You can usually "assign" a contract to another party who agrees to uphold your end of the bargain. However, some contracts prevent assignment.
When you draft or review a contract, consider whether you would like the right to assign it to someone else. You should also consider whether you want the other party to have the right to assign the contract.
If you’re already party to a contract and want to know whether you or the other party can assign it, read the agreement closely and consider the information that follows. If you have any doubt, consider consulting an attorney.
What Does It Mean to Assign a Contract?
Contracts are made up of rights and obligations that go both ways. Say that you enter into a contract to purchase goods from Sally the Seller. Sally is obligated to sell you the goods, and you have the right to receive the goods from her. You are obligated to pay for the goods, and Sally has the right to receive payment from you.
Continuing with our example, if you assign the contract to a third party, that party takes on your rights and obligations. They have the right to receive the goods from Sally, and they have the obligation to pay Sally for them.
When you assign a contract, you (the “assignor”) are handing over all of your rights and obligations under the contract to a third party (the “assignee”). The assignee is basically stepping into your shoes—though you might still have to do what you originally agreed to if the assignee doesn’t (more on that below).
If you were the Buyer, the assignee is now the Buyer. If you were the Seller, the assignee is now the Seller.
Can a Contract Be Assigned?
As a general rule, yes, contracts can be assigned. But here are some exceptions and limitations to the rule.
Contracts Can Prohibit or Limit Assignment
Many contracts contain an “assignment clause” that specifically allows, forbids, or limits assignment. Here are some example assignment clauses:
- “This Agreement may not be assigned by either party.”
- “This Agreement may not be assigned by either party without the express written consent of the other party.”
- “Neither party may assign its rights and obligations under this Agreement to a third party except in conjunction with a sale of all of its assets to that third party.”
Some Personal Services Contracts Aren’t Assignable
Contracts for unique personal services typically aren’t assignable. (A personal service is a service that depends on the unique talent or skill of the person providing the service.)
For example, if you contract with a portrait painter because you’ve admired their work, chances are you don’t want them to assign their obligation to paint you to another painter. If you hire your daughter's favorite band to perform at her graduation party, you don’t want a different band to show up. The painter and the band can’t assign their contracts in this situation because of the unique personal services involved.
Assignments Can’t Give the Other Party Less Than They Bargained For
Even if the contract allows assignment or doesn’t say anything about it, an assignment must meet certain requirements to be enforced by a court in the event of a dispute.
For business contracts, the assignment cannot materially alter the contract or what the other party expects from it. In other words, you can’t assign a contract if it causes the other party to get less than what they expected from you under the contract.
Example of an Unenforceable Assignment
Your company manufactures and sells widgets and gizmos. Gizmo sales are booming, and you’ve decided that you want to get out of the widget business in order to focus on gizmos. You have sales contracts with a handful of widget customers who will never buy gizmos. You want to assign those widget contracts to a company, Acme Widgets, that specializes in widgets and will likely never get into the gizmo business.
Acme would accept the contracts with no changes in terms, including prices and delivery dates. Unfortunately, Acme’s widgets are inferior to yours, which is common knowledge in the industry.
Assume that your sales contracts with widget customers can be assigned, because they either don’t have any language about assignment or they say the contract can be assigned without the customer’s consent.
Nevertheless, you can’t assign the contracts to Acme because doing so would fundamentally alter the deal for the customers. The customers have a right to expect the same quality of widget that you produce. If a customer refused the assignment and the case went to court, a judge would probably side with the customer.
Liability After Assigning a Contract
Assigning a contract doesn’t automatically relieve you of your obligations under the contract. If the assignee breaches the contract, you might still be on the hook to do what the contract called for.
The best approach when you're assigning a contract is to make a written assignment agreement with the assignee. A lawyer can help you draft an agreement tailored to your circ*mstances, with language that clearly spells out your rights and obligations and the rights and obligations of the assignee. That way, you are less likely to be left holding the contract "bag" if the assignee doesn't live up to their contractual obligations.
Consulting a Lawyer About Contract Assignment
If you’re entering into a contract and aren’t sure whether the contract should allow assignment, or if you aren’t sure how to word or interpret an assignment clause, consult a business attorney. It’s also a good idea to get in touch with a business attorney if you’re already party to a contract and have questions about whether you or the other side can assign it.
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?
