Revocability Of Assignment Of Benefits

An assignment is a term used with similar meanings in the law of contracts and in the law of real estate. In both instances, it encompasses the transfer of rights held by one party – the assignor – to another party – the assignee. The legal nature of the assignment determines some additional rights and liabilities that accompany the act.

Assignment of contract rights

Assignment of rights under a contract is the complete transfer of the rights to receive the benefits accruing to one of the parties to that contract. For example, if party A contracts to wash party B’s car for $10, party A can later assign the benefits of the contract – the right to be paid $10 – to party C. In this scenario, party A has become the assignor, party B has become an obligor, and party C is the assignee. Such an assignment may be donative (essentially given as a gift), or it may be contractually exchanged for consideration. It is important to note, however, that party C is not a third party beneficiary, because the contract itself was not made for the purpose of benefitting party C.

When assignment will be permitted

The common law favors the freedom of assignment, so an assignment will generally be permitted unless there is an express prohibition against assignment in the contract. Where assignment is thus permitted, the assignor need not consult the other party to the contract. An assignment can not have any effect on the duties of the other party to the contract, nor can it reduce the possibility of the other party receiving full performance of the same quality. Certain kinds of performance, therefore, can not be assigned, because they create a unique relationship between the parties to the contract. For example, if party A contracts to hire an attorney to represent party A in a civil case for a fee of $1000, party A can not then assign his contractual right to legal representation to another party.

Requirements for an effective assignment

For assignment to be effective, it must occur in the present. No specific language is required to make such an assignment, but the assignor must make some clear statement of intent to assign clearly identified contractual rights to the assignee. A promise to assign in the future has no legal effect. Although this prevents a party from assigning the benefits of a contract that has not yet been made, a court of equity may enforce such an assignment where an established economic relationship between the assignor and the assignee raised an expectation that the assignee would indeed form the appropriate contract in the future.

A contract may contain a non-assignment clause, which prohibits the assignment of specific rights, or of the entire contract, to another. However, such a clause does not necessarily destroy the power of either party to make an assignement. Instead, it merely gives the other party the ability to sue for breach of contract if such an assignment is made. However, an assignment of a contract containing such a clause will be ineffective if the assignee knows of the non-assignment clause, or if the non-assignment clause specifies that “all assignments are void”.

Two other techniques to prevent the assignment of contracts are recission clauses or clauses creating a condition subsequent. The former would give the other party to the contract the power to rescind the contract if an assignment is made; the latter would rescind the contract automatically in such circumstances.

Requirement of a writing

There are certain situations in which the assignment must be in writing.

1. Assignment of wages
2. Assignment of any interest in real property
3. Assignment of choses of action worth over $5,000
4. Assignment as collateral for a loan or debt


Assignments made for consideration are irrevocable, meaning that the assignor permanently gives up the legal right take back the assignment once it has been made. Donative assignments, on the other hand, are generally revokable, either by the assignor giving notice to the assignee, taking performance directly from the obligor, or making a subsequent assignment of the same right to another. There are some exceptions to the revocability of a donative assignment:

1. The assignment can not be revoked if the obligor has already performed
2. The assignment can not be revoked if the assignee has received a token chose (chose being derived from the French word for “thing”, as in a chose of action) – a physical object that signifies a right to collect, such as a stock certificate or the passbook to a savings account.
3. The assignment can not be revoked if the assignor has set forth in writing the assignment of a simple chose – a contract right not embodied in any for of token.
4. Estoppel can prevent the revocation of a donative assignment if the asignee changed their position in reliance on the assignment.

Finally, the death or declaration of bankruptcy by the assignor will automatically revoke the assignment by operation of law.

Breach and defenses

A cause of action for breach on the part of the obligor lie with the assignee, who will hold the exclusive right to commence a cause of action for any failure to perform or defective performance. At this stage, because the assignee “stands in the shoes” of the assignor, the obligor can raise any defense to the contract that the obligor could have raised against the assignor. Furthermore, the obligor can raise against the assignee counterclaims and setoffs that the obligor had against the assignor. For example, suppose that A makes a contract to paint B’s house in exchange for $500. A then assigns the right to receive the $500 to C, to pay off a debt owed to C. However, A does such a careless job painting the house that B has to pay another painter $400 to correct A’s work. If C sues B to collect the debt, B can raise his counterclaim for the expenses caused by the poor paint job, and can reduce the amount owed to C by that $400, leaving only $100 to be collected.

When the assignor makes the assignment, he makes with it an implied warranty that the right to assign was not subject to defenses. If the contract had a provision that made the assignment ineffective, the assignee could sue the assignor for breach of this implied warraney. Similarly, the assignee could also sue under this theory if the assignor wrongfully revoked the assignment.

Successive assignments

Occasionally, an unscrupulous assignor will assign the exact same rights to multiple parties (usually for some consideration). In that case, the rights of the assignee depend on the revocability of the assignment, and on the timing of the assignments relative to certain other actions.

In a quirk left over from the common law, if the assigment was donative, the last assignee is the true owner of the rights. However, if the assignment was for consideration, the first assignee to actually collect against the assigned contract is the true owner of the rights. Under the modern American rule, now followed in most U.S. jurisdictions, the first assignor with equity (i.e. the first to have paid for the assignment) will have the strongest claim, while remaining assignees may have other remedies.

1. Earlier donative assignees for whom the assignment was revocable (because it had not been made irrevocable by any of the means listed above) have no cause of action whatsoever.
2. Earlier donative assignees for whom the assignment was made irrevocable can bring an action for the tort of conversion, because the assignment was technically their property when it was given to a later assignee.
3. Later assignees for consideration have a cause of action for breaches of the implied warranty discussed above.

