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Tata Consultancy Services (TCS)
2019-10-15 03:48:28

Assigned vs Novated Contracts

Can someone please clarify whether there is any difference between "assignment" and "novation" of Contracts? I've seen many contracts where the word "assignment" has been used and in other contracts the word "novation" has been used. Sometimes, both are used.

For Example:
"Third Party Agreements which the parties have agreed will be assigned (or novated) to the Service Provider, and for which the Service Provider is thereafter liable..."

In the above example, I'm not sure why both the terms "assigned" and "novated" have been used if both have same contractual meaning. I think for both assignment and novation, the Service Provider has to novate the existing contract between the Customer and Customer's Third Party and will be fully responsible for the novated Contract going forward.

Please correct me if this is not the right understanding.
 •  Legal and Commercial Training Limited  •   2019-10-25 07:13:07
NOVATION. A contact is between A and B. The contract is to be notated to C. This will require a try-partite agreement so that A and B and C will all have to agree. The effect of the novation is that A, B and C will agree that in future the contract will be effective as between B and C (with A no longer a party). A novation will, therefore, transfer to C the benefit and the burden of the contract

ASSIGNMENT. A contract is between A and B. A intends to assign the contract to C. The is a bi-partite agreement between A and B. A will assign the contract to C.

However, A can only assign the 'benefit' of the contract and not the 'burden'.

For example, if, under the contract, A is to to provide services to B and B is to provide benefits to A, the effect of an assignment will be as follows: B will be required post-assignment to provide the benefits to C. However, A will still be contractually obliged to ensure that the services will be provided to B. So if C does not provide those services to B, B will be able to take action against A.

Therefore, A will have assigned the benefit but will remain liable for the burden. Therefore, when A assigns the benefit to C, A will require C to give A an indemnity for any non-performance by C.
 •  Tata Consultancy Services (TCS)  •   2019-11-01 05:00:51
Thanks a lot Michael for such a clear explanation.
Replies: 2