Restat 2d of Contracts, § 317

• Restatement of the Law, Second, Contracts
• Chapter 15- Assignment and Delegation
• Topic 1- What Can Be Assigned or Delegated
• § 317 Assignment of a Right

(1) An assignment of a right is 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 a right to such performance.
(2) A contractual right can be assigned unless

(a) the substitution of a right of the assignee for the right of the assignor would materially change the duty of the obligor, or materially increase the burden or risk imposed on him by his contract, or materially impair his chance of obtaining return performance, or materially reduce its value to him, or

(b) the assignment is forbidden by statute or is otherwise inoperative on grounds of public policy, or

(c) assignment is validly precluded by contract.

Comment:

a.  "Assignment."  The word "assignment" is sometimes used to refer to the act of the owner of a right (the obligee or assignor) purporting to transfer it, sometimes to the resulting change in legal relations, sometimes to a document evidencing the act or change. In this Chapter "assign" and "assignment" refer to an act which has the effect stated in Subsection (1). To avoid ambiguity, such an assignment is said to be "effective"; a similar act which does not have the stated effect is referred to as an "attempted" or "purported" assignment. In either case the actor is referred to as the "assignor" and the transferee or intended or purported transferee is referred to as the "assignee."

Illustrations:

1. A has a right to $ 100 against B. A assigns his right to C. A's right is thereby extinguished, and C acquires a right against B to receive $ 100.

2. A purports to assign to C a right to receive $ 100 from B. A has no such right. The assignment is ineffective, and C can recover damages from A under the rules stated in § 333.

b.  Assignment to obligor.  A purported assignment by a creditor to his debtor of the indebtedness owed by the debtor is not covered by this Chapter. Such an "assignment" may or may not be effective to extinguish the assignor's right and thus to discharge the debtor; it cannot create in the debtor a right to performance by himself. Compare § 9.

c.  Historical note.  As is indicated in the Introductory Note to this Chapter, the historic common-law rule that a chose in action could not be assigned has largely disappeared. It remains applicable to some non-contractual rights, particularly claims for damages for personal injury, and to certain claims against the Government. This Section is limited by § 316 to contractual rights, and the historic rule now has very limited application to such rights. Except as stated in this Section, they may be effectively assigned. Notwithstanding the historical background, recourse need no longer be had to the law merchant, to doctrines peculiar to courts of equity, or to the concept of a power of attorney irrevocable because coupled with an interest. The restrictions in paragraphs (2)(a) and (c) rest on the basic principle that rights based on agreement are limited by the agreement.

d.  Material variation.  What is a material variation, an increase in burden or risk, or an impairment of the obligor's expectation of counter-performance under paragraph (2)(a) depends on the nature of the contract and on the circumstances. Both assignment of rights and delegation of performance are normal and permissible incidents of many types of contracts. See, for example, as to contracts for the sale of goods, Uniform Commercial Code § 2-210 Comment. When the obligor's duty is to pay money, a change in the person to whom the payment is to be made is not ordinarily material. Compare § 322; Uniform Commercial Code § 9-318. But if the duty is to depend on the personal discretion of one person, substitution of the personal discretion of another is likely to be a material change. The clause on material impairment of the chance of obtaining return performance operates primarily in cases where the assignment is accompanied by an improper delegation under § 318 or § 319: if the obligor is to perform in exchange for the promise of one person to render a return performance at a future time, substitution of the return promise of another impairs the obligor's expectation of counter-performance. But in cases of doubt, adequate assurance of due performance may prevent such an impairment. Compare § 251; Uniform Commercial Code § 2-609.

Illustrations:

3. B contracts to support A for the remainder of A's life. A cannot by assignment confer on C a right to have B support C.

4. B contracts to support A for the remainder of A's life. B commits a material breach of the contract, and A assigns his right of action to C. The assignment is effective.

5. B contracts to sell to A for three years 250 tons of ice a week, and A contracts to pay on delivery a stated price per ton. A assigns his right under the contract to C. The assignment is effective. C's right to delivery is conditional on payment, but payment by C satisfies the condition.

6. B sells his business to A and makes a valid contract not to compete. A sells the business to C and assigns to C the right to have B refrain from competition. The assignment is effective with respect to competition with the business derived from B. The good will of the business, with contractual protection against its impairment, is treated as an assignable asset.

e.  Public policy and statutory limitations.  The rules for promises and other terms of an agreement stated in Chapter 8 apply by analogy in determining whether an assignment is inoperative on grounds of public policy under paragraph (2)(b) of this Section. Additional statutory restrictions are common. Uniform Commercial Code § 5-116 prevents assignment of the right to draw under a letter of credit unless the credit is expressly designated as transferable or assignable, and renders ineffective an assignment of the beneficiary's right to proceeds until the letter of credit or advice of credit is delivered to the assignee. As is stated in the Statutory Note preceding § 316, wage-assignment statutes often contain a variety of limitations, and there are statutes forbidding or limiting the assignment of rights under government contracts.

