An assignment of contract happens when one party involved in a contract hands the obligations and benefits of that contract to another party, known as the “assignee.” Generally, the assignor wants the assignee to completely take on all of the rights and obligations of the contract. However, the other party involved in the existing contract must be properly notified before this may occur.
The following is an example situation in which a contract may be assigned to another party:
Imagine that the Smith Company has a contract with Joe to deliver him firewood every other week. The Smith Company could assign the contract to a new company and provide Joe notice of that change. Then, the new company would continue to make the deliveries on the same schedule, as long as Joe agrees to the change.
However, assigning a contract in this manner does not necessarily mean the assignor no longer has any liability associated with the contract. Some contracts have stipulations in place for this exact purpose, that the original parties will guarantee the agreement will be executed as stated. This means the assignee must fulfill all of the terms agreed to by the assignor.
When are assignments not used or enforced?
There are a few situations in which assignments are not allowed or enforced. These include the following:
- The contract specifically says assignment is not allowed: Some contracts include an anti-assignment clause that could void any assignments one party attempts to make. In this case, the only option is to negotiate an end to the contract if one party is no longer able to meet its obligations.
- The assignment significantly alters the arrangement made in the contract: If the assignment somehow affects the performance due from one party to the other according to the contract, decreases the value anticipated or otherwise increases risks for the other party not assigning away its contractual rights, courts are typically not going to enforce the assignment. So, using the example above, if Joe expected to receive shipments of pine wood, but the assignee only supplied oak, it would materially and significantly alter the arrangement.
- The assignment is in violation of the law: There are some laws in place that could prohibit assignments in certain situations. Many states and territories do not allow future wages to be assigned. The U.S. federal government also has laws prohibiting the assignment of various claims made against the government. Certain other assignments might not be illegal, but could be in violation of public policy.
Before you attempt to assign your contractual responsibilities and rights to another party, you must be sure that you are doing so in compliance with the law and that you have provided proper notice to all parties affected. To learn more about this issue and how it might impact your agreement, meet with a corporate law attorney.
Attorney Steven K. Hardy is an Attorney in the Corporate, Tax and Estate Planning Practice Group at BoltNagi, a respected and established corporate planning law firm serving clients throughout the U.S. Virgin Islands.