How Is a Contract Assigned?

(Page 2 of 2 of What Is an Assignment of Contract?)

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There are three steps to follow if you want to assign a contract.

Step 1: Examine the contract for any limitations or prohibitions. Check for anti-assignment clauses. Sometimes the prohibition is not a separate clause but is included in another provision. Look for language that states, "This agreement may not be assigned." If you find such language, you may not be able to assign the agreement unless the other party consents.

Step 2: Execute an assignment. If you are not prohibited from assigning the contract, prepare and enter into an assignment of contract: an agreement that transfers the parties' rights and obligations.

Step 3: Provide notice to the obligor. After you have assigned your contract rights to the assignee, you should provide notice to the other original contracting party (referred to as the obligor). This notice will effectively relieve you of any liability under the contract, unless the contract says differently (for instance, if the contracts says that the assignor guarantees the performance of the assigned contract or the contract prohibits an assignment) or the assignment is prohibited by law.

Anti-Assignment Clauses

If you're making a contract and you don't want assignment to be an option, you need to clearly state that in your agreement. Below are three variations of anti-assignment clauses that can be used in a contract.

EXAMPLE 1: Consent Required for Assignment

Assignment. Neither party may assign or delegate its rights or obligations pursuant to this Agreement without the prior written consent of the other. Any assignment or delegation in violation of this section shall be void.

EXAMPLE 2: Consent Not Needed for Affiliates or New Owners

Assignment. Neither party may assign or delegate its rights or obligations pursuant to this Agreement without the prior written consent of the other. However, no consent is required for an assignment that occurs (a) to an entity in which the transferring party owns more than 50% of the assets, or (b) as part of a transfer of all or substantially all of the assets of the transferring party to any party. Any assignment or delegation in violation of this section shall be void.

EXAMPLE 3: Consent Not Unreasonably Withheld

Assignment. Neither party may assign or delegate its rights or obligations pursuant to this Agreement without the prior written consent of other. Such consent shall not be unreasonably withheld. Any assignment or delegation in violation of this section shall be void.

Anti-assignment clauses can also be modified to prohibit only one of the parties from assigning rights. Also, when preparing an anti-assignment clause, keep in mind that you can prevent only "voluntary" assignments; you cannot prevent assignments that are ordered by a court or that are mandatory under law--for example, in a bankruptcy proceeding.

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