The difference between rights and responsibilities under a contract is sometimes important. When a contract is transferred from one person to another, the type of transfer determines what aspects of the contract pass.
If a contract is assigned, the rights under the contract are passed on. So, for example, an author could enter into a contract to assign future royalties to someone else.
When a contract’s responsibilities are also passed on, the practical effect is that the new owner of the contract acquires all the rights and responsibilities of the former owner. This is a critical difference where there is something which must be done in order to benefit from the rights under the contract.
A recent case involving a property transaction illustrates the difference. It involved a man who had contracted to sell a property to German supermarket chain Lidl. The man had previously entered into a contract to buy the property and that contract was passed to Lidl. He was entitled to retain £100,000 of the purchase consideration until certain construction works were completed. When the works were completed, he was entitled to retain half of the further costs from the sum retained and required to pass the balance on to the original owner.
There was a similar term in his contract of sale with Lidl. However, in the case of the contract with Lidl, the company was entitled to retain the whole of the cost of the further works from the payment.
Lidl retained £100,000 from the payment to the man. When the further works were completed, he claimed that these had cost more than £200,000. He refused to pay any of the retention monies to the original owner.
The court had to decide whether the benefit which passed to Lidl under the assigned contract required it to perform the man’s obligations under the original contract. It ruled that it did not. The obligations remained for him to perform and were not passed on to Lidl.
For advice please contact Roger Sands 01752 292316