Contract assignment refers to the act of transferring rights or benefits received in a contract to another party. For example, if a person would be entitled to receive $1000 for painting a car, they can transfer the right to payment to a different person. Assignments are different from a “contract delegation”– an assignment involves the transfer of benefits that one is to receive, whereas a delegation involves the transfer of duties that must be performed under the contract.
Assignment usually occurs because it would entail additional profit for the person making the assignment. In the above example, the person may have found a person who could complete the paint job for a much lower price. Assignments are generally legal unless specifically prohibited by law or by a provision in the contract itself.
In general, a contract assignment involves the following actors:
- Obligor: This is the person who is obligated to transfer rights or benefits to the person named in the contract. The obligor is usually the person creating the contract
- Assignor: This is the person who is named in the contract as the original recipient of the rights or benefits. They are the ones who will be making the assignment (transferring the rights that they would have received under the contract)
- Assignee: This is the party that will be receiving the rights and benefits from the assignor. They may or may not have any connection with the original obligor. There can be multiple assignees in a given transfer
Thus, an assignment is usually conducted as such: The obligor makes a contract with the assignor. Instead of receiving the benefits, the assignor transfers their rights to the assignee. The obligor then must pay the benefits to the assignee.
It is usually not necessary to inform the obligor that an assignment will take place, unless this is specifically required by the contract. No specific language is required- all that needs to be done is for the assignor to clearly demonstrate their intent to assign the rights to the assignee.
This is usually done through a verbal act such as an oral statement, though like any agreement it is much better if it is contained in writing. Also, the statement must be in the present tense; “I am currently assigning my contract rights to X” would be enforceable, whereas “I will assign X my contract rights in two weeks” would have no legally binding effect.
Unless specifically stated, all contract rights may be assigned. However, a party could still be held legally responsible for making an invalid contract assignment. Contract rights and benefits may not be assigned if:
- The assignment would substantially alter the obligor’s duties or subject them to additional risks
- The contract expressly contained a “no-assignment” clause, in which case none of the rights conferred are assignable
- The assignment is legally prohibited (some states do not allow assignments of wages or assignments for personal services)
- The assignment is regarding future rights that would be obtained in a future contract that is not yet written or finalized
Liability in a contract assignment can often be confusing, since their usually at least three parties involved. In general, liability is shifted from between the obligor and the assignor and transferred to the obligor and the assignee. In other words, the assignee can sue the obligor if they fail to render the rights and benefits. This is usually the most common situation in assignment lawsuits.
Also, it is common for the assignor to remain liable to the obligor. That is, even though they have transferred their benefits to the new party, they must still make sure that they perform their part of the bargain (such as rendering services or property). Again, rules governing assignment liabilities differ according to state and specific contract instructions.
If you are considering assigning your rights in a contract to another party, you may wish to consult a business lawyer for advice. Since it is a separate agreement, an assignment must often be treated like a new contract. You may wish to have a lawyer draft the assignment agreement for you. Also, if you have any disputes over an assignment, it is to your advantage to secure the services of a lawyer in the event that a lawsuit becomes necessary.