no assignment without consent

Rethinking the “No Assignment” Provision

27 November 2023 20 November 2012 | Ken Adams

In this post , Brian Rogers explains how, as an experiment in crowdsourcing contract language, he has posted on Quora ( here ) his candidate for “the best anti-assignment provision in a contract ever.” He says that it’s “probably lifted” from Negotiating and Drafting Contract Boilerplate (Tina Stark ed. 2003) ( NDCB ). Here’s Brian’s provision:

Neither party may assign any of its rights under this agreement, either voluntarily or involuntarily, whether by merger, consolidation, dissolution, operation of law, or any other manner, except with the prior written consent of the other party. Neither party may delegate any performance under this agreement, except with the prior written consent of the other party. Any purported assignment of rights or delegation of performance in violation of this section is void.

It so happens that I’ve been idly contemplating shortcomings in standard no-assignment language. That’s something that I’ve tackled previously ( here ), and Brian’s post prodded me to revisit the topic.

I’ll start by offering the following comments on Brian’s provision:

• In the interest of consistency I prefer using “shall not” for language of prohibition, but that’s something I’m still exploring. Using “neither party may” works too.
• If you provide for the possibility of consent, it would be safest to assume that consent can’t be unreasonably withheld. If you have a problem with that, omit any mention of consent.
• Isn’t “voluntarily or involuntarily” needless elaboration, analogous to saying “I don’t eat fish, whether fresh-water or salt-water”?
• To avoid having to be all encompassing (“or in any other manner”), I’d use “including”.
• You might want to make it clear whether the prohibition applies to mergers regardless of whether the party is the surviving or disappearing entity (see this post ).
• The distinction between assigning rights and delegating obligations is pointless; in this context, “assign” and “delegate” constitute what I call “misapplied terms of art” (see this post ). Because the provision refers to what is being assigned and delegated, a generic alternative to both words would work just as well, and I opt for “transfer”. Regarding that choice, NDCB , at 56, says, “The problem, however, is that there are reams of cases that analyze ‘assign,’ but not ‘transfer.’ If ‘transfer’ were used alone, the precedential value of the existing cases might be compromised. Moreover, the cases already question the meaning of ‘transfer.'” This doesn’t worry me, as the context makes it clear what’s going on.
• It’s unclear what “rights” refers to. (I don’t use the word “rights” anywhere in MSCD .) I think it refers to discretion granted to a party under an agreement and any remedy that a party has under an agreement, and I’d rather make that explicit.
• By referring to delegation of performance rather than delegation of obligations, Brian’s provision seeks to reflect that a party might delegate not only a duty but also a condition. See NDCB at 26, 74. But I think it’s unrealistic to expect readers to deduce that nuance from a reference to delegation of performance; it would be better to make it explicit.
• The last sentence is language of policy. I suggest that because it relates to a contingent future event, most native English speakers would say “will be void” rather than “is void”.

So here’s my initial version (it’s certain to change) [ Updated 9 August 2016: Language tidied up]:

Except with the prior written consent of the other party, each party shall not transfer, including by merger (whether that party is the surviving or disappearing entity), consolidation, dissolution, or operation of law, (1) any discretion granted under this agreement, (2) any right to satisfy a condition under this agreement, (3) any remedy under this agreement, or (4) any obligation imposed under this agreement. Any purported transfer in violation of this section X will be void.

Because my version makes explicit what Brian’s version only alludes to, it’s longer, but not by much (85 words versus 72 words).

I’ve posted my version on Quora, under Brian’s. (Hey, Brian! In. Yo. Face!) But crowdsourcing is still no way to identify optimal contract language. In particular, I wouldn’t rely on contract language select by haphazard vote. Instead, what you have here is the usual process of Brian, me, and others hashing stuff out. I look forward to having readers point out the weaknesses in my version.

[ Updated 27 November 2023: Bear in mind that in some contexts—notably bankruptcy—no-transfer provisions are unenforceable by law. See my 2014 article on termination-on-bankruptcy provisions, here .]

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of  A Manual of Style for Contract Drafting , and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.

17 thoughts on “Rethinking the “No Assignment” Provision”

I have several concerns here. First, I have never been happy with the “each party shall not” formulation. I don’t mind “may not,” or better yet, “no party may,” but if you really want to use “shall not,” then I recommend “a party shall not” as being less awkward and contrary to normal usage.

Second, I’m surprised that you would allow “by operation of law” to survive here. For the most part, this phrase is used to refer to the “automagic” continuation of the disappearing company’s contracts under the aegis of the surviving company in a merger, in which case the language is redundant when you’ve already discussed mergers. Moreover, if this language relates to some other operations of law, for example an order of a bankruptcy court, it’s rather hubristic to think a contract can trump the ruling authority. Better, if it’s such a big deal, to handle the consequences of such a mandated transfer by giving the affected party an explicit termination right (without the nasty consequences of breach).

