meaning of consent to assignment

Understanding the Consent of Assignment: A Comprehensive Guide

In the realm of contracts and legal agreements, the consent of assignment plays a pivotal role in ensuring that rights and obligations are correctly transferred from one party to another. This process requires the original parties' agreement and, in many cases, an explicit consent form. This article delves into the intricacies of consent of assignment, its legal implications, and best practices for obtaining and drafting consent. We'll reference authoritative resources from .gov, .edu, and Wikipedia to enhance the article's credibility and provide readers with avenues for further exploration.

What is Consent of Assignment?

Consent of assignment refers to the formal approval by all original parties in a contract to transfer one party's rights and obligations to a third party. This is a common practice in various sectors, including real estate, finance, and business contracts, to ensure that the contractual relationships continue seamlessly despite the change in parties. The U.S. Small Business Administration offers insights into how this affects small businesses, while legal definitions can be found on Wikipedia.

Legal Framework and Importance

The legal framework governing consent of assignment varies by jurisdiction but generally requires that all parties to the original contract agree to the transfer. This consent ensures that the assignee can legally assume the rights and responsibilities outlined in the contract. Failure to obtain proper consent may result in the assignment being deemed invalid, leaving the assignor liable for any breaches or failures. Educational resources such as those provided by Harvard Law School can offer deeper insights into the legal underpinnings.

When is Consent of Assignment Required?

Consent of assignment is necessary when:

A contract explicitly states that assignments are not allowed without consent.

The assignment would significantly change the obligations or expectations of the non-assigning party.

State or federal laws regulate the transfer of certain rights or obligations, such as in leases or intellectual property agreements.

Obtaining Consent: Best Practices

Obtaining consent for an assignment involves several best practices:

Review the Original Contract : Identify any clauses related to assignment and understand the conditions under which consent must be obtained.

Draft a Clear Consent Form : The consent form should detail the assignment's specifics, including who the new party is and how the contract's terms will remain unaffected.

Communicate Effectively : Engage with the non-assigning parties early in the process to explain the reasons for the assignment and address any concerns.

Legal Review : Have legal professionals review the consent form to ensure it complies with relevant laws and the original contract's terms.

Drafting a Consent of Assignment Form

A well-drafted consent of assignment form should include:

The names and contact information of all parties involved.

A reference to the original contract, including the date it was signed and any identifying numbers.

A clear statement of consent from all original parties.

Detailed information about the assignee and the rights and obligations being transferred.

Any conditions related to the consent or the assignment.

Signatures from all parties, indicating their agreement.

Educational resources on contract drafting, such as those found on Cornell Law School's Legal Information Institute, can provide templates and further guidance.

Consequences of Failing to Obtain Consent

Failing to obtain the necessary consent can have significant legal and financial consequences, including:

The assignment being declared void or unenforceable.

The original assignor being held liable for any breaches by the assignee.

Legal action taken by the non-assigning party against the assignor and possibly the assignee.

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Consent of assignment is a critical component in the transfer of contractual rights and obligations. By understanding the legal requirements, obtaining clear consent, and drafting thorough consent forms, parties can ensure that assignments are carried out smoothly and legally. For further information, consulting with legal professionals and exploring authoritative resources like those mentioned throughout this article is advisable.

This comprehensive guide aims to provide readers with a thorough understanding of the consent of assignment process, highlighting the importance of clear communication, legal precision, and adherence to procedural requirements to ensure a seamless and legally sound transfer of contractual obligations.

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Don’t Confuse Change of Control and Assignment Terms

David Tollen
September 11, 2020

An assignment clause governs whether and when a party can transfer the contract to someone else. Often, it covers what happens in a change of control: whether a party can assign the contract to its buyer if it gets merged into a company or completely bought out. But that doesn’t make it a change of control clause. Change of control terms don’t address assignment. They say whether a party can terminate if the other party goes through a merger or other change of control. And they sometimes address other change of control consequences.

Don’t confuse the two. In a contract about software or other IT, you should think through the issues raised by each. (Also, don’t confuse assignment of contracts with assignment of IP .)

Here’s an assignment clause:

Assignment. Neither party may assign this Agreement or any of its rights or obligations hereunder without the other’s express written consent, except that either party may assign this Agreement to the surviving party in a merger of that party into another entity or in an acquisition of all or substantially all its assets. No assignment becomes effective unless and until the assignee agrees in writing to be bound by all the assigning party’s obligations in this Agreement. Except to the extent forbidden in this Section __, this Agreement will be binding upon and inure to the benefit of the parties’ respective successors and assigns.

As you can see, that clause says no assignment is allowed, with one exception:

Assignment to Surviving Entity in M&A: Under the clause above, a party can assign the contract to its buyer — the “surviving entity” — if it gets merged into another company or otherwise bought — in other words, if it ceases to exist through an M&A deal (or becomes an irrelevant shell company).

Consider the following additional issues for assignment clauses:

Assignment to Affiliates: Can a party assign the contract to its sister companies, parents, and/or subs — a.k.a. its “Affiliates”?
Assignment to Divested Entities: If a party spins off its key department or other business unit involved in the contract, can it assign the contract to that spun-off company — a.k.a. the “divested entity”? That’s particularly important in technology outsourcing deals and similar contracts. They often leave a customer department highly dependent on the provider’s services. If the customer can’t assign the contract to the divested entity, the spin-off won’t work; the new/divested company won’t be viable.
Assignment to Competitors: If a party does get any assignment rights, can it assign to the other party’s competitors ? (If so, you’ve got to define “Competitor,” since the word alone can refer to almost any company.)
All Assignments or None: The contract should usually say something about assignments. Otherwise, the law might allow all assignments. (Check your jurisdiction.) If so, your contracting partner could assign your agreement to someone totally unacceptable. (Most likely, though, your contracting partner would remain liable.) If none of the assignments suggested above fits, forbid all assignments.

Change of Control

Here’s a change of control clause:

Change of Control. If a party undergoes a Change of Control, the other party may terminate this Agreement on 30 days’ written notice. (“Change of Control” means a transaction or series of transactions by which more than 50% of the outstanding shares of the target company or beneficial ownership thereof are acquired within a 1-year period, other than by a person or entity that owned or had beneficial ownership of more than 50% of such outstanding shares before the close of such transactions(s).)

Contract terminated, due to change of control.

Termination on Change of Control: A party can terminate if controlling ownership of the other party changes hands.

Change of control and assignment terms actually address opposite ownership changes. If an assignment clause addresses change of control, it says what happens if a party goes through an M&A deal and no longer exists (or becomes a shell company). A change of control clause, on the other hand, matters when the party subject to M&A does still exist . That party just has new owners (shareholders, etc.).

Consider the following additional issues for change of control clauses:

Smaller Change of Ownership: The clause above defines “Change of Control” as any 50%-plus ownership shift. Does that set the bar too high? Should a 25% change authorize termination by the other party, or even less? In public companies and some private ones, new bosses can take control by acquiring far less than half the stock.
No Right to Terminate: Should a change of control give any right to terminate, and if so, why? (Keep in mind, all that’s changed is the party’s owners — possibly irrelevant shareholders.)
Divested Entity Rights: What if, again, a party spins off the department or business until involved in the deal? If that party can’t assign the contract to the divested entity, per the above, can it at least “sublicense” its rights to products or service, if it’s the customer? Or can it subcontract its performance obligations to the divested entity, if it’s the provider? Or maybe the contract should require that the other party sign an identical contract with the divested entity, at least for a short term.

Some of this text comes from the 3rd edition of The Tech Contracts Handbook , available to order (and review) from Amazon here , or purchase directly from its publisher, the American Bar Association, here.

Want to do tech contracts better, faster, and with more confidence? Check out our training offerings here: https://www.techcontracts.com/training/ . Tech Contracts Academy has options to fit every need and schedule: Comprehensive Tech Contracts M aster Classes™ (four on-line classes, two hours each), topical webinars (typically about an hour), customized in-house training (for just your team). David Tollen is the founder of Tech Contracts Academy and our primary trainer. An attorney and also the founder of Sycamore Legal, P.C. , a boutique IT, IP, and privacy law firm in the San Francisco Bay Area, he also serves as an expert witness in litigation about software licenses, cloud computing agreements, and other IT contracts.

