Copyright

Contract Assignment: Definition and Involved Parties

An error occurred trying to load this video.

Try refreshing the page, or contact customer support.

Coming up next: Parties in an Assignment: Rights of the Assignee, Assignor & Obligor

You're on a roll. Keep up the good work!

Take Quiz Watch Next Lesson
 Replay
Your next lesson will play in 10 seconds
  • 0:48 Parties to an Assignment
  • 2:14 Assignment of Rights
  • 4:12 Assignor/Assignee and…
  • 6:31 Restrictions on Assignment
  • 7:28 Certain Contracts Not…
  • 10:12 Lesson Summary
Save Save Save

Want to watch this again later?

Log in or sign up to add this lesson to a Custom Course.

Log in or Sign up

Timeline
Autoplay
Autoplay
Speed Speed

Recommended Lessons and Courses for You

Lesson Transcript
Instructor: Ashley Dugger

Ashley has a JD degree and is an attorney. She has taught and written various law courses.

Contract assignment occurs when one party to a contract gives the obligations and benefits of the contract to another party. Assignment of rights occurs when one party to a contract gives the benefits of the contract to another party. This lesson explains what an assignment is and what parties are involved.

Contract Assignment

There are two types of assignments involving contracts. The first is a contract assignment. A contract assignment means that a party to the contract assigns the entire contract to another party. This means that the party gives the obligations and benefits of an existing contract to another party. This situation occurs when a party to a contract wants another party to completely step in and fulfill the contract.

The ability to assign a contract to another party is a fairly common practice in contracts law. This type of assignment is common in a wide variety of different contract situations.

Parties to an Assignment

There will generally be at least three parties involved in a contract assignment. First, there will be at least two original parties to the existing contract. Let's call these parties Pink and Blue. Then, there will be a third party, who is assigned the contract. Let's call this party Yellow.

Let's say Pink and Blue enter a contract, where Pink is to provide Blue with one pallet of St. Augustine sod grass. In return, Blue will pay Pink for the grass. Now, let's say Pink is unable to locate the St. Augustine grass. He can only find Bermuda grass.

Pink's friend, Yellow, owns a gardening center. Yellow has the St. Augustine sod in stock at his store. So Pink agrees to let Yellow fulfill his contract with Blue. Pink notifies Blue that Yellow will now be fulfilling the contract. This means that Pink assigns Yellow both the obligations and the benefits under his contract with Blue.

In this scenario, Pink is the assignor, since he was the original party to the contract with Blue. Yellow is the assignee, since he now possesses the rights and obligations of the contract with Blue. Yellow is now obligated to provide Blue with the St. Augustine grass, and Blue is now obligated to pay Yellow.

Assignment of Rights

There is also a second type of assignment. Sometimes, an assignor will only make an assignment of rights. This means that the original party remains obligated to fulfill the contract, but another party receives the contractual benefits.

Let's change our scenario a little bit. This time, Pink has the St. Augustine grass and is perfectly willing and able to provide the grass to Blue. But Pink and Yellow worked together on another house, and Pink still owes Yellow for Yellow's work on that project. Pink later asks Blue to please pay Yellow for the grass, instead of paying Pink. Now Blue has an obligation to pay Yellow, even though Yellow has no obligation to Blue.

In this scenario, Pink is the assignor, since he was the original party to the contract with Blue. Yellow is the assignee, since he now possesses the benefit of the contract with Blue.

Pink is still obligated to provide Blue with the St. Augustine grass. Nothing there has changed. But now there is a new obligation. Blue is now obligated to pay Yellow. This means that Blue is an obligor, since this contract was written to profit Yellow, and Yellow is an obligee.

An assignment of rights can be made as a gift. When an assignee assigns the benefit of a contract as a gift, it's known as a donative assignment. Otherwise, as we have in our scenario, the assignment is an exchange. Yellow previously did work for Pink, so Pink will have Yellow paid for that work.

Donative assignments can be revoked. This means that the assignor can change his mind and take back the rights. Generally, assignments aren't revocable, except that the death or bankruptcy of an assignee will automatically revoke the assignment.

Assignor and Assignee

Let's revisit our scenario and take a closer look at the parties involved. Pink is an original party to the contract and is the assignor. An assignor can be an individual, a group, or a business.

The assignor is the party that transfers its contractual rights to another party. In a contract assignment, this means that the party transfers both the contractual obligations and the contractual benefits. In an assignment of rights, this means that the party transfers just the benefit of the contract.

In our scenario, the contractual obligation is the obligation to provide Blue with the St. Augustine sod. The contractual benefit is the benefit to be paid for the sod.

Yellow is the assignee. An assignee can be an individual, a group, or a business.

The assignee is the party that receives the rights and obligations under the contract, but wasn't an original party to the contract. Usually, an assignee receives the contract rights and obligations directly from an original party to the contract.

Obligor and Obligee

In our second scenario, when Pink assigns only his rights under the contract, Blue becomes the obligor. Blue is now obligated to pay Yellow. An obligor is a party that is obligated to do something under the terms of a contract.

You will sometimes hear the term 'obligor' used to describe a 'borrower' or a 'debtor.' This is common because many contracts are debt contracts, but it's important to note that obligors can be required to do something other than repay debt. Obligors can be obligated to perform a particular task or even to refrain from a particular activity.

Whenever we have an assignment and an obligor, we'll have an obligee. In our second scenario, Yellow is the obligee. An obligee benefits from the obligor's obligation. Yellow is our obligee because the assignment was made to profit Yellow, even though Yellow isn't considered to be a third party beneficiary. Yellow isn't a third party beneficiary because the original contract wasn't written in order to benefit Yellow.

Restrictions on Assignment

There are many different restrictions on assignments. First, an assignment can only be for present rights. This means that Pink can only assign his rights to Yellow after Pink has those rights. A promise to assign future rights is void. So Pink can't assign his rights before his contract with Blue is made.

To unlock this lesson you must be a Study.com Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use Study.com

Become a Study.com member and start learning now.
Become a Member  Back
What teachers are saying about Study.com
Try it risk-free for 30 days

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it risk-free for 30 days!
Create an account
Support