Third, in my experience the issues surrounding “delegation” are not only that it’s a misapplied term of art, but that it mistakes the transfer of a contractual obligation for a subcontracting of its performance. In fact, reliance on delegation or transfer is misplaced if one is concerned about subcontracting (since it doesn’t really amount to a transfer of any contractual obligation, only having that obligation physically performed by someone else). A drafter should inquire carefully what the client is really concerned about here, and if it’s subcontracting, that should be explicitly mentioned.

Ah, thank you Vance. I thought My discomfort with ‘delegate’ was a translation issue from US to UK English. I,too, Think that is the wrong word to use.

“No purported transfer of one or more of the following arising from this agreement will be valid without prior written consent of the other party: (1) discretion, (2) right to satisfy a condition, (3) remedy under this agreement, and (4) obligation.”

Other than light trimming, the principal thing this version does is dump the duty not to transfer and go solely with the avoidance of purported transfers. Why prohibit killing the dead?

Because failure to comply with a prohibition gives rise to a remedy; voiding purported transfers doesn’t. I can imagine situations where that might be significant.

No one can fail to comply with a prohibition against transfer when purported transfers are void. Void transfers are non-transfers. Killing the dead isn’t wicked, it’s just impossible.

It’s wicked and depraved! Actually, what happens if Acme makes a purported assignment that results in costly and protracted litigation? Widgetco would like to be able to go after Acme. Wouldn’t that be easier if Widgetco could point to breach? Should the obligation refer to not attempting to transfer?

“Any purported transfer by Acme, without Widgetco’s advance written consent, of one or more of Acme’s rights or obligations under this agreement will be void and will constitute a breach of this agreement.”

This game is based so much on underlying US laws on the meaning of assignment, merger, etc, that it is impossible for a non-US lawyer to participate. We don’t generally have mergers where a party disappears into a puff of smoke. A sale of a business [nearly] always happens by a sale of shares or a sale of assets.

I think the concept of assigning rights under a contract is well established in case law and using different terminology is reinventing the wheel.

I think the “if you do it despite the prohibition, it will be void” concept is strange, but one that I have seen before in US contracts. I don’t think it works, under English law, in respect of prohibitions on assignments of IP. I am doubtful whether it works for assignments of rights under contracts.

For what it is worth, my English law version would be very different and would simply say:

Neither party may assign any rights, or transfer any obligations, under this agreement, without the prior written agreement of the parties.

I have used the word “agreement” rather than “consent” to try to avoid case law on whether a term should be implied that consent should not be unreasonably withheld. The terminology of assignment and transfer is based on a House of Lords case, Linden Gardens v Lenesta Sludge – see http://www.bailii.org/uk/cases/UKHL/1993/4.html

As usual, caselaw is of less interest to me than the scope for confusion. I suspect that if you ask many lawyers what is meant by assignment of rights under a contract, you’d get quite a variety of answers.

Okay, Ken I’ll take your word for it. English lawyers who keep Chitty on Contracts under their pillows won’t be so variegated

Mark: Regarding your statement, “I think the ‘if you do it despite the prohibition, it will be void’ concept is strange, but one that I have seen before in US contracts,” consider the probable source of such provisions:

Since U.S. contract law is the province of the states, we have the high court of each of the 50 states reviewing the handiwork of probably twice that number of state appellate courts, which in turn have reviewed the work of probably thousands of trial courts. In addition, we have almost 90 federal district courts trying to predict how the supreme courts of the various states would rule if they were hearing the contracts cases that have fallen into the laps of the federal courts due to accidents of jurisdiction, plus the dozen courts of appeals and the Supreme Court. Then there are specialty federal courts such as the bankruptcy and tax courts which provide an additional source of cases for the federal district and appellate courts to review. And did I mention the extensive administrative law system that probably dwarfs all of the above in scope and which I’m sure has plenty to say about contracts?

Somewhere, sometime in the distant past one of those courts had an unfortunate fact pattern and, wanting to avoid the effect of an anti-assignment provision, decided that although the purported assignment was a breach of the contract in which it was found, the assignment was still effective. Other courts picked up on the work-around, and commercial lawyers have all been covering that base ever since.

Thanks Brian, interesting insight. I would have posted on your site but For the reasons given above I didn’t have a useful contribution.

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The language as being quoted from Negotiating and Drafting Boilerplate is incomplete. Here is the full language, along with explanations of some of the text. Many of my points will be at odds with those of Ken and arise because of differences in drafting philosophy.

Assignment and Delegation.

(a) No Assignments. No party may assign any of its rights under this Agreement, except with the prior written consent of the other party. [That party shall not unreasonably withhold its consent.] All assignments of rights are prohibited under this subsection, whether they are voluntary or involuntary, by merger, consolidation, dissolution, operation of law, or any other manner. For purposes of this Section,

(i) a “change of control” is deemed an assignment of rights; and

(ii) “merger” refers to any merger in which a party participates, regardless of whether it is the surviving or disappearing corporation.

(b) No Delegations. No party may delegate any performance under this Agreement.

