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How assignment contracts works?

27th June 2012
By Clark_Taylor in Law
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Assignment agreements are used to transfer one or more contracts between parties.
In English contract law; an assignment involves an 'assignor', transferring some or all of its rights under a contract to an 'assignee'. An assignment in itself does not create a contract between the assignee and the non-assigning party, nor does it make assignee a party to the original contract. The benefit of a contract (for example the right to receive payment or profits or the benefit of goods or services) may be assigned to a third party, unless the contract is a personal contract or the contract contains a restriction on assignment.
Assignment and Novation
As mentioned earlier; in assignment, assignee need to arrange asset support in order to carry out the assignment, whereas novation on other hand provide contractors a way out to transfer there liabilities or operations to a third party. A novation agreement is a tripartite agreement between the original contracting parties and the incoming party and amounts to a termination of the original contract and its replacement by a contract between the customer and incoming supplier.

Then why is there the need for Novation
This form of assignment is most commonly used when a large number of contracts are transferred from one business to another for example if Vodafone outsource its customer care services to any other call center. Let us consider three parties involved in an agreement i.e. A, B, C. The basic law is that without B agreeing, A cannot transfer to C the obligations he has under a contract with B. So, all three parties enter into a “novation” agreement whereby the proposed transfer is made with B’s permission. Most businesses that need to set up multiple contracts make sure the terms of the contract allow them to assign the contract without permission of B. In those cases, an agreement like this one can be used.
If your multiple agreements do not include this provision, you may still wish to use this agreement and take the small risk that some subscribers or users may walk away. If they do not, but instead carry on as before and make their next payment to the new owner, they are, in law, affirming the contract with the new owner, and all is well.

Things to look out in Assignment
Assignments may turn risky if the benefit of contract which is being assigned, may contain an absolute or qualified prohibition on assignment (for example that that there may be no assignment without the written consent of the third party). An assignment in breach of the prohibition will usually amount to a material breach of contract permitting the third party to terminate, even without the presence of a specific right of termination in such circumstances. The aggrieved third party may seek damages or an injunction.
Assignments characteristics
To be effective as a legal assignment, the assignment must:

Be absolute (an unconditional assignment of the entire right, not by way of charge only).
Be made in writing and signed by the assignor.
Relate only to ascertainable benefits.
Be notified in writing to the third party.

Assignment agreement features and contents

Suitable when either party is resident outside the England.
Comprehensive provisions provide ideas for you to mould.
Letter to customers included so that you can ensure a successful future relationship with your new clients.

The assignment agreement contains the following sections:

Details of the parties.
The assignment.
Existing claims: sets out how outstanding claims will be dealt with.
Other usual legal provisions.

It is important when entering into a termination and settlement agreement that consideration is given to any supplementary contracts or sub-contracts, which are vital to the subject matter of the contract being terminated. For example, from a service provider's perspective it needs to ensure that the sub-contracts are validly novated to the party taking over the performance of the contract, otherwise it could retain liability under them even after the settlement has been concluded.
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