It is common for people to agree to an “assignment” a contract.
However, at law, an “assignment” can only transfer the benefit of a
contract and not the burden. The common use of the term
“assignment” in these circumstances is not correct.
A contractual benefit, such as a right to receive payment of a debt,
can be assigned from one person to another. If the assignment is
in writing, the person who owes the debt need not consent.
However, the person owing the debt still has to be given notice of
the assignment to know that the obligations are now owed to a
third party.
By way of example, if A is owed a debt by B, A can transfer the
right to be paid to C. This might commonly be done when a
business is bought and sold or as part of a factoring arrangement.
If B is not notified of the assignment and pays A, C cannot also
recover the debt from B. If B has been given notice of the
assignment, then B is directly responsible to C.
The assignment of the contractual benefit to be paid the debt does
not pass to C any contractual obligations of A. Therefore, if B is
only required to pay the debt if A does certain things, then unless
A does those things, or C does them for A, the obligation to pay
will not arise. B cannot enforce any obligation against C as B and
C have not entered into a contract together.
There are other means of transferring contractual rights and
obligations other than by assignment.
Subcontracting is a good example of the transfer of contractual
rights and obligations through a second contract.The extent to
which the original parties are both bound by the subcontracting
arrangement will depend upon the terms of the original contract
and the subcontract.
Another means of transferring a contract from one person to
another is by way of “novation”. “Novation” is a legal term which
occurs when a contract between A and B is replaced with a contract
between A and C. A’s contractual rights and obligations are
unchanged except that the other party to the contract is no longer
B, it is C. C has the same rights and obligations as B had under the
original contract.
If you are looking at transferring contractual obligations and
benefits from yourself to another person or taking on another
person’s contractual obligations, you need to be clear about
whether both the benefit and the burden is passing from one
person to another, who will be able to enforce the contract and who
it will be enforced against.
Whilst an “assignment” does not require the other party to the
contract to consent or be party to the assignment arrangements, a
“novation” does require all parties to consent. That is because a
new contract is formed to replace the old one.
If you are owed money and want it paid to someone else, then an
assignment of the debt is appropriate and the person owing the
money can be informed by notice.
If you want to transfer more complicated rights, or to transfer a
contract that has both obligations and benefits attached to it, for
example a sale and purchase agreement, you need to transfer or
“novate” the whole agreement.
