Assignments

What is the distinction between an assignment invalidation clause and an assignment prohibition clause within a contract?

Prohibition clauses take away the right to assign but not the power to assign, whereas invalidation clauses take away both the power and the right to invalidate.

What is an assignee?

Not a party to the contract, but who is able to enforce the contract because of the assignment. The third-party.

What limitations apply to assignments?

(1) Prohibitions within the contract (2) Invalidation within the contract (3) Common law limitations

What are the two types of assignments?

1. Gratuitous assignments (i.e. an assignment not in exchange for value or a gift assignment) (revocable) 2. Assignments for value (irrevocable)

When are gratuitous assignments revocable?

Gratuitous assignments are generally revocable unless (1) the obligor has already performed (ii) a token chose is delivered (such as a stock certificate) (iii) an assignment of simple chose is put in writing (such as an intangible claim like a contract right); or (iv) the assignee can show detrimental reliance on the gratuitous assignment (i.e. estoppel)

Assignee v. Assignor

In every assignment for value, the assignor warrants that: (i) he has not made a prior assignment of the same right; (ii) the right exists and is not subject to any undisclosed defenses, and (iii) he will do nothing to interfere with the assigned right. However, the assignor will not be liable if the obligor is incapable of performing.

What are the requirements for assignment?

1. The language of the assignment must be in the present, it cannot be a future promise to assign. 2. Consideration is not required.

When is an assignment for value?

An assignment is for value if it is done for consideration or is taken as security for or payment of a preexisting debt.

Invalidation of assignments within a contract

Language of invalidation takes away both the right to assign and the power to assign so that there is a breach by the assignor and no rights in the assignee

What revokes a gratuitous assignment?

Revocable gratuitous assignments may be terminated by (i) death or bankruptcy of the assignor (ii) notice of revocation by the assignor to the assignee or the obligor (iii) the assignor taking performance directly from the obligor (iv) subsequent assignment of the same right by the assignor to another.

Assignee v. Obligor

The assignee can sue the obligor, however the obligor can use any defense against the assignee as he could have against the assignor as well as any other defenses that came into existence before the obligor had knowledge of the assignment. Further, payment by the obligor to the assignor is effective until the obligor knows of the assignment.

What is an obligor?

The party to the contract who is not the assignor nor the assignee.

What is an assignor?

A party to the contract who later transfers rights under the contract to another.

What happens if there are multiple assignments of the same rights?

1. In revocable gratuitous assignments, the last party to receive the assignment wins. 2. In irrevocable assignments for value, the first assignment will usually win unless the subsequent assignee does not know of the earlier assignment and is the first to obtain payment, a judgment, a novation, or indicia of ownership. Or if the subsequent assignee proceeds against the first assignee under a theory of estoppel. 3. Also, if there were multiple assignments for value of the same rights, then the subsequent assignee may sue the assignor for a breach of warranty.

Common law limitations of assignments

Common law bars an assignment that substantially changes the duties of the obligor. Generally an assignment of the right to payment is fine but the assignment of other performance rights are not.

What is an assignment?

It is a transfer of rights under a contract in two steps: (1) A contract between only two parties (2) One of the party's later transfer of rights under that contract to a third party.

Prohibition of assignments within a contract

Language of prohibition takes away the right to assign but not the power to assign which means that the assignor is liable for breach of contract but an assignee who does not know of the prohibition can still enforce the assignment.