Wednesday, August 3, 2011

Contracts: Assignments & Delegations

In a previous post, I wrote about situations in which a third party enters into a contractual relationship as a 3rd party beneficiary. This post will focus on two similar situations, assignments and delegations.


In a typical assignment situation, the original contracting parties are the obligor and the assignor. The assignor assigns his rights to the obligor's performance to the assignee.

Let x=the obligor
Let y-the assignor
Let Z-the assignee

It's important to note that generally all contractual rights can be assigned. One exception to this rule of allowing assignments, and one that is tested often, is an assignment that would substantially change the obligor's obligation or risk (such as a personal service contract). Though most rights are assignable, there are formalities necessary for a valid assignment. The assignor must manifest an intent to immediately and completely transfer the rights to the contract. An oral assignment is valid (there is no need for a writing), and consideration for the assignment is not required.

Though consideration is not required, it may be to the benefit of the assignee to provide consideration for the assignment, as doing so will render the assignment irrevocable. An assignment not for consideration generally can be revoked by the assignor. As always, even without consideration, you should examine whether promissory estoppel is a valid argument, which will prevent the assignor from revoking the assignment, even if the assignee has not provided consideration for the assignment (ie, look for detrimental reliance on the part of the assignee).

After the assignment has taken place there is privity of contract between the obligor (X), and the assignee (Z), and there is no longer privity of contract between the obligor (X), and the assignor (Y).

Can Z sue X?

Yes. Because there is privity of contract between Z and X, after a valid assignment of rights from Y to Z, Z can sue X. X, however, will have any defenses against Z that X would have had against Y in the original contract.

Can Z sue Y?

Yes. Z can sue Y, if Y wrongfully revokes an irrevocable assignment. In addition, let's assume that, as stated earlier, Z sues X, And X defends himself by asserting a defense that X has against Y. This will provide Z and opportunity to sue Y since Z was unable to collect from X.


A delegation is distinguished from an assignment, in that in a delegation, the obligor promises to perform for the obligee, and then the obligor delegates her obligation to the delegate.

Let x=the delegate
Let Y-the obligor
Let Z-the obligee

Similar to assignments, generally all obligations can be delegated. One commonly tested exceptions to the rule that all obligations can be delegated is an obligation that require personal judgement and skill (think of an artist or a sculptor). There are no special formalities to be complied with to have a valid delegation (there is no need for the delegation to be in writing, and there is no need for consideration).

Once Y has delegated his obligations to X, Z must accept from X the performance that originally was due by Y. Y, however, remains liable on the contract, so that if X refuses to perform, Z can sue Y. Z can also sue X, but whether X will be required to perform will be determined by whether there has been an assumption (ie, X has promised he would perform, and this promise was supported by consideration). If X has promised Y that he would perform for Z, and this promise was supported by consideration, then a valid contract was formed between X and Y, of which Z is a third party beneficiary. As such, Z would have the right to sue X, or Y (see previous post on 3rd party beneficiaries).

This area of contracts can get a bit convoluted. Feel free to leave any questions in the comments section of this post, and I'll gladly address them.


  1. So, if obligor becomes incapable of performing after the assignment, may the assignee seek recovery from the assignor?

  2. Yes, this would be allowed, and it would need to be determined exactly why the obligor became incapable, because after the assignee seeks recovery from the assignor, the assignor may have a valid claim against the obligor.

  3. That would depend upon whether X and Y have entered into a contract (in other words, was there valid consideration on both sides, etc.) If so, then Z becomes the 3rd party beneficiary of the X->Y contract, allowing Z to sue X, and Y can also sue X based on the contract between them.


  4. Great article! Thank you for the information! Y and Z have a contract. Y through a contract, delegates duties to x. After duties have been delegated to x, can Y and Z modify original contract? The modified contract would substantially increase x's duties. The modification would result from a contract renewal which would increase x's required payments to z. Any help you could provide would be greatly appreciated!

  5. It's a very good question. As stated in your question, when Y delegated to X, they formed a contract, as to the delegation. X promised to perform that which was delegated, and will not be required to perform any more than that which was promised (unless X and Z legally modify the contract.

    In fact, once Y delegates to X, Y is no longer a party to the contract with Z, and therefore would not be able to modify their prior contract. Note, however, that because there was a valid delegation contract between Y and X, Z is a third-party beneficiary to that contract, so if X fails to perform, Z will be able to seek recourse from either Y or X.

  6. if privity bw X and Y no longer exists after assignment from Y to Z, what is the difference bw assignment and novation?

    1. The important difference here is that a novation requires the agreement of all parties, as the original contract is extinguished in favor of the new one. An assignment merely substitutes a new party into an already existing contract. It's a tricky distinction, but tested occasionally.