Assignment of contracts, or certain rights or obligations under a contract, are often controlled by the language of the specific agreement to which parties have agreed. In many cases, there are specific limitations regarding the assignment of contracts or a complete bar which forbids the assignment of any rights or obligations under an agreement.
With proper drafting of a contract, assignments can be handled legally, effectively, and intelligently. The Katz Law Group has the years of experience needed to effectively draft contracts to fit your business interests and enforce violations by others against your interests.
Assignments of Contracts
An assignment is the transfer of rights held by one party to the contract (the "assignor") to a different party (called the "assignee.") It may also be the transfer of certain obligations under the contractual agreement to another party.
Assignments are generally permitted under Massachusetts law unless such an assignment is prohibited by the contract itself. This is fairly common in business relationships. Many agreements between sophisticated business entities completely forbid or set forth strict limitations on the assignment of contractual rights and obligations.
When assignments of rights and obligations are specifically prohibited by a contract, any assignment will be considered void at the outset. This means that the action taken by the party who attempted to assign its rights or obligations will be nullified.
When a party impermissibly transfers its interests in the contract to a third party, you and your business have the right to enforce the obligations against the original party. Legal action can require the original party to uphold its end of the bargain, and in this way protect the rights of you and your business.
Limitations to Assignments
Another very common way of handling contract assignments is to set certain parameters that must be followed before an assignment of a contractual right or obligation will be valid and enforceable. These limitations and requirements are set forth in the original contract, and each party must follow them.
Common limitations include, but are not limited to:
- the assignment only with the permission of all parties;
- assignments to certain parties or types of parties;
- assignment of certain rights or obligations but not others;
- right of first refusal language; or
- time limitations regarding assignments.
If these limitations are not followed, and an assignment is made, it may be deemed invalid and unenforceable.
Responsibility Under the Contract
An assignment can radically change who is responsible for certain obligations under the contractual agreement. If an obligation or right is validly transferred, the contract is now enforceable against the new party that assumed the responsibilities of the contract. The old party is no longer responsible (in most situations.)
Example: Chuck agrees to paint Nancy's business for $12,500. They enter into a contract for the work to begin in two weeks. There is no contract clause that prohibits the assignment of the contract. Chuck is offered work during that same time period which pays more, so he assigns his obligations and right to payment to Fran, who also is in the painting business. Fran is now obligated to Nancy to complete the contract under the previously negotiated terms.
Example: Claire is the owner of HouseBuild, LLC, and is a general contractor who builds houses for developers. As part of her agreement, she subcontracts with Bathroom Options, Inc. to build the bathrooms in her houses. The contract between the two has a clause that prohibits the assignment of the contract without the express permission of both parties. Bathroom Options, Inc. assigns its obligations under the contract to Build-a-Bathroom, LLC without Claire's permission. The assignment is invalid. Bathroom Options, Inc. is still liable on the contract.
Enforcing Your Rights
If you or your business face a situation in which another party assigned its interest to another in violation of the contract, you have rights that can be enforced. Through a formal legal demand and negotiation, you may even avoid the cost and expense of a trial. If the other party refuses to cooperate, you can take them to court to enforce your rights.
If you are the party who wishes to assign your rights, our attorneys can provide you accurate legal advice about what is permissible under your contract. This will protect your individual and business rights. Our attorneys can also draft agreements that fit your individual needs and desires regarding another party's right to assign contracts.
Consult a Massachusetts Contract Litigation Attorney
If you have an issue that deals with the assignment of a contract, the Katz Law Group can help you enforce your rights and protect the interests of your business. Contact us today for a free consultation.