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 details of the assignment determines some additional rights and liabilities.
Typically a third-party is involved in a contract with the assignor, and the
contract is in effect transferred to the assignee. For example, a borrower
borrows money from a local bank. The local bank receives a mortgage note and
can thereafter transfer that note to a financial institution in exchange for a
lump-sum of cash, thereby assigning the right to receive payment from the
borrower to another entity. Mortgages and lending contracts are relatively
amenable to assignment since the lendor's duties are relatively limited;
other contracts which involve personal duties such as legal counsel may not be
assignable. The related concept of novation is not
assignment; rather than assigning only the rights to another party, novation
involves the replacement of the original party with a new party or the
replacement of the original contract with a new contract. Since novation
creates a new contract, it requires the consent of all parties whereas
assignment does not require the consent of the nonassigning party, although in
the case of assignment the consent of the nonassigning party may be required
through a contractual provision. Procedure
The assignment does not necessarily have to be in writing; however, the
assignment agreement must show an intent to transfer rights. The effect of a
valid assignment is to extinguish privity between the assignor and the
third-party obligor and create privity between the obligor and the assignee.
Liabilities and duties Unless the contractual agreement states
otherwise, the assignee typically does not receive greater rights than the
assignor, and the assignor may remain liable to the original counterparty for
the performance of the contract. The assignor often delegates duties in
addition to rights to the assignee, but the assignor may remain ultimately
responsible. However, in the United States there are
various laws which limit the liability of the assignee, often in order to
facilitate credit, since assignees are typically lenders. Notable examples
include a provision in the Truth in Lending Act and provisions in the
Consumer Leasing Act and the Home Ownership Equity Protection Act.
In other cases, the contract may be a negotiable instrument in which the
person receiving the instrument may become a holder in due course, which is
similar to an assignee except that issues such as lack of performance by
the assignor may not be a valid defense for the obligor. As a response to this,
the United States Federal Trade Commission promulgated Rule 433,
formally known as the "Trade Regulation Rule Concerning Preservation of
Consumers' Claims and Defenses", which "effectively abolished the [holder in
due course] doctrine in consumer credit transactions". In 2012, the FTC
reaffirmed the regulation. 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 with Party B to sell Party A's car to Party B for
$10, Party A can later assign the benefits of the contract - i.e., the
right to be paid $10 - to Party C. In this scenario, Party A is the
obligee/assignor, Party B is an obligor, and Party C is the assignee. Such an
assignment may be donative, 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 an assignment is made, the assignment always takes
place after the original contract was formed. An Assignment only transfers the
rights/benefits to a new owner. The obligations remain with the previous
owner. Compare Novation. = 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
cannot 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, cannot be
assigned, because they create a unique relationship between the parties to the
contract. For example, the assignment of a legal malpractice claim is void since
an assignee would be a stranger to the attorney-client relationship, who was
owed no duty by the attorney and would imperil the sanctity of the highly
confidential and fiduciary relationship existing between attorney and client.
Torts are not assignable as public policy, and various statutes may
prohibit assignment in certain instances. In addition, the Restatement
of Contracts lists prohibitions in §317(2)(a) based upon the effect to the
nonassigning party, with similar prohibitions in the Uniform Commercial
Code §2-210. For example, UCC 2-210(1)(a) states the following:
= 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 assignment. 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 rescission
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.
Assignment of wages; additionally, statutes may prohibit this assignment
Assignment of any interest in real property
Assignment of choses in action worth over $5,000
= 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 may also bar
delegation. Remedies
Legal remedies may be available if the nonassigning party's rights are affected
by the assignment. = Revocability =
Assignments made for consideration are irrevocable, meaning that the assignor
permanently gives up the legal right to take back the assignment once it has
been made. Donative assignments, on the other hand, are generally revocable,
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: The assignment can not be revoked if the
obligor has already performed The assignment can not be revoked if the
assignee has received a token chose - a physical object that signifies a right
to collect, such as a stock certificate or the passbook to a savings account.
The assignment can not be revoked if the assignor has set forth in writing the
assignment of a simple chose - a contract right embodied in any form of
token. Estoppel can prevent the revocation of a
donative assignment if the assignee 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 lies 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 warranty. Similarly, the assignee could
also sue under this theory if the assignor wrongfully revoked the
assignment. = Successive assignments =
Occasionally, an unscrupulous assignor will assign exactly the same rights to
multiple parties. 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 assignment 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 will have the strongest claim, while remaining
assignees may have other remedies. In some countries, the rights of the
respective assignees are determined by the old common law rule in Dearle v
Hall. Earlier donative assignees for whom the
assignment was revocable have no cause of action whatsoever.
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.
Later assignees for consideration have a cause of action for breaches of the
implied warranty discussed above. See interpleader.