(c) Consequences of Purported Assignment or Delegation. Any purported assignment of rights or delegation of performance in violation of this Section is void.

1. The provision is divided into three separate subsections, each dealing with a different topic. A long provision violates the so-called “three-line rule.” Sentences longer than three lines are hard for the reader to take in. Also, by separating assignment from delegation, the drafter is reminded that each of these provisions may need to be elaborated based on facts. (Perhaps delegation is permitted subject to certain conditions.)

2. Generally, exceptions should not begin a sentence. The usual rule is to state the rule – so that the reader has context – and then state the exception. This is also helpful if the sentence contains multiple exceptions that the drafter might want to tabulate.

3. I prefer “No party may” to “Each party shall not.” The sentence’s purpose is to express a prohibition that applies to all – no one can do it. In this context, a negative subject is appropriate: no party/neither party. When using a negative subject “may” is correct. “Shall not” works perfectly well when the subject of the sentence is a single party. “Sam shall not borrow any money.”

4. As to whether consent can be unreasonably withheld is a matter of state law. Some states read into a provision that grants discretionary authority an implied promise of good faith and fair dealing, stated differently, they read in reasonableness. Others do not imply a reasonableness requirement. For example, in New York, landlords may be unreasonable in denying consent to assignment.

5. Courts seriously dislike anti-assignment provisions. They view them as interfering with the free flow of commerce. They insist that if a particular assignment is to be prohibited, it must be listed. For example, if a provision prohibits the assignment of rights, the issue arises as to whether the provision prohibits the assignment of rights by merger. In all states that I’ve checked, unless the assignment by merger is explicitly prohibited, it’s permitted. The courts are rather adamant. They’ll turn their decisions inside out to find the anti-assignment provision unenforceable. They don’t like them and if the provision isn’t explicit, the courts will say that if the parties had really wanted to prohibit assignments by merger, they knew how to use their words. “Voluntarily or involuntarily” is used consistent with these cases.

6. Drafters have tried multiple ways to create all-inclusive provisions, but the courts reject them as not having been specific. “or in any other manner” was blessed by one court, so it’s used in the provision. Another court rejected the phrase “or by any other transfer,” stating that it did not know what “transfer” meant and it therefore could not act as an omnibus savings provision.

7. An anti-assignment provision should also address whether a change of control is deemed an assignment. If Parent Company A sells all of its issued and outstanding shares in Subsidiary A to Buyer Company, Subsidiary A becomes a wholly-owned subsidiary of Buyer Company. Nothing has happened at the Subsidiary A level; there’s been no assignment. Courts hold that unless the change of control is expressly prohibited, it does not rise to the level of an assignment. This prohibition can generally be accomplished in one of two ways: either through a definition, as in the stated provision, or by including a change of control as a default.

8. Assignment and delegation are terms of art, not misapplied terms of art. The Restatement (Second) of Contracts carefully defines them, as do legions of cases. Unfortunately, some lawyers are unfamiliar with them because their contracts courses didn’t cover them. That doesn’t mean new words should be created.

9. Rights are the flip-side of an obligation. If I have an obligation to pay you $100, you have a right to my performance. The transfer of the right to performance is what the assignment is all about. It’s technical. Using terms in a technical way creates precision. If one has discretionary authority, that is a colloquial right but not a contract right. That’s the reason why “right” is not used to signal discretionary authority. Instead, the correct verb to signal discretionary authority is “may”. Incorrect: The publisher has the right to reject the book. Correct: The publisher may reject the book.

Rights can also refer to remedies, but that is consistent with the definition of rights. If a party has a right to have its deposit returned, the flipside obligation is the obligation to return it. If a party has a right to an injunction, the flipside obligation is the promise not to contest the right to the injunction.

10. “Will be void” v. “is void.” I can’t get too excited about this issue. I start from the premise that the contract should always read as if it presently applies and that, therefore, the present tense is correct.

11. Subsection (c) is another consequence of the courts’ dislike for anti-assignment provisions. Mere prohibition does not void the assignment. The courts draw a distinction between the “right” to assign and the “power” to assignment. A flat prohibition merely prohibits the assignment of the right to assignment. Violation of the prohibition is a breach, like any other contract breach. The assignment is enforceable, but gives rise to damages. Unfortunately, the nonassigning party often has trouble finding damages to claim. What difference does it make to whom it pays money? If the nonassigning party’s performance is somehow changed, then damages might be claimed. To make the purported assignment unenforceable, a provision must take away the “power” to assign. That is accomplished through language along the lines of subjection (c).

Tina: Thanks; some readers might find that extract helpful.

More generally, the only drafting philosophy I buy into is identifying the clearest contract language.

Do you see any issues with making the transfer voidable by the non-transferring party instead of void ab initio?

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No Assignment Contract Clauses (923)

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What is an Anti-Assignment Clause?

