An assignment of contract occurs when one party to an existing contract (the "assignor") hands off the contract's obligations and benefits to another party (the "assignee"). Ideally, the assignor wants the assignee to step into his shoes and assume all of his contractual obligations and rights. In order to do that, the other party to the contract must be properly notified. Read on to learn how assignments work, including how to keep an assignment option out of your contract.

How do Assignments Work?

Several factors influence the outcome of a contract assignment. Some contracts forbid assignment, while others need the other party's approval. An example of an essential contract assignment: Every day, a dairy delivers a bottle of half-and-half to Tom's residence. The dairy allocates Tom's contract to another dairy, and Tom continues to get his daily half-and-half.

An assignment does not necessarily absolve the assignor. Some contracts guarantee performance by the original parties (or one of them) regardless of assignment (that is, the assignee will fulfil the contract terms).

Assignments Not Enforced

A contract assignment is not valid under the following scenarios.

  • The contract forbids assignment:

 An anti-assignment provision in a contract can prevent (and "invalidate"). Here is one example. The assignment modifies the contract's expectations. If the assignment reduces the value or return expected or raises the risks for the other party (the party not assigning contractual rights), courts are reluctant to uphold the agreement. A substantial modification would be if Tom's local organic dairy gave a factory farm dairy contract.

  • The assignment is illegal or unethical:

 Some laws restrict or ban assignments. For example, several states and the federal government ban employees from assigning future earnings. Other assignments, albeit not banned by law, may be unethical. Personal injury claims, for example, cannot be outsourced to avoid litigation.

  • In some circumstances, a party wants to assign the contract but not the obligations:

Due to their nature, not all jobs may be assigned, such as personal services. For example, if you engaged Ted Nugent to play at your event, he couldn't substitute Lady Gaga. The parties should incorporate precise wording in the contract that prohibits one party from outsourcing contract duties.

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