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When you make a contract, one thing to consider is whether you’d like the right to assign it to someone else. You should also consider whether you’d be happy if the other party were to assign the contract to someone else. Let’s consider the pluses and minuses.
Assignment Can Relieve a Party’s 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 is 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, let’s say 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 it’s because you’ve found another job that pays more. Maybe you’ve found someone who’ll paint the house for $9,000. 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 the more profitable job. In the second case you’d 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’ll assign the right to receive the benefits of another’s performance under a contract. Let’s say you have a contract to purchase a certain number of gizmos each month from a gizmo seller, at a certain price. The contract runs for a year. You’ve decided gizmos aren’t working out for you, and you’d rather not buy any more. You can just find someone else who wants to buy the same number of gizmos each month and assign your rights and obligations under the contract to him.
Making the Contract Assignable
Before attempting to assign a contract, you will want to make sure it’s legal. If the contract says nothing about assignment, it’s legal to assign it. Contract rights are property under state law and can be assigned, or bought and sold, just like any other property.
It’s a good idea to include a clause in any contract specifying whether or not it can be assigned. It’s standard to say the contract may be assigned by either party so as long as the other party to the contract approves. It’s also standard to say the other party may not withhold approval unreasonably. If your contract requires the other party to approve the assignment, it’s a good idea to get the approval in writing.
It’s also standard that some contracts are not assignable. Contracts for personal services typically aren’t assignable. If you contract with a specific house painter because you’ve admired his work, chances are you don’t want him to assign his performance obligation to another painter. If you hire your kid’s favorite band to perform at his graduation party, you don’t want a different band to show up and play.
The down side of assigning a contract is that you may remain responsible for the performance of the contract, if the person to whom you’re assigning 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’re 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
- What’s considered an unreasonable refusal to permit assignment of a contract?
- Can I refuse to allow a bank or credit company 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?