Assignment Contract Law: Everything You Need to Know
Assignment contract law occurs when a party assigns their contractual rights to a third party. 3 min read
Assignment contract law occurs when a party assigns their contractual rights to a third party. The benefit that the issuing party would have received from the contract is now assigned to the third party. The party appointing their rights is referred to as the assignor, while the party obtaining the rights is the assignee.
In an assignment contract, the assignor prefers that the assignee reverses roles and assumes the contractual rights and obligations as stated in the contract. Before this can occur, all parties in the original contract must be notified. The obligor is the party that's culpable for carrying out the duties included in the contract.
To simplify the concept, the assignment contract is a second agreement created by the assignor that transfers the benefit from the obligor to the assignee. In other words, the benefit won't go to the assignor, but instead to the assignee. The assignment contract will most likely be the second agreement between the assignee and obligor, as it should be in addition to the original contract. Important detailed information should be included, such as:
- Name of party members
- Rights to be appointed
- Other additional clauses
When Is Assignment Contract Needed?
Generally speaking, assignment contracts can be both written and oral. However, it is recommended that the contract is written in the following circumstances:
- Valuable services or property is involved
- The rights and duties being exchanged contain highly technical or complex terms
- The transfer of physical land or property is occurring
- There is no history between any of the parties involved
- If there is any future intention of assigning the responsibility of the contract to another business or person
- You're accepting contracts or responsibilities owned by a third party
Normally, the obligor doesn't need to be notified of an assignment of contract rights. However, the obligor is responsible for alerting the other parties if they plan on appointing another party to complete their duties or responsibilities.
What if an Assignment Contract Is Violated?
When an assignment contract is breached, the assignee may sue the obligor for a breach of contract or defective performance.
Determining specific liability may depend on the many components of the contract. To prevent confusion, it is recommended that clauses are built into the assignment contract that identify the responsibilities and liabilities of all parties involved.
How Assignments Work
The specific language used in the contract will determine how the assignment plays out. For example, one contract may prohibit assignment, while another contract may require that all parties involved agree to it before proceeding. Remember, an assignment of contract does not necessarily alleviate an assignor from all liability. Many contracts include an assurance clause guaranteeing performance. In other words, the initial parties to the contract guarantee the assignee will achieve the desired goal.
When Assignments Will Not Be Enforced
The following situations indicate when an assignment of a contract is not enforced:
- The contract specifically prohibits assignment
- The assignment drastically changes the expected outcome
- The assignment is against public policy or illegal
Delegation vs. Assignment
Occasionally, one party in a contract will desire to pass on or delegate their responsibility to a third party without creating an assignment contract. Some duties are so specific in nature that they cannot be delegated. Adding a clause in the contract to prevent a party from delegating their responsibilities and duties is highly recommended.
Three Steps to Follow if You Want to Assign a Contract
There are three main steps to take if you're looking to assign a contract:
- Make sure the current contract does not contain an anti-assignment clause
- Officially execute the assignment by transferring the parties' obligations and rights
- Notify the obligor of the changes made
Once the obligor is notified, the assignor will effectively be relieved of liability.
If you'd prefer not to allow the party you're doing business with to assign a contract, you may be able to prevent this from occurring by clearly stating anti-assignment clauses in the original contract. The three most common anti-assignment clauses are:
- Consent required for assignment
- Consent not needed for new owners or affiliates
- Consent not unreasonably withheld
Based on these three clauses, no party in the contract is allowed to delegate or assign any obligations or rights without prior written consent from the other parties. Any delegation or assignment in violation of this passage shall be deemed void. It is not possible to write an anti-assignment clause that goes against an assignment that is issued or ordered by a court.
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