Parties bound: Overview, definition, and example
What does "parties bound" mean?
"Parties bound" refers to a contractual provision that specifies which individuals or entities are obligated to comply with and are affected by the terms of the agreement. This provision clarifies that the contract applies not only to the immediate parties signing the agreement but also to their successors, assigns, heirs, or other specified individuals or entities. It ensures that the obligations and rights under the contract are upheld, even if there is a change in ownership or control.
For example, if a company sells its assets to another company, a "parties bound" clause may ensure that the acquiring company assumes the obligations under the original agreement.
Why is "parties bound" important?
The "parties bound" provision is important because it ensures that the agreement's terms are enforceable and remain applicable, even if one party undergoes significant changes, such as a merger, acquisition, or transfer of rights. For SMBs, this clause provides clarity, protects contractual relationships, and ensures continuity of obligations regardless of changes in circumstances.
This provision minimizes disputes by explicitly stating who is obligated to fulfill the terms of the agreement, ensuring that all parties understand their responsibilities.
Understanding "parties bound" through an example
Imagine an SMB signs a long-term supply agreement with a vendor. The "parties bound" clause specifies that the agreement will apply to the vendor’s successors or assigns. Later, if the vendor sells its business to another company, the new owner is required to honor the terms of the supply agreement.
In another scenario, a lease agreement for commercial property includes a "parties bound" clause. If the landlord sells the property, the new property owner is bound by the lease terms, ensuring the tenant's rights and obligations remain intact.
An example of a "parties bound" clause
Here’s how a "parties bound" clause might appear in a contract:
“This Agreement shall be binding upon, and inure to the benefit of, the Parties hereto and their respective heirs, successors, assigns, and legal representatives. No assignment or transfer of this Agreement by either Party shall relieve the assigning Party of its obligations under this Agreement unless expressly agreed to in writing by the other Party.”
Conclusion
The "parties bound" provision ensures that the obligations and rights under a contract are upheld, even if the parties experience changes such as succession or assignment. For SMBs, this clause provides clarity and continuity, ensuring that agreements remain enforceable and obligations are honored over time. A well-drafted "parties bound" clause promotes stability and trust, reducing the risk of disputes or misunderstandings in business relationships.
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.