Part 3- Contracts, Chapter 17: Rights of Third Parties, Doc 2

This text outlines key principles of contract law related to assignment and delegation, particularly how third-party rights operate in these scenarios. Here's a detailed summary of the major points: 1. Rights of the Assignee   When a contract is assigned, the assignee gains the rights the assignor had, including the right to sue if the obligor does not perform. The assignee, however, cannot acquire more rights than the assignor held; any defenses the obligor has against the assignor are also valid against the assignee. For instance, if a contract was induced by duress, that defense applies against any assignee. 2. Importance of Notifying the Obligor   Although not mandatory, notifying the obligor of an assignment is practically important. Without notification, an obligor may fulfill the contract by paying the assignor, thereby discharging their obligation. For example, if an assignee does not inform an obligor of an assignment and the obligor fulfills the contract by paying the assignor, the assignee loses the right to claim payment again. If notified, the obligor who mistakenly pays the assignor instead of the assignee may still owe payment to the assignee. 3. Restrictions on Assignment   Certain rights are inherently nonassignable. Employment contracts, particularly where supervision or personal service is involved, cannot be assigned without risking harm to the employee's interests. Assignments that would impose a significantly increased burden on the obligor, such as a requirement to meet larger demands, are usually ineffective. 4. Anti-Assignment Clauses   Contracts may prohibit assignment through specific clauses. Such clauses are typically enforced but are interpreted narrowly, often limiting only the delegation of duties. Under the Uniform Commercial Code (UCC), these clauses cannot prevent the assignment of monetary claims or rights to damages, even if the original contract states otherwise. 5. Priority in Successive Assignments  When an assignor assigns the same right to multiple assignees, priority may vary by jurisdiction. Under the "American rule," the first assignee has  priority, while the "English rule" favors the first assignee to notify the obligor. The Restatement (Second) of Contracts prioritizes the first assignee unless a later assignee, unaware of the prior assignment, meets specific criteria like obtaining a judgment or payment. 6. Assignor’s Warranties  An assignor who receives payment for an assignment implicitly warrants the contract’s validity, including the obligor's capacity and the legality of the contract. They also warrant the rights assigned and that they have taken no action to impair them. 7. Delegation of Duties    Delegation occurs when an obligor appoints another to perform their duties, but it does not relieve the original obligor of their obligation unless a novation (substitution of parties) occurs. Some duties, especially those requiring specific personal skills or judgments, are nondelegable. However, duties that do not rely on personal characteristics or public policy constraints can generally be delegated. In case of delegation, if the delegatee fails to perform, the original obligor (delegator) may still be held liable by the obligee. 8. Novation and Release of the Delegator   A novation, or a substitution of parties in a contract, releases the original obligor from liability if the obligee agrees to accept the delegatee’s promise in place of the delegator’s. Without a novation, both the original obligor and the delegatee remain liable to fulfill the contract’s terms. 9. Verification and Proof of Assignment  The UCC requires that an assignee provide reasonable proof of the assignment upon the obligor's request. Without adequate proof, the obligor may disregard the assignment and continue performing for the original assignor. 10. Case Example: Watts v. Simpson  In this case, Simpson loaned money to a party involved in a real estate deal and received an assignment of the contract. He sought exclusive rights to purchase the property if the party defaulted. This example underscores the importance of clear terms in assignments and the need for notification and contractual protections in complex assignment scenarios. This comprehensive outline of assignment and delegation highlights the responsibilities of the assignor, assignee, and obligor, focusing on the conditions under which rights are transferred and the significance of notification and verification for protecting those rights.