Contract assignment is a common practice in business, particularly in mergers and acquisitions. It is an effective way to transfer ownership of a contract from one party to another. However, the process of contract assignment can vary depending on the law governing the contract. This article explores the assignment of contracts under English law.
What is Contract Assignment?
Contract assignment is a transfer of the rights and obligations under a contract from one party to another, without changing the terms of the contract. It is essentially a change of parties. The party transferring the rights is known as the assignor, while the party receiving the rights is known as the assignee.
The Purpose of Contract Assignment
The aim of contract assignment is to transfer the rights and obligations under a contract from one party to another. It can be for various reasons, but most commonly for the following:
1. Business transfer: When a company sells its business, it may assign its contracts to the buyer. This ensures that the buyer takes over the obligations and rights of the contract, and the seller is released from them.
2. Debt transfer: Companies often transfer their debt to a third party. Contract assignment allows the debt to be transferred along with the rights and obligations under the contract.
3. Contractual restrictions: Some contracts have restrictions on the assignment of rights and obligations. In such cases, the assignor must seek consent from the other party before transferring the contract.
Assignment of Contracts under English Law
Under English law, contract assignment is generally permitted unless the contract prohibits it. However, there are certain rules that must be followed for the assignment to be valid.
1. Notice to the other party: The assignor must give notice of the assignment to the other party. The notice must be in writing and should clearly state that the rights and obligations under the contract have been assigned to the assignee.
2. Clause prohibiting assignment: If the contract contains a clause prohibiting assignment, the assignor must obtain the consent of the other party before transferring the contract. Consent cannot be unreasonably withheld.
3. Changes to the contract: The terms of the contract cannot be changed during the assignment process. The assignee takes on the rights and obligations of the contract in its current form.
4. Liability: The assignor remains liable for any breaches of the contract that occurred before the assignment. The assignee is liable for any breaches that occur after the assignment.
5. Third-party rights: The assignment of a contract does not affect the rights of third parties. They can still enforce their rights under the contract.
Conclusion
Contract assignment is an important process in business, and under English law, it is generally permitted unless otherwise stated in the contract. However, there are certain rules that must be followed for the assignment to be valid. Failure to follow these rules can lead to the assignment being challenged in court. Therefore, it is important for companies to seek legal advice before engaging in contract assignment.