A good assignment of rights example is if a party was entitled to collect $100 for painting, they can transfer the right to receive payment to another party. An assignment contract takes place when one party to an existing contract (the assignor) transfers the contract's obligations and benefits to another party (the assignee). 

What Is an Assignment Agreement?

A contract assignment occurs when a party assigns their contractual rights to a third party. The benefit 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. Essentially, 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 to the original contract must be notified. The party creating the assignment usually does so in the motive of profit. Generally, assignments are perfectly legal. In specific situations, they may be illegal when they have been prohibited by a clause in the contract or prohibited by law.

Use of an Assignment Agreement

In situations where you don't have the staff to perform a task, it may be necessary to outsource the work to another party. Assignment agreements are created to formally transfer the contractual responsibilities and rights to a third party, while also making sure to preserve your own obligations and legal rights. The use of an assignment agreement is appropriate when you're:

  • Handing over your contractual responsibilities to a third party
  • Taking over contracts or responsibilities held by another party

A contract assignment may also be referred to as an assignment agreement. An assignment agreement should include the:

  • Name of the party transferring their contractual duties
  • Name of the party receiving the contractual obligations and rights
  • Third party, or obligor, to the original contract
  • Name of the actual contract, along with the expiration date
  • If and when the obligor's approval has been received
  • Specific date the contract will take effect
  • State laws that govern the contract

Parties Involved in a Contract Assignment

Generally, a contract assignment is made up of the following parties:

  1. Obligor: The party that is committed to transferring benefits or rights to the party specified in the contract. The obligor is most likely the party that initially makes the contract.
  2. Assignor: The party that is the initial beneficiary of the benefits or rights. They are responsible for making the assignment. In other words, they will be handing over the rights they were initially going to receive.
  3. Assignee: The party that will be accepting the benefits and rights from the assignor. A transfer may have multiple assignees.

The steps in an assignment are:

  1. The obligor creates a contract with the assignor.
  2. The rights are transferred from the assignor to the assignee.
  3. The assignee is paid the benefits from the obligor.

How Is a Contract Assignment Created?

In most cases, it is not necessary to notify the obligor of an assignment. The assignor needs to definitively establish their intent in assigning rights to the assignee. Generally speaking, assignment contracts can be both written and oral. However, it is recommended that the contract is written. 

It is important that the contract is written in present tense. If any past or future tense is used, it will make the contract legally nonbinding.

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.
  • The contract contains a no-assignment clause.
  • The assignment is for a future right that would only be attainable in a contract in the future.
  • The contract hasn't been finalized or written yet.

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