1. What Are Assignment and Assumption?
When a contract changes hands in a business transaction, two mechanisms control how rights and obligations move from one party to another. They operate differently, and treating them as interchangeable can leave the wrong party holding liability after the deal closes.
Assignment of Rights
Assignment is the transfer of a party's contractual rights to a new party, called the assignee. The assignor gives up the right to receive the benefit under the contract, and the assignee steps in to claim it. Under New York General Obligations Law § 13-101, any claim or demand may be transferred, subject to specific statutory exceptions.
Common applications include:
- Transferring the right to receive payment under a service agreement
- Assigning a commercial lease to a new tenant
- Transferring intellectual property license rights during a business sale
Assumption of Obligations
Assumption is the transfer of contractual duties. When a party assumes a contract, they agree to perform the obligations the original party owed. Unlike assignment, assumption requires the assuming party to affirmatively accept the burden of performance, and the other contracting party's acknowledgment is usually required.
How They Work Together
In most business transactions, assignment and assumption occur together through a single assignment and assumption agreement. One party transfers both the benefits and the burdens of a contract to a new party, who steps into that role going forward.
2. Assignment Vs. Assumption Vs. Novation
Each mechanism transfers different things and leaves different liability exposure behind. Choosing the wrong one, or assuming all three are equivalent, is one of the more expensive mistakes in a contract transfer.
| Mechanism | What Transfers | Original Party Released? | Counterparty Consent Required? |
| Assignment only | Rights | No | Generally not required |
| Assumption only | Obligations | No | Often required |
| Assignment + Assumption | Both | No, unless expressly agreed | Depends on contract terms |
| Novation | Both, with substitution | Yes, fully | Yes, all parties must consent |
Assignment only
- What TransfersRights
- Original Party Released?No
- Counterparty Consent Required?Generally not required
Assumption only
- What TransfersObligations
- Original Party Released?No
- Counterparty Consent Required?Often required
Assignment + Assumption
- What TransfersBoth
- Original Party Released?No, unless expressly agreed
- Counterparty Consent Required?Depends on contract terms
Novation
- What TransfersBoth, with substitution
- Original Party Released?Yes, fully
- Counterparty Consent Required?Yes, all parties must consent
Under New York law, novation requires the express consent of all original parties and a clear intent to substitute a new obligor and extinguish the original obligation entirely. Without that agreement, the original party remains secondarily liable even after a transfer is complete.
3. Consent Requirements and Anti-Assignment Clauses
Most commercial contracts include language that restricts how, and whether, they can be transferred. Before any assignment moves forward, those restrictions need to be identified and addressed, because the consequences of missing them are not minor.
When Consent Is Required
Anti-assignment clauses prohibit one party from assigning the contract without prior written consent from the other party. New York courts have consistently enforced these provisions. In Allhusen v. Caristo Construction Corp., 303 N.Y. 446 (1952), the Court of Appeals held that a clear and unambiguous anti-assignment clause renders an unauthorized assignment void.
Before any contract transfer, our attorneys review the full agreement to identify:
- Explicit anti-assignment language and its scope
- Required consent notice periods and timing obligations
- Change-of-control clauses that a merger or acquisition may trigger
The Ucc § 9-406 Exception
New York UCC § 9-406 carves out an important exception for commercial financing: restrictions on the assignment of accounts receivable, payment intangibles, and promissory notes are unenforceable against a secured party or financial assignee, regardless of what the underlying contract says. This rule comes up regularly in asset purchase transactions and receivables-based financing arrangements, where payment rights commonly serve as collateral.
Waiver and Estoppel
Even a valid anti-assignment clause can become unenforceable if the non-assigning party waives it through conduct, such as continuing to perform under the contract after learning of an unauthorized transfer. New York courts may find waiver through continued performance alone. Our firm advises clients to obtain express written waivers rather than relying on implied consent, which is difficult to prove and easy to dispute.
4. Liability Allocation after the Transfer
Completing an assignment and assumption does not automatically clear the original party's exposure. How liability is allocated after closing depends on the contract language and what the counterparty has agreed to release.
Ongoing Obligations of the Original Party
A common misconception is that an assignment and assumption moves all liability away from the assignor. It does not, unless the counterparty expressly releases them. The original assignor typically remains secondarily liable if the assignee fails to perform.
Indemnification provisions in the assignment agreement are the primary tool for managing this risk. A well-drafted clause should:
- Specify which party bears responsibility for pre-closing obligations
- Define the scope and duration of post-closing indemnification
- Set notice requirements, survival periods, and liability caps
Successor Liability Exposure
In New York, a buyer who acquires business assets through assignment and assumption may inherit certain liabilities of the seller without expressly assuming them. This risk arises most often in product liability, environmental, and tax contexts. Legal due diligence before closing is the practical way to surface those exposures before they attach to the buyer.
5. Assignment and Assumption in M&A Transactions
In a business acquisition, assignment and assumption does not operate in isolation. It sits inside the deal structure and interacts with purchase agreement representations, closing conditions, and post-closing obligations all at once.
Integration with Purchase Agreements
In mergers and acquisitions, assignment and assumption is typically integrated into the purchase agreement, with schedules identifying which contracts transfer, which require third-party consent, and which will not carry over at all.
Asset deals require individual assignment of each contract. Unlike a stock purchase, where the entity and its contracts carry over automatically, an asset sale requires the seller to assign each contract separately and the buyer to formally assume the corresponding obligations.
Key considerations include:
- Identifying all material contracts subject to anti-assignment clauses before signing
- Obtaining counterparty consents before the closing date
- Addressing contracts where consent cannot be obtained through alternative arrangements, such as cooperation covenants or sub-licensing
Representations, Warranties, and Consent
Closing without required consents can expose both parties to breach of contract claims from the affected counterparty. Assignment agreements in M&A transactions should include seller representations confirming that all necessary consents have been obtained and that no default exists under the assigned contracts as of the closing date.
6. Frequently Asked Questions
Does assignment and assumption require consent from the other contracting party?
It depends on the contract. If the agreement contains an anti-assignment clause, written consent from the counterparty is required before any transfer takes place. Our attorneys identify these requirements during due diligence and manage the consent process for clients.
What happens if an assignment violates an anti-assignment clause?
Under New York law, an unauthorized assignment that violates a clear anti-assignment clause may be unenforceable or void as against the non-assigning party, depending on the contract and circumstances.” The non-assigning party may also have a breach of contract claim, which can create liability for both the assignor and the assignee.
Does the original party remain liable after completing an assignment and assumption?
Unless the counterparty expressly releases the original party through a novation, the assignor may remain secondarily liable if the assignee defaults. Indemnification provisions in the assignment agreement allocate that residual risk between the parties.
How does New York UCC § 9-406 affect anti-assignment clauses in financing transactions?
New York UCC § 9-406 limits the effect of certain anti-assignment restrictions for specified receivables and payment rights, subject to the statute’s exceptions and conditions.
Contract transfers carry legal and financial consequences that extend well beyond closing. Our attorneys work with businesses at every stage of the process, from reviewing anti-assignment clauses and managing third-party consent timelines to drafting indemnification provisions and identifying successor liability risks before they become the buyer's problem.
If your business is buying or selling assets, restructuring a lease, or handling a contract transfer under New York law, contact our firm to discuss how to structure the transaction correctly from the start.
06 Feb, 2026
