Key Takeaways

  • A partial assignment allows an assignor to transfer part, but not all, of their contractual rights to a third party.
  • Such assignments must not materially alter the obligor’s duty and may require consent depending on contract terms.
  • The obligor must receive adequate notice to be bound by the assignment, especially when the assignment is partial.
  • Courts scrutinize clauses that restrict assignment and typically enforce them unless they are ambiguous or waived.
  • Real-world examples show how courts evaluate enforceability, waiver, and proper notice in partial assignment disputes.

A partial assignment of contract occurs when the assignor of a contract is assigning a portion of his or her contractual right. This can only occur if the other involved party can perform that portion of the contractual obligation separately from the rest of the obligations.

Assignment

Under a legally enforceable contract, an assignment is the transfer of rights to receive a specific performance in return. When a contract is assigned, the obligee, or the party who holds the right to receive a benefit from a contract, chooses to transfer his or her right to receive that benefit from the obligor, or the party who has the duty to perform on the action. This right is transferred to the assignee, who is a third party in the arrangement. By doing so, the obligee then becomes an assignor, or someone who is issuing an assignment.

Any and all rights are assignable, except:

  • Those that alter the material obligations or risks of the other contracted party.
  • Those under a contract that prohibits assignment. If this occurs, the resulting action is a breach not a nullification of the contract.
  • Those in which the obligor has an interest in transferring the performance to the party holding the right to receive the benefit, rather than a third party.

Assignments can be made in any form and do not require consideration for validation. An oral or written act or statement indicating the intention to transfer a right can act as an assignment. However, in some cases, those involved in a contract cannot go through the process of assignment.

Method of Assignment: Manifesting Assent

To make an assignment, the assignor must understand it clearly and intend to make the assignment at that exact time. The assignor cannot promise to make an assignment at a future date. Additionally, the assignor must express his or her intention to make the transfer of rights to the third party. This action puts the assignment into effect. The intention of an assignor must indicate an effective assignment that doesn't require any further manifestation of intention or further action.

Partial Assignments

The assignor of a contract can legally assign a portion of a contractual right. However, this action can only be taken if the contract obligor is able to perform that portion of the obligation separately from the other obligations included in the agreement.

Validity Requirements for Partial Assignment

For a partial assignment to be legally valid, it must meet a few additional conditions beyond the general rules of assignment. These include:

  • Separability of Performance: The part of the obligation being assigned must be capable of being performed independently from the rest of the contract.
  • No Increase in Obligor's Burden: The assignment cannot increase the burden or risk on the obligor. If fulfilling the split obligation requires additional effort, time, or expense, courts may invalidate the partial assignment.
  • Clarity and Specificity: The assigned portion must be clearly defined so that all parties understand the scope of the assignment.
  • Consent When Required: Some contracts explicitly prohibit partial assignment without the consent of the obligor. Even if not explicitly stated, courts may imply the need for consent if the assignment complicates performance or settlement of obligations.

Assignor's Warranties

Additionally, if an assignment is created in exchange for value, the assignor is making three implied warranties, according to the Restatement (Second) of Contracts. These implied warranties are:

  • The assignor will not take action to impair or impact the assignment's value and has no knowledge of any information that would impair or impact the value.
  • The right being assigned is not subject to any defenses or limitations against the assignor and actually exists.
  • Any documentation shown or given as evidence to the assignee is genuine, accurate, and what it promises to be.

An assignor of a contract does not guarantee any type of payment. The action of assignment doesn't provide any type of warranty on its own that the obligor is agreeing to perform.

Legal Consequences of Unauthorized Partial Assignment

If a partial assignment is made in violation of contract terms or without proper notice to the obligor, it may not be enforceable. Key consequences include:

  • Lack of Legal Standing: The assignee may not be able to sue the obligor directly unless the obligor has acknowledged the assignment.
  • Payment to Assignor May Still Discharge Obligor: If the obligor was unaware of the assignment and made payment to the assignor, courts may rule that the obligor's obligations were discharged—even if the assignor fails to forward payment to the assignee.
  • Potential Litigation: Unauthorized assignments can result in legal disputes over payment responsibility, especially if the assignor becomes insolvent or disappears.