When business owners are negotiating contracts to gear up for the sale of their business, they are rightly concerned with key questions such as the sale price for the business including assets such as how much the sale will cost them and what happens if something goes wrong.  At the end of the contracts, there are usually several pages of type that usually look like boilerplate. Inside those clauses is usually something called an assignment clause, or more accurately, an anti-assignment clause.

It’s one of those clauses that everyone glosses over – after all, it’s just standard legal text, right?

For a business owner hoping to sell their business, an anti-assignment clause can dissuade potential buyers and play a crucial role in the selling price of a business.  If this sounds familiar and you’re in the process of negotiating the merger or acquisition of your business, read on – we’ve put together a practical guide to anti-assignment clauses and what to look out for.

Looking for legal help? feel free to get in touch with our  commercial lawyers  for matters related to contracts.

What is an assignment clause?

The anti-assignment clause states that neither party can transfer or assign the agreement without the consent of the other party. On a basic level, that makes sense – after all, if you sign a contract with a specific party, you don’t expect to be entering into an agreement with a third party you didn’t intend to be.

However, when you sell your business, you will want to transfer ownership of those contracts to the buyer. If your contracts all contain an anti-assignment clause, they effectively restrict you from transferring ownership to the interested party. Now, you’re presented with a new challenge altogether – before you can focus on the sale of your business, you must first renegotiate the terms of your contracts with each party.

Language to look out for in anti-assignment clauses

If you’re thinking about selling your business or even have potential buyers interested, it’s better to know in advance if you’ve got anti-assignment clauses in your contracts. There are generally two types of anti-assignment clause to look out for. The first relates to the complete bar on assignment of rights and responsibilities and is typically worded in this way, or similar:

“Neither Party may assign, delegate, or transfer this agreement or any of its rights or obligations under this agreement.”

The second type prevents the transfer of rights or duties without prior written consent of the other party. This will read along the lines of:

 “Neither this agreement nor any right, interest, or obligation herein may be assigned, transferred, or delegated to a third party without the prior written consent of the other party, and whose consent may be withheld for any reason.”

So, where the first prohibits assignment altogether, the second prohibits assignment unless permission is sought in advance. Some clauses may even explicitly state that a change of control such as a merger or acquisition is an assignment. The last thing you want is to cause a dispute by breaching the contract, but if you’ve already agreed to these terms, you’ll have to open a fresh set of negotiations with the contracting party before you sell the company.

Assignment clauses in M&A: what’s the problem?

Due diligence is the bread and butter of any merger or acquisition. Rather than a leap of faith, due diligence ensures the purchase of a business is a calculated decision with minimal risk to the buyer. Typically carried out by specialist lawyers, the process is designed to lift the hood on the target business to determine the valuation of assets and liabilities and identify any glaring issues that could leave the buyer open to risk.

During the due diligence process, the buyer will look through all of the major contracts the business has open, and specifically keep a close eye out for assignment clauses.

Despite the virtual environment that many businesses have been forced to operate in in 2020, most companies will have commercial leases for the premises from which they typically work. Almost all leases have an anti-assignment clause, and this is a perfect example of an instance that is often overlooked by commercial tenants when selling a business which includes a leasehold property.  This transfer of ownership may well be prohibited under an anti-assignment clause so that prior to the sale of the business, you would be required to ask permission from your landlord. The issue here is that the landlord may well see this as the perfect opportunity to renegotiate and secure a better deal for themselves. What’s worse, if they don’t sign off on the transfer, you’ll have an obstruction on your hands that will stand in the way of the sale.

In any case, an unexpected anti-assignment clause usually winds up being a last-minute hitch in the sale, and it never comes at a good time. Whether it delays the sale or obstructs it altogether, overlooking an anti-assignment clause can cost you considerably in an M&A transaction.

What makes anti-assignment clauses enforceable?

Generally speaking, an anti-assignment clause will be enforced by the courts if it was agreed upon by both parties to the contract. Many contracts exclude or qualify the right to assignment – according to the courts, a clause that states that a party to a contract may not assign the benefit of that contract without the consent of the other party is legally effective and will extend to all rights and benefits arising under the contract.

Courts won’t always enforce assignments to which the counterparty did not give permission, even where there is no anti-assignment clause that specifies this provision.

How to negotiate anti-assignment clauses

The best practice for business owners is to be vigilant when negotiating new contracts and ensure that any anti-assignment clauses still allow for the transfer of ownership when they decide to sell the business.

Remember, even though the buyer is purchasing the assets of the business, this usually means that all of the contracts of the business go with it because the business remains intact. Therefore, the best way forward is to negotiate these clauses upfront from the outset of the relationship, so that when you do decide to sell your business, you automatically have permission to transfer the ownership without having to delay the sale by entering into fresh negotiations.

