Assignment of Rights and Delegation of Duties Flashcards
Assignment
Transfer of a right to receive a performance under a contract.
Requirements of Effective Assignment
(1) owner must manifest an intention to make a PRESENT transfer of the right without further action by the owner or the obligor; AND
(2) the assignee manifests assent to the assignment (unless a third person gives consideration for the assignment or the assignment is irrevocable through delivery of a writing to the third person).
Partial assignments
Partial assignments are valid. There can be an assignment of a fraction of the assignor’s rights.
What rights are assignable?
General rule is that all rights are assignable, subject to following exceptions…
A right is NOT assignable:
(1) if the assignment would materially alter the risks to or obligations of the other party to the K;
(2) if the obligor has a personal interest in rendering the performance in question to the obligee and NOT a third party;
(3) if assignment would violate applicable law or public policy; AND
(4) a right is not assignable if assignment is prohibited by the K (such provisions are strictly construed in both scope and effect).
Courts will treat an assignment in violation of contractual restriction as a breach of K by the assignor (liable for any damages to the obligor) but not as a basis for nullifying the obligor’s performance obligation to the assignee.
Absent contractual language or circumstances suggesting contrary intention of the parties, a contractual prohibition against “assignment of the contract,”…
(1) will bar delegation of contractual duties but NOT an assignment of contractual rights;
(2) will not apply to:
(a) rights that cure to the assignor as a result of a breach of K by the obligor; OR
(b) rights that accrue to the assignor upon complete performance by the assignor
(3) can be invoked by the obligor (to resist performance to the assignee) but not the assignor (in an action brought by the assignee).
Assignment for Value v. Gratuitous Assignment
ASSIGNMENT FOR VALUE - Assignee acquires assignor’s contractual right(s) in exchange for payment or a promise to the assignor, is valid against the obligor and cannot be revoked by the assignor, although it may be modified like any other K via mutual consent of parties.
GRATUITOUS ASSIGNMENT - Assignor assigns contractual rights to the assignee without consideration - valid and binding against the obligor, who cannot raise the absence of consideration between assignor and assignee as a defense to any breach of his obligations to assignee.
Rights of Assignee against Obligor after Assignment
Basic rule:
(1) assignee gets whatever rights to the K his assignor had; and
(2) assignee takes subject to whatever defenses the obligor could have raised against the assignor, such as lack of consideration, incapacity, fraud, duress, mistake.
If obligor PAID ASSIGNOR, obligor can raise that defense against assignee, as long as payment was made before obligor got notice of the assignment. Once obligor has notice of the assignment, payment to assignor is not a defense.
Waiver of Defenses
If one of the original parties to K agrees that he will not raise defenses against an assignee if the rights are assigned, the agreement is enforceable.
2 LIMITATIONS:
(1) defenses that are in the nature of “real defenses” under Art. 2 of UCC can still be raised; and
(2) the agreement not to raise defenses is invalid if the obligor who signed the waiver was the buyer or lessee of consumer goods.
Real Defenses = infancy, other incapacity that voids a K, fraud in execution, duress, discharge in bankruptcy, and any other discharge assignee had reason to know about.
Rights of Assignee against Assignor after Assignment
Unless contrary intention is manifested, one who assigns for value impliedly warrants to the assignee:
(1) he will do nothing to defeat/impair the value of the assignment and has no knowledge of any fact that would do so;
(2) the right as assigned actually exists and is not subject to any limitations/defenses against the assignor other than those stated/apparent at the time of assignment; AND
(3) any writing evidencing the rights that are being delivered to the assignee to induce him to accept the assignment is genuine.
Rights among Successive Assignees
Where assignor assigns his right to receive money owed by obligor to multiple assignees, assignor is liable to both assignees for assigning the same right twice.
If assignor is bankrupt/has fled jurisdiction, majority rule is that first assignee prevails if they both try to collect from obligor.
In some jxs and under Second Restatement, a subsequent assignee who has paid value and took the assignment in good faith will prevail if he:
(1) obtains payment from obligor;
(2) recovers a judgment on the debt;
(3) enters in to a new K with the obligor; OR
(4) receives delivery of a tangible token or writing from the assignor, the surrender of which is required by the obligor’s K.
Delegation of Duties
DELEGATION = Third party agrees to satisfy a performance obligation owed by one of the parties to a K.
Rights of Obligee against Delegator
Delegation does NOT relieve the delegator from his obligations under K. Remains liable for performance.
If there is a NOVATION, the delegator is relieved from the obligations under the K. Requires a clear promise by the obligee to release delegator in return for the liability of the delegatee.
Liability of the Delegatee
When the delegatee has agreed to perform the delegator’s K obligations, he is liable to the delegator if he doesn’t.
Delegatee is also liable to the obligee (third-party beneficiary theory) because the obligee is an intended beneficiary of the promise made to the delegator.
Delegable Duties
General rule is that ALL duties can be delegated.
EXCEPTIONS:
(1) when the performance in question is personal and the recipient must rely on qualities such as the character, reputation, taste, skill, or discretion of the party who is to render performance; OR
(2) when the K prohibits delegation.
Contract provisions barring delegation are FULLY ENFORCEABLE.
Common Law - attempted delegation of a nondelegable duty operates as immediate breach of K and gives other party immediate right to sue.
UCC - Other party may treat any assignment which delegates performance as creating reasonable grounds for insecurity, and the other party has a right to demand adequate assurances from the assignee without prejudicing his rights against the assignor.
