(b) Promissory estoppel applies; or
(c) A document evidencing the assigned rights or written assignment signed by the assignor was delivered to the assignee;

• The assignment is with consideration, and any subsequent assignee has notice of the initial assignment.

Question 7

Defenses

Answer 7

An assignee takes:

• All of the rights of the assignor as the contract stands at the time of the assignment;
• The assignee, however, takes those rights subject to any defenses that could be raised against the assignor.

Payment by the obligor to the assignor can be raised as a defense, provided the payment was made before the obligor had notice of the assignment.

Question 8

Delegation

Answer 8

Delegation is the transfer of the duties under a contract.

Delegation is generally permitted unless:

• the contract forbids it or
• if the other party has a special interest in a specific individual performing.

An assignment of a contract that is not expressly limited to contractual rights is typically treated as both an assignment of rights and a delegation of duties.

Question 9

Delegation: liability

Answer 9

When obligations are delegated, the delegator is not released from liability:

• recovery can be made against the delegator if the delegatee does not perform,
• unless the other party to the contract agrees to release that party and substitute a new one (a novation).