Special rules for assignment of certain rights
= Property rights = Real property rights can be assigned
just as any other contractual right. However, special duties and liabilities
attach to transfers of the right to possess property. With an assignment,
the assignor transfers the complete remainder of the interest to the
assignee. The assignor must not retain any sort of reversionary interest in the
right to possess. The assignee's interest must abut the interest of the
next person to have the right to possession. If any time or interest is
reserved by a tenant assignor then the act is not an assignment, but is instead
a sublease. The liability of the assignee depends
upon the contract formed when the assignment takes place. However, in
general, the assignee has privity of estate with a lessor. With privity of
estate comes the duty on the part of the assignee to perform certain obligations
under covenant, e.g. pay rent. Similarly, the lessor retains the
obligations to perform on covenants to maintain or repair the land.
If the assignor agrees to continue paying rent to the lessor and
subsequently defaults, the lessor can sue both the assignor under the original
contract signed with the lessor as well as the assignee because by taking
possession of the property interest, the assignee has obliged himself to perform
duties under covenant such as the payment of rent.
Unlike a Novation where consent of both the lessor and lesse is required for the
third party to assume all obligations and liabilities of the original lessee,
an assignment does not always need the consent of all parties. If the contract
terms state specifically that the lessor's consent is not needed to assign
the contract, then the lesee can assign the contract to whomever the lesee wants
to. Absent language to the contrary, a
tenant may assign their rights to an assignee without the landlord's consent.
In the majority of jurisdictions, when there is a clause that the landlord may
withhold consent to an assignment, the general rule is that the landlord may
not withhold consent unreasonably unless there is a provision that states
specifically that the Landlord may withhold consent at Landlord's sole
discretion. = Partnership rights =
A person can also assign their rights to receive the benefits owed to a partner
in a partnership. However, the assignee can not thereby gain any of the
assignor's rights with respect to the operation of the partnership. The
assignee may not vote on partnership matters, inspect the partnership books,
or take possession of partnership property; rather, the assignee can only
be given the right to collect distributions of income, unless the
remaining partners consent to the assignment of a new general partner with
operational, management, and financial interests. If the partnership is
dissolved, the assignee can also claim the assignor's share of any distribution
accompanying the dissolution. = Intellectual property rights =
Ownership of intellectual property, including patents, copyrights, and
trademarks, may be assigned, but special conditions attach to the assignment of
patents and trademarks. In the United States, assignment of a patent is
governed by statute, 35 U.S.C. § 261. Patent rights are assignable by an
"instrument in writing." Title in a patent can also be transferred as a
result of other financial transactions, such as a merger or a takeover, or as a
result of operation of law, such as in an inheritance process, or in a
bankruptcy. An assignment of a patent can be recorded with the United States
Patent and Trademark Office. Although such recording is not required, if an
assignment is not recorded at the USPTO within three months or prior to a
subsequent assignment, the assignment will be void against a subsequent
assignee without notice of the earlier, unrecorded assignment.
With respect to a trademark, the owner of the mark may not transfer ownership
of the mark without transferring the goodwill associated with the mark.
Companies sometimes request from employees that they assign all
intellectual property they create while under the employment of the company.
This is typically done within an Employment Agreement, but is sometimes
done through a specific agreement called Proprietary Information and Inventions
Agreement. = Personal injury torts =
The standard rule is that personal injury tort causes of action are
nonassignable as a matter of public policy. These should be distinguished
from final settlements or judgments resulting from lawsuits brought on such
causes of action, which may be assignable.
= Legal malpractice = In the majority of jurisdictions,
assignments of legal malpractice causes of action are void as against public
policy. Equitable assignment
An equitable assignment is an assignment, or transfer of rights, in
equity. = General principles =
Assigning future property in equity cannot be gratuitous. The assignor must
receive consideration for the agreement, otherwise the assignment will be
ineffective. However, an absolute assignment does not require
consideration to be given. Secondly, between the period of agreement between
assignor and assignee and acquisition by the assignor, the assignees rights are
not contractual, but rather a proprietary right to the property. This
means the assignee has an interest in this future property, in the same manner
any owner has over property. In equity, these principles operate to
protect both the assignor and the assignee. In Norman v. FCT a taxpayer
attempted to assign by deed, to his wife certain moneys which he was eventually
going to receive. This included dividends and interest due on loans. The
court held the interest and the dividends were expectancies or
possibilities which could not be assigned without consideration. The
court's worry was that assignments without consideration might be used as
instruments of fraud, to avoid creditors and tax collection.
= Mere expectancies = Courts will not enforce a contract to
assign an expectancy unless there is a valuable consideration. For example,
under a settlement of property the respondent "the son" would have been
entitled to an equal portion of properties along with his other siblings
which was gained in a settlement by his mother. This portion was only his when
allocated to him at his mothers discretion. Prior to this allocation
being made, the respondent allotted his benefit to trustees for a voluntary
settlement. He was assigning or purporting to assign something which he
might become entitled to in the future, not a contingent interest. The judgment
held it ineffective and elaborated on previous points to state the respondent
cannot be compelled to allow the trustees to retain the appointed sum.
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