10.1 Assignment of Rights: Rules and Limitations

Rights assignment is a crucial aspect of contract law, allowing parties to transfer their contractual rights to others. This flexibility enables businesses to monetize assets, transfer obligations, and manage contracts more effectively. It's a powerful tool that can reshape contractual relationships.

However, not all rights can be assigned. Personal service contracts, agreements involving special trust, and rights prohibited by law are often non-assignable. Understanding these limitations and the proper process for assignment is key to avoiding legal pitfalls and ensuring valid transfers.

Assignment of Rights

Purpose of rights assignment

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• Transfers contractual rights from assignor to assignee enables monetization or transfer to more suitable party
• Allows assignee to step into assignor's shoes and enforce rights against obligor without need for obligor's consent
• Facilitates flexibility in contract management (sale of business, financing arrangements)

Types of assignable rights

• Most contractual rights can be assigned
  • Right to receive payment (accounts receivable, promissory notes)
  • Right to performance of services (construction contracts, consulting agreements)
  • Right to receive goods (purchase orders, supply contracts)
• Certain rights cannot be assigned
  • Personal service contracts depend on assignor's unique skills or qualifications (artist commissions, celebrity endorsements)
  • Contracts involving special relationship of trust or confidence between parties (attorney-client agreements, medical treatment contracts)
  • Rights prohibited from assignment by law or public policy (tort claims, government benefits)
• Non-assignability clauses in contracts may restrict or prohibit assignment of rights

Process of valid assignments

1. Assignor expresses intent to transfer rights to assignee
   • Can be done through written or oral agreement depending on nature of rights and governing law
   • Written assignments often preferred for clarity and evidentiary purposes (assignment and assumption agreements, notices of assignment)
2. Assignor notifies obligor of the assignment in most cases
   • Protects assignee's rights and ensures obligor performs to correct party
   • Some jurisdictions require notification for assignment to be effective against obligor
3. Assignment must meet certain conditions for validity
   • Assignor must have legal capacity to make assignment (competence, authority)
   • Assigned rights must be assignable under contract and law (no non-assignability clauses, no statutory prohibitions)
   • Assignment must not materially change obligor's duties or obligations (no increased burdens, no changes to performance standards)
   • Some jurisdictions require consideration to support assignment (exchange of value, nominal consideration)

Limitations on rights assignment

• Non-assignability clauses in contracts
  • Prohibit or restrict assignment of rights without obligor's consent
  • Generally enforceable but may be interpreted narrowly by courts to allow assignments not materially affecting obligor's interests
  • Assignor may be liable for breach of contract if assignment violates non-assignability clause
• Public policy restrictions on assignments
  • Assignments violating statutes or regulations (assignment of future wages, assignment of government contracts)
  • Assignments contrary to public morals or public interest (assignment of personal injury claims, assignment of child support payments)
  • Courts may refuse to enforce assignments violating public policy even if contract does not prohibit assignment
  • Assignee may lose rights or be unable to enforce assignment against obligor