When engaging in business and commercial relationships, the demand to transfer contractual rights and obligations always exists. So what should contracting parties know about such transfer? Through this article, BLawyers Vietnam will present several notable points on the transfer of rights and obligations in a contract.
1. What is a transfer of rights and obligations in a contract?
Transfer of the right to demand means a party with rights to demand (transferor) in a civil transaction reaches an agreement with a third party to transfer such right to the third party. The transfer of the right to demand does not require the consent of the obligor. After the transfer, the third party (transferee) will have the right to demand the obligor perform its obligation under the original transactions between the transferor and the obligor.
In contrast, transfer of obligations means an obligor transfers its obligation to a third party as agreed, but with the consent of the obligee. The transferee in this case will become a new obligor who must fulfill obligations for the benefit of the obligee.
Thus, the transfer of rights and obligations in contracts is understood as an agreement in which one party transfers both the rights and obligations under an original contract to a third party. The original contract remains with exactly the same rights and obligations but one party to the contract has been replaced unless otherwise agreed or prescribed by law.
In practice, the transfer of rights and obligations is a commonly used method when one party does not want or is unable to continue to perform the contract but does not prefer to apply the mechanism of unilateral termination of the contract ahead of time. Because unilateral termination may result in compensation for damage and other sanctions.
2. How to transfer rights and obligations in a contract?
In order to transfer rights and obligations in a contract, there are three main conditions that must be satisfied:
- Transferred rights and obligations must come from a valid contract;
- There is an agreement among parties on the transfer of rights and obligations;
- Transferred rights and obligations do not fall into cases where the law prohibits transferring.
Therefore, to implement to transfer legally, involved parties shall follow these steps: (a) Check (i) and (iii) conditions above; (b) Reach a written agreement on the transfer among all the involved parties; (c) Hand over relevant dossiers and documents to the third party.
The most difficult process in the transfer is getting all the parties to the table to reach an agreement. Because it is hard for the transferor to convince the other original party (remaining party) to accept the transferee to carry on the contract. It is of the remaining party’s concern that the transferee’s ability to perform the contract is not as good as the transferor. Therefore, in some cases, the remaining party may want certain assurances from the transferor.
3. What happens after the transfer?
The law provides that in case of transfer the right to demand, the transferor shall not be liable for the capability of the obligor to perform the obligation after the transfer. In case of transfer obligations, the law does not mention the liability of the transferor for the performance of obligations of the transferee.
However, in principle, after the transfer, the transferor is no longer a party to a contract, the transferor thus releases itself from any liability and claims in respect of the original contract. Therefore, the transferee shall be liable for all the rights and obligations under the contract, unless the transferor agrees to be liable for the transferee’s performance.
In conclusion, the law does not provide any specific regulations on the transfer of rights and obligations in a contract. Contracting parties are free to agree on most of the issues related to the transfer. Therefore, it is essential for contracting parties to consult the experienced to conduct the transfer legally.
The above is not official advice from BLawyers Vietnam. If you have any questions or suggestions about the above, please contact us at email@example.com. We would love to hear from you.
Date: 10 July 2023
Writer: BLawyers Vietnam