Assignability: Overview, definition and example
What is assignability?
Assignability refers to the ability of one party to transfer its rights or obligations under a contract to another party. In contracts, assignability typically refers to the transfer of rights, such as the right to receive payment, or obligations, such as the duty to perform a service, to a third party. Some contracts may allow for full assignability, while others may restrict or prohibit assignment to ensure that the original parties to the contract retain control over the relationship.
For example, a business may assign its rights to receive payments from a client to a third-party collector or another business entity.
Why is assignability important?
Assignability is important because it provides flexibility in contracts, allowing parties to transfer their rights or obligations if circumstances change. It can be particularly useful in situations where a party needs to outsource certain tasks, sell a business, or transfer financial interests. However, it also allows one party to protect their interests by restricting the assignment of rights or obligations, ensuring that the contract remains between the original parties or certain approved third parties.
Including an assignability clause in contracts helps clarify whether or not a party is permitted to assign their rights or obligations and under what conditions, ensuring that both parties understand their options and limitations.
Understanding assignability through an example
A company enters into a contract with a supplier to purchase raw materials. The contract includes an assignability clause that allows the company to assign its right to receive goods to another subsidiary company. The company can now assign this right without needing the supplier's consent, but the supplier retains the right to approve any assignments of payment obligations or other responsibilities under the contract.
An example of an assignability clause
Here’s how an assignability clause might appear in a contract:
“Neither Party shall assign or transfer any of its rights or obligations under this Agreement to any third party without the prior written consent of the other Party, except that the Buyer may assign its rights to receive goods or services under this Agreement to an affiliate or subsidiary without such consent.”
Conclusion
Assignability is an essential concept in contracts that governs the transfer of rights or obligations between parties. It provides flexibility by allowing parties to transfer their interests, whether for business reasons or to address changing circumstances. A well-drafted assignability clause ensures clarity on whether and how assignments are allowed, protecting both parties' interests and avoiding potential disputes related to unauthorized transfers.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.