A Brief Introduction About the Assignable Contract?
An assignable contract is an agreement that can be assigned to a third party. When an agreement is assigned, the rights and obligations under such agreement will be transferred by the contract holder to the third party, who will also enjoy any benefits that arise from it. To assign any agreement, it is essential that the agreement contains a clause that provides for such an assignment.
Hence, the answer to the question “what is an assignable contract” is a contract whose rights and duties can be assigned to another person. The third-party will then step into the role of the contract holder and fulfill the requirements of the contract until it expires.
Who Takes the Assignable Contract – People Involved
An assignable contract can be entered into by any two parties. The person who assigns the contract is known as the “assignor” and the person to whom the contract is assigned known as the “assignee.”
Purpose of the Assignable Contract – Why Do You Need It?
The purpose of such an agreement is to allow a party to transfer his interest in a contract to another person. These types of contracts are a way for the contract holder to lock in his profits or cut his losses before the expiration date of the agreement. If the asset that is attached to the agreement is at a profit, the contract holder may choose to assign the contract and hence realize his profit. The contracts that are most commonly assigned are futures contracts.
Such contracts are also used in the field of real estate. This type of contract is known as an ‘assignable purchase contract.’ Under this agreement, a person can transfer his purchase rights in the property and thereon the new owner will be responsible for assuming ownership of the property and making sure that the deal is closed.
Contents of the Assignable Contract – Inclusions
An assignable contract is any agreement that can be assigned. Hence the contents of the contract will depend on the type of contract. If it is a futures contract, it will need to contain all the clauses that are necessary to make it an enforceable agreement. Similarly, it can also be an agreement related to the field of real estate. In this case, the contract must be such that it fulfills all the requirements of what is an assignable purchase contract.
The clause that holds the most important in these types of contracts is the provision through which the parties derive authority to assign the contract. The clause should clearly state that the contract is an assignable one. It can also provide a method for such an assignment. This can include the opposite party being notified of the intention to assign, the requirement of a separate assignment agreement, etc.
Any assignment without the consent of the opposite party should not be allowed. The assignee should be a person who agrees to further the purpose of the contract and carry out all the obligations required by him.
How to Draft the Assignable Contract?
The following are the steps to follow while drafting an assignable contract:
- A condition should be laid down that the opposite party will be informed before the assignment of the agreement. The parties may also add a clause requiring an assignment agreement to be created before an assignment.
- The agreement should be carefully drafted, taking into account all possible situations.
- It must then be reviewed and signed by both parties.
- The negotiation process in this contract mainly revolves around whether or not the parties wish to make the contract an assignable one.
- Care must be taken that the interests of both parties are protected.
Benefits and Drawbacks of the Assignable Contract
The following are the benefits and drawbacks of having an assignable contract:
- The most obvious benefit of such a contract is that a party has the option of assigning his rights and duties under it to a third party at any time.
- It can help the contract holder realize any profit that he has earned from the underlying asset.
- A possible drawback of an assignment is that it might change the nature of the contract. Care must be taken to ensure that the intention behind the agreement is fulfilled and there is no material change in its nature.
What Happens in Case of Violation?
A breach of an assignable contract is dealt with in the same manner as the breach of any other contract. Whenever a party to a contract breaches its terms(1), the opposite party has certain remedies under the law. This applies even to an assignee.
In some assignments, the assignor continues to be held responsible for the performance of the contract. He may be held liable if the assignee breaches the contract. To avoid this, the assignor and assignee must enter into an assignment agreement that clearly defines their responsibilities. This agreement should state that the assignor is no longer responsible for the performance of the contract and hence cannot be held responsible for the actions of the assignee. The assignor can thus protect himself if there is any breach on the part of the assignor.
In conclusion, any contract that can be assigned proves to be useful for the parties involved. There may be cases when a contract holder wishes to transfer his interests under such a contract as he is no longer able to perform his obligations, or he wants to protect himself from any losses.