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Understanding an assignment and assumption agreement

Need to assign your rights and duties under a contract? Learn more about the basics of an assignment and assumption agreement.

Get your assignment of agreement

by Belle Wong, J.D.

Belle Wong, is a freelance writer specializing in small business, personal finance, banking, and tech/SAAS. She ...

The assignment and assumption agreement

The basics of assignment and assumption, filling in the assignment and assumption agreement.

While every business should try its best to meet its contractual obligations, changes in circumstance can happen that could necessitate transferring your rights and duties under a contract to another party who would be better able to meet those obligations.

Person presenting documents to another person who is signing them

If you find yourself in such a situation, and your contract provides for the possibility of assignment, an assignment and assumption agreement can be a good option for preserving your relationship with the party you initially contracted with, while at the same time enabling you to pass on your contractual rights and duties to a third party.

An assignment and assumption agreement is used after a contract is signed, in order to transfer one of the contracting party's rights and obligations to a third party who was not originally a party to the contract. The party making the assignment is called the assignor, while the third party accepting the assignment is known as the assignee.

In order for an assignment and assumption agreement to be valid, the following criteria need to be met:

The initial contract must provide for the possibility of assignment by one of the initial contracting parties.
The assignor must agree to assign their rights and duties under the contract to the assignee.
The assignee must agree to accept, or "assume," those contractual rights and duties.
The other party to the initial contract must consent to the transfer of rights and obligations to the assignee.

A standard assignment and assumption contract is often a good starting point if you need to enter into an assignment and assumption agreement. However, for more complex situations, such as an assignment and amendment agreement in which several of the initial contract terms will be modified, or where only some, but not all, rights and duties will be assigned, it's a good idea to retain the services of an attorney who can help you draft an agreement that will meet all your needs.

When you're ready to enter into an assignment and assumption agreement, it's a good idea to have a firm grasp of the basics of assignment:

First, carefully read and understand the assignment and assumption provision in the initial contract. Contracts vary widely in their language on this topic, and each contract will have specific criteria that must be met in order for a valid assignment of rights to take place.
All parties to the agreement should carefully review the document to make sure they each know what they're agreeing to, and to help ensure that all important terms and conditions have been addressed in the agreement.
Until the agreement is signed by all the parties involved, the assignor will still be obligated for all responsibilities stated in the initial contract. If you are the assignor, you need to ensure that you continue with business as usual until the assignment and assumption agreement has been properly executed.

Unless you're dealing with a complex assignment situation, working with a template often is a good way to begin drafting an assignment and assumption agreement that will meet your needs. Generally speaking, your agreement should include the following information:

Identification of the existing agreement, including details such as the date it was signed and the parties involved, and the parties' rights to assign under this initial agreement
The effective date of the assignment and assumption agreement
Identification of the party making the assignment (the assignor), and a statement of their desire to assign their rights under the initial contract
Identification of the third party accepting the assignment (the assignee), and a statement of their acceptance of the assignment
Identification of the other initial party to the contract, and a statement of their consent to the assignment and assumption agreement
A section stating that the initial contract is continued; meaning, that, other than the change to the parties involved, all terms and conditions in the original contract stay the same

In addition to these sections that are specific to an assignment and assumption agreement, your contract should also include standard contract language, such as clauses about indemnification, future amendments, and governing law.

Sometimes circumstances change, and as a business owner you may find yourself needing to assign your rights and duties under a contract to another party. A properly drafted assignment and assumption agreement can help you make the transfer smoothly while, at the same time, preserving the cordiality of your initial business relationship under the original contract.

Assignments: The Basic Law

The assignment of a right or obligation is a common contractual event under the law and the right to assign (or prohibition against assignments) is found in the majority of agreements, leases and business structural documents created in the United States.

As with many terms commonly used, people are familiar with the term but often are not aware or fully aware of what the terms entail. The concept of assignment of rights and obligations is one of those simple concepts with wide ranging ramifications in the contractual and business context and the law imposes severe restrictions on the validity and effect of assignment in many instances. Clear contractual provisions concerning assignments and rights should be in every document and structure created and this article will outline why such drafting is essential for the creation of appropriate and effective contracts and structures.

The reader should first read the article on Limited Liability Entities in the United States and Contracts since the information in those articles will be assumed in this article.

Basic Definitions and Concepts:

An assignment is the transfer of rights held by one party called the “assignor” to another party called the “assignee.” The legal nature of the assignment and the contractual terms of the agreement between the parties determines some additional rights and liabilities that accompany the assignment. The assignment of rights under a contract usually completely transfers the rights to the assignee to receive the benefits accruing under the contract. Ordinarily, the term assignment is limited to the transfer of rights that are intangible, like contractual rights and rights connected with property. Merchants Service Co. v. Small Claims Court , 35 Cal. 2d 109, 113-114 (Cal. 1950).

An assignment will generally be permitted under the law unless there is an express prohibition against assignment in the underlying contract or lease. Where assignments are permitted, the assignor need not consult the other party to the contract but may merely assign the rights at that time. However, an assignment cannot have any adverse effect on the duties of the other party to the contract, nor can it diminish the chance of the other party receiving complete performance. The assignor normally remains liable unless there is an agreement to the contrary by the other party to the contract.

The effect of a valid assignment is to remove privity between the assignor and the obligor and create privity between the obligor and the assignee. Privity is usually defined as a direct and immediate contractual relationship. See Merchants case above.

Further, for the assignment to be effective in most jurisdictions, it must occur in the present. One does not normally assign a future right; the assignment vests immediate rights and obligations.

No specific language is required to create an assignment so long as the assignor makes clear his/her intent to assign identified contractual rights to the assignee. Since expensive litigation can erupt from ambiguous or vague language, obtaining the correct verbiage is vital. An agreement must manifest the intent to transfer rights and can either be oral or in writing and the rights assigned must be certain.

Note that an assignment of an interest is the transfer of some identifiable property, claim, or right from the assignor to the assignee. The assignment operates to transfer to the assignee all of the rights, title, or interest of the assignor in the thing assigned. A transfer of all rights, title, and interests conveys everything that the assignor owned in the thing assigned and the assignee stands in the shoes of the assignor. Knott v. McDonald’s Corp ., 985 F. Supp. 1222 (N.D. Cal. 1997)

The parties must intend to effectuate an assignment at the time of the transfer, although no particular language or procedure is necessary. As long ago as the case of National Reserve Co. v. Metropolitan Trust Co ., 17 Cal. 2d 827 (Cal. 1941), the court held that in determining what rights or interests pass under an assignment, the intention of the parties as manifested in the instrument is controlling.

The intent of the parties to an assignment is a question of fact to be derived not only from the instrument executed by the parties but also from the surrounding circumstances. When there is no writing to evidence the intention to transfer some identifiable property, claim, or right, it is necessary to scrutinize the surrounding circumstances and parties’ acts to ascertain their intentions. Strosberg v. Brauvin Realty Servs., 295 Ill. App. 3d 17 (Ill. App. Ct. 1st Dist. 1998)

The general rule applicable to assignments of choses in action is that an assignment, unless there is a contract to the contrary, carries with it all securities held by the assignor as collateral to the claim and all rights incidental thereto and vests in the assignee the equitable title to such collateral securities and incidental rights. An unqualified assignment of a contract or chose in action, however, with no indication of the intent of the parties, vests in the assignee the assigned contract or chose and all rights and remedies incidental thereto.

More examples: In Strosberg v. Brauvin Realty Servs ., 295 Ill. App. 3d 17 (Ill. App. Ct. 1st Dist. 1998), the court held that the assignee of a party to a subordination agreement is entitled to the benefits and is subject to the burdens of the agreement. In Florida E. C. R. Co. v. Eno , 99 Fla. 887 (Fla. 1930), the court held that the mere assignment of all sums due in and of itself creates no different or other liability of the owner to the assignee than that which existed from the owner to the assignor.

And note that even though an assignment vests in the assignee all rights, remedies, and contingent benefits which are incidental to the thing assigned, those which are personal to the assignor and for his sole benefit are not assigned. Rasp v. Hidden Valley Lake, Inc ., 519 N.E.2d 153, 158 (Ind. Ct. App. 1988). Thus, if the underlying agreement provides that a service can only be provided to X, X cannot assign that right to Y.

