What Is an Assignment of Contract in a Business Agreement?
You may have come across an “assignment of contract” clause in a business contract. This type of clause is common in contracts with suppliers or vendors and in intellectual property (patent, trademark, and copyright) agreements.
The process of assignment allows one person or business to transfer or assign rights or benefits or obligations to another person or business.
To understand how assignment works, let’s look at the definition a little more closely. (A “party” is one of the signers to a contract.)
So, an assignment is:
- The transfer
- Of some kind of property or interest (something of value that can be bought and sold, a responsibility, or a benefit)
- From one party (the assignor) to another party (the assignee)
An assignment may be made to anyone, but it is typically to a subsidiary or a successor. A successor might be a business (Company B) that buys a business (Company A). A subsidiary is a business owned by another business.
An assignment of contract clause is often included in contracts to give either party the opportunity to transfer their part of the contract to someone else in the future. Many assignment clauses require that both parties agree to the assignment.
How Assignment Works
Let’s suppose Ken owns a lawn mowing service and he has a contract with a real estate firm to mow all their offices each week in the summer. The contract includes an assignment clause, so when Ken goes out of business, he assigns the contract to his sister-in-law Karrie, who also owns a lawn mowing service.
Before you try to assign something in a contract, check the contract to make sure you can do this. And notify the other party in the contract.
What Kinds of Contracts Can And Can’t Be Assigned?
Generally, just about anything of value in a contract can be assigned, unless there is a specific law or public policy disallowing the assignment.
Rights and obligations of specific people can’t be assigned because special skills and abilities can’t be transferred. This is called specific performance. For example, Billy Joel can’t transfer (assign) a contract to perform at Madison Square Garden to anyone else.
Assignments won’t stand up in court if the assignment significantly changes the terms of the contract. For example, if Karrie’s business is tree trimming, not lawn mowing, the contract can’t be assigned to her.
Assignment of Copyrights, Patents, and Trademarks: A Special Case
Intellectual property (copyrights, patents, and trademarks) has value, and these assets are often assigned.
- In the case of patents, the U.S. Patent and trademark Office (USPTO) says patents are personal property and that patent rights can be assigned. They keep a database of patent assignments and you should register your patent with them.
- Trademarks can also be assigned. The assignment must be registered with the USPTO's Electronic Trademark Assignment System (ETAS).
- The U.S. Copyright Office doesn't keep a database of copyright assignments, but they will record the document if you follow their procedure. This article on Copyright Basics has a section on transfer of copyrights.
What Does an Assignment Contract Look Like?
Assignment usually is included in a specific clause in a contract. A common clause, from Law Insider, goes like this:
The Company will have the right at all times to assign any of its rights or obligations … to a direct or indirect wholly owned Subsidiary of the Company, provided that, in the event of any such assignment, the Company will remain liable for all such obligations.
The term “Successor” could be substituted from “Subsidiary.”
Assignment includes transfer of both accountability and responsibility to another party, but liability usually remains with the assignor unless there is language to the contrary.
Here’s an assignment clause from Contract Standards that requires agreement:
Neither party may assign this agreement or any of their rights or obligations under this agreement without the other party’s written consent.
What’s the Difference Between Assignment, Delegation, and Licensing?
- An assignment of something is a transfer of the entire value of that thing.
- Licensing is an agreement between the owner of property (often intellectual property) and another party for the party to use the property. For example, a business that owns a patent may license another company to make products using that patent.
- Delegation includes acting on someone else’s behalf. For example, Ken’s lawn service might delegate Karrie to do mowing for him, but Ken would still get paid and he still has control over how she does the mowing.
When Your Business Might Need an Assignment of Contract
The most common cases of assignment of contract in a business situation are:
Before you sign a contract, look to see if there is an assignment clause. Get the advice of an attorney if you want to assign something in a contract.