The assignment clause in business contracts plays a crucial role in ensuring the continuity and stability of business operations while safeguarding the rights and interests of the involved parties.

I. Importance of the assignment clause in business contracts

The assignment clause in business contracts allows the parties to flexibly assign rights and obligations to a third party, thereby maintaining business continuity and protecting the legitimate interests of all relevant parties.

In a market economy governed by competition and integration, business contracts are important for commercial transactions. However, during contract performance, there may arise a need to change the contracting party to maintain stability and continuity in production and business activities. Hence, the assignment clause has become an essential provision that must be clearly and precisely stipulated in contracts.

II. Legal provisions on the assignment clause in business contracts

To ensure legality and enforceability, the assignment clause in business contracts must be based on applicable laws. These legal provisions not only establish a clear legal framework for contract assignment but also determine the scope of rights, obligations, and liabilities of the parties in each specific case.

1. Definition of the assignment clause in business contracts

An assignment clause in a business contract refers to a contractual provision under which one party may transfer all or part of its rights and obligations arising from the contract to a third party, in accordance with the conditions, procedures, and formalities provided by law or agreed upon by the parties.

2. Conditions for assigning business contracts 

Current laws impose strict conditions to ensure transparency and legality in contract assignment. Pursuant to Article 365 of the Civil Code 2015:

  • A party entitled to demand performance of an obligation may transfer such right to another person (the transferee) pursuant to an agreement, except in the following cases: (i) the right to demand alimony or compensation for damage to life, health, honor, dignity, or reputation; or (ii) where the parties have agreed or the law provides that such right may not be transferred.
  • Upon assignment, the transferee becomes the person entitled to demand performance of the obligation. The assignment does not require the consent of the obligor. However, the assignor must notify the obligor in writing of the assignment, unless otherwise agreed. Failure to notify, leading to costs incurred by the obligor, shall require the assignor to take those costs.
  • Certain rights, such as the right to demand alimony or compensation for personal injury or moral damage, are not transferable.

In addition, Article 370 of the Civil Code 2015 provides for the transfer of obligations:

  • An obligor may transfer its obligation to another person (the substitute obligor) with the consent of the obligee, except where the obligation is personal to the obligor or where otherwise prohibited by law.
  • Once the transfer is completed, the substitute obligor becomes the obligor under the contract.

For real estate business contracts, Article 50 of the Law on Real Estate Business, No. 29/2023/QH15 stipulates that:

  • The assignment of contracts for the sale, purchase, or lease-purchase of a house or construction work must satisfy the following conditions: The certificate of land use right has not yet been applied for; the property is not subject to dispute, seizure, or mortgage (unless the mortgagee consents); and the original sale or lease-purchase contract is lawful.

3. Rights of the parties when assigning a business contract

In addition to the above conditions, the law also specifies the rights and obligations of the parties when a contract is assigned, particularly in the real estate business sector.

Under Clause 2, Article 51 of the Law on Real Estate Business 2023:

  • When a contract is assigned, the assignee inherits all rights and obligations of the assignor for the other contracting party, unless otherwise agreed.
  • The project developer (in real estate contracts) must facilitate the assignment and is prohibited from collecting any fees related to the assignment.

III. Clarifications on common issues regarding the assignment clause in business contracts

1. Is consent from the other contracting party required for assignment?

One common concern is whether the other party must consent to the assignment.

  • According to Clause 2, Article 365 of the Civil Code 2015, the assignment of rights does not require the obligor’s consent, unless otherwise agreed or prescribed by law.
  • However, the assignment of obligations (e.g., payment or performance obligations) typically requires the consent of the other party, unless otherwise stipulated by law or contract.

2. Are rights and obligations related to secured assets transferred with the assignment?

A practical question arises when a contract involves security measures such as mortgages or pledges, whether these security-related rights and obligations are also transferred. According to Clause 2, Article 14 of Circular No. 09/2015/TT-NHNN (as amended by Clause 9, Article 1 of Circular No. 18/2022/TT-NHNN), the rights and obligations regarding secured assets (if any) shall also be transferred to the assignee in accordance with the laws on secured transactions and related regulations.

Thus, all rights and obligations attached to secured assets are transferred together with the contract to ensure consistency and completeness.

3. Can the assignment clause provide for joint liability of the assignor after assignment?

In some cases, the non-assigning party may be concerned about the assignee’s ability to perform the contractual obligations.

Under Article 367 of the Civil Code 2015, the assignor shall not be liable for the performance capacity of the obligor after the assignment, unless otherwise agreed. Therefore, the parties may agree that the assignor remains jointly liable even after assignment.

4. Can a contract be assigned without the other party’s consent?

In certain situations, one party may unilaterally assign the contract without the other party’s consent. As noted above, assignment of rights generally does not require consent unless agreed or prescribed otherwise by law, whereas transfer of obligations typically does require consent.

The main distinction lies in differentiating between the assignment of rights and obligations. Notification duties, post-assignment liabilities, and security arrangements are crucial factors to mitigate legal risks.

IV. Legal consulting services on assignment clauses in business contracts

Organizations and individuals may seek assistance from legal consulting centers or law firms for advice, drafting, and reviewing assignment clauses in business contracts to ensure compliance and protection of their rights.

The assignment clause is a vital part of any business contract and must be drafted with clarity and compliance with relevant laws, including the Civil Code, the Law on Real Estate Business, financial regulations, and secured transaction laws. When implementing an assignment, the parties should pay careful attention to conditions, procedures, and related rights and obligations to avoid potential legal risks.

One reputable law firm in this area is NP Law, which has a team of experienced lawyers specializing in contract and investment law. NP Law provides comprehensive support in advisory, drafting, dispute resolution, and negotiation services to minimize legal risks for clients.