If your agreement does not permit assignments, it’s worth seeking the advice and support of a specialist lawyer who can help protect your interests through negotiation with your counterparty on this point. You may be able to include a provision that allows for assignment of your rights and obligations upon the prior written consent of the other party. Your lawyer will likely advise you to carve out a specific provision to prohibit the counterparty from unreasonably withholding or delaying consent or making it subject to unreasonable conditions – an issue which, if not provided for within the contract, can cause serious delay and disruption to the sale of your business. Further, it may be beneficial to add an extra element to the contract that makes exceptions to the clause for assignments between affiliates.  If you’re planning to sell your business, this would be the right place to carve out an exception within the clause to the change of control via a merger or acquisition.

It’s important to bear in mind that anti-assignment clauses tend to be viewed narrowly by courts, and that there have been several instances whereby anti-assignment clauses have not been enforced since the clause itself did not explicitly state that the assignment of rights, duties or payment would render the contract void or invalid. So, if you’re in the process of negotiating an agreement and wish to protect your interests through the addition of an anti-assignment clause, it’s critical that you include the consequences of assignment within the clause itself and state that assignments would invalidate or be in breach of the contract.

If you do not wish for the counterparty to be able to transfer the legal obligation to perform their duties as stated in the contract to a third party, this must be explicitly stated in one of three ways:

• Specify the need for consent

There’s no need to be unreasonable – you can protect your interests while still giving the counterparty the space to re-negotiate should they wish to assign rights by including a clause that asks for consent.

• Provide an exemption to consent for affiliates, successors or new owners

Ask your lawyer to draft an exception into the clause that permits assignment to affiliates or successors to the counterparty, such as:

“Neither party may assign or delegate this agreement or its rights or obligations under this agreement without the prior written consent of the other party, except that no consent is required (a) for assignment to an entity in which the transferring party will own greater than 50 per cent of the shares or other interests; or (b) in connection with any sale, transfer, or disposition of all or substantially all of its business or assets; provided that no such assignment will relieve an assigning party of its obligations under this agreement. Any assignment or delegation that violates this provision shall be void.”

• Require reasonable consent

Just as you would not wish for consent to be held back from you unreasonably in the renegotiation of contract terms prior to a sale, your assignment clause should make clear that you will not unreasonably withhold or delay consent should the third party request permission to assign their legal obligations. This may read something like this:

 “Neither party may assign or delegate this agreement or its rights or obligations under this agreement without the prior written consent of the other party, whose consent shall not be unreasonably withheld or delayed. Any assignment or delegation that violates this provision shall be void.”

Whatever the circumstances, we strongly recommend calling upon a contract law specialist, whether you’re undergoing due diligence in the run up to an M&A transaction, are considering selling your business or are negotiating new contracts with customers and suppliers. Our lawyers bring in-depth expertise in the area of anti-assignment clauses and will work closely with you to protect your interests and ensure no clauses in your contracts negatively impact the sale of your company.

For a free consultation, get in touch with our team through the contact form below or using our online chat service.

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Assignment provisions in contracts

Author’s note, Nov. 22, 2014: For a much-improved update of this page, see the Common Draft general provisions article .

(For more real-world stories like the ones below, see my PDF e-book, Signing a Business Contract? A Quick Checklist for Greater Peace of Mind , a compendium of tips and true stories to help you steer clear of various possible minefields. Learn more …. )

Table of Contents

Legal background: Contracts generally are freely assignable

When a party to a contract “ assigns ” the contract to someone else, it means that party, known as the assignor , has transferred its rights under the contract to someone else, known as the assignee , and also has delegated its obligations to the assignee.

Under U.S. law, most contract rights are freely assignable , and most contract duties are freely delegable, absent some special character of the duty, unless the agreement says otherwise. In some situations, however, the parties will not want their opposite numbers to be able to assign the agreement freely; contracts often include language to this effect.

Intellectual-property licenses are an exception to the general rule of assignability. Under U.S. law, an IP licensee may not assign its license rights, nor delegate its license obligations, without the licensor’s consent, even when the license agreement is silent. See, for example, In re XMH Corp. , 647 F.3d 690 (7th Cir. 2011) (Posner, J; trademark licenses); Cincom Sys., Inc. v. Novelis Corp. , 581 F.3d 431 (6th Cir. 2009) (copyright licenses); Rhone-Poulenc Agro, S.A. v. DeKalb Genetics Corp. , 284 F.3d 1323 (Fed. Cir. 2002) (patent licenses). For additional information, see this article by John Paul, Brian Kacedon, and Douglas W. Meier of the Finnegan Henderson firm.

Assignment consent requirements

Model language

[Party name] may not assign this Agreement to any other person without the express prior written consent of the other party or its successor in interest, as applicable, except as expressly provided otherwise in this Agreement. A putative assignment made without such required consent will have no effect.

Optional: Nor may [Party name] assign any right or interest arising out of this Agreement, in whole or in part, without such consent.

Alternative: For the avoidance of doubt, consent is not required for an assignment (absolute, collateral, or other) or pledge of, nor for any grant of a security interest in, a right to payment under this Agreement.

Optional: An assignment of this Agreement by operation of law, as a result of a merger, consolidation, amalgamation, or other transaction or series of transactions, requires consent to the same extent as would an assignment to the same assignee outside of such a transaction or series of transactions.

