assignment clause

The general law of contract prevents a contracting party from assigning the burden of a contract to another person, although that same party is at liberty to transfer the benefit of the contract to another. 

Assignment clauses displace this general rule and permit one or more of the contracting parties to assign the burden (as well as the benefit) to a third party or another person within the corporate group of that party.

Benefit and Burden

The benefit of a contract for one party is what that party receives as a consequence of entering into a contract. On the other side of the coin, that benefit for one party is the burden for the other contracting party. So, if a supplier receives money as a result of performing services for the customer, that is the benefit or one of the benefits of the contract for the supplier.

Conversely, the payment of money is the burden of the contract for the customer. For the customer, receipt of the services from the supplier is the benefit of the contract, which is in turn the burden of the contract for the supplier.

Assignments of Contract Rights

Assignment clauses should not be confused with:

1. Novation: which is the process of transferring an entire contract (both the benefit and burden) to another legal person, whereby one of the original contracting parties is no longer a party to the contract;
2. subcontracting clauses: the general law provides that a contracting party is entitled to subcontract works to a third person, unless there is a contractual restriction preventing it. Assuming that there is no provision preventing subcontracting, the original contracting parties remain liable for performance of the “head” contract to one another.

Example Assignment Clause

A suitable boilerplate provision to prevent assignment of the benefit and burden in a contract might be:

Neither party may, without the prior written consent of the other party, assign or transfer this Agreement or any obligation incurred hereunder.

A more complicated version to allow transfer or assignment to might be as follows. Note that the meaning of “corporate group” should be defined in the contract.

Neither party may, without the prior written consent of the other party, assign or transfer this Agreement or any obligation incurred hereunder, except that the Customer may assign or transfer the benefit and burden of this agreement to another company within its corporate group.