nc assignment of contract

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Is there a standard form for assigning a contract?

QUESTION: A buyer client would like to assign a contract that we have in place.  The seller has agreed.  In paragraph 15 of the Offer to Purchase and Contract, it states that the contract may not be assigned without the written consent of all parties except in the case of a tax-deferred exchange.  Is there a standard form we can use to confirm that the parties have consented to an assignment?  If not, why?

ANSWER: There is not a standard form to use when the parties to an existing purchase contract agree to an assignment of that contract. The reason is that an assignment is actually quite complicated from a legal perspective, often because there are three parties involved.

One of the issues that needs to be resolved when a contract is assigned is whether the party whose rights are being assigned (called the assignor) will continue to be liable under the contract if the person to whom the assignor’s rights are being assigned (called the assignee) does not perform. Unless the assignment agreement provides otherwise, the assignor will remain liable for the performance. Assignors should consider including an indemnity provision in the assignment stating that the assignee will indemnify the assignor for any damages the assignor incurs as a result of the assignee’s non-performance.

Assignees should consider requesting, or insisting upon, representations by the assignor that the contract being assigned is in full force and effect, and that the assignor has the legal right to assign the assignor’s contractual rights. Assignees may also want to include a provision stating that the assignee has the right to assign the contract to yet another assignee and indicating whether, in such a case, the assignor’s consent would be required.

The bottom line is that assignments are complex legal transactions. Brokers who receive an inquiry about assigning a real estate contract should never endeavor to draft an assignment. Instead, they should advise their client to consult an attorney about the legal issues involved and to draft the assignment agreement.

This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.

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Assigning Service Contracts in North Carolina

Most people assume that when they hire someone to perform a service for them, that person will deliver the service. This is not always true. In many circumstances, one party can assign its service obligations to another party. By statute, North Carolina allows one party to delegate- or assign- its obligations to perform some service under a contract to another party unless the contract prohibits assignment, or unless the non-assigning party has some substantial interest in having the originally obligated party perform the work themselves.  The idea is that assignment allows individuals and companies necessary flexibility to sell valuable contractual interests or to merge with other companies while maintaining existing rights under contracts. Sometimes a company will go out of business, but assign its contracts to another company as it divests itself of assets during the “winding down” or entity termination process.  Or, a company or service provider may merge with another company or form a partnership- or find that the company or person can no longer provide a service in a given area. Rather than terminate the contract, the service provider can assign its obligations to another company, almost always receiving some payment in exchange for the assignment.  There are many situations that can cause one service provider to wish to assign its obligations to another provider, but the way this is done is fairly standard., Most service contracts will contain language along the lines of one of the following:

• This contract may not be assigned without the express written permission of the non-assigning party, which permission shall not be unreasonably withheld.
• This contract is assignable at will.
• Party A may assign this agreement or any of its rights and obligations under this agreement, effective upon notice to party B.

If a contract is assignable with the “reasonable” permission of the other party, you may find yourself arguing over why the assignment is needed and why you may object to the assignment. Factors that a court will look at when considering whether a refusal of assignment is reasonable will include the nature of the service, the particular skill or expertise of the original service provider versus the proposed assignee, and the assignee’s reputation and history of prior performance or nonperformance.

When there is a dispute over the assignment of a contractual obligation, an important factor to be considered by the courts is what legitimate interest Party A (the non-delegating party) has in requiring Party B (the would-be delegating party) to perform the original terms of the contract. Does Party B have some specialized skill or expertise? Was Party B chosen because of its experience or reputation? Does Party A have a legitimate objection to the would-be assignee?  There is no concrete set of facts that will dictate where a court will land on this issue, but the general trend is that the more specialized the service to be performed under the contract, the less likely that a discretionary assignment will be allowed.

It is also important to note that assignment of a contract does not automatically eliminate all liability of the original, assigning party. It will remain responsible for making sure that the contractual obligations it had, and assigned, are performed by the new service provider unless there is an agreement to the contrary by the beneficiary to the service contract.

What does this mean for you? If you are a homeowner association and have hired Peaceful Waters Pool Company, this means that Peaceful Waters may be able to assign its obligations to Mediocre Pools. This can come as quite a shock to the association that spent months selecting Peaceful Waters.  The take away here is that if you hire someone to perform a service and are adamant that only they perform that service, you need to make sure that the service contract prohibits assignment, or at a minimum assignment without consent. If you are willing to allow assignment to a well-qualified party, you may wish to include specifics in the contract about when and how assignment would be acceptable, such as relevant experience or specialized training or certifications.

For assistance with these or other contractual issues, contact one of the business law attorneys at Law Firm Carolinas in our Charlotte, Greensboro, Triangle or Coastal offices.

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