Novation Compared to Assignment:

Although the difference between a novation and an assignment may appear narrow, it is an essential one. “Novation is a act whereby one party transfers all its obligations and benefits under a contract to a third party.” In a novation, a third party successfully substitutes the original party as a party to the contract. “When a contract is novated, the other contracting party must be left in the same position he was in prior to the novation being made.”

A sublease is the transfer when a tenant retains some right of reentry onto the leased premises. However, if the tenant transfers the entire leasehold estate, retaining no right of reentry or other reversionary interest, then the transfer is an assignment. The assignor is normally also removed from liability to the landlord only if the landlord consents or allowed that right in the lease. In a sublease, the original tenant is not released from the obligations of the original lease.

Equitable Assignments:

An equitable assignment is one in which one has a future interest and is not valid at law but valid in a court of equity. In National Bank of Republic v. United Sec. Life Ins. & Trust Co. , 17 App. D.C. 112 (D.C. Cir. 1900), the court held that to constitute an equitable assignment of a chose in action, the following has to occur generally: anything said written or done, in pursuance of an agreement and for valuable consideration, or in consideration of an antecedent debt, to place a chose in action or fund out of the control of the owner, and appropriate it to or in favor of another person, amounts to an equitable assignment. Thus, an agreement, between a debtor and a creditor, that the debt shall be paid out of a specific fund going to the debtor may operate as an equitable assignment.

In Egyptian Navigation Co. v. Baker Invs. Corp. , 2008 U.S. Dist. LEXIS 30804 (S.D.N.Y. Apr. 14, 2008), the court stated that an equitable assignment occurs under English law when an assignor, with an intent to transfer his/her right to a chose in action, informs the assignee about the right so transferred.

An executory agreement or a declaration of trust are also equitable assignments if unenforceable as assignments by a court of law but enforceable by a court of equity exercising sound discretion according to the circumstances of the case. Since California combines courts of equity and courts of law, the same court would hear arguments as to whether an equitable assignment had occurred. Quite often, such relief is granted to avoid fraud or unjust enrichment.

Note that obtaining an assignment through fraudulent means invalidates the assignment. Fraud destroys the validity of everything into which it enters. It vitiates the most solemn contracts, documents, and even judgments. Walker v. Rich , 79 Cal. App. 139 (Cal. App. 1926). If an assignment is made with the fraudulent intent to delay, hinder, and defraud creditors, then it is void as fraudulent in fact. See our article on Transfers to Defraud Creditors .

But note that the motives that prompted an assignor to make the transfer will be considered as immaterial and will constitute no defense to an action by the assignee, if an assignment is considered as valid in all other respects.

Enforceability of Assignments:

Whether a right under a contract is capable of being transferred is determined by the law of the place where the contract was entered into. The validity and effect of an assignment is determined by the law of the place of assignment. The validity of an assignment of a contractual right is governed by the law of the state with the most significant relationship to the assignment and the parties.

In some jurisdictions, the traditional conflict of laws rules governing assignments has been rejected and the law of the place having the most significant contacts with the assignment applies. In Downs v. American Mut. Liability Ins. Co ., 14 N.Y.2d 266 (N.Y. 1964), a wife and her husband separated and the wife obtained a judgment of separation from the husband in New York. The judgment required the husband to pay a certain yearly sum to the wife. The husband assigned 50 percent of his future salary, wages, and earnings to the wife. The agreement authorized the employer to make such payments to the wife.

After the husband moved from New York, the wife learned that he was employed by an employer in Massachusetts. She sent the proper notice and demanded payment under the agreement. The employer refused and the wife brought an action for enforcement. The court observed that Massachusetts did not prohibit assignment of the husband’s wages. Moreover, Massachusetts law was not controlling because New York had the most significant relationship with the assignment. Therefore, the court ruled in favor of the wife.

Therefore, the validity of an assignment is determined by looking to the law of the forum with the most significant relationship to the assignment itself. To determine the applicable law of assignments, the court must look to the law of the state which is most significantly related to the principal issue before it.

Assignment of Contractual Rights:

Generally, the law allows the assignment of a contractual right unless the substitution of rights would materially change the duty of the obligor, materially increase the burden or risk imposed on the obligor by the contract, materially impair the chance of obtaining return performance, or materially reduce the value of the performance to the obligor. Restat 2d of Contracts, § 317(2)(a). This presumes that the underlying agreement is silent on the right to assign.

If the contract specifically precludes assignment, the contractual right is not assignable. Whether a contract is assignable is a matter of contractual intent and one must look to the language used by the parties to discern that intent.

In the absence of an express provision to the contrary, the rights and duties under a bilateral executory contract that does not involve personal skill, trust, or confidence may be assigned without the consent of the other party. But note that an assignment is invalid if it would materially alter the other party’s duties and responsibilities. Once an assignment is effective, the assignee stands in the shoes of the assignor and assumes all of assignor’s rights. Hence, after a valid assignment, the assignor’s right to performance is extinguished, transferred to assignee, and the assignee possesses the same rights, benefits, and remedies assignor once possessed. Robert Lamb Hart Planners & Architects v. Evergreen, Ltd. , 787 F. Supp. 753 (S.D. Ohio 1992).

On the other hand, an assignee’s right against the obligor is subject to “all of the limitations of the assignor’s right, all defenses thereto, and all set-offs and counterclaims which would have been available against the assignor had there been no assignment, provided that these defenses and set-offs are based on facts existing at the time of the assignment.” See Robert Lamb , case, above.

The power of the contract to restrict assignment is broad. Usually, contractual provisions that restrict assignment of the contract without the consent of the obligor are valid and enforceable, even when there is statutory authorization for the assignment. The restriction of the power to assign is often ineffective unless the restriction is expressly and precisely stated. Anti-assignment clauses are effective only if they contain clear, unambiguous language of prohibition. Anti-assignment clauses protect only the obligor and do not affect the transaction between the assignee and assignor.

Usually, a prohibition against the assignment of a contract does not prevent an assignment of the right to receive payments due, unless circumstances indicate the contrary. Moreover, the contracting parties cannot, by a mere non-assignment provision, prevent the effectual alienation of the right to money which becomes due under the contract.

A contract provision prohibiting or restricting an assignment may be waived, or a party may so act as to be estopped from objecting to the assignment, such as by effectively ratifying the assignment. The power to void an assignment made in violation of an anti-assignment clause may be waived either before or after the assignment. See our article on Contracts.

Noncompete Clauses and Assignments:

Of critical import to most buyers of businesses is the ability to ensure that key employees of the business being purchased cannot start a competing company. Some states strictly limit such clauses, some do allow them. California does restrict noncompete clauses, only allowing them under certain circumstances. A common question in those states that do allow them is whether such rights can be assigned to a new party, such as the buyer of the buyer.

A covenant not to compete, also called a non-competitive clause, is a formal agreement prohibiting one party from performing similar work or business within a designated area for a specified amount of time. This type of clause is generally included in contracts between employer and employee and contracts between buyer and seller of a business.

Many workers sign a covenant not to compete as part of the paperwork required for employment. It may be a separate document similar to a non-disclosure agreement, or buried within a number of other clauses in a contract. A covenant not to compete is generally legal and enforceable, although there are some exceptions and restrictions.

Whenever a company recruits skilled employees, it invests a significant amount of time and training. For example, it often takes years before a research chemist or a design engineer develops a workable knowledge of a company’s product line, including trade secrets and highly sensitive information. Once an employee gains this knowledge and experience, however, all sorts of things can happen. The employee could work for the company until retirement, accept a better offer from a competing company or start up his or her own business.

A covenant not to compete may cover a number of potential issues between employers and former employees. Many companies spend years developing a local base of customers or clients. It is important that this customer base not fall into the hands of local competitors. When an employee signs a covenant not to compete, he or she usually agrees not to use insider knowledge of the company’s customer base to disadvantage the company. The covenant not to compete often defines a broad geographical area considered off-limits to former employees, possibly tens or hundreds of miles.

Another area of concern covered by a covenant not to compete is a potential ‘brain drain’. Some high-level former employees may seek to recruit others from the same company to create new competition. Retention of employees, especially those with unique skills or proprietary knowledge, is vital for most companies, so a covenant not to compete may spell out definite restrictions on the hiring or recruiting of employees.

