A legal assignment is the transfer of a contractual right from one party to another, giving the new holder the same standing the original holder had to enforce it. The party transferring the right is the assignor. The party receiving it is the assignee. Whoever owes performance under the original agreement is the obligor. If a supplier is owed $50,000 by a retailer and transfers the right to collect to a financing company, the supplier is the assignor, the financing company the assignee, and the retailer the obligor. Once the transfer takes effect, the assignee can demand performance directly, and the assignor generally loses the ability to enforce the right because it no longer belongs to them.
Partial assignments are possible. A creditor owed $100,000 could assign $40,000 of the claim to one party and keep the rest, though partial transfers carry a higher risk of challenge if they complicate things for the obligor.
Assignment Is Not Delegation, and Neither Is Novation
Three words get used interchangeably that shouldn’t be, and the difference decides who stays on the hook when things go wrong.
An assignment transfers rights, meaning what you are entitled to receive. A delegation transfers duties, meaning what you are obligated to perform. Delegating a duty does not release you from liability. If the person you delegated to fails to perform, you still owe the other side what the contract promised.1Legal Information Institute. UCC 2-210 – Delegation of Performance; Assignment of Rights Hiring a subcontractor to handle your obligations does not make the obligation someone else’s problem. It means someone else is doing the work while your name remains on the contract.
A novation goes further. It replaces the original contract entirely with a new one, substitutes a new party, and releases the original party from all obligations. It requires the consent of everyone involved. A landlord must agree to release the original tenant before a novation with a new tenant takes effect. Without that consent, what looks like a novation is really an assignment or delegation, and the original party stays liable.
What Can Be Assigned
Most contractual rights are assignable. The right to receive payment for goods or services is the most common and drives an enormous volume of commercial transactions. Factoring arrangements, mortgage sales between banks, and sales of accounts receivable are all assignments of payment rights.
Intellectual property transfers too. Patent assignments must be in writing and should be recorded with the U.S. Patent and Trademark Office. An unrecorded patent assignment is unenforceable against a later buyer who paid value and had no knowledge of the earlier transfer.2Office of the Law Revision Counsel. 35 USC 261 – Ownership; Assignment Copyright transfers require a signed written instrument.3Office of the Law Revision Counsel. 17 USC 204 – Execution of Transfers of Copyright Ownership Trademark assignments are valid as long as the associated goodwill transfers with them. Rights to receive distributions from a trust or estate are generally assignable, though the trust instrument may restrict this.
What Cannot Be Assigned
Several categories are off-limits, either by their nature or by statute.
- Rights where the transfer would materially change the obligor’s burden, significantly alter their risk, or reduce the value of what they get in return. This is the broadest restriction and shows up in insurance, personal service agreements, and requirements contracts where the identity of the other party genuinely matters.1Legal Information Institute. UCC 2-210 – Delegation of Performance; Assignment of Rights
- Personal services contracts that depend on a specific person’s skill or judgment. If you hire a specific architect to design your house, the architect cannot hand the job to someone else, and you cannot assign your right to the architect’s services to a stranger.
- Social Security payments, which cannot be transferred or assigned and are protected from garnishment and other legal process. Veterans’ benefits and certain other federal program payments carry similar protections.4Office of the Law Revision Counsel. 42 USC 407 – Assignment of Benefits
- Wages, which federal law restricts from garnishment, with many states imposing additional limits on voluntary wage assignments.5Office of the Law Revision Counsel. 15 USC 1673 – Restriction on Garnishment
- Personal injury claims. Most states prohibit assigning them before judgment, reflecting a long-standing policy against encouraging the purchase of lawsuits.
What Makes an Assignment Valid
The assignor must express a clear, present intention to transfer. A vague promise to assign something in the future does not count. The right being transferred must be specific enough to identify. “I assign some of my contract rights to you” creates nothing enforceable.
Consideration is not required. You can give a contract right away as a gift. Whether anything was paid matters a great deal for a different reason, covered in the next section.
Most assignments do not need to be in writing, but important exceptions apply. Copyright transfers are invalid without a signed written document.3Office of the Law Revision Counsel. 17 USC 204 – Execution of Transfers of Copyright Ownership Patent assignments must be in writing.2Office of the Law Revision Counsel. 35 USC 261 – Ownership; Assignment Assignments of interests in real property fall under the statute of frauds in every state. Under the UCC, assignments of rights exceeding $5,000 must be in writing. Even where writing is not legally required, documenting the assignment prevents disputes over what was transferred and when.
