Contracts can usually be "assigned" to another party, so long as that party agrees to uphold your end of the bargain. However, some contracts prohibit assignment. When you draft a contract, consider whether you would like the right to assign it to someone else. You should also consider whether you would be happy if the other party were to assign the contract to someone else.
Assignment Can Relieve a Party's Contractual Obligations
When you assign a contract, you are transferring the benefits and obligations of the contract to a third party. There are a couple of reasons to do this. One reason arises when you don't want to perform your part of the contract. You will pay someone else to do your part, and you'll be free of the obligation to do so.
For example, imagine that someone has paid you $10,000 to paint their house. You might want to assign your obligation to paint the house to someone else. Maybe you have found another job that pays more, or hurt your back and can no longer get on a ladder. Or maybe you have found someone who will paint the house for $9,000, leaving you with a profit. Either way, you benefit by assigning the contract to the third party. In the first case, you might assign the contract to the third party for $10,000 and take a different job. In the second case, you would assign the contract and pay the third party $9,000. You pocket the $1,000 difference.
Assigning the Right to Another's Performance
More typically, you would assign the right to receive the benefits of another's performance under a contract. Imagine that you have a contract to purchase a certain number of widgets each month from a widget seller, at a certain price. The contract runs for a year. You have decided widgets are not working out for you, and you would rather not buy any more. You can just find someone else who wants to buy the same number of widgets each month and assign your rights and obligations under the contract to him or her.
Check for a Clause on Contract Assignment
Before attempting to assign a contract, you will want to make sure that assignment is not prohibited by the contract. If the contract says nothing about assignment, the default rule is that assignment is permissible. Contract rights are property under state law and can be assigned, or bought and sold, just like any other property.
It is a good idea to include a clause in any contract specifying whether or not it can be assigned. It is standard to say the contract may be assigned by either party so as long as the other party to the contract approves. It is also standard to say the other party may not withhold approval unreasonably. If your contract requires the other party to approve the assignment, it is a good idea to get the approval in writing.
Not all contracts are not assignable. Contracts for personal services typically are not assignable. If you contract with a specific portrait painter because you have admired his work, chances are you do not want him to assign his performance obligation to another painter. If you hire your daughter's favorite band to perform at her graduation party, you do not want a different band to show up.
Contractual Liability After Assignment
The downside of assigning a contract is that you may remain responsible for the performance of the contract, if the person to whom you assign the contract (called the "assignee") breaches the contract.
The best approach when you're assigning a contract is to make a written assignment agreement. A lawyer can help you draft an agreement tailored to your specific circumstances, with language that clearly spells out everyone's responsibilities and rights. That way, you are less likely to be left holding the contract "bag" if the assignee doesn't live up to his or her contract obligations.
Questions for Your Attorney
- Can I assign my contract to a third party? Will I still have liability to perform under the contract if I do?
- What is considered an unreasonable refusal to permit assignment of a contract?
- Can I refuse to allow a bank or other lender to assign my loan to someone else?
- Is it acceptable to insist that I be able to assign the contract but not the other party?