Contract Assignments

If a party enters into a contract, can the other party to the contract assign the contract to a third party to perform?  In the absence of an express prohibition in the contract the answer is usually yes.  For example, suppose you agree to sell your house to your neighbor for $500,000.  Absent a prohibition in the contract, your neighbor may assign his right to buy the property from you to a third party.  Your neighbor might even get the new buyer to pay an additional $50,000 for the assignment.  You would still get your $500,000 purchase price (from the new buyer) and your neighbor would keep the $50,000 “assignment fee”; the new buyer would get the house (for a total cost of $550,000. . .). 

Some contracts may not be assigned.  For example, contracts for personal services generally may not be assigned by the person performing the service, on the theory that the contract is personal in nature and a substitute performance by another party is not what was bargained for.  Contracts for unique services may not be assigned.  For example, if you commission an artist to do a painting of your Springer Spaniel, the artist may not assign the obligation to paint your dog to another artist. 

Contracts often contain clauses which prohibit assignment by either party without the consent of the other party.  Sometimes the contract will say that consent to assignment may not be withheld unreasonably.  This is common in the sale of operating businesses, where the buyer of the business often takes over the existing contracts of the business by way of assignment.

Another point to keep in mind is that when a party assigns contractual rights to another party, the assigning party (the assignor) is not relieved of his liability under the contract.  He is, of course, relying on the assignee to perform the contract, and if the assignee does not perform the assignor remains liable for contractual performance.  In the example above, if the assignee of the contract to buy your house did not perform, the original buyer (your neighbor) would still be obligated to go to closing and purchase the house.

— Kevin Palmer

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