What Is a Contract Assignment? A Comprehensive Guide

By The Law Office of Yoel Molina.

A contract assignment is when one party to a contract takes on the rights and/or obligations of another party to the same contract. For example, let’s say Sally creates a logo for Sarah’s business. The contract between the states that Sarah owns all rights to the logo design and can use it in any way she wishes, and she pays Sally $1,000. Then, for some reason (financial distress, perhaps), Sarah can no longer fulfill her obligations under the contract. She doesn’t want to give up the $1,000 she’s already earned, nor does she want to continue doing work for nothing. Instead, she finds a new client—Carl—and contracts with him to create a logo, agreeing to perform the same work that she did for Sarah. As it turns out, Carl is very happy with the work and pays Sarah $2,000. Where does that $1,000 go?
 
 
How do Assignments work?
 
An assignment of a contract gives the assignee the right to sue if the contract is breached. If the contract is assignable, the parties are free to agree to that; if not, the courts will determine if the contract is so integral to the performance of the service or goods that enforcement would be unreasonable. For example, if a contractor never shows up to do renovations to a home, and then attempts to transfer the contract to another customer, the homeowner can sue and have the contractor fulfill his obligation to complete the work. However, if there\'s a sufficient period between when the contractor gives notice of cancellation and when he hopes to transfer the contract, the court may determine that it is reachable for another customer and deny enforcement of the original contract.
 
An assignment can occur before or after the performance. When an assignment occurs before the performance, it is conditional on satisfaction with how the assignee performs.
 
 
When Assignments Will Not Be Enforced?
 
An agreement to assign a contract is likely to be enforced, regardless of the circumstances. Once the contract is assigned, the ability to object to any subsequent party to the contract (except certain types of successors, described above) is largely forfeited. As a result, parties are reluctant to create contracts that cannot be assigned.
 
Reminder: A Contract Can Be Assigned or Purchased by a Vendor
The ability of a party to a contract (the contracting party) to transfer or sell their rights and obligations under that contract to another party is known as the ability to collateralize or assign that contract. When a contracting party can do so, the contract is said to be collateralized or assignable. Conversely, when a contracting party cannot transfer or sell their rights and obligations under the contract, the contract is said to be non-assignable or voidable when such assignment takes place without the consent of the other party.
 
 
Delegation or Assignment?
 
If both parties are businesses, generally a contract may be assigned without restriction. However, if the contract involves an opportunity for one of the parties to obtain or sell a business, the rights and obligations under the contract may need to be effectively conveyed in such a transaction. For example, if Larry the Cable Guy contracts with a beverage company to market his brand and later sells his company to another party, the ability to effectively transfer that contract is important. Although both forms of delegation--by the party contracting with Larry the Cable Guy and by Larry the Cable Guy himself--could technically fulfill the duties of their respective contracts, an assignment allows for a more flexible arrangement. An assignment allows the original contracting party to assign its duties to someone else, while still being able to hold the new party accountable for its performance. An exercise of the right to assign contract rights does not necessarily indicate that there is any fault on the part of the original contractor or any benefit on the part of the new contractor.
An assignment can be immediate or future. An immediate assignment occurs when the contract rights have already been delivered to the assignee. For example, a loan agreement requires the assignor to loan the assignee $5,000 on July 15. When the date arrives, the assignor has already assigned their rights to the assignee-it\'s time to pay up $5,000. A future assignment happens before the contract rights are delivered. For example, on July 16 a person wants to assign a loan agreement that is scheduled to close on July 30.
 
 
The features and benefits of an assignment
 
An assignment allows a party to transfer its contractual rights to another party. There are many reasons for performing an assignment. Perhaps the contracting party wants to pass its responsibilities and obligations to a more suitable entity-one with more resources, experience, or expertise. Another reason for an assignment is circumstances have changed-for instance, the contract was signed based on inaccurate information.

If you have any questions about this article or similar matters, please contact our office, the Law Office of Yoel Molina, P.A., at fd@molawoffice.com or 305-548-5020, option 1