Illustrations:

7. For value A, a public official, assigns to C salary or fees already earned and also his unearned salary for the ensuing month. The assignment of the earned salary or fees is effective, in the absence of a contrary statute, but the assignment of unearned salary is against public policy.

8. A contracts with B, a physician, for medical services, and later claims that B's negligence in performing the services caused personal injury to A in violation of B's contractual duty to use due care. A assigns the claim to C. The assignment is ineffective.

9. A, a retired officer of the United States Army, borrows money from C and as security for the loan assigns to C whatever is due or shall become due to A as retired pay. The assignment is ineffective except as permitted by statute under regulations prescribed by the Secretary of the Army.

f.  Contractual prohibition.  The effect of a term in a contract forbidding the assignment of rights arising under the contract is the subject of § 322. Such a term may resolve doubts as to whether an assignment violates paragraph (2)(a) of this Section. Where it seems to forbid an assignment clearly outside the scope of paragraph (2)(a), it may be read restrictively to permit the assignment, or to give the obligor a claim against the assignor rather than a defense against the assignee, or the term may be invalid by statute or decision. See Uniform Commercial Code §§ 2-210, 9-318. Even if the term gives the obligor a defense against the assignee, the assignment is usually partially effective as an assignment conditional on the assent of the obligor.

Subsection (1) is based on former §§ 149(1) and 150(1). The distinction in those sections between "assignment" and "effective assignment" is eliminated. Subsection (2) contains the substance of former § 151.

See 3 Williston, Contracts §§ 404, 412, 417-23 (3d ed. 1960); 4 Corbin, Contracts §§ 857, 861, 864-79 (1951 & Supp. 1971).

Comment a.  Illustration 1 is a revision of Illustration 1 to former § 150. Illustration 2 is new; for discussions of what may be assigned, see Stathos v. Murphy, 26 A.D.2d 500, 276 N.Y.S.2d 727 (1966), aff'd, 19 N.Y.2d 883, 281 N.Y.S.2d 81, 227 N.E.2d 880 (1967); Factors Etc., Inc. v. Creative Card Co., 444 F. Supp. 279 (S.D.N.Y. 1977).

Comment d.  Illustration 3 is new; compare duPont de Bie v. Vredenburgh, 490 F.2d 1057 (4th Cir. 1974) in which the right to accrued but unpaid support payments was held assignable. Illustrations 4 and 5 were substantially Illustrations 3 and 2 respectively to former § 151. As to Illustration 5, compare Crane Ice Cream Co. v. Terminal Freezing & Heating Co., 147 Md. 588, 128 A. 280 (1925); Comment 4 to Uniform Commercial Code § 2-210. For other discussions of when assignment may or may not be barred because it materially would vary the obligor's burden or risk, see, e.g., Finance America Private Brands v. Harvey E. Hall, Inc., 380 A.2d 1377 (Del. Super. Ct. 1977); Munchak Corp. v. Cunningham, 457 F.2d 721 (4th Cir. 1972); cf. Union Bond and Trust Co. v. M and M Wood Working Co., 256 Or. 384, 474 P.2d 339 (1970). Illustration 6 is substantially based on Illustration 4 to former § 151; see also T.E. Moor & Co. v. Hardcastle, 421 S.W.2d 126 (Tex. Civ. App. 1967), ref. n.r.e.

Comment e.  Illustration 7 was substantially Illustration 7 to former § 151. Illustration 8 is new. Illustration 9 is based on Illustration 5 to former § 151; the applicable statute is 37 U.S.C. § 701 (1976). For a discussion of the interpretation of purported assignments to avoid statutory bars, see Stathos v. Murphy, 26 A.D.2d 500, 276 N.Y.S.2d 727 (1966), aff'd, 19 N.Y.2d 883, 281 N.Y.S.2d 81, 227 N.E.2d 880 (1967).

Comment f.  See Annots., 75 A.L.R.3d 1184 (1977); 59 A.L.R.3d 244 (1974).

ALR Annotations:

Assignability of licensee's rights under patent licensing contract. 66 A.L.R.2d 606.
Assignability of warranty of goods and chattels. 17 A.L.R.2d 1196.

Digest System Key Numbers:

Assignments 1, 10-23