Assignment of Corporate Contracts
The contracting parties may assign a contract where one contracting party, the “assignor,” transfers contractual obligations and benefits to another party, the “assignee.” To sustain a valid assignment, the second party to the original contract must receive adequate notice. Based on the nature and terms of a corporate contract, certain agreements may be assignable. Generally, a contract must be either bilateral or unilateral to be assignable. The right to assignment is a default rule and contracts do not need to expressly provide the right to assign. The party asserting rights under an assignment bears the burden of proof.
A contract may include terms that expressly or impliedly prohibit the right to assign. Generally, a contract includes a provision that does not allow assignment of corporate contracts if such a prohibition benefits either one of the contracting parties. Where a business changes its legal form resulting in a subsequent assignment, whether the assignment will remain valid, depends on how the assignment affects the contracting parties’ interests. This will depend largely on the specific circumstances of each case.
When an assignor completes an absolute assignment, the assignor does not maintain a claim on the contract. The assignor abandons the right to demand performance on the contract and the assignee retains the right to demand performance on the contract. Where a valid assignment takes place and is complete, both parties must agree to cancel or modify the assignment. In the event that the assignor of a contract carries a burden or obligation towards the other contracting party, the assignor cannot assign the duties without the consent of both parties. However, even in the event that the assignee assumes the underlying obligation to perform a contract, the assignor still remains secondarily liable as a guarantor for the obligation. Nonetheless, the promisee may release the assignor, or the parties may execute a release of obligation.
In the case where a contract is not assignable, breach of contract money damages or money due under the terms of the contract may be assignable. In the case of a breach of contract, the parties are no longer bound to the terms of the contract, which includes a non-assignability clause. Personal nature contracts, which require the skill, credit, or personal quality of one of the parties are generally exempt from the default rule of assignability. Such contracts, for example, include signing deals between agents, produces, directors, and authors.
The courts will generally not enforce an assignment if the assignment decreases the value of the contract or any anticipated return. Additionally, courts hesitate to enforce assignments that increase the risk for the parties to the contract. In general, courts will also look to state statutes and overriding public policy to determine whether an assignment maintains the legal standard in the jurisdiction and public policy affecting corporate laws.