A covenant not to compete may also define a specific amount of time before a former employee can seek employment in a similar field. Many companies offer a substantial severance package to make sure former employees are financially solvent until the terms of the covenant not to compete have been met.

Because the use of a covenant not to compete can be controversial, a handful of states, including California, have largely banned this type of contractual language. The legal enforcement of these agreements falls on individual states, and many have sided with the employee during arbitration or litigation. A covenant not to compete must be reasonable and specific, with defined time periods and coverage areas. If the agreement gives the company too much power over former employees or is ambiguous, state courts may declare it to be overbroad and therefore unenforceable. In such case, the employee would be free to pursue any employment opportunity, including working for a direct competitor or starting up a new company of his or her own.

It has been held that an employee’s covenant not to compete is assignable where one business is transferred to another, that a merger does not constitute an assignment of a covenant not to compete, and that a covenant not to compete is enforceable by a successor to the employer where the assignment does not create an added burden of employment or other disadvantage to the employee. However, in some states such as Hawaii, it has also been held that a covenant not to compete is not assignable and under various statutes for various reasons that such covenants are not enforceable against an employee by a successor to the employer. Hawaii v. Gannett Pac. Corp. , 99 F. Supp. 2d 1241 (D. Haw. 1999)

It is vital to obtain the relevant law of the applicable state before drafting or attempting to enforce assignment rights in this particular area.

Conclusion:

In the current business world of fast changing structures, agreements, employees and projects, the ability to assign rights and obligations is essential to allow flexibility and adjustment to new situations. Conversely, the ability to hold a contracting party into the deal may be essential for the future of a party. Thus, the law of assignments and the restriction on same is a critical aspect of every agreement and every structure. This basic provision is often glanced at by the contracting parties, or scribbled into the deal at the last minute but can easily become the most vital part of the transaction.

As an example, one client of ours came into the office outraged that his co venturer on a sizable exporting agreement, who had excellent connections in Brazil, had elected to pursue another venture instead and assigned the agreement to a party unknown to our client and without the business contacts our client considered vital. When we examined the handwritten agreement our client had drafted in a restaurant in Sao Paolo, we discovered there was no restriction on assignment whatsoever…our client had not even considered that right when drafting the agreement after a full day of work.

One choses who one does business with carefully…to ensure that one’s choice remains the party on the other side of the contract, one must master the ability to negotiate proper assignment provisions.

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Ultimate Checklist for Understanding Contract Assignment Rules

February 28, 2024
Moton Legal Group

In contracts, understanding assignment is key. Simply put, an assignment in contract law is when one party (the assignor) transfers their rights and responsibilities under a contract to another party (the assignee). This can include anything from leasing agreements to business operations. But why is this important? It’s because it allows for flexibility in business and personal dealings, a critical component in our world.

Here’s a quick rundown: – Contract Basics: The foundational agreements between parties. – Assignment Importance: Allowing the transfer of obligations and benefits to keep up with life’s changes.

Contracts are a staple in both personal and business worlds, acting as the backbone to many transactions and agreements encountered daily. Understanding the nuances, like assignments, can empower you to navigate these waters with confidence and ease. Whether you’re a business owner in the Southeast looking to expand or an individual managing personal agreements, grasp these basics, and you’re on the right path.

Detailed infographic on the concept of contract assignment in law, explaining the roles of the assignor and assignee, the process of an actual assignment, and a visual representation of the transfer of rights and obligations under a contract. - assignment in contract law infographic process-5-steps-informal

Understanding Contract Assignment

Contract Assignment sounds complicated, right? But, let’s break it down into simple terms. In contracts and legal agreements, knowing about assignment can save you a lot of headaches down the road. Whether you’re a business owner, a landlord, or just someone who deals with contracts, this is for you.

Legal Definition

At its core, contract assignment is about transferring rights or obligations under a contract from one party to another. Think of it as passing a baton in a relay race. The original party (the assignor) hands off their responsibilities or benefits to someone else (the assignee). But, there’s a twist – the race keeps going with the new runner without starting over.

Contract Law

In contract law, assignment comes into play in various ways. For example, if you’re a freelancer and you’ve agreed to complete a project but suddenly find yourself overbooked, you might assign that contract to another freelancer. This way, the job gets done, and your client is happy. However, not all contracts can be freely assigned. Some require the other party’s consent, and others can’t be assigned at all, especially if they involve personal skills or confidential trust.

Property Law

When it comes to property law, assignment often surfaces in landlord-tenant relationships. Say you’re renting a shop for your business, but you decide to move. If your lease allows it, you might assign your lease to another business. This means they take over your lease, stepping into your shoes, with all the rights and obligations that come with it.

The concept might seem straightforward, but there are important legal requirements and potential pitfalls to be aware of. For instance, an assignment could be prohibited by the contract itself, or it may significantly change the original deal’s terms in a way that’s not allowed. Plus, when you’re dealing with something that requires a unique skill set, like an artist or a consultant, those services typically can’t be passed on to someone else without agreement from all parties involved.

To navigate these complexities, understanding the fundamentals of assignment in contract law and property law is crucial. It ensures that when you’re ready to pass that baton, you’re doing it in a way that’s legal, effective, and doesn’t leave you tripping up before you reach the finish line.

The goal here is to make sure everyone involved understands what’s happening and agrees to it. That way, assignments can be a useful tool to manage your contracts and property agreements, keeping things moving smoothly even when changes come up.

For more detailed exploration on this topic, consider checking the comprehensive guide on Assignment (law)). This resource dives deeper into the nuances of contract assignment, offering insights and examples that can help clarify this complex area of law.

By grasping these basics, you’re well on your way to mastering the art of contract assignment. Whether you’re dealing with leases, business deals, or any agreement in between, knowing how to effectively assign a contract can be a game-changer.

Key Differences Between Assignment and Novation

When diving into contracts, two terms that often cause confusion are assignment and novation . While both deal with transferring obligations and rights under a contract, they are fundamentally different in several key aspects. Understanding these differences is crucial for anyone involved in contract management or negotiation.

Rights Transfer

Assignment involves the transfer of benefits or rights from one party (the assignor) to another (the assignee). However, it’s important to note that only the benefits of the contract can be assigned, not the burdens. For instance, if someone has the right to receive payments under a contract, they can assign this right to someone else.

Novation , on the other hand, is more comprehensive. It involves transferring both the rights and obligations under a contract from one party to a new party. With novation, the original party is completely released from the contract, and a new contractual relationship is formed between the remaining and the new party. This is a key distinction because, in novation, all parties must agree to this new arrangement.

Obligations Transfer

Assignment doesn’t transfer the original party’s obligations under the contract. The assignor (the original party who had the rights under the contract) might still be liable if the assignee fails to fulfill the contract terms.

In contrast, novation transfers all obligations to the new party. Once a novation is complete, the new party takes over all rights and obligations, leaving the original party with no further legal liabilities or rights under the contract.

Written Agreement

While assignments can sometimes be informal or even verbal, novation almost always requires a written agreement. This is because novation affects more parties’ rights and obligations and has a more significant impact on the contractual relationship. A written agreement ensures that all parties are clear about the terms of the novation and their respective responsibilities.

In practice, the need for a written agreement in novation serves as a protection for all parties involved. It ensures that the transfer of obligations is clearly documented and legally enforceable.

For example, let’s say Alex agrees to paint Bailey’s house for $1,000. Later, Alex decides they can’t complete the job and wants Chris to take over. If Bailey agrees, they can sign a novation agreement where Chris agrees to paint the house under the same conditions. Alex is then relieved from the original contract, and Chris becomes responsible for completing the painting job.

Understanding the difference between assignment and novation is critical for anyone dealing with contracts. While both processes allow for the transfer of rights or obligations, they do so in different ways and with varying implications for all parties involved. Knowing when and how to use each can help ensure that your contractual relationships are managed effectively and legally sound.

For further in-depth information and real-life case examples on assignment in contract law, you can explore detailed resources such as Assignment (law) on Wikipedia).

Next, we’ll delve into the legal requirements for a valid assignment, touching on express prohibition, material change, future rights, and the rare skill requirement. Understanding these will further equip you to navigate the complexities of contract assignments successfully.

Legal Requirements for a Valid Assignment

When dealing with assignment in contract law , it’s crucial to understand the legal backbone that supports a valid assignment. This ensures that the assignment stands up in a court of law if disputes arise. Let’s break down the must-know legal requirements: express prohibition, material change, future rights, and rare skill requirement.

