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Chapter - 3 Assignment and Novation 39627 674

This document discusses assignment and novation of contracts. It defines assignment as the transfer of one party's rights in a contract to a third party, without transferring obligations. The party transferring rights is the assignor and the party receiving rights is the assignee. Novation is the transfer of a party's obligations to a third party. It requires consent and creates a new contract, extinguishing the old one. Assignment can be of rights alone or of obligations through novation. It can occur by act of parties or by operation of law, such as death. Key terms discussed include assignor, assignee, obligor, and obligee.

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58 views14 pages

Chapter - 3 Assignment and Novation 39627 674

This document discusses assignment and novation of contracts. It defines assignment as the transfer of one party's rights in a contract to a third party, without transferring obligations. The party transferring rights is the assignor and the party receiving rights is the assignee. Novation is the transfer of a party's obligations to a third party. It requires consent and creates a new contract, extinguishing the old one. Assignment can be of rights alone or of obligations through novation. It can occur by act of parties or by operation of law, such as death. Key terms discussed include assignor, assignee, obligor, and obligee.

Uploaded by

Abidullah
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Chapter - 3

ASSIGNMENT
AND NOVATION

OF CONTRACT
Assignment
• Each contract creates certain rights
and obligations to be performed.
• When the rights are transferred to
some other party, it is technically
called “Assignment”.
• An agreement that transfers one
party’s rights in a contract but not its
obligations or liabilities to a third
party is called an assignment.

2
Cont …

• In such process, the party that


transfers the rights, is called
“Assignor” and to whom the rights
are transferred is known as
‘Assignee’.
• In this way the original party ‘the
assignor’ is released from such
rights under the contract and is
replaced by a new party known
assignee or transferee
3
Cont …
• For example, Azizi Bank and B have an
agreement for the provision by B of office
cleaning services in Azizi Bank offices. B wants
to transfer its right to receive payment for
services rendered to the Azizi Bank to a third
party C. For this to occur B will need to assign
its rights to receive payment to C by means of a
deed of assignment between B and C. This can
occur without any involvement from the Azizi
Bank if the agreement does not provide for Azizi
Bank consent. Importantly, B continues to
remain a party to the contract with the Azizi
Bank i.e. B is still obliged to perform the
services and B’s contractual liabilities remain
unchanged.
4
Divisions of Assignment
Assignment of contract can be divided into
two divisions,
1. Assignment of rights
2. Assignment of obligations.
1. Assignment of rights. When the party
that holds some rights and transfers
them to third party is called Assignment
of Rights. It is the complete transfer of
the rights to receive the benefits.

5
Contd …
• For example, if Party A contracts to
sell his car to Party B for $10,000,
Party A can later assign the benefits
of the contract i.e., the right to
receive $10,000 - to Party C. In this
scenario, Party A is the Assignor,
Party B is an obligor, and Party C
is the assignee/obligee a new
owner.

6
Contd ..
However an Assignment of rights only
transfers the rights/benefits to a new
owner. The obligations remain with the
previous owner.
2. Assignment of obligation: When the
party that owes to perform certain
obligations called ‘obligor’ transfers
his obligation to third party, the process
is known as ‘Novation’. The party to
whom obligations are performed is
called ‘Obligee’.

7
Contd …
• Novation is a contractual process which
transfers all duties and obligations from
the original ‘obligor’ to the new obligor.
For example: if there exists a contract
where Khan will give a TV to Jamal, and
another contract where Jamal will give a
TV to Reshad, then, it is possible to
novate both contracts and replace them
with a single contract wherein Khan
agrees to give a TV to Reshad.

8
Contd ..
• Novation is either
1. Replacement of obligation with new
obligation” or
2. Replacement of party with a new party

• In the process of novation there is


a substitution of a new contract
and the old contract disappears
and rights and obligations under it
are extinguished.
Remaining on next page …

9
Modes of Assignment of Contract
Assignment of contract can be
classified into two ways. Assignment by
act of parties and Assignment by operation
of law
1. Assignment by act of parties: The
burden of liability of a contract cannot be
assigned without the consent of the other
party, that is, promisee cannot be
compelled by the promisor or by any other
party to accept performance of the
contract
10
Contd ...
2. Assignment by operation of law: The
transfer of contractual rights and
obligations may also take place by
operation of law. For example

• On the death of party to the contract all


contractual rights and liabilities pass to
the deceased’s representatives except
contract of personal services.

11
Rules regarding Assignment
• Certain rules have been laid down in
the assignment of contract which are as
follow ..
The burden of a contract cannot be
assigned without the consent of the
other party to the contract.

12
Contd …

The benefit of a contract may be


assigned even without the consent of
the other party to the contract but the
assignment deed should be there and
showed to the party.
In case of Novation the consent of the
first party should be taken and a new
contract should be made.

13
Exercise
1. Define the term Assignment of a Contract
2. What is the difference between Assignment
and Novation? Give examples
3. By how many ways Assignment of a contract
may take place? (Modes of Assignment)
4. Define the following with examples
1. Assignor
2. Assignee
3. Obligee
4. Obligor

14

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