• An assignment-consent requirement like this can give the non-assigning party a chokehold on a future merger or corporate reorganization by the assigning party — see the case illustrations below.

• A party being asked to agree to an assignment-consent requirement should consider trying to negotiate one of the carve-out provisions below, for example, when the assignment is connection with a sale of substantially all the assets of the assignor’s business {Link} .

Case illustrations

The dubai port deal (ny times story and story ).

In 2006, a Dubai company that operated several U.S. ports agreed to sell those operations. (The agreement came about because of publicity and political pressure about the alleged national-security implications of having Middle-Eastern companies in charge of U.S. port operations.)

A complication arose in the case of the Port of Newark: The Dubai company’s lease agreement gave the Port Authority of New York and New Jersey the right to consent to any assignment of the agreement — and that agency initially demanded $84 million for its consent.

After harsh criticism from political leaders, the Port Authority backed down a bit: it gave consent in return for “only” a $10 million consent fee, plus $40 million investment commitment by the buyer.

Cincom Sys., Inc. v. Novelis Corp., No. 07-4142 (6th Cir. Sept. 25, 2009) (affirming summary judgment)

A customer of a software vendor did an internal reorganization. As a result, the vendor’s software ended up being used by a sister company of the original customer. The vendor demanded that the sister company buy a new license. The sister company refused.

The vendor sued, successfully, for copyright infringement, and received the price of a new license, more than $450,000 as its damages. The case is discussed in more detail in this blog posting.

The vendor’s behavior strikes me as extremely shortsighted, for a couple of reasons: First, I wouldn’t bet much on the likelihood the customer would ever buy anything again from that vendor. Second, I would bet that the word got around about what the vendor did, and that this didn’t do the vendor’s reputation any good.

Meso Scale Diagnostics, LLC v. Roche Diagnostics GmbH, No. 5589-VCP (Del. Ch. Apr. 8, 2011) (denying motion to dismiss).

The Delaware Chancery Court refused to rule out the possibility that a reverse triangular merger could act as an assignment of a contract, which under the contract terms would have required consent. See also the discussion of this opinion by Katherine Jones of the Sheppard Mullin law firm.

Assignment with transfer of business assets

Consent is not required for an assignment of this Agreement in connection with a sale or other disposition of substantially all the assets of the assigning party’s business.

Optional: Alternatively, the sale or other disposition may be of substantially all the assets of the assigning party’s business to which this Agreement specifically relates.

Optional: The assignee must not be a competitor of the non-assigning party.

• A prospective assigning party might argue that it needed to keep control of its own strategic destiny, for example by preserving its freedom to sell off a product line or division (or even the whole company) in an asset sale.

• A non-assigning party might argue that it could not permit the assignment of the agreement to one of its competitors, and that the only way to ensure this was to retain a veto over any assignment.

• Another approach might be to give the non-assigning party, instead of a veto over asset-disposition assignments, the right to terminate the contract for convenience . (Of course, the implications of termination would have to be carefully thought through.)

Assignment to affiliate

[Either party] may assign this Agreement without consent to its affiliate.

Optional: The assigning party must unconditionally guarantee the assignee’s performance.

Optional: The affiliate must not be a competitor of the non-assigning party.

Optional: The affiliate must be a majority-ownership affiliate of the assigning party.

• A prospective assigning party might argue for the right to assign to an affiliate to preserve its freedom to move assets around within its “corporate family” without having to seek approval.

• The other party might reasonably object that there is no way to know in advance whether an affiliate-assignee would be in a position to fulfill the assigning party’s obligations under the contract, nor whether it would have reachable assets in case of a breach.

Editorial comment: Before approving a blanket affiliate-assignment authorization, a party should consider whether it knew enough about the other party’s existing- or future affiliates to be comfortable with where the agreement might end up.

Consent may not be unreasonably withheld or delayed

Consent to an assignment of this Agreement requiring it may not be unreasonably withheld or delayed.

Optional: For the avoidance of doubt, any damages suffered by a party seeking a required consent to assignment of this Agreement, resulting from an unreasonable withholding or delay of such consent, are to be treated as direct damages.

Optional: For the avoidance of doubt, any damages suffered by a party seeking a required consent to assignment of this Agreement, resulting from an unreasonable withholding or delay of such consent, are not subject to any exclusion of remedies or other limitation of liability in this Agreement.

• Even if this provision were absent, applicable law might impose a reasonableness requirement; see the discussion of the Shoney case in the commentary to the Consent at discretion provision.

• A reasonableness requirement might not be of much practical value, whether contractual or implied by law. Such a requirement could not guarantee that the non-assigning party would give its consent when the assigning party wants it. And by the time a court could resolve the matter, the assigning party’s deal could have been blown.

• Still, an unreasonable-withholding provision should make the non-assigning party think twice about dragging its feet too much, becuase of the prospect of being held liable for damages for a busted transaction. Cf. Pennzoil vs. Texaco and its $10.5 billion damage award for tortious interference with an M&A deal.