When an Assignment Can Be Revoked
An assignment given for value, where the assignee paid money, forgave a debt, or gave something else in exchange, is generally irrevocable. The assignor cannot take it back.
A gratuitous assignment, given as a gift with nothing exchanged, is a different story. The assignor can usually revoke it at any time before the obligor performs. The assignor can also revoke it by making a new assignment of the same right to someone else, by taking direct performance from the obligor, or by dying, which automatically terminates most gratuitous assignments. A few situations lock a gratuitous assignment in place: the assignee has already received performance, the assignment is documented in a signed writing delivered to the assignee, or the assignee has reasonably relied on it in a way that would make revocation unfair.
Practical rule: if you are receiving an assignment and not paying for it, get it in writing. Otherwise the assignor might change their mind and you will have no recourse.
Notice, Priority, and Competing Claims
Notice to the obligor is not required for the assignment to be valid between assignor and assignee. Skipping it creates serious practical problems anyway. An obligor who performs for the assignor without knowing about the assignment is legally discharged from the obligation. The assignee then has to chase the assignor for whatever the obligor paid. Once proper notice reaches the obligor, performing for the assignor no longer counts, and an obligor who pays the wrong party after notice risks having to pay twice.
Notice matters again when the same right gets assigned more than once, which happens more often than people expect, particularly with receivables. In commercial transactions governed by Article 9 of the UCC, the priority rule is straightforward: among competing perfected security interests in the same collateral, the first to file or perfect wins.6Legal Information Institute. UCC 9-322 – Priorities Among Conflicting Security Interests and Agricultural Liens A perfected interest beats an unperfected one regardless of timing. Outside the UCC context, jurisdictions split on whether the first assignee or the first to give notice wins. The safest course for any assignee is to notify the obligor immediately and, where applicable, file a financing statement.
Defenses the Obligor Keeps
The assignee inherits the right exactly as the assignor held it. The obligor can raise against the assignee any defense that existed against the assignor before the obligor received notice of the assignment.7Legal Information Institute. UCC 9-404 – Rights Acquired by Assignee; Claims and Defenses Against Assignee If the assignor breached the contract, delivered defective goods, or committed fraud, those defenses survive the transfer.
Buyers of contract rights most often underestimate this point. Purchasing someone’s right to collect a payment does not guarantee you will actually collect. If the obligor had a legitimate reason not to pay the assignor, that reason survives the assignment. Due diligence on the underlying agreement matters at least as much as the assignment document itself.
Anti-Assignment Clauses
Many contracts prohibit assignment without the other party’s consent. These clauses are generally enforceable, and a court will block an assignment that violates a clearly written restriction. Commercial law carves out significant exceptions.
Under UCC Article 9, anti-assignment clauses are ineffective when they would block the use of accounts, chattel paper, or payment intangibles as collateral for a loan.8Legal Information Institute. UCC 9-406 – Discharge of Account Debtor; Notification of Assignment A separate provision extends the same treatment to promissory notes, health-care-insurance receivables, and general intangibles like contracts, permits, and franchises.9Legal Information Institute. UCC 9-408 – Restrictions on Assignment of Promissory Notes, Health-Care-Insurance Receivables, and Certain General Intangibles Ineffective The policy is to keep commercial credit flowing. If businesses could not pledge their receivables because of boilerplate anti-assignment language, lending would grind to a halt.
There is also a narrower exception for outright assignments: a right to damages for breach of the entire contract can be assigned even if the contract says otherwise.1Legal Information Institute. UCC 2-210 – Delegation of Performance; Assignment of Rights If you have been wronged under a contract that bans assignment, you can still transfer your breach-of-contract claim.
Tax Consequences
Assigning a right to income does not necessarily shift the tax bill. Under the assignment of income doctrine, established by the Supreme Court in 1930, income is taxed to the person who earned it. Anticipatory arrangements designed to redirect income to someone else before it is received do not change who owes the tax.10Justia U.S. Supreme Court Center. Lucas v. Earl, 281 U.S. 111 (1930)
Timing is everything. Assign a right to future income well before it is earned or resolved, and the assignee may owe the taxes when payment arrives. Assign a right shortly before a settlement or payment you have already effectively earned, and the IRS can disregard the transfer and tax you on the full amount. The closer the assignment sits to the income event, the higher the risk that the original earner is stuck with the liability regardless of the transfer. Talk to a tax professional before finalizing an assignment of income-producing rights. Getting this wrong can mean paying taxes on money you no longer have.