Restatement Rule

Restatement laws are the result of continuing research by legal scholars from the American Law Institute (ALI).  Every year members of the ALI conduct survey of common law in general areas and understand the changes occurred therein.  They arrange in an organized manner the common law rules developed by judges.  Restatement laws can be seen in torts, contracts, restitution, agency, trust property, judgments and conflict of laws.  Restatement laws are cited in courts in support and in defense of a case and are more valuable than secondary sources of law.  Restatement laws have persuasive effect on courts.

In American jurisprudence, Restatement of the Law, (Second), Contracts is the most cited of all legal treaties.  Restatements are cited as any other statute and code in courts.  Once a court chooses to analyze an issue based on an assignment under restatement law, the court follows the judicial principles laid down in that restatement law.

According to Restatement of the Law, Second, Contracts, § 325 parties alien to a contract may acquire rights under a contract from subsequent transfers by one of the parties.  A conditional order by an assignor can make a valid assignment.  A written order by an obligee to an obligor, signed and delivered to a third person is a valid assignment.  The order must be conditional and impose a duty upon the drawee to comply with the order of the drawer.  The intention of the drawer is to retain the performance with assignee.[i] However an order that directs the drawee to render a performance without reference to any duty of the drawee is not an assignment.[ii]

Generally sub section (1) of Restatement of the Law, Second, Contracts, § 325 refers to the assignment of right to payment of money.  An assignor delivers to the assignee a written instrument addressed to the obligor, directing the obligor to pay all or part of the debt to the assignee.  Facts aside from the instrument must show the intention of the obligee.  For example, A delivers to C a writing addressed to B, “Pay C for his own use $ 100 out of the amount you owe me.”  This is a valid assignment.  However, a writing, “pay to C the balance due to me” will not amount to a valid assignment.

A check or other draft meeting formal requisites of certainty in amount and time of payment is an unconditional order for the payment of money.  Until a drawee accepts the order, he/she is not liable on the instrument.  Intention of the drawer to assign an instrument is shown by additional facts in the instrument.[iii] The creation and existence of an assignment is to be determined according to the intention of the parties.  The intention is drawn not only from instruments but also from the surrounding circumstances.  In order to arrive at the intention of the parties, the contract itself must be read in the light of the circumstances under which it was entered into.  Indefinite terms employed in a contract must be explained or restricted in their meaning and application.[iv]

In a valid assignment, an obligor accepts a check by signing a certification on its face and redelivering it to assignee.  The certification substitutes the assignee for assignor as obligor’s creditor to the amount of check.

[i] Restat 2d of Contracts, § 325(1)

[ii] Restat 2d of Contracts, § 325(2)

[iii] Uniform Commercial Code §§ 3-104, 3-409, 3-805

[iv] McHaney v. People’s State Bank, 196 S.W. 997, 999 (Tex. Civ. App. 1917)

Inside Restatement Rule