Express Prohibition

The first stop on our checklist is to look for an express prohibition against assignment in the contract. This is a clause that outright states assignments are not allowed without the other party’s consent. If such language exists and you proceed with an assignment, you could be breaching the contract. Always read the fine print or have a legal expert review the contract for you.

Material Change

Next up is the material change requirement. The law states that an assignment cannot significantly alter the duties, increase the burdens, or impair the chances of the other party receiving due performance under the contract. For instance, if the contract involves personal services tailored to the specific party, assigning it to someone else might change the expected outcome, making such an assignment invalid.

Future Rights

Another important aspect is future rights . The rule here is straightforward: you can’t assign what you don’t have. This means that a promise to assign rights you may acquire in the future is generally not enforceable at present. An effective assignment requires that the rights exist at the time of the assignment.

Rare Skill Requirement

Lastly, let’s talk about the rare skill requirement . Some contracts are so specialized that they cannot be assigned to another party without compromising the contract’s integrity. This is often the case with contracts that rely on an individual’s unique skills or trust. Think of an artist commissioned for a portrait or a lawyer hired for their specialized legal expertise. In these scenarios, assignments are not feasible as they could severely impact the contract’s intended outcome.

Understanding these legal requirements is pivotal for navigating the complexities of assignment in contract law. By ensuring compliance with these principles, you can effectively manage contract assignments, safeguarding your interests and those of the other contracting party.

For anyone looking to delve deeper into the intricacies of contract law, you can explore detailed resources such as Assignment (law) on Wikipedia).

Moving forward, we’ll explore the common types of contract assignments, from landlord-tenant agreements to business contracts and intellectual property transfers. This will give you a clearer picture of how assignments work across different legal landscapes.

Common Types of Contract Assignments

When we dive into assignment in contract law , we find it touches nearly every aspect of our business and personal lives. Let’s simplify this complex topic by looking at some of the most common types of contract assignments you might encounter.

Landlord-Tenant Agreements

Imagine you’re renting a fantastic apartment but have to move because of a new job. Instead of breaking your lease, you can assign your lease to someone else. This means the new tenant takes over your lease, including rent payments and maintenance responsibilities. However, it’s crucial that the landlord agrees to this switch. If done right, it’s a win-win for everyone involved.

Landlord and tenant shaking hands - assignment in contract law

Business Contracts

In the business world, contract assignments are a daily occurrence. For example, if a company agrees to provide services but then realizes it’s overbooked, it can assign the contract to another company that can fulfill the obligations. This way, the project is completed on time, and the client remains happy. It’s a common practice that ensures flexibility and efficiency in business operations.

Intellectual Property

Intellectual property (IP) assignments are fascinating and complex. If an inventor creates a new product, they can assign their patent rights to a company in exchange for a lump sum or royalties. This transfer allows the company to produce and sell the invention, while the inventor benefits financially. However, it’s critical to note that with trademarks, the goodwill associated with the mark must also be transferred to maintain its value.

Patent documents and invention sketches - assignment in contract law

Understanding these types of assignments helps clarify the vast landscape of contract law. Whether it’s a cozy apartment, a crucial business deal, or a groundbreaking invention, assignments play a pivotal role in ensuring these transitions happen smoothly.

As we navigate through the realm of contract assignments, each type has its own set of rules and best practices. The key is to ensure all parties are on the same page and that the assignment is executed properly to avoid any legal pitfalls.

Diving deeper into the subject, next, we will explore how to execute a contract assignment effectively, ensuring all legal requirements are met and the process runs as smoothly as possible.

How to Execute a Contract Assignment Effectively

Executing a contract assignment effectively is crucial to ensure that all legal requirements are met and the process runs smoothly. Here’s a straightforward guide to help you navigate this process without any hiccups.

Written Consent

First and foremost, get written consent . This might seem like a no-brainer, but it’s surprising how often this step is overlooked. If the original contract requires the consent of the other party for an assignment to be valid, make sure you have this in black and white. Not just a handshake or a verbal agreement. This ensures clarity and avoids any ambiguity or disputes down the line.

Notice of Assignment

Next up, provide a notice of assignment to all relevant parties. This is not just common courtesy; it’s often a legal requirement. It informs all parties involved about the change in the assignment of rights or obligations under the contract. Think of it as updating your address with the post office; everyone needs to know where to send the mail now.

Privity of Estate

Understanding privity of estate is key in real estate transactions and leases. It refers to the legal relationship that exists between parties under a contract. When you assign a contract, the assignee steps into your shoes, but the original terms of the contract still apply. This means the assignee needs to be aware of and comply with the original agreement’s requirements.

Secondary Liability

Lastly, let’s talk about secondary liability . Just because you’ve assigned a contract doesn’t always mean you’re off the hook. In some cases, the original party (the assignor) may still hold some liability if the assignee fails to perform under the contract. It’s essential to understand the terms of your assignment agreement and whether it includes a release from liability for the assignor.

Executing a contract assignment effectively is all about dotting the I’s and crossing the T’s . By following these steps—securing written consent, issuing a notice of assignment, understanding privity of estate, and clarifying secondary liability—you’re setting yourself up for a seamless transition.

The goal is to ensure all parties are fully informed and agreeable to the changes being made. This not only helps in maintaining good relationships but also in avoiding potential legal issues down the line.

We’ll dive into some of the frequently asked questions about contract assignment to clear any lingering doubts.

Frequently Asked Questions about Contract Assignment

When navigating contracts, questions often arise, particularly about the concepts of assignment and novation. Let’s break these down into simpler terms.

What does assignment of a contract mean?

In the realm of assignment in contract law , think of assignment as passing the baton in a relay race. It’s where one party (the assignor) transfers their rights and benefits under a contract to another party (the assignee). However, unlike a relay race, the original party might still be on the hook for obligations unless the contract says otherwise. It’s like handing off the baton but still running alongside the new runner just in case.

Is an assignment legally binding?

Absolutely, an assignment is as binding as a pinky promise in the playground – but with legal muscle behind it. Once an assignment meets the necessary legal criteria (like not significantly changing the obligor’s duties or having express consent if required), it’s set in stone. This means both the assignee and the assignor must honor this transfer of rights or face potential legal actions. It’s a serious commitment, not just a casual exchange.

What is the difference between assignment and novation?

Now, this is where it gets a bit more intricate. If assignment is passing the baton, novation is forming a new team mid-race. It involves replacing an old obligation with a new one or adding a new party to take over an old one’s duties. Crucially, novation extinguishes the old contract and requires all original and new parties to agree. It’s a clean slate – the original party walks away, and the new party steps in, no strings attached.

While both assignment and novation change the playing field of a contract, novation requires a unanimous thumbs up from everyone involved, completely freeing the original party from their obligations. On the other hand, an assignment might leave the original party watching from the sidelines, ready to jump back in if needed.

Understanding these facets of assignment in contract law is crucial, whether you’re diving into a new agreement or navigating an existing one. Knowledge is power – especially when it comes to contracts.

As we wrap up these FAQs, the legal world of contracts is vast and sometimes complex, but breaking it down into bite-sized pieces can help demystify the process and empower you in your legal undertakings.

Here’s a helpful resource for further reading on the difference between assignment and cession.

Now, let’s continue on to the conclusion to tie all these insights together.

Navigating assignment in contract law can seem like a daunting task at first glance. However, with the right information and guidance, it becomes an invaluable tool in ensuring that your rights and obligations are protected and effectively managed in any contractual relationship.

At Moton Legal Group, we understand the intricacies of contract law and are dedicated to providing you with the expertise and support you need to navigate these waters. Whether you’re dealing with a straightforward contract assignment or facing more complex legal challenges, our team is here to help. We pride ourselves on our ability to demystify legal processes and make them accessible to everyone.

The key to successfully managing any contract assignment lies in understanding your rights, the obligations involved, and the potential impacts on all parties. It’s about ensuring that the assignment is executed in a way that is legally sound and aligns with your interests.

If you’re in need of assistance with a contract review, looking to understand more about how contract assignments work, or simply seeking legal advice on your contractual rights and responsibilities, Moton Legal Group is here for you. Our team of experienced attorneys is committed to providing the clarity, insight, and support you need to navigate the complexities of contract law with confidence.

