What Is an Assignment Clause?
An assignment clause spells out which contractual obligations, rights, and duties may be transferred from one of the contractual parties to another party. 3 min read
2. Requirements for Assignment Consent
3. A Party May Not Unreasonably Withhold or Delay Consent
Updated October 29, 2020:
An assignment clause spells out which contractual obligations, rights, and duties may be transferred from one of the contractual parties to another party. The assignment may be in whole or in part, and the clause also details the conditions under which a party can assign these duties.
U.S. law dictates that most contractual rights can be freely assigned or delegated, unless an agreement states otherwise.
The assignment clause often overlaps with two other clauses:
- Parties in Interest
- Successors and Assigns
These control who assumes contractual rights and obligations.
Legal Background and Freely Assignable Rights
When one party in a contract “assigns” the agreement to someone else, this means the first party — the assignor — transfers its contractual rights and obligations to the second party — the assignee.
In some instances, one party will not want the other contractual party to freely assign its duties. Contracts will then include language that states this.
One exception to the general assignability rule is intellectual property licenses. Legally, a licensor must first give consent before an IP licensee can assign or delegate its rights or obligations, even in the case where the license agreement is silent.
Requirements for Assignment Consent
There are different ways to say the same thing in a contract. Some people prefer lengthier statements, and others like to keep things brief. The following are various ways to make the same points.
- One contractual party isn't allowed to assign its agreement to another person without prior written consent of the other contractual party, except as provided for in the contract. If an assignment is made without this consent, it won't be considered valid.
- One party may not assign any interest or right arising out of this contract — in whole or in part — without prior consent.
- To keep all doubts at bay, no consent is required for an assignment — including collateral, absolute, or other — for a contractual right to payment.
These are the takeaways from these stipulations:
- This type of requirement for an assignment clause can create obstacles for the non-assigning party in corporate reorganizations or future mergers.
- The party that's being asked to consent to an assignment clause requirement may want to negotiate its position. For instance, it may find negotiations helpful in a situation when the assignment involves a substantial sale.
A Party May Not Unreasonably Withhold or Delay Consent
It's not permissible to hold up consent to unreasonable delays.
Other ways to state this include:
- To avoid doubt, a party that suffers damage due to the unreasonable delay or withholding of consent by the other party can treat them as direct damages.
- To avoid doubt, damages that arise to one party from the unreasonable delay or withholding of consent by the other party aren't excluded from remedies.
Even when these provisions aren't in place, the law may still impose a reasonableness requirement. This requirement may not hold a lot of practical value, whether it's implied by the law or contractual. A reasonableness requirement can't guarantee that the non-assigning party will give consent when the assigning party wants it. By the time a case has worked its way through the court system to a decision, the deal that the assigning party was working on could have fallen through or otherwise be negated or moot.
However, this provision for unreasonable withholding should get the non-assigning party to carefully consider taking too much time due to the prospect of being held liable for damages. This can result in costly consequences.
On the other hand, having an unreasonable delay provision could create conflict with the provision concerning material breach of contract.
When you enter into a contract, it's important that you know what your rights and obligations are, as well as the other party's rights and obligations. If you don't want certain outcomes — assignment of duties, for instance — you must usually make it clear in the agreement. Getting help from a legal professional in the contract law field is a good idea when writing up a contract. That way, you increase the chances of covering everything you want covered, from the finer points to the bigger ones.
If you need help with contracts, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.