Assignment In Contracts

For the assignment to become effective, the assignee must manifest his acceptance under most circumstances.This is done automatically when, as is usually the case, the assignee has given consideration for the assignment (i.e., there is a contract between the assignor and the assignee in which the assignment is the assignor’s consideration), and then the assignment is not revocable without the assignee’s consent.

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Assignments are an important part of business financing, such as factoring.

A To effect an assignment, the assignor must make known his intention to transfer the rights to the third person.

When an assignment has the effect of materially changing the duties that the obligor must perform, it is ineffective.

Changing the party to whom the obligor must make a payment is not a material change of duty that will defeat an assignment, since that, of course, is the purpose behind most assignments.

For that reason, there are various rules that limit both the holder in due course and the waiver rule.

Certain defenses, the so-called real defenses (infancy, duress, and fraud in the execution, among others), may always be asserted. The Restatement (Second) of Contracts defines an assignment of a right as “a manifestation of the assignor’s intention to transfer it by virtue of which the assignor’s right to performance by the obligor is extinguished in whole or in part and the assignee acquires the right to such performance.” The one who makes the assignment is both an obligee and a transferor.The assignee acquires the right to receive the contractual obligations of the promisor, who is referred to as the obligor (see Figure 14.1 "Assignment of Rights").Federal Trade Commission regulations also affect the ability of many sellers to pass on rights to assignees free of defenses that buyers could raise against them.Because of these various limitations on the holder in due course and on waivers, the “shoe rule” will not govern in consumer transactions and, if there are real defenses or the assignee does not act in good faith, in business transactions as well.An obligor who could avoid the assignor’s attempt to enforce the rights could avoid a similar attempt by the assignee.Likewise, under UCC Section 9-318(1), the assignee of an account is subject to all terms of the contract between the debtor and the creditor-assignor.Under the UCC, any assignments of rights in excess of ,000 must be in writing, but otherwise, assignments can be oral and consideration is not required: the assignor could assign the right to the assignee for nothing (not likely in commercial transactions, of course). Franklin has the right to receive 0 a month from the sale of a house she formerly owned; she assigns the right to receive the money to her son Jason, as a gift.The assignment is good, though such a gratuitous assignment is usually revocable, which is not the case where consideration has been paid for an assignment.First, it is inapplicable to the sale of a negotiable instrument to a holder in due course.Second, the rule may be waived: under the UCC and at common law, the obligor may agree in the original contract not to raise defenses against the assignee that could have been raised against the assignor.