For more information on how we can assist you with your contract review and other legal needs, visit our contract review service page .

In the constantly evolving landscape of contract law, having a trusted legal partner can make all the difference. Let Moton Legal Group be your guide, ensuring that your contractual dealings are handled with the utmost care, professionalism, and expertise. Together, we can navigate the complexities of contract law and secure the best possible outcomes for your legal matters.

Thank you for joining us on this journey through the fundamentals of assignment in contract law. We hope you found this information helpful and feel more empowered to handle your contractual affairs with confidence.

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Assignment of Contract

Jump to section, what is an assignment of contract.

An assignment of contract is a legal term that describes the process that occurs when the original party (assignor) transfers their rights and obligations under their contract to a third party (assignee). When an assignment of contract happens, the original party is relieved of their contractual duties, and their role is replaced by the approved incoming party.

How Does Assignment of Contract Work?

An assignment of contract is simpler than you might think.

The process starts with an existing contract party who wishes to transfer their contractual obligations to a new party.

When this occurs, the existing contract party must first confirm that an assignment of contract is permissible under the legally binding agreement . Some contracts prohibit assignments of contract altogether, and some require the other parties of the agreement to agree to the transfer. However, the general rule is that contracts are freely assignable unless there is an explicit provision that says otherwise.

In other cases, some contracts allow an assignment of contract without any formal notification to other contract parties. If this is the case, once the existing contract party decides to reassign his duties, he must create a “Letter of Assignment ” to notify any other contract signers of the change.

The Letter of Assignment must include details about who is to take over the contractual obligations of the exiting party and when the transfer will take place. If the assignment is valid, the assignor is not required to obtain the consent or signature of the other parties to the original contract for the valid assignment to take place.

Check out this article to learn more about how assigning a contract works.

Contract Assignment Examples

Contract assignments are great tools for contract parties to use when they wish to transfer their commitments to a third party. Here are some examples of contract assignments to help you better understand them:

Anna signs a contract with a local trash company that entitles her to have her trash picked up twice a week. A year later, the trash company transferred her contract to a new trash service provider. This contract assignment effectively makes Anna’s contract now with the new service provider.

Hasina enters a contract with a national phone company for cell phone service. The company goes into bankruptcy and needs to close its doors but decides to transfer all current contracts to another provider who agrees to honor the same rates and level of service. The contract assignment is completed, and Hasina now has a contract with the new phone company as a result.

Here is an article where you can find out more about contract assignments.

Assignment of Contract in Real Estate

Assignment of contract is also used in real estate to make money without going the well-known routes of buying and flipping houses. When real estate LLC investors use an assignment of contract, they can make money off properties without ever actually buying them by instead opting to transfer real estate contracts .

This process is called real estate wholesaling.

Real Estate Wholesaling

Real estate wholesaling consists of locating deals on houses that you don’t plan to buy but instead plan to enter a contract to reassign the house to another buyer and pocket the profit.

The process is simple: real estate wholesalers negotiate purchase contracts with sellers. Then, they present these contracts to buyers who pay them an assignment fee for transferring the contract.

This process works because a real estate purchase agreement does not come with the obligation to buy a property. Instead, it sets forth certain purchasing parameters that must be fulfilled by the buyer of the property. In a nutshell, whoever signs the purchase contract has the right to buy the property, but those rights can usually be transferred by means of an assignment of contract.

This means that as long as the buyer who’s involved in the assignment of contract agrees with the purchasing terms, they can legally take over the contract.

But how do real estate wholesalers find these properties?

It is easier than you might think. Here are a few examples of ways that wholesalers find cheap houses to turn a profit on:

Direct mailers
Place newspaper ads
Make posts in online forums
Social media posts

The key to finding the perfect home for an assignment of contract is to locate sellers that are looking to get rid of their properties quickly. This might be a family who is looking to relocate for a job opportunity or someone who needs to make repairs on a home but can’t afford it. Either way, the quicker the wholesaler can close the deal, the better.

Once a property is located, wholesalers immediately go to work getting the details ironed out about how the sale will work. Transparency is key when it comes to wholesaling. This means that when a wholesaler intends to use an assignment of contract to transfer the rights to another person, they are always upfront about during the preliminary phases of the sale.

In addition to this practice just being good business, it makes sure the process goes as smoothly as possible later down the line. Wholesalers are clear in their intent and make sure buyers know that the contract could be transferred to another buyer before the closing date arrives.

After their offer is accepted and warranties are determined, wholesalers move to complete a title search . Title searches ensure that sellers have the right to enter into a purchase agreement on the property. They do this by searching for any outstanding tax payments, liens , or other roadblocks that could prevent the sale from going through.

Wholesalers also often work with experienced real estate lawyers who ensure that all of the legal paperwork is forthcoming and will stand up in court. Lawyers can also assist in the contract negotiation process if needed but often don’t come in until the final stages.

If the title search comes back clear and the real estate lawyer gives the green light, the wholesaler will immediately move to locate an entity to transfer the rights to buy.

One of the most attractive advantages of real estate wholesaling is that very little money is needed to get started. The process of finding a seller, negotiating a price, and performing a title search is an extremely cheap process that almost anyone can do.

On the other hand, it is not always a positive experience. It can be hard for wholesalers to find sellers who will agree to sell their homes for less than the market value. Even when they do, there is always a chance that the transferred buyer will back out of the sale, which leaves wholesalers obligated to either purchase the property themselves or scramble to find a new person to complete an assignment of contract with.

Learn more about assignment of contract in real estate by checking out this article .

Who Handles Assignment of Contract?

The best person to handle an assignment of contract is an attorney. Since these are detailed legal documents that deal with thousands of dollars, it is never a bad idea to have a professional on your side. If you need help with an assignment of contract or signing a business contract , post a project on ContractsCounsel. There, you can connect with attorneys who know everything there is to know about assignment of contract amendment and can walk you through the whole process.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

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Assignment provisions in contracts

Author’s note, Nov. 22, 2014: For a much-improved update of this page, see the Common Draft general provisions article .

(For more real-world stories like the ones below, see my PDF e-book, Signing a Business Contract? A Quick Checklist for Greater Peace of Mind , a compendium of tips and true stories to help you steer clear of various possible minefields. Learn more …. )

Table of Contents

Legal background: Contracts generally are freely assignable

When a party to a contract “ assigns ” the contract to someone else, it means that party, known as the assignor , has transferred its rights under the contract to someone else, known as the assignee , and also has delegated its obligations to the assignee.

Under U.S. law, most contract rights are freely assignable , and most contract duties are freely delegable, absent some special character of the duty, unless the agreement says otherwise. In some situations, however, the parties will not want their opposite numbers to be able to assign the agreement freely; contracts often include language to this effect.

Intellectual-property licenses are an exception to the general rule of assignability. Under U.S. law, an IP licensee may not assign its license rights, nor delegate its license obligations, without the licensor’s consent, even when the license agreement is silent. See, for example, In re XMH Corp. , 647 F.3d 690 (7th Cir. 2011) (Posner, J; trademark licenses); Cincom Sys., Inc. v. Novelis Corp. , 581 F.3d 431 (6th Cir. 2009) (copyright licenses); Rhone-Poulenc Agro, S.A. v. DeKalb Genetics Corp. , 284 F.3d 1323 (Fed. Cir. 2002) (patent licenses). For additional information, see this article by John Paul, Brian Kacedon, and Douglas W. Meier of the Finnegan Henderson firm.

Assignment consent requirements

Model language

[Party name] may not assign this Agreement to any other person without the express prior written consent of the other party or its successor in interest, as applicable, except as expressly provided otherwise in this Agreement. A putative assignment made without such required consent will have no effect.

Optional: Nor may [Party name] assign any right or interest arising out of this Agreement, in whole or in part, without such consent.

Alternative: For the avoidance of doubt, consent is not required for an assignment (absolute, collateral, or other) or pledge of, nor for any grant of a security interest in, a right to payment under this Agreement.

Optional: An assignment of this Agreement by operation of law, as a result of a merger, consolidation, amalgamation, or other transaction or series of transactions, requires consent to the same extent as would an assignment to the same assignee outside of such a transaction or series of transactions.

• An assignment-consent requirement like this can give the non-assigning party a chokehold on a future merger or corporate reorganization by the assigning party — see the case illustrations below.

