What is an Assumption Agreement? An assumption agreement is an agreement whereby a contractual debt or an obligation of one person is assumed by another person. Through this agreement one party agrees to assume the interests, responsibilities, rights and obligations of another party with respect to a separate agreement made between the latter and a third party.
The party who is assigning his or her rights is called the Assignor and the party who is receiving these rights is known as the Assignee. This agreement is also called an ‘assignment and assumption agreement’ or alternatively an ‘assignment agreement’.
When Do You Need an Assumption Agreement?
An assumption agreement is needed when a party to a contract is unable to fulfill his rights and duties under a particular contract and wants to transfer these rights and duties to a different person. A party may no longer be able to perform his part of the contract due to a change in his equity or liquidity, the viability of his business or due to any other reason. In such a circumstance it becomes necessary that an incapable party is replaced with a party who is able to satisfy the obligations and exercise the rights under the contract.
Hence, the purpose of the assumption agreement is to make sure that the purpose for which the original contract was entered into is achieved and that a person who is able to perform the contract in a better manner is made a liable party to it.
Inclusions in an Assumption Agreement
The agreement must clearly state the names of the parties between whom the agreement is entered into. This will include the Assignor and the Assignee. The date on which the agreement is entered into must also be mentioned along with the territory in which the agreement is enforceable.
The agreement must clearly show that the Assignor is transferring and the Assignee is receiving the rights and duties under the original contract. The date on which the assignment shall be deemed to be complete must also be mentioned in the agreement.
Apart from this, the agreement must clearly mention under which law it will be governed and how the agreement shall be terminated. The manner in which the agreement is to be modified should also be described.
How to Draft an Assumption Agreement?
An assumption agreement sample may be used as a reference for drafting such contracts. The following points should be considered while drafting these contracts.
- First, the parties must go through the original contract to make sure that they are complying with the contract’s requirements for assignments and assumptions. Some contracts have specific rules as to what types of assignments are allowed, to whom and how the process should be conducted. Such rules must be adhered to very strictly.
- Both parties should review the original contract and the assumption agreement to precisely understand the terms and conditions of both the agreements.
- The assignment agreement must include all the key clauses like an assumption clause, to make it effective and binding.
- Both original parties must continue to perform their duties under the original contract until the assignment agreement is signed and executed.
- Once the assumption agreement is signed it becomes a part of the original agreement and must be treated as such.
Benefits of an Assumption Agreement
- Entering into an assumption agreement helps in fulfilling the purpose of the contract and making sure that the rights and obligations under this contract are successfully carried out.
- It helps a company to successfully come out of an unfeasible situation.
- It helps to build successful business and contractual relationships.
- A written assumption agreement reduces errors and misunderstandings and lays out the parties’ rights and obligations clearly.
Consequences of Not Having an Assumption Agreement
- Sometimes a party may find it impossible to perform its part of the contract due to a variety of reasons. If the parties do not enter into an assumption agreement, it may defeat the very purpose of the agreement.
- If an incapable party continues to be a part of the contract, it may lead to the contract being frustrated.
Key Clauses in an Assumption Agreement
The following are the key terms of an assumption agreement:
- Statement of assignment
- Statement of assumption
- Consent of the other original party to the contract
- Inconsistency in the two agreements
- Conditions precedent to transfer
- Effective date of assignment
- Statement about future transfers and assignments to permitted successors
- Responsibility of prior events of default
- Continuance of original agreement
- Representations and warranties of the assignor
- Representations and warranties of the assignee
- Limitation of liability
- Indemnification and damages
- Modification of the assigned agreement
- Governing law and jurisdiction
- Termination of the agreement
What Happens in Case of Violation?
When an assumption agreement is signed it becomes a part of the original contract. Hence, when a party violates the agreement, it might be deemed to be a violation of the original agreement itself. Hence, whatever consequences are mentioned in the original contract for breach of agreement or for an event of default will apply. These consequences in the event of default may range from termination of agreement to notice for remedy of default.
Alternatively, the agreement may also state that the parties shall be required to solve any dispute arising under the agreement by means of negotiations. In case the dispute is not solved through negotiations, the parties may go in for mediation or arbitration.
The agreement can also mention that all disputes arising out of the agreement will be subject to the exclusive jurisdiction of a specified court.
Sample of an Assumption Agreement
If you require a template of an assumption agreement, you can download a sample here.
Download this USA Attorney made Original Agreement for only $9.99
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This agreement is made between the Seller and the Acquirer on the effective date of 11th November, 2011.
Seller represented by
Mr. Jason Bourne
Address: 44575 Mound Rd, Sterling Heights, MI 48314
Contact number: (586) 323-2394
Acquirer represented by:
Mr. Albert Hirsch
Address: 450 Highland Ave, Salem, MA 01970
Contact number: (508) 966-7633
Terms and Conditions:
- The Acquirer according to the Assumption Agreement hereby assumes and agrees to perform, discharge, and fulfill all obligations and liabilities arising under or pursuant to the said responsibilities as mentioned in the section 1 of the Assumption Agreement.
- The Acquirer shall defend, indemnify, and hold the Seller against, from, and with respect to any liability, claim, loss, obligation, assessment, damage, judgment, expense or cost (including reasonable attorneys’ costs, expenses, and fees reasonably incurred in preparing, investigating, prosecuting, and defending against any claim or litigation), of any character or kind arising from any incident, attributable or related to any failure on behalf of the Acquirer in fulfilling, performing, or discharging any of the said Obligations.
- The “Indemnifying Party” is not liable under the indemnities that are contained in the Section 2 of the Assumption Agreement, with respect to a claim that has been made against the “Indemnified Party” unless they are entitled to and given appropriate opportunity to participate in defending any suit or claim that has been brought against them.
This Assumption Agreement shall be active when the parties “Seller” and “Acquirer” set their seals as on the date 11/11/2011 (MM/DD/YY).
SIGNED FOR AND ON BEHALF OF SELLER BY:
SIGNED FOR AND ON BEHALF OF AQUIRER BY: