Validity of a Contract Assignment
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What is a Contract Assignment?
In a contracts setting, an “assignment” refers a transferring of benefits or rights that are granted by the contract terms from the receiving party to a different party. Thus, contract assignments bring in an additional party to the existing contract parties.
An example of this is where a contractor assigns their right to payments to another party. The other party would then be entitled to payments for the work that the contractor did. This is different from a contract delegation, which transfers duties rather than rights to another party. Assignment usually occurs because it involves some potential for profit for the party who is making the assignment.
When is a Contract Assignment Valid?
Generally speaking, contract rights and benefits can legally be assigned, so long as there is no prior agreement that prohibits an assignment. All that is needed is for the assigning party (the assignor) to make an agreement with the assignee (the third party recipient) that they will be transferring their rights to them. The original party that is rendering the payment (the “obligor”) doesn’t usually need to be informed that an assignment has taken place.
When assigning contract rights to an assignee, an oral agreement may suffice. However, as in any agreement, it’s best if the assignment be reduced to writing, so that the parties have a record of the agreement in the future.
The validity of an assignment may be dependent on the type of language used in the written agreement- it needs to be in the present tense. That is, the assignor must state, “I am assigning my contract rights to X party”, rather than “I will be assigning my contract rights to X party”
Are There any Limitations on Contract Assignments?
Generally, the parties are free to make assignments, so long as they adhere to the following restrictions:
- The assignment should be legal according to local, state, and federal laws (for example, some states make it illegal to assign wages to another person)
- The assignment should only cover present transfers of rights, and not future transfers
- If the contact contains a specific “no-assignment” provision or clause, then an assignment can’t be made (if one is made in such a situation, it may constitute a breach of contract)
- The assignment should not substantially alter the contract, or subject the obligor to losses or economic risks
Also, any time an assignment is created, the assignor implicitly warrants that the rights are valid, that they own the assigned rights, and that they won’t interfere with the party’s new claim to the rights. Assignments become valid the moment they are created (even if the recipient is not yet aware of the assignment).
Do I Need a Lawyer for Help With a Contract Assignment?
Contract assignments can often become somewhat complicated, as they involve the rights and duties of many different parties. It’s in your best interests to speak with a contracts lawyer if you have any questions about a contract assignment. Your attorney will be able to review the contract and the assignment terms to determine what your legal rights are. In the event of a lawsuit, your lawyer can help represent your interests in court.
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Last Modified: 09-26-2012 03:14 PM PDT
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