• A party being asked to agree to an assignment-consent requirement should consider trying to negotiate one of the carve-out provisions below, for example, when the assignment is connection with a sale of substantially all the assets of the assignor’s business {Link} .

Case illustrations

The dubai port deal (ny times story and story ).

In 2006, a Dubai company that operated several U.S. ports agreed to sell those operations. (The agreement came about because of publicity and political pressure about the alleged national-security implications of having Middle-Eastern companies in charge of U.S. port operations.)

A complication arose in the case of the Port of Newark: The Dubai company’s lease agreement gave the Port Authority of New York and New Jersey the right to consent to any assignment of the agreement — and that agency initially demanded $84 million for its consent.

After harsh criticism from political leaders, the Port Authority backed down a bit: it gave consent in return for “only” a $10 million consent fee, plus $40 million investment commitment by the buyer.

Cincom Sys., Inc. v. Novelis Corp., No. 07-4142 (6th Cir. Sept. 25, 2009) (affirming summary judgment)

A customer of a software vendor did an internal reorganization. As a result, the vendor’s software ended up being used by a sister company of the original customer. The vendor demanded that the sister company buy a new license. The sister company refused.

The vendor sued, successfully, for copyright infringement, and received the price of a new license, more than $450,000 as its damages. The case is discussed in more detail in this blog posting.

The vendor’s behavior strikes me as extremely shortsighted, for a couple of reasons: First, I wouldn’t bet much on the likelihood the customer would ever buy anything again from that vendor. Second, I would bet that the word got around about what the vendor did, and that this didn’t do the vendor’s reputation any good.

Meso Scale Diagnostics, LLC v. Roche Diagnostics GmbH, No. 5589-VCP (Del. Ch. Apr. 8, 2011) (denying motion to dismiss).

The Delaware Chancery Court refused to rule out the possibility that a reverse triangular merger could act as an assignment of a contract, which under the contract terms would have required consent. See also the discussion of this opinion by Katherine Jones of the Sheppard Mullin law firm.

Assignment with transfer of business assets

Consent is not required for an assignment of this Agreement in connection with a sale or other disposition of substantially all the assets of the assigning party’s business.

Optional: Alternatively, the sale or other disposition may be of substantially all the assets of the assigning party’s business to which this Agreement specifically relates.

Optional: The assignee must not be a competitor of the non-assigning party.

• A prospective assigning party might argue that it needed to keep control of its own strategic destiny, for example by preserving its freedom to sell off a product line or division (or even the whole company) in an asset sale.

• A non-assigning party might argue that it could not permit the assignment of the agreement to one of its competitors, and that the only way to ensure this was to retain a veto over any assignment.

• Another approach might be to give the non-assigning party, instead of a veto over asset-disposition assignments, the right to terminate the contract for convenience . (Of course, the implications of termination would have to be carefully thought through.)

Assignment to affiliate

[Either party] may assign this Agreement without consent to its affiliate.

Optional: The assigning party must unconditionally guarantee the assignee’s performance.

Optional: The affiliate must not be a competitor of the non-assigning party.

Optional: The affiliate must be a majority-ownership affiliate of the assigning party.

• A prospective assigning party might argue for the right to assign to an affiliate to preserve its freedom to move assets around within its “corporate family” without having to seek approval.

• The other party might reasonably object that there is no way to know in advance whether an affiliate-assignee would be in a position to fulfill the assigning party’s obligations under the contract, nor whether it would have reachable assets in case of a breach.

Editorial comment: Before approving a blanket affiliate-assignment authorization, a party should consider whether it knew enough about the other party’s existing- or future affiliates to be comfortable with where the agreement might end up.

Consent may not be unreasonably withheld or delayed

Consent to an assignment of this Agreement requiring it may not be unreasonably withheld or delayed.

Optional: For the avoidance of doubt, any damages suffered by a party seeking a required consent to assignment of this Agreement, resulting from an unreasonable withholding or delay of such consent, are to be treated as direct damages.

• Even if this provision were absent, applicable law might impose a reasonableness requirement; see the discussion of the Shoney case in the commentary to the Consent at discretion provision.

• A reasonableness requirement might not be of much practical value, whether contractual or implied by law. Such a requirement could not guarantee that the non-assigning party would give its consent when the assigning party wants it. And by the time a court could resolve the matter, the assigning party’s deal could have been blown.

• Still, an unreasonable-withholding provision should make the non-assigning party think twice about dragging its feet too much, becuase of the prospect of being held liable for damages for a busted transaction. Cf. Pennzoil vs. Texaco and its $10.5 billion damage award for tortious interference with an M&A deal.

• Including an unreasonable-delay provision might conflict with the Materiality of assignment breach provision, for reasons discussed there in the summary of the Hess Energy case.

Consent at discretion

A party having the right to grant or withhold consent to an assignment of this Agreement may do so in its sole and unfettered discretion.

• If a party might want the absolute right to withhold consent to an assignment in its sole discretion, it would be a good idea to try to include that in the contract language. Otherwise, there’s a risk that court might impose a commercial-reasonableness test under applicable law (see the next bullet). On the other hand, asking for such language but not getting it could be fatal to the party’s case that it was implicitly entitled to withhold consent in its discretion.

• If a commercial- or residential lease agreement requires the landlord’s consent before the tentant can assign the lease, state law might impose a reasonableness requirement. I haven’t researched this, but ran across an unpublished California opinion and an old law review article, each collecting cases. See Nevada Atlantic Corp. v. Wrec Lido Venture, LLC, No. G039825 (Cal. App. Dec. 8, 2008) (unpublished; reversing judgment that sole-discretion withholding of consent was unreasonable); Paul J. Weddle, Pacific First Bank v. New Morgan Park Corporation: Reasonable Withholding of Consent to Commercial Lease Assignments , 31 Willamette L. Rev. 713 (1995) (first page available for free at HeinOnline ).

Shoney’s LLC v. MAC East, LLC, No. 1071465 (Ala. Jul. 31, 2009)

In 2009, the Alabama Supreme Court rejected a claim that Shoney’s restaurant chain breached a contract when it demanded a $70,000 to $90,000 payment as the price of its consent to a proposed sublease. The supreme court noted that the contract specifically gave Shoney’s the right, in its sole discretion , to consent to any proposed assignment or sublease.

Significantly, prior case law from Alabama was to the effect that a refusal to consent would indeed be judged by a commercial-reasonableness standard. But, the supreme court said, “[w]here the parties to a contract use language that is inconsistent with a commercial-reasonableness standard, the terms of such contract will not be altered by an implied covenant of good faith. Therefore, an unqualified express standard such as ‘sole discretion’ is also to be construed as written.” Shoney’s LLC v. MAC East, LLC , No. 1071465 (Ala. Jul. 31, 2009) (on certification by Eleventh Circuit), cited by MAC East, LLC v. Shoney’s [LLC] , No. 07-11534 (11th Cir. Aug. 11, 2009), reversing No. 2:05-cv-1038-MEF (WO) (M.D. Ala. Jan. 8, 2007) (granting partial summary judgment that Shoney’s had breached the contract).

Termination by non-assigning party

A non-assigning party may terminate this Agreement, in its business discretion , by giving notice to that effect no later than 60 days after receiving notice, from either the assigning party or the assignee, that an assignment of the Agreement has become effective.

Consider an agreement in which a vendor is to provide ongoing services to a customer. A powerful customer might demand the right to consent to the vendor’s assignment of the agreement, even in strategic transactions. The vendor, on the other hand, might refuse to give any customer that kind of control of its strategic options.

A workable compromise might be to allow the customer to terminate the agreement during a stated window of time after the assignment if it is not happy with the new vendor.

Assignment – other provisions

Optional: Delegation: For the avoidance of doubt, an assignment of this Agreement operates as a transfer of the assigning party’s rights and a delegation of its duties under this Agreement.

Optional: Promise to perform: For the avoidance of doubt, an assignee’s acceptance of an assignment of this Agreement constitutes the assignee’s promise to perform the assigning party’s duties under the Agreement. That promise is enforceable by either the assigning party or by the non-assigning party.

Optional: Written assumption by assignee: IF: The non-assigning party so requests of an assignee of this Agreement; THEN: The assignee will seasonably provide the non-assigning party with a written assumption of the assignor’s obligations, duly executed by or on behalf of the assignee; ELSE: The assignment will be of no effect.

