Third-party rights - Assignment of rights and delegation of duties

Learning Outcomes

After reading this article, you will be able to identify when contract rights can be assigned, when duties may be delegated, and the legal consequences for the original parties and third parties. You will understand the rules on revocation, restrictions, and liability for performance, enabling you to answer MBE questions on third-party rights with confidence.

MBE Syllabus

For MBE, you are required to understand the legal principles governing the transfer of contract rights and duties to third parties. This includes:

• The distinction between assignment of rights and delegation of duties.
• The requirements and limitations for valid assignments.
• The rules for revocation and priority of multiple assignments.
• The effect of assignment on the rights and liabilities of the parties.
• The circumstances under which duties may be delegated and exceptions.
• The liability of the delegator and delegatee after delegation.
• The impact of contractual and legal restrictions on assignment and delegation.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following rights is generally NOT assignable?
   1. The right to receive payment under a contract
   2. The right to performance of a personal service contract
   3. The right to receive goods under a sales contract
   4. The right to damages for breach of contract
2. If a contract prohibits assignment, but a party assigns anyway, what is the usual effect?
   1. The assignment is void and has no effect
   2. The assignment is valid, but the assignor is liable for breach
   3. The assignment is valid only if the obligor consents
   4. The assignment is valid only if in writing
3. After a valid delegation of duties, who is liable to the obligee if the delegatee fails to perform?
   1. Only the delegatee
   2. Only the delegator
   3. Both the delegator and delegatee (if the delegatee assumed the duty)
   4. Neither party

Introduction

Assignment of rights and delegation of duties are core contract concepts tested on the MBE. These doctrines allow parties to transfer their contractual benefits or obligations to third parties, but only within certain boundaries. Understanding when such transfers are allowed, how they are made, and who remains liable is essential for answering MBE questions on third-party rights.

Assignment of Rights

Assignment is the transfer of a contractual right (usually to receive performance) from one party (the assignor) to another (the assignee). Most contract rights are freely assignable, but there are important exceptions and rules about how assignments are made and revoked.

Key Term: Assignment A transfer of a contractual right from the assignor to the assignee, giving the assignee the right to enforce the contract against the obligor.

Requirements for Assignment

• No special language is required; any present intent to transfer suffices.
• Consideration is not required; gratuitous assignments are valid but may be revocable.
• The assignment must not materially change the obligor's duty or risk.

Restrictions on Assignment

Some rights cannot be assigned:

• Rights under contracts for personal services or special skills.
• Rights where assignment would materially increase the burden or risk to the obligor.
• Rights prohibited by law or public policy.
• Rights expressly prohibited or voided by the contract.

Key Term: Prohibition vs. Invalidation A contract clause prohibiting assignment usually means the assignor is liable for breach, but the assignment is still effective. A clause invalidating assignment renders the assignment void.

Revocation and Priority

• Gratuitous assignments are generally revocable unless delivered as a token or in writing.
• Assignments for value are irrevocable.
• If the same right is assigned to multiple assignees, the first assignment for value generally prevails unless a later assignee is a bona fide purchaser without notice and obtains payment or judgment first.

Effect of Assignment

Once a right is assigned:

• The assignee stands in the shoes of the assignor and may enforce the contract against the obligor.
• The obligor may raise any defense against the assignee that could have been raised against the assignor.
• The assignor may be liable to the assignee if the assignment was for value and the right does not exist.

Key Term: Privity The legal relationship between parties. After assignment, privity exists between the assignee and obligor for the assigned right.

Delegation of Duties

Delegation is the transfer of a contractual duty (usually to perform) from the original obligor (delegator) to a third party (delegatee). Most duties can be delegated, but not all.

Key Term: Delegation The transfer of a contractual duty from the delegator to the delegatee, authorizing the delegatee to perform in place of the delegator.

Restrictions on Delegation

Duties may NOT be delegated if:

• The contract prohibits delegation.
• The duty involves personal judgment, special skill, or trust in the delegator.
• The delegation would materially change the obligee's expectancy.

Liability After Delegation

• The delegator remains liable unless there is a novation (all parties agree to substitute the delegatee).
• If the delegatee assumes the duty and fails to perform, the obligee may sue both the delegator and delegatee.

Key Term: Novation A new contract substituting a new party and discharging the original obligor from further liability, requiring the consent of all parties.

Worked Example 1.1

A contracts to paint B's portrait for $1,000. Before starting, A delegates the duty to C, a skilled painter. B objects, insisting on A's personal style. Is the delegation effective?

Answer: No. The duty is personal and depends on A's unique skill and judgment. Duties involving personal services or special trust cannot be delegated without consent.

Worked Example 1.2

X assigns to Y the right to receive payment from Z under a contract. Later, X assigns the same right to W, who pays value and has no notice of Y's assignment. Z pays W. Who has the right to payment?

Answer: W, as a bona fide purchaser for value without notice who obtained payment first, prevails over Y.

Worked Example 1.3

D owes E $5,000 under a contract. D delegates the duty to pay to F, who assumes the obligation. F fails to pay. Who can E sue?

Answer: E may sue both D (the original obligor) and F (the delegatee who assumed the duty), unless there was a novation releasing D.

Exam Warning

If a contract states "assignment of the contract is void," any attempted assignment is ineffective. If it merely "prohibits assignment," the assignment is valid but the assignor is liable for breach.

Revision Tip

Always check whether the contract restricts assignment or delegation, and whether the right or duty is personal in nature. On the MBE, look for facts indicating special skill, trust, or a clause prohibiting transfer.

Key Point Checklist

This article has covered the following key knowledge points:

• Assignment is the transfer of contract rights; most rights are freely assignable unless personal or restricted.
• Delegation is the transfer of contract duties; most duties are delegable unless personal or restricted.
• Gratuitous assignments are revocable; assignments for value are irrevocable.
• The assignee may enforce the contract but takes subject to defenses against the assignor.
• Delegator remains liable after delegation unless there is a novation.
• Duties involving personal skill, judgment, or trust cannot be delegated.
• Contract clauses may prohibit or void assignments and delegations; read the language carefully.

Key Terms and Concepts

• Assignment
• Prohibition vs. Invalidation
• Privity
• Delegation
• Novation