A classic example is Concrete Form Co. v. Grange Construction, where a subcontractor assigned part of their payment rights to a bank. The court held that mere notice of the assignment was insufficient without the obligor’s clear acknowledgment and that the obligor’s payment to the original assignor discharged their duty​.

Method of Assignment: Notice

When going through the process of assignment, it is not required to provide notice to the obligor. However, if an obligor renders performance to an assignor without notifying the involved parties of that assignment, it can be discharged. In this case, the performance of that contract would be transferred to the assignee.

Importance of Proper Notice in Partial Assignments

Notice plays a critical role in the enforceability of partial assignments. While full assignments can be enforceable even without notice, partial assignments often create complications that make proper notification essential.

  • Ensures Proper Apportionment: Notifying the obligor allows for accurate tracking of who is entitled to which portion of performance or payment.
  • Reduces Risk of Duplicate Payment: Without notice, the obligor may unknowingly fulfill the obligation to the assignor, thereby frustrating the rights of the partial assignee.
  • Establishes Assignee’s Rights: Courts may interpret silence or ambiguous acknowledgment from the obligor as a refusal to accept or recognize the partial assignment.

To be effective, the notice should be clear, identify the amount or portion assigned, and include any supporting documentation that would confirm the legitimacy of the assignment.

Effect of Assignment: Exceptions

In some cases, defenses may be asserted. These allowed defenses are called real defenses and include fraud in the execution, duress, infancy, and others.

When Are Assignments Ineffective: Material Change in Duties of the Obligor

If an assignment effectively changes the obligor's required duties, it is ruled ineffective.

When Are Assignments Ineffective: Assignment of Personal Rights

When an obligor receives the benefit of the duty to perform as assigned under a contract, receiving that benefit becomes a personal right that no one can assign.

When Are Assignments Ineffective: Future Contracts

Contract laws distinguish between assigning rights arising from a future contract and assigning future rights from a current contract.

Restrictions on Partial Assignments in Practice

Contracts frequently include anti-assignment clauses, which can either prohibit assignment altogether or specifically disallow partial assignments. In practice, these clauses are enforceable when:

  • The restriction serves a legitimate business interest, such as maintaining control over contract performance.
  • The clause clearly prohibits all or partial assignments without written consent.
  • There is no evidence of waiver or acquiescence from the obligor.

However, courts generally construe assignment restrictions narrowly. A clause that prohibits "assignment" without specifying "partial assignment" may not necessarily bar the latter unless it can be shown that the parties intended to prohibit both. Moreover, courts may find a waiver if the obligor accepts performance or benefits from the assignee without objection.

Successive Assignments

An exception to the assignment rules relates to making successive assignments. If a subsequent assignee in good faith provides consideration for that assignment and holds to prior knowledge, the assignee takes precedence for obtaining payment, judgment, or performance from the assignor.

Frequently Asked Questions

1. What is a partial assignment of contract? A partial assignment involves transferring only a portion of one party’s contractual rights to a third party, rather than the entire agreement.

2. Can a partial assignment be made without the obligor's consent? It depends on the contract. Some contracts allow it freely, others require consent, especially if the assignment could increase the obligor's burden.

3. Is notice required for a partial assignment? While not always legally required, giving notice to the obligor is crucial to protect the assignee’s rights and avoid legal disputes.

4. What happens if a contract prohibits assignment? If an anti-assignment clause exists, a partial assignment made in violation of it could be deemed void, or at least unenforceable against the obligor.

5. Can the obligor refuse to honor a partial assignment? Yes, especially if the obligor did not receive proper notice, if the assignment violates contract terms, or if it increases their contractual burden.

Sample contract clauses often require that a new agreement be executed for the assigned portion, especially in lease or land use agreements. For example, an oil and gas lease may require issuing a new lease to the partial assignee covering the assigned acreage​.

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