Optional: No release: For the avoidance of doubt, an assignment of this Agreement does not release the assigning party from its responsibility for performance of its duties under the Agreement unless the non-assigning party so agrees in writing.

Optional: Confidentiality: A non-assigning party will preserve in confidence any non-public information about an actual- or proposed assignment of this Agreement that may be disclosed to that party by a party participating in, or seeking consent for, the assignment.

The Delegation provision might not be necessary in a contract for the sale of goods governed by the Uniform Commercial Code, because a similar provision is found in UCC 2-210

The Confidentiality provision would be useful if a party to the agreement anticipated that it might be engaging in any kind of merger or other strategic transaction.

Materiality of assignment breach

IF: A party breaches any requirement of this Agreement that the party obtain another party’s consent to assign this Agreement; THEN: Such breach is to be treated as a material breach of this Agreement.

A chief significance of this kind of provision is that failure to obtain consent to assignment, if it were a material breach, would give the non-assigning party the right to terminate the Agreement.

If an assignment-consent provision requires that consent not be unreasonably withheld , then failure to obtain consent to a reasonable assignment would not be a material breach, according to the court in Hess Energy Inc. v. Lightning Oil Co. , No. 01-1582 (4th Cir. Jan. 18, 2002) (reversing summary judgment). In that case, the agreement was a natural-gas supply contract. The customer was acquired by a larger company, after which the larger company took over some of the contract administration responsibilities such as payment of the vendor’s invoices. The vendor, seeking to sell its gas to someone else at a higher price, sent a notice of termination, on grounds that the customer had “assigned” the agreement to its new parent company, in violation of the contract’s assignment-consent provision. The appeals court held that, even if the customer had indeed assigned the contract (a point on which it expressed considerable doubt) without consent, the resulting breach of the agreement was not material, and therefore the vendor did not have the right to terminate the contract.

See also (list is generated automatically) :

Notebook update: Reverse triangular merger might be an assignment of a contract, requiring consent Just updated the Notebook with a citation to a case in which the Delaware Chancery Court refused to rule out the possibility that a reverse...
Assignment-consent requirements can cause serious problems in future M&A transactions A lot of contracts provide that Party A must obtain the prior written consent of Party B if it wishes to assign the agreement to a...
SCOTX rejects implied obligation not to unreasonably withhold consent to assignment of contract In a recent Texas case, two sophisticated parties in the oil and gas business — let’s call them Alpha and Bravo — were negotiating a contract....
Ken Adams and the marketplace of ideas I (used to) comment occasionally at Ken Adams’s blog. Recent examples: Here, here, here, here, and here. Ken and I disagree on a number of issues; some...

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Assignment Legal Definition: Everything You Need to Know

The legal definition of assignment is when a person transfers a piece of property or contractual rights to another person. 3 min read updated on September 19, 2022

The legal definition of assignment is when a person transfers a piece of property or contractual rights to another person.

What is Assignment?

If you own a piece of property or have rights in a contract and would like to transfer either of these items to another person, you can make an assignment. For instance, if you own a trademark, you could transfer rights to your mark to someone else interested in using the mark.

Before an assignment will be legal, several requirements must be met:

All parties must be legally capable.
The objects being transferred must be legal.
Consideration should be included.
All parties must consent to the assignment.

One of the most common forms of assignment is a wage assignment . For instance, if you owe child support, alimony, back taxes, or some other form of debt, the court can require your employer to withhold a portion of your paycheck.

It is also possible to make an assignment for a mortgage. With a mortgage deed, you can give property interest to a lender in exchange for regular payments. Lenders frequently sell mortgages to other lenders. To complete the sale, a mortgage assignment document would need to be used. This document can clarify how payments will be made and can also be used to alter the terms of the mortgage.

Several factors can influence how assignment plays out. In particular, the language of the contract involved in the assignment can impact this process. Certain contracts, for instance, contain clauses that completely eliminate the possibility of assignment. In other contracts, assignment can only occur if the party being assigned the rights and responsibilities of the contract consents.

In some cases, the person making the assignment will still be liable for the performance of the contract . To make sure the contract is completed, a contract can include a provision that requires the original party to make sure the obligations of the contract are fulfilled, even if they have assigned their rights to a third party.

If the assignment significantly changes the terms of the contract, the agreement will usually not be enforceable. For instance, if assignment reduces the contract's value or exposes the other party to more risk, this would be a significant alteration, meaning the courts would not enforce the contract.

It's also possible that an assignment of contract would be restricted by the law. For instance, some states do not allow an employee's future wages to be assigned. Similarly, claims against the federal government usually cannot be assigned. Because it can increase the possibility of litigation, you are not allowed to assign a personal injury claim.

Delegation or Assignment?

In many cases, a person may want to find someone else to fulfill their contractual duties without having to assign the contract. In these cases, you would use a delegation instead of an assignment. Understand, however, that not all contractual obligations are eligible for delegation.

Personal services, for example, usually cannot be delegated. This is because these services are very specific. For instance, if you hired a musical act to play a party, the musician could not delegate their performance to another artist because they were hired with their specific style in mind. If one party wishes to eliminate the possibility of delegation, they should make sure the contract includes language restricting the practice.

Novation and Assignment

In regard to assignment, it's important to understand that only contractual benefits can be assigned. It is not possible to assign the burden of a contract . For example, if a contractor is hired for a construction project, they could assign their payment but not their obligation to complete the project.

Once an assignment has taken place, the assignee will be able to receive the contract's benefits. The assignee also has the ability to file a lawsuit to enforce their new contractual rights. If there are parts of the contract that still need to be completed, the assignor would be responsible for making sure that this occurs. If the contract is not fulfilled, the assignor would be legally liable since they cannot assign the burden.

Typically, when an assignment takes place, performance of the contract will be taken over from the assignee, and the assignor will request an indemnification for breach of contract.

If you need help with the assignment legal definition, you can post your legal needs on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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Consent to Assignment: Everything You Need to Know - UpCounsel
Consent to assignment refers to allowing a party of a contract to assign a contract and move the obligations to another party. The party of the existing contract, known as the assignor, will pass on the contract to another party, known as the assignee.
Understanding the Consent of Assignment: A Comprehensive Guide
What is Consent of Assignment? Consent of assignment refers to the formal approval by all original parties in a contract to transfer one party's rights and obligations to a third party.
Consent to Assignment Definition: 106 Samples - Law Insider
Define Consent to Assignment. means an existing contractual or legal right of any third party to consent to the Partnership's assignment of a Property to Buyer under such terms as are set forth in this Agreement.
Don't Confuse Change of Control and Assignment Terms
Change of control and assignment terms actually address opposite ownership changes. If an assignment clause addresses change of control, it says what happens if a party goes through an M&A deal and no longer exists (or becomes a shell company).
Understanding an assignment and assumption agreement
An assignment and assumption agreement is used after a contract is signed, in order to transfer one of the contracting party's rights and obligations to a third party who was not originally a party to the contract. The party making the assignment is called the assignor, while the third party accepting the assignment is known as the assignee.
Assignments: The Basic Law | Stimmel Law
An assignment is the transfer of rights held by one party called the “assignor” to another party called the “assignee.” The legal nature of the assignment and the contractual terms of the agreement between the parties determines some additional rights and liabilities that accompany the assignment.
Ultimate Checklist for Understanding Contract Assignment Rules
Legal Definition. At its core, contract assignment is about transferring rights or obligations under a contract from one party to another. Think of it as passing a baton in a relay race. The original party (the assignor) hands off their responsibilities or benefits to someone else (the assignee).
Assignment of Contract: What Is It? How It Works
An assignment of contract is a legal term that describes the process that occurs when the original party (assignor) transfers their rights and obligations under their contract to a third party (assignee).
Assignment provisions in contracts
When a party to a contract “ assigns ” the contract to someone else, it means that party, known as the assignor, has transferred its rights under the contract to someone else, known as the assignee, and also has delegated its obligations to the assignee.
Assignment Legal Definition: Everything You Need to Know
All parties must consent to the assignment. One of the most common forms of assignment is a wage assignment. For instance, if you owe child support, alimony, back taxes, or some other form of debt, the court can require your employer to withhold a portion of your paycheck.