• Including an unreasonable-delay provision might conflict with the Materiality of assignment breach provision, for reasons discussed there in the summary of the Hess Energy case.

Consent at discretion

A party having the right to grant or withhold consent to an assignment of this Agreement may do so in its sole and unfettered discretion.

• If a party might want the absolute right to withhold consent to an assignment in its sole discretion, it would be a good idea to try to include that in the contract language. Otherwise, there’s a risk that court might impose a commercial-reasonableness test under applicable law (see the next bullet). On the other hand, asking for such language but not getting it could be fatal to the party’s case that it was implicitly entitled to withhold consent in its discretion.

• If a commercial- or residential lease agreement requires the landlord’s consent before the tentant can assign the lease, state law might impose a reasonableness requirement. I haven’t researched this, but ran across an unpublished California opinion and an old law review article, each collecting cases. See Nevada Atlantic Corp. v. Wrec Lido Venture, LLC, No. G039825 (Cal. App. Dec. 8, 2008) (unpublished; reversing judgment that sole-discretion withholding of consent was unreasonable); Paul J. Weddle, Pacific First Bank v. New Morgan Park Corporation: Reasonable Withholding of Consent to Commercial Lease Assignments , 31 Willamette L. Rev. 713 (1995) (first page available for free at HeinOnline ).

Shoney’s LLC v. MAC East, LLC, No. 1071465 (Ala. Jul. 31, 2009)

In 2009, the Alabama Supreme Court rejected a claim that Shoney’s restaurant chain breached a contract when it demanded a $70,000 to $90,000 payment as the price of its consent to a proposed sublease. The supreme court noted that the contract specifically gave Shoney’s the right, in its sole discretion , to consent to any proposed assignment or sublease.

Significantly, prior case law from Alabama was to the effect that a refusal to consent would indeed be judged by a commercial-reasonableness standard. But, the supreme court said, “[w]here the parties to a contract use language that is inconsistent with a commercial-reasonableness standard, the terms of such contract will not be altered by an implied covenant of good faith. Therefore, an unqualified express standard such as ‘sole discretion’ is also to be construed as written.” Shoney’s LLC v. MAC East, LLC , No. 1071465 (Ala. Jul. 31, 2009) (on certification by Eleventh Circuit), cited by MAC East, LLC v. Shoney’s [LLC] , No. 07-11534 (11th Cir. Aug. 11, 2009), reversing No. 2:05-cv-1038-MEF (WO) (M.D. Ala. Jan. 8, 2007) (granting partial summary judgment that Shoney’s had breached the contract).

Termination by non-assigning party

A non-assigning party may terminate this Agreement, in its business discretion , by giving notice to that effect no later than 60 days after receiving notice, from either the assigning party or the assignee, that an assignment of the Agreement has become effective.

Consider an agreement in which a vendor is to provide ongoing services to a customer. A powerful customer might demand the right to consent to the vendor’s assignment of the agreement, even in strategic transactions. The vendor, on the other hand, might refuse to give any customer that kind of control of its strategic options.

A workable compromise might be to allow the customer to terminate the agreement during a stated window of time after the assignment if it is not happy with the new vendor.

Assignment – other provisions

Optional: Delegation: For the avoidance of doubt, an assignment of this Agreement operates as a transfer of the assigning party’s rights and a delegation of its duties under this Agreement.

Optional: Promise to perform: For the avoidance of doubt, an assignee’s acceptance of an assignment of this Agreement constitutes the assignee’s promise to perform the assigning party’s duties under the Agreement. That promise is enforceable by either the assigning party or by the non-assigning party.

Optional: Written assumption by assignee: IF: The non-assigning party so requests of an assignee of this Agreement; THEN: The assignee will seasonably provide the non-assigning party with a written assumption of the assignor’s obligations, duly executed by or on behalf of the assignee; ELSE: The assignment will be of no effect.

Optional: No release: For the avoidance of doubt, an assignment of this Agreement does not release the assigning party from its responsibility for performance of its duties under the Agreement unless the non-assigning party so agrees in writing.

Optional: Confidentiality: A non-assigning party will preserve in confidence any non-public information about an actual- or proposed assignment of this Agreement that may be disclosed to that party by a party participating in, or seeking consent for, the assignment.

The Delegation provision might not be necessary in a contract for the sale of goods governed by the Uniform Commercial Code, because a similar provision is found in UCC 2-210

The Confidentiality provision would be useful if a party to the agreement anticipated that it might be engaging in any kind of merger or other strategic transaction.

Materiality of assignment breach

IF: A party breaches any requirement of this Agreement that the party obtain another party’s consent to assign this Agreement; THEN: Such breach is to be treated as a material breach of this Agreement.

A chief significance of this kind of provision is that failure to obtain consent to assignment, if it were a material breach, would give the non-assigning party the right to terminate the Agreement.