Compare: Delegation

A parallel concept to assignment is delegation, which occurs when one party transfers his duties or liabilities under a contract to another. A delegation and an assignment can be accomplished at the same time, although a non-assignment clause also bars delegation.

The Office of General Counsel issued the following opinion on February 9, 2005, representing the position of the New York State Insurance Department.

Re: Revocable Contingent Assignment of Death Benefits Under a Life Insurance Policy to a Specific Funeral Home

Question Presented:

May a revocable contingent assignment of the death benefits payable under an insurance policy or certificate be made to a specific funeral home?


Yes. Provided that during the lifetime of the policyholder the policyholder has the right to revoke the assignment and that, upon the death of the insured, the insured’s personal representative or family retains the freedom to choose a different funeral home and/or different services, supplies or merchandise, such an assignment would be permissible.


The following information was provided by letter to this Office:

Two approaches are commonly used when life insurance is the funding vehicle for a prearranged funeral. The first provided by The ABC Group Inc., as ABC Funeral Planning, consists of two components: a life insurance policy specially designed to fund a funeral plan, with a named beneficiary other than the funeral home, and a funeral planning agreement for future delivery of funeral merchandise, supplies and services chosen by the insured and his or her family. At the time of entering into the funeral planning agreement setting forth the insured’s desired funeral arrangements, the policyholder or certificate holder executes a revocable contingent assignment of the death benefits of the life insurance policy to the specific funeral home for the funeral merchandise, supplies and serves promised in the funeral planning agreement.

Nothing contained in the revocable contingent assignment prohibits the insured, or the insured’s personal representative or family from selecting a different funeral home or different funeral merchandise, supplies and services. In the event that such funeral merchandise, supplies and services are not actually delivered, the death benefit under the life insurance policy would be paid in cash to the named insurance beneficiary, not the specific funeral home.

The second method of making life insurance available to fund a prearranged funeral is the sale of life insurance policy/certificate to a consumer, without first entering into a preneed funeral contract. The life insurance proceeds may not be immediately assigned to a specific funeral home, but may subsequently be assigned at a later date. In either instance, the assignment would always be contingent upon the actual delivery of funeral merchandise, supplies and services, and the policyholder or the insured’s personal representative or family would retain the right to select a different funeral home and different funeral merchandise, supplies and services.


N.Y. Ins. Law § 3208(d) (McKinney Supp. 2004) provides:

(d) No person, firm, association, society, or corporation engaged in this state in the business of providing for the payment of funeral, burial or other expenses of deceased members, whether or not it be subject to the other provisions of this chapter, and no insurer shall:

(1) deliver or issue for delivery in this state any contract or policy whereby the benefit or any part thereof accruing under such contract or policy, upon the death of such member or of the person insured, shall be payable to a designated or restricted funeral director or funeral directing concern or other person engaged in such trade or business, or to any official or designated group of them; or

(2) pay any such benefit or any part thereof to any funeral director or funeral directing concern or other person engaged in such trade or business or to any official or designated group of them, without the consent of the person or persons entitled to such benefits, or to pay any commission or other consideration to any funeral director or funeral directing concern or employee thereof to induce such person to sell or offer to sell any contract or policy of insurance designated or marketed as payable for funeral or burial expenses upon the death of the insured; or

(3) in any way deprive the personal representative or family of the deceased of the advantages of competition in procuring and purchasing supplies and services in connection with the funeral and burial arrangements of such deceased.

By letter to this Office, various Office of General Counsel opinions were cited that establish the parameters for an acceptable preneed program.1 It was posited to this Office that the ABC Funeral Planning program comes within those parameters and, accordingly, is not proscribed by N.Y. Ins. Law § 3208(d) (McKinney Supp. 2004) for the following reasons:

The named beneficiary of the life insurance policy funding the funeral arrangement is not a specific funeral home.

By entering into a revocable contingent assignment of the death benefits to a specific funeral home, the insured has given his or her written consent to pay such benefits, or a part thereof, to such funeral home.

After the death of the insured the beneficiary may choose not to direct the death benefits, or a part thereof, to a specific funeral home for a pre-arranged funeral, under the provisions of a revocable assignment but may elect to do so.

Because the assignment is revocable and contingent, the insured, the insured’s family and the insured’s personal representative are not locked into any pre-arranged funeral, but retain the right to select a different funeral home and different funeral merchandise, supplies and services after the insured’s death.

Additionally, it was stated that the revocable contingent assignment of the policy is in conformity with the insurable interest requirements contained in N.Y. Ins. Law § 3205 (McKinney Supp. 2004), specifically paragraph (1) of subsection (b), which provides:

Any person of lawful age may on his own initiative procure or effect a contract of insurance upon his own person for the benefit of any person, firm, association or corporation. Nothing herein shall be deemed to prohibit the immediate transfer or assignment of a contract so procured or effectuated. (Emphasis added).

It is the opinion of this Office that the ABC Funeral Planning Program, as described above, is not proscribed by either N.Y. Ins. Law § 3205 or N.Y. Ins. Law § 3208(d)(1), (d)(2) with respect to the required consent and (d)(3) (McKinney Supp. 2004). However, please note that this letter does not address N.Y. Ins. Law § 3208(d)(2) (McKinney 2004), which prohibits the payment by an insurer of any commission or other consideration to a funeral director, funeral directing concern or employee thereof, even if licensed as an insurance agent.

Please note that this opinion does not address whether the ABC Funeral Planning Program is in compliance with Section 453 of the NY General Business Law or Section 3450 of the NY Public Health Law.

For further information you may contact Deputy Superintendent and General Counsel Audrey Samers at the New York City Office.

1  Office of General Counsel Opinions 7-15-91, 3-1-95, 8-19-98, 6-6-2000, 9-15-2000 and 1-22-2001.


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