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Transferring Contracts in Singapore
In any contract, the parties to the contract are more or less set in stone. Only the parties which entered into the contract are allowed to make use of the rights and held to the obligations under the contract. What happens when you want to transfer the whole contract or parts of it?
In the corporate world, it is quite common for whole contracts to be transferred to other parties who were not originally parties to the contract. This routinely happens, for example, in major corporate settlements, intellectual property matters, mergers and acquisitions and the construction industry.
Such contractual transfers play an important role in the commercial world. They allow, amongst other things, a party with insufficient resources to fully complete the contract to transfer contractual obligations to another party, and they allow a party at risk of losing the benefits of the contract (due to an errant or impecunious contractor) to find another party to replace the errant or impecunious contractor so that the contractual benefits are not lost altogether.
This article seeks to introduce the ways of transferring rights and obligations under contracts in Singapore.
2 Ways of Transferring Contracts in Singapore
A contract is transferred by, you guessed it, yet another contract!
There are two ways to transfer contracts in Singapore – Assignment and Novation.
Assignment – if what is sought is the transfer of only rights under the contract, you enter into an Assignment of the contract.
Novation – if what is sought is the transfer of both rights and obligations under the contracts, you enter into a Novation of the contract.
Let’s discuss both in more detail.
Assignments in Singapore
As mentioned before, an assignment transfers only the rights under the contract and not the obligations. The assignment thus does not have the effect of transferring the obligations under the contract. The person or entity which assigned the contract to someone else is still liable to perform all of its obligations under the contract.
Some important things to keep in mind when it comes to assignments are:
- The law treats the original assignor as the proper party to the original contract and not the assignee. If the assignor breaches the contract, the assignee is not to blame.
- Contracts of a personal nature cannot be assigned. Such contracts were predicated upon the special or highly specific nature or character of one of the parties. Examples of such contracts are employment contracts and motor insurance policies.
- Check the contract carefully to see if assignments are permitted at all in the first place. Many contracts include clauses expressly prohibiting either or both parties to the contract from assigning the contract to other parties.
- Some contracts allow for assignments but contain terms that place limits or conditions on assignments. These limits or conditions may pertain to the types (or even exact identity/ies) of assignees permitted, prior written notice to the other party, limits on the number of assignments, types of rights which may be assigned, and even consent (which may not be unreasonably withheld at times) by the other party before assignments are undertaken.
- In the absence of such clauses prohibiting assignment, contracts can usually be assigned to a third party without the consent of other parties to the contract.
- The original contract remains in place (only the rights of one party have been transferred).
- Once the assignment has properly been executed, the assignee now has a right to sue the other party to the contract for the rights it has received under the assignment. However, this can only be done by first joining the assignor as a party to the civil action.
- In the real world, what sometimes happens is that the assignee does actually take over some or all of the obligations, and the assignee will indemnify the assignor against any breach or failure to perform contractual obligations.
Need Advice ?
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At Lions Chambers LLC, we pride ourselves on being responsive. We understand that some problems need immediate attention, let us assist you.
Novations in Singapore
As mentioned before, a novation transfers both the rights and obligations under the contract to another party. In effect, what actually happens in a novation is that a new party replaces one of the original parties to the contract. The person or entity which is replaced is fully absolved of all obligations under the contract and no longer can exercise its rights under the contract.
Some important things to keep in mind when it comes to novations are:
- Since all the rights and obligations have been transferred, the earlier contract is effectively extinguished. A new contract takes its place.
- Check the contract carefully to see if novations are permitted at all in the first place. Many contracts include clauses expressly prohibiting either or both parties to the contract from novating the contract to other parties. Some contracts allow for novations but contain terms that place limits or conditions on novations. These limits or conditions may pertain to the types of novatees permitted, prior written notice to the other party, and even consent by the other party before assignments are undertaken.
- If there are no such clauses prohibiting or limiting novations, contracts may usually be novated to a third party. Unlike assignments, though, novations generally require the consent of all parties to the original contract and the new third party.
- Unlike assignments, where the original contract is retained, novations mean that all the rights and obligations are created in a new contract.
- Novations may also be found by law to have arisen through the parties’ conduct, not just by agreement.
- Consideration must be provided by the new party in return for the contract novated to it unless the novation is executed by a deed signed by all parties.
- Once the novation has been properly executed, the original outgoing party to the contract is released from all future liabilities under the contract and may not avail itself of any of the rights it previously held under the contract.
- Generally, novations do not cancel past rights and obligations under the original contract. Nevertheless, parties may agree to novate these as well.
Conclusion
Assignments and novations are important mechanisms in the law of contract and offer a convenient way with which to transfer the rights and obligations under contracts. We would strongly advise you to examine all contracts you enter into from now on to see if there are any clauses that govern such novations or assignments.
How We Can Help You
Transferring of rights & obligations under a contract has to be done correctly. The matter is not as simple as using a template online. Do speak to us if you require assistance.
Lions Chambers LLC is an established law firm in Singapore. Our team of lawyers specialise in various areas of law and will be able to assist you. Our consultations are free. Please call +65 8777 3677 or click here to WhatsApp us today.