Key Takeaways

  • An assignment of rights allows a party to transfer benefits under a contract to another party, but it doesn’t necessarily transfer the obligations.
  • Assignments are generally allowed unless the original agreement prohibits it or involves personal services.
  • Legal distinctions exist between assignments, delegations, and novations.
  • Assignments may require written documentation under the Statute of Frauds, especially for property, debts, and loans.
  • Anti-assignment clauses and required consent provisions can limit or void assignments in specific contracts.
  • Well-drafted assignment agreements include clear identification of parties, rights being transferred, and governing law.

An assignment of rights agreement refers to a situation in which one party, known as the assignor, shifts contract rights to another party. The party taking on the rights is known as the assignee.

An Assignment of Rights Agreement

The following is an example of an assignment of rights agreement. Dave decides to buy a bicycle from John for $100 and after agreeing on the price, Dave and John draw up a written agreement. Let's suppose that there will be a one week wait before the bicycle is ready for delivery to Dave and before anything is passed between them.

Meanwhile, John accepts that he will transfer his right to be paid $100 from Dave to Rob, in exchange for Rob paying John $90 immediately. Let's assume that John's motivation is an immediate need for cash. In this context, John is regarded as the assignor and Rob is the assignee.

John is the assignor as he is giving the assignment to Rob and Rob is the assignee because he is acquiring the assignment from John. To put it simply, the assignee is the party who gets something. In this case, Rob will receive $100.

Rules of Assignments

Assignments frequently occur in contracts. It's important to note the following points:

  • The assignor (e.g. John) is accountable according to the contract unless the parties make an agreement that states otherwise.
  • This means that if Dave does not receive the bicycle, he can sue John for it.
  • Assignments are allowed in almost every type of agreement unless the contract includes an explicit ban on assignments or unless a specific exception is applicable.
  • The assignor does not need to speak to the other contract party in order to create the assignment. For example, John would not need to ask Dave if John can transfer his right to be paid to Rob.

When Is an Assignment of Rights Invalid?

While most contract rights can be assigned, several legal exceptions make certain assignments unenforceable:

  • Material Change in Obligor's Duty: An assignment is invalid if it would substantially alter the obligor’s performance under the contract (e.g., changing the party they must work with or increasing risk).
  • Prohibited by Law or Public Policy: Certain assignments, such as wage assignments or governmental rights, may be restricted or void under law.
  • Anti-Assignment Clause: If the contract expressly prohibits assignment, any unauthorized transfer could be void or expose the assignor to liability.
  • Significant Risk or Burden to Obligor: Under UCC § 2-210, a right cannot be assigned if it materially increases the burden or risk imposed on the obligor.

Exceptions Where a Contract Cannot be Assigned

  • Some exceptions dictate that a contract cannot be assigned.
  • Unenforceable assignments include the following: a personal services agreement, changing the contract duties, changing the material provisions of the agreement (e.g. time, amount, location, etc.).
  • An example of a personal services agreement, which cannot be assigned, would be if you decided to employ a particular professional writer to write a book for you.
  • That writer would not be allowed to take your payment and then give the work to another writer because you employed that particular writer to write the book, rather than someone else.
  • Some kinds of assignments have to be in writing in order to be enforceable such as assignments of actual property (e.g. selling your house), loans, or debts.
  • It's best to look at the statute of frauds for more information on the kinds of agreements that must be in writing.

Anti-Assignment Clauses and Their Effect

Anti-assignment clauses are provisions in a contract that explicitly forbid or restrict the assignment of rights. These clauses may take various forms:

  • Absolute Prohibition: “This agreement may not be assigned by either party without the prior written consent of the other party.”
  • Consent Required: “Assignment is permitted only with the prior written consent of the obligor.”
  • Conditional Nullification: Some clauses void the contract entirely upon unauthorized assignment.

Although courts often uphold clear prohibitions, some jurisdictions interpret them narrowly—invalidating only the delegation of duties, not the assignment of rights alone.

Delegations and Novations

A delegation is very similar to an assignment in terms of what it involves. A delegation takes place when a party moves his or her obligations (or liabilities) under an agreement to a different party. Assignments, on the other hand, involve the transfer of rights.

If the parties in our previous example had created a novation, Rob would be entirely accountable to Dave and John would be clear of responsibility. A novation replaces the earliest party with a new party.

Contract Assignment

An Assignment Agreement can also be called a Contract Assignment. Another example of this would be if you're a contractor who needs assistance finishing a job. You could give those tasks and rights to a subcontractor, but only if the original agreement does not prohibit the assignment of these rights and responsibilities.

Common Uses of Assignment of Rights

Assignments are frequently used in the following contexts:

  • Business Sales: A seller may assign its rights under vendor contracts to the buyer.
  • Loan Transfers: Banks routinely assign mortgage rights to other lenders or servicers.
  • Licensing and IP: Intellectual property rights can be assigned from inventors to companies or licensees.
  • Insurance Claims: Policyholders may assign the right to receive claim payments to third parties like contractors.
  • Commercial Leasing: Tenants may assign lease benefits to subtenants or successors (subject to landlord approval).

These examples underscore the versatility of assignment of rights agreements across industries.

Creating an Assignment Agreement

In an Assignment Agreement, it is important to include details such as:

  • The name of the person assigning the responsibilities (known as the assignor)
  • The name of the of the party who is taking the rights and responsibilities (the assignee)
  • The other party to the first agreement (known as the obligor)
  • The name of the agreement and its expiration date
  • Whether the first contract necessitates the obligor's approval before assigning rights
  • The date of the obligor's consent
  • When the contract will be put into effect
  • Which state's laws will regulate the contract

Elements of a Legally Binding Assignment

For an assignment of rights to be legally binding and enforceable, it typically must include:

  • Clear Intent: A written statement showing the assignor’s intent to transfer rights.
  • Description of Rights Assigned: Detailed reference to the original agreement and the specific rights transferred.
  • Acceptance by Assignee: The assignee must accept the assignment.
  • Consideration (optional but recommended): While not always required, stating the consideration helps enforceability.
  • Delivery and Notice: Delivering the assignment and notifying the obligor solidifies legal effect and avoids performance disputes.

Assignments involving real estate, debt, or contracts governed by the Statute of Frauds must usually be in writing.

Frequently Asked Questions

  1. What is the difference between assignment and delegation?
    Assignment transfers rights under a contract, while delegation transfers duties. The assignor may still be liable after assignment unless there's a novation.
  2. Can rights under a contract be assigned without consent?
    Yes, unless the contract includes a clause that prohibits or restricts assignments, or if the assignment would materially affect the other party.
  3. What contracts cannot be assigned?
    Contracts involving personal services, legal restrictions, or increased burden to the obligor generally cannot be assigned.
  4. Do assignments have to be in writing?
    Not always, but assignments involving interests in property, certain debts, or long-term agreements usually must be in writing to comply with the Statute of Frauds.
  5. What happens if an assignment violates the contract?
    It may be void or result in a breach of contract claim, especially if there is an anti-assignment clause or if performance is hindered for the obligor.

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