Key Takeaways

  • Assignability refers to the legal right to transfer contractual rights or obligations to a third party.
  • Some contracts are freely assignable, while others may restrict assignment through clauses or legal limitations.
  • Anti-assignment clauses and material changes in duties are common reasons courts may not enforce assignments.
  • Contracts involving personal services or unique obligations are generally non-assignable.
  • Assignments should always be executed in writing and communicated to the non-transferring party (obligor).
  • Real-world examples and legal language from actual contracts help illustrate how assignability clauses function.
  • Contract assignment doesn’t always transfer liability unless explicitly stated.

The assignability of contracts is when one side of a contract agreement transfers the contract to another entity, so that the new entity fulfills the terms of the contract. Being able to assign contracts depends on a variety of factors, mainly the language contained in the contract. 

How Contract Assignments Work

Some contracts prohibit assignment altogether, while others may allow it with the other party's consent. An example of a basic contract assignment may look like this: 

  • Bob contracts with a dairy to deliver a gallon of cream to his house every day.
  • The dairy assigns Bob's contract to another dairy.
  • As long as Bob is notified of the change in provider and gets his gallon of cream every day, his contract is with the new dairy.

Because the law has a preference for the free alienation of property, parties are free to assign contract rights and delegate contractual obligations. 

Assigning a contract to another doesn't always take away the assigning party's liability. Some contracts include a clause that at least one of the original parties guarantees performance — or fulfills the contract terms — no matter what the assignment.

The performance, however, can't be changed in contract assignment. There's a limit to substitution, so the new party has no power to change the performance per the rights stated in the contract. For example, if the obliging party has pledged to perform only if some event happens (with no certainty that it will happen), no assignment should increase the risk to the obliging party if the event doesn't happen through no fault of the obligor.

The nature of a contract's obligations determines its assignability.

Types of Assignments and Delegations

There are two primary types of contract transfers:

  • Assignment of rights: This occurs when one party (the assignor) transfers their right to receive a benefit under the contract to another party (the assignee). For instance, a lender might assign the right to collect loan payments to another financial institution.
  • Delegation of duties: This involves transferring the obligation to perform a contractual duty to another party. However, unless the contract explicitly allows it, delegating a duty does not always absolve the original party of liability if the assignee fails to perform.

Importantly, not all duties are delegable. If the obligation requires special skills or personal trust—like a contract for a famous artist’s painting services—it is typically non-delegable due to the nature of performance expected.

When Assignments Won't Be Enforced

In certain cases, contracts can't be assigned.

  1. A clause in the contract prohibits assignment. This is usually called an anti-assignment clause.
  2. Assignments can't take place if they materially alter what's expected under the contract. If the assignment affects the expected performance as outlined in the contract, lowers the value of returns (including anticipated returns), or increases risks for the other contract party (the one who's not assigning contractual rights), it's unlikely that any court will enforce the arrangement.
  3. If an assignment violates public policy or the law, it won't be enforced. For instance, the federal government prohibits certain claim assignments against the government, and many states prohibit an employee from assigning future wages.

Other assignments may not be illegal, but they could still violate public policy. As an example, personal injury claims can't be assigned because doing so might encourage litigation.

When looking into whether one party can transfer a contract or some rights and obligations in the contract, the transferring party has to check into applicable laws and statutes. That party must also check the contract's express language to determine whether or not it can transfer the assignment without obtaining consent from the non-transferring party.

If the contract requires that consent is given and the transferring party doesn't get that consent, it risks a contract breach as well as an invalid, ineffective transfer.

Common Examples of Non-Assignable Contracts

Certain types of contracts are almost always deemed non-assignable due to public policy or practical reasons:

  • Employment contracts: Most jurisdictions prohibit employees from assigning their employment duties to others.
  • Government contracts: Federal law often prohibits the assignment of claims against the government.
  • Contracts involving trust or personal judgment: A contract that relies on the specific trust, character, or qualifications of one party (e.g., an attorney-client relationship) typically cannot be assigned.

Additionally, courts generally hold that claims for personal injury cannot be assigned because doing so could encourage speculative litigation.

How to Assign a Contract

Follow these steps to assign contracts, when it's allowed for you to do so.

  1. Carefully study the contract for prohibitions or limitations, such as anti-assignment clauses. In some cases, there isn't a separate anti-assignment clause, but it may be stated in another way, such as language that says, "This contract may not be assigned."
  2. Execute the assignment. As long as you're free to assign the contract, prepare and enter into the assignment, which is basically an agreement transferring your rights and obligations.
  3. Notify the obligor, or the non-transferring party. After you assign contract rights to the assignee, notify the other party that was the original contractor, also known as the obligor. This notice relieves you of any liability as stated in the contract, as long as the contract doesn't say differently — for instance, the contract states that you, as the assignor, guarantee performance under the contract. 

Before trying to assign a contract to a third party, it's very important to understand if you're allowed to do so. You'll have to research legal statutes as well as the language in the contract to ensure you follow rules and regulations. Otherwise, you risk a breach of contract.

Practical Tips for Executing Assignments

To ensure a contract assignment is legally effective and enforceable, consider the following best practices:

  1. Review the Contract Thoroughly: Look for any assignment restrictions or required procedures.
  2. Get Consent When Needed: If the contract requires consent, obtain it in writing from the other party.
  3. Use Clear Assignment Language: Include specific details such as the names of the assignor, assignee, the contract being assigned, and effective date.
  4. Formalize the Assignment in Writing: While oral assignments may be enforceable in some cases, written assignments provide stronger legal protection.
  5. Include a Continuation Clause (if necessary): For ongoing obligations, specify whether the assignor remains liable post-assignment.
  6. Provide Timely Notice: Promptly notify the obligor of the assignment to avoid confusion or disputes.

Sample Assignability Clauses

Understanding how assignability is worded in contracts can help avoid misinterpretations. Here are a few common examples:

  • Strict Prohibition Clause:
    “Neither party may assign this agreement or its rights or obligations under this agreement without the prior written consent of the other party.”
  • Permissive Assignment Clause:
    “This agreement may be freely assigned by either party to any affiliate or in connection with a merger, acquisition, or sale of substantially all assets.”
  • Consent Not to Be Unreasonably Withheld:
    “Consent to assignment shall not be unreasonably withheld, delayed, or conditioned.”

These clauses can significantly impact the legal viability of an assignment and should be drafted with care.

Key Factors That Influence Assignability

The assignability of a contract depends on multiple factors, including:

  • Contract Language: Clauses like “This agreement may not be assigned without prior written consent” clearly restrict assignability.
  • Nature of the Contract: Personal service contracts or contracts requiring a specific individual’s unique skills are usually non-assignable.
  • State Law: Some jurisdictions limit assignability for certain types of contracts, such as employment agreements or government contracts.
  • Impact on the Obligor: If the assignment significantly increases the burden or alters the risk for the non-transferring party, it may not be enforceable.

These factors should be carefully reviewed before attempting to assign rights or duties under any agreement.

Frequently Asked Questions

What does assignability mean in a contract? Assignability refers to the ability of a party to transfer their rights or obligations under a contract to another party.

Can all contracts be assigned? No. Contracts may be restricted by language within the agreement, public policy, or the nature of the obligations involved.

Does an assignment relieve the original party from liability? Not always. Unless the contract states otherwise, the assignor may still be liable if the assignee fails to perform.

Is written consent always needed for assignment? Only if the contract includes a clause requiring it. However, it’s a best practice to obtain consent in writing to avoid disputes.

What happens if a contract is assigned improperly? The assignment may be considered void or unenforceable, and the party attempting to assign could be in breach of contract.

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