Kara Sears
Assignments are a common contractual event under the law, involving the transfer of rights, property, or benefits from one party, the assignor, to another, the assignee. While the law generally permits assignments, there are several ways to defeat or impair an assignment. Firstly, anti-assignment provisions in contracts prohibit the transfer of rights and obligations without the non-assigning party's prior written consent. Secondly, certain contracts, such as those involving personal skill, trust, or confidence, may not be assigned without the consent of the other party. Thirdly, assignments cannot materially change the duty, burden, or risk of the obligor, nor can they impair the chance of obtaining return performance. Additionally, assignments must comply with statutory requirements, such as being in writing and signed by the assignor, and any breach of contract defences or formation problems can impair an assignment. Overall, while assignments are generally permitted, there are legal mechanisms to defeat or impair them in certain circumstances.
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What You'll Learn
Include an anti-assignment provision in the contract
An anti-assignment provision in a contract prohibits the transfer of rights and obligations under the contract to another person or entity without the prior written consent of the non-assigning party. This is also referred to as a "non-assignment" clause.
The inclusion of an anti-assignment provision in a contract is a way to defeat or impair an assignment. This is because, without such a provision, contracts are generally assignable even without the consent of the counterparty.
There are two primary types of anti-assignment clauses:
- The first type categorically precludes all assignments of rights and duties. It usually reads something like: "Neither Party may assign, delegate, or transfer this agreement or any of its rights or obligations under this agreement."
- The second type prohibits assignments unless the assigning party obtains the prior written consent of the other party. This usually reads something like: "Neither this agreement nor any right, interest, or obligation herein may be assigned, transferred, or delegated to a third party without the prior written permission of the other party."
It is important to note that courts tend to interpret anti-assignment clauses narrowly. For example, an anti-assignment clause may prohibit an assignment, but if it does not explicitly state that an assignment in violation of the contract is invalid, a court may not permit a party to invalidate the assignment.
Additionally, even without a solid anti-assignment clause, there may be opportunities to prevent certain assignments. Courts may not enforce assignments to which the counterparty did not consent, especially if the contract is personal in nature and involves a special relationship between the parties or requires special levels of expertise, discretion, or reputation.
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Prohibit assignment by operation of law
In the context of contract and property law, an assignment refers to the transfer of rights from one party, the assignor, to another, the assignee. The law generally allows the assignment of a contractual right unless the substitution of rights would materially change the duty of the obligor, materially increase the burden or risk imposed on the obligor by the contract, materially impair the chance of obtaining return performance, or materially reduce the value of the performance to the obligor.
An anti-assignment provision prohibits the transfer or assignment of some or all of the assigning party's rights and obligations under the contract in question to another person without the non-assigning party's prior written consent. Some anti-assignment provisions expand on the prohibition against general contractual assignment by including a prohibition against assignment by operation of law. This means that transactions that would not typically trigger a general anti-assignment provision may require consent from the non-assigning party for practical business reasons.
For example, under Canadian law, the assignment of a contract as part of an asset sale, or the change of control of a party to a contract pursuant to a share sale, will not effect an assignment of that contract by operation of law. However, an amalgamation will normally not trigger an assignment by operation of law, and a change of control as a result of a share purchase will be deemed an assignment or transfer, requiring prior written consent. In the United States, a merger can result in an assignment by operation of law, as one corporation survives the merger while the other ceases to exist.
It is important to carefully review a target's contracts for anti-assignment clauses that prohibit assignment by operation of law, as this can have implications for the enforcement of contracts after a merger. For example, in MTA Can. Royalty Corp. v. Compania Minera Pangea, S.A. De C.V., the Superior Court of Delaware held that, following a merger, the surviving company lacked standing to enforce a contract entered into by its predecessor because the contract's anti-assignment clause prohibited assignment by operation of law.
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Include a 'change of control' clause
An assignment is the transfer of rights held by one party, the "assignor", to another party, the "assignee". The assignment of a contract is typically permitted by law unless there is an express prohibition against assignment in the underlying contract.
An anti-assignment provision prohibits the transfer or assignment of rights and obligations under a contract to another person without the non-assigning party's prior written consent. A change of control clause, on the other hand, addresses whether a party can terminate the contract if the other party goes through a merger or there is a change in control by other means. It also covers the consequences of such a change in control.
A change of control clause does not address assignment. However, an assignment clause may cover what happens in a change of control, such as whether a party can assign the contract to its buyer if it gets merged into a company or completely bought out.
