What is Assignment of contracts? Assignment of contracts means to transfer of the contractual rights and liabilities to a third party with or without the consent of the other party to the contract.
The person who makes an assignment of contracts (transfers right obligations) is called assignor and the person to whom a contract is assigned is called assignee.
The contract Act of Pakistan is silent about the rules with regard to the assignment of contracts but the courts have applied the rules as follows:
Assignment of Contract Examples and Rules
Contracts Require Personal Skills
All the contracts the performance of which depends on the’ Personal skills and qualification of the cannot be assigned to other because it is not necessary that the person to whom Such contract is assigned has the same Skill and qualification.
See Also: What is Performance of Contract
Illustration
A partner enters into an agreement to paint a picture for B. Now A cannot legally be assigned this work to any other person.
Consent of Promisee
The promisor cannot transfer his liabilities to the third party without the consent of the promisee.
When the promisee allows the assignment of the liabilities to the third party, it is called novation of the contract. It means that old contract has been substituted with a new one.
Illustration
A has to pay $1000 under a contract to B, A cannot transfer his liability to C unless B agrees to collect this amount from C.
If B agrees to collect this amount from C now the contractual liability stands transferred from A to C.
Assignment by the Promisee
The person for whom a contract is to be performed can assign his rights to the third party unless the contract is of personal nature or such assignment has been banned by an agreement.
Under such assignment, the assignee can demand the performance of the contract just like an actual promisee.
It is equal either the promisor performs the contract for the actual promisee or for such assignee. The assignee has all the rights and obligations (all equities) as the assignor has.
It means that the promisor (debtor) may plead against the assignee all defenses that he could have pleaded against the assignor.
See Also: What is Quasi Contract
Illustration:
A’s consent to pay $1000 to B has been obtained by the fraud of B. B assigns his rights to receive $1000 to C by receiving value.
A is entitled to resind the contract inequality even though C is an innocent bonafide assignee.
Assignment of an Actionable Claim
An actionable claim means a debt or beneficial interest a movable property which is not in the possession of the claimant and upon which legal action can be taken by the claimant.
The actionable claim can be assigned to the third party but such assignment must be made by an instrument in writing. There is no need to give notice of such assignment to the debtor.
Illustration
A has sold his car to B and has taken a Promissory Note for the payment after three months. A can assign (transfer) this promissory note to C for the recovery of an amount at a due date.
If B refuses to make payment, C can take legal action against B with his own name for the recovery of money.
Assignment by Operation of Law
Assignment by operation of law takes place in cases of death and insolvency. Upon the death of a party, all the contractual rights and duties of the deceased party are legally transferred to his legal representatives unless contract depends on the personal qualifications and skills of the deceased party.
See Also: What is Contingent Contract
In case of insolvency, all rights and liabilities of the insolvent pass to the official assignee or receiver, as the case may be.
Illustration:
A sold 1000 unit of his product to B for $10 each. It was further agreed that A would deliver goods after one month on advance payment in the meanwhile, A died and C the son of A takes possession of the business of A.
Now all the rights and duties of A would be legally assigned to C and C is legally bound to perform the contract.
Illustration
A, a businessman becomes insolvent and B is appointed as liquidator by a court of law for the sale of A’s property to pay a ratable dividend to all his creditors. Now all the rights and duties of A will be legally assigned to B.
