What is assignment and delegation of contracts?Assignment is the transfer by one party of her right to receive performance from the other party to the contract. Delegation is the transfer by one party of her duties to perform under a contract. Show
Next Article: Duty of Performance Back to: CONTRACT LAW How do you Assign or Delegate a Contract?The rights under a contract can be assigned or the duties delegated through agreement between the assignor and assignee. Assignments/delegations can be a gift or an exchange for other value. In general, unless the contract deems otherwise, obligees may assign their rights or delegate their duties under the contract to third parties.
Writing Requirement - Assignments and delegations of common law contracts do not have to be in writing. Assignments of contracts for the sale of goods, however, must be in writing if the original contract was subject to the statute of frauds. Non-Assignable/Delegable Contracts: Unless the agreement limits assignment of rights, most contracts are assignable. Delegation of duties pursuant to contract is more limited. The following contracts are not capable of delegation: Material Changes of Responsibility - A contract that materially alters the obligors duties under the agreement is not transferable. Particularly, an assignment that greatly increases a partys delivery requirements cannot be assigned. Doing so may detriment the obligor who has to meet a new (and possibly more taxing) delivery schedule.
Increases Burden or Risk - Generally, any contract that materially increases the other partys burden, risk, or ability to receive return performance is not delegable. As such, requirement contracts generally cannot be delegated because the producers duty depends on the individual output requirements of the purchaser.
Special Skills - A party to a contract cannot delegate performance of duties under a contract when performance depends on the character, skill, or training of that party.
Multiple Assignments - A party can partially assign a contract or assign the same contract to multiple parties. Different jurisdictions follow different rules regarding the priority of the assignees. Some jurisdictions allow that the first assignee of a contract who gives notice to the obligor has priority over other assignees. Other jurisdictions follow the rule that the first assignee to receive assignment of a contract has priority to performance by the obligor. Still other jurisdictions follow the rule that the first assignee has priority, unless: Purchaser in Good Faith for Value - If an assignee pays value for the assignment in good faith without notice of a prior assignment (and the prior assignee did not receive the assignment in good faith and for value), she has priority over prior assignments.
Court Action - If an assignee receives a judgment against the obligor. If a court adjudicates the matter, the assignee winning at court may be vested with the authority to establish priority in performance of assigned rights.
Novations - If the assignee executes a novation, the novation establishes priority. A novation is a new contract between individuals that replaces a party to the contract or obligations or rights under the agreement.
Written Assignment - If a later assignee receives a written assignment capable of transfer that is not in writing, she will have rights superior to those of an earlier assignee. Some agreements, such as assignments that are subject to the statute of frauds, are only capable of being assigned via a valid writing. If a prior assignment does not satisfy the statute of frauds, a subsequent transfer could take precedent. It is important to review the specific rules applicable to the specific jurisdiction when determining ones rights under an assigned contract.
Revoking an Assignment - A gratuitous (gift) assignment cannot be revoked if the assignment is made pursuant to a written document signed by the assignor. If no writing exists, revoking a gratuitous assignment that has not been performed is extremely easy (because no physical transfer has taken place). It can be revoked by an assignor later assigning the same right (the last assignment controls), the death or incapacity of the assignor, or by the delivery of notification of revocation to the assignee or obligor.
Modification after Assignment - Generally, a contract cannot be modified after assignment. As previously discussed, once a contract has vested, the parties generally cannot modify the contract in a way that impairs the assignees rights. If, however, a modification does not affect the assignees rights, it may be modified.
Continued Delegator Responsibilities - The party delegating the contract is still potentially liable under the contract if the delegatee fails to perform. If, however, the delegatee and the obligee under the contract enter into a novation, the delegator is relieved of responsibility.
Most of the above rules regarding assignment and delegation are capable of modification in a contract between the parties. Related Topics
Discussion QuestionHow do you feel about treating assignments of rights and delegation of duties under contracts differently? Which of the assignment priority rules do you believe is most fair to the parties? Why? Should a party be able to modify a contract after assigning her benefits? Practice QuestionCleo is a party to a contract with ABC Corp to provide consulting services. Cleo verbally assigns her rights to receive payment to Austin. Cleo later verbally assigns her rights to receive payment to Steve. Austin complains to Cleo about her subsequent assignment. What can Austin do to establish his priority to receive payment from ABC Corp?
Academic ResearchCan contracts prohibit assignment?Contracts, in general, are freely assignable, which means that either party can transfer its contractual obligations or rights to a third party. But sometimes contracts include anti-assignment clauses to limit or prohibit assignment.
What is the effect of an assignment of a contract?The effect of the assignment is to extinguish the contractual relationship between the assignor and the other party to the contract and create privity between the third-party assignee and the other party to the contract.
Under what circumstances is an assignment prohibited?An assignment will generally be permitted under the law unless there is an express prohibition against assignment in the underlying contract or lease.
Can a contract prohibit the assignment of the right to receive funds?A contract cannot prevent an assignment of the right to receive funds. This exception exists to encourage the free flow of funds and credit in modern business settings.
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