- "Neither party may, or shall have the power to, assign this Agreement without the prior written consent of the other; provided, however, that either party may assign its rights and obligations under this Agreement without the approval of the other party to any subsidiary or Affiliate or successor in connection with a Change of Control Event; provided, that in no event shall such assignment relieve such party of its obligations under this Agreement."
- "Customer shall not assign its obligations under the Agreement, nor delegate or subcontract any performance, nor agree on or allow a change of control, without Miraclon’s prior written consent, which consent shall not be unreasonably withheld."
- "The Contractor shall make no assignment, transfer, or other conveyance of the rights, duties or obligations of the Contract without the prior written consent of the Department. This provision includes the reassignment of the Contract due to a change in ownership of the Contractor."
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Require the assignment to be in writing
While an assignment agreement does not always have to be in writing, it is a good idea to put it in writing to avoid any ambiguity. An agreement must show an intent to transfer rights, and this can be done orally or in writing. However, obtaining the correct verbiage is vital as expensive litigation can result from ambiguous or vague language. Therefore, putting the agreement in writing ensures clarity of the assignor's intent and helps to avoid any potential issues that may arise from oral agreements.
In the case of equitable assignments, or transfers of rights in equity, there are several requirements that must be met for the assignment to be valid. One of these requirements is that the assignment must be made in writing and signed by the assignor. This is particularly important when dealing with the assignment of real property.
Additionally, requiring the assignment to be in writing can help protect the interests of both the assignor and the assignee. A written agreement clearly outlines the rights and obligations being transferred and can serve as a reference point for both parties. It also allows for a more thorough review of the agreement, ensuring that all necessary elements are included and that the assignment is valid and enforceable.
Moreover, a written assignment agreement can help prevent disputes and misunderstandings between the parties. It provides a clear record of the terms and conditions of the assignment, reducing the risk of conflicting interpretations or claims of breach of contract. This can save time, resources, and potential damage to the relationship between the assignor and the assignee.
Overall, requiring the assignment to be in writing can enhance the validity, clarity, and enforceability of the agreement. It protects the interests of all parties involved and helps to avoid costly litigation or disputes that may arise from oral or ambiguous agreements. While not always necessary, putting the assignment in writing is a prudent step to ensure a smooth and effective transfer of rights.
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Include a clause requiring the assignor to remain liable
An assignment is the transfer of rights held by one party, the "assignor", to another party, the "assignee". The assignor may delegate duties and rights to the assignee, but the assignor may remain ultimately responsible. The assignee typically does not receive more rights than the assignor, and the assignor may remain liable to the original counterparty for the performance of the contract.
To ensure the assignor remains liable, a clause can be included in the contract. This clause should state that the assignor shall remain liable under the assigned contracts to perform all their obligations, and the assignee shall not be obligated to perform or fulfill any of the assignor's duties. Here is an example of such a clause:
"Anything contained in this Assignment to the contrary notwithstanding, (a) Assignor shall remain liable under any contracts and agreements included in the Collateral, to the extent set forth therein, to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Assignee of any of its rights hereunder shall not release Assignor from any of its duties or obligations under the contracts and agreements included in the Collateral, and (c) Assignee shall not have any obligation or liability under any contracts and agreements included in the Collateral by reason of this Agreement, nor shall Assignee be obligated to perform any of the obligations or duties of Assignor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder."
The above clause expressly states that the assignor remains liable for their duties and obligations under the assigned contracts, and that the assignee is not responsible for performing these duties. This type of clause can help protect the interests of the original counterparty and ensure that the assignor upholds their obligations even after the assignment.
Additionally, it's important to note that anti-assignment provisions can be included in contracts to prohibit the transfer of rights and obligations without the prior written consent of the non-assigning party. These provisions can add a layer of protection for the non-assigning party, ensuring that they maintain control over who assumes the rights and obligations outlined in the contract.
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Frequently asked questions
An assignment in law is the transfer of rights, property, or other benefits from one party, the "assignor", to another party, the "assignee".
Anti-assignment provisions prohibit the transfer or assignment of rights and obligations under a contract to another person without the non-assigning party's prior written consent.
An anti-assignment provision is triggered when there is a transfer of rights or obligations under a contract. However, in the case of share purchases, a general anti-assignment provision is not triggered as there is usually a change of control of the target entity rather than a transfer of the contract to another entity.
For an assignment to be valid, there must be a clear and unconditional intention to assign. The assignment must be made in writing and signed by the assignor. The assignor must also receive consideration for the agreement, unless it is an absolute assignment.
Yes, an assignment can be denied if there is a valid reason. For example, a landlord may deny an assignment if the potential assignee has bad credit or has been convicted of felonies.