If an assignment-consent provision requires that consent not be unreasonably withheld , then failure to obtain consent to a reasonable assignment would not be a material breach, according to the court in Hess Energy Inc. v. Lightning Oil Co. , No. 01-1582 (4th Cir. Jan. 18, 2002) (reversing summary judgment). In that case, the agreement was a natural-gas supply contract. The customer was acquired by a larger company, after which the larger company took over some of the contract administration responsibilities such as payment of the vendor’s invoices. The vendor, seeking to sell its gas to someone else at a higher price, sent a notice of termination, on grounds that the customer had “assigned” the agreement to its new parent company, in violation of the contract’s assignment-consent provision. The appeals court held that, even if the customer had indeed assigned the contract (a point on which it expressed considerable doubt) without consent, the resulting breach of the agreement was not material, and therefore the vendor did not have the right to terminate the contract.

See also (list is generated automatically) :

• Notebook update: Reverse triangular merger might be an assignment of a contract, requiring consent Just updated the Notebook with a citation to a case in which the Delaware Chancery Court refused to rule out the possibility that a reverse...
• Assignment-consent requirements can cause serious problems in future M&A transactions A lot of contracts provide that Party A must obtain the prior written consent of Party B if it wishes to assign the agreement to a...
• SCOTX rejects implied obligation not to unreasonably withhold consent to assignment of contract In a recent Texas case, two sophisticated parties in the oil and gas busi­ness — let’s call them Alpha and Bravo — were negotiating a contract....
• Ken Adams and the marketplace of ideas I (used to) comment occasionally at Ken Adams’s blog. Recent examples: Here, here, here, here, and here. Ken and I disagree on a number of issues; some...

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• Assignment Clause

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Assignment clause defined.

Assignment clauses are legally binding provisions in contracts that give a party the chance to engage in a transfer of ownership or assign their contractual obligations and rights to a different contracting party.

In other words, an assignment clause can reassign contracts to another party. They can commonly be seen in contracts related to business purchases.

Here’s an article about assignment clauses.

Assignment Clause Explained

Assignment contracts are helpful when you need to maintain an ongoing obligation regardless of ownership. Some agreements have limitations or prohibitions on assignments, while other parties can freely enter into them.

Here’s another article about assignment clauses.

Purpose of Assignment Clause

The purpose of assignment clauses is to establish the terms around transferring contractual obligations. The Uniform Commercial Code (UCC) permits the enforceability of assignment clauses.

Assignment Clause Examples

Examples of assignment clauses include:

• Example 1 . A business closing or a change of control occurs
• Example 2 . New services providers taking over existing customer contracts
• Example 3 . Unique real estate obligations transferring to a new property owner as a condition of sale
• Example 4 . Many mergers and acquisitions transactions, such as insurance companies taking over customer policies during a merger

Here’s an article about the different types of assignment clauses.

Assignment Clause Samples

Sample 1 – sales contract.

Assignment; Survival .  Neither party shall assign all or any portion of the Contract without the other party’s prior written consent, which consent shall not be unreasonably withheld; provided, however, that either party may, without such consent, assign this Agreement, in whole or in part, in connection with the transfer or sale of all or substantially all of the assets or business of such Party relating to the product(s) to which this Agreement relates. The Contract shall bind and inure to the benefit of the successors and permitted assigns of the respective parties. Any assignment or transfer not in accordance with this Contract shall be void. In order that the parties may fully exercise their rights and perform their obligations arising under the Contract, any provisions of the Contract that are required to ensure such exercise or performance (including any obligation accrued as of the termination date) shall survive the termination of the Contract.

Reference :

Security Exchange Commission - Edgar Database,  EX-10.29 3 dex1029.htm SALES CONTRACT , Viewed May 10, 2021, <  https://www.sec.gov/Archives/edgar/data/1492426/000119312510226984/dex1029.htm >.

Sample 2 – Purchase and Sale Agreement

Assignment . Purchaser shall not assign this Agreement or any interest therein to any Person, without the prior written consent of Seller, which consent may be withheld in Seller’s sole discretion. Notwithstanding the foregoing, upon prior written notice to Seller, Purchaser may designate any Affiliate as its nominee to receive title to the Property, or assign all of its right, title and interest in this Agreement to any Affiliate of Purchaser by providing written notice to Seller no later than five (5) Business Days prior to the Closing; provided, however, that (a) such Affiliate remains an Affiliate of Purchaser, (b) Purchaser shall not be released from any of its liabilities and obligations under this Agreement by reason of such designation or assignment, (c) such designation or assignment shall not be effective until Purchaser has provided Seller with a fully executed copy of such designation or assignment and assumption instrument, which shall (i) provide that Purchaser and such designee or assignee shall be jointly and severally liable for all liabilities and obligations of Purchaser under this Agreement, (ii) provide that Purchaser and its designee or assignee agree to pay any additional transfer tax as a result of such designation or assignment, (iii) include a representation and warranty in favor of Seller that all representations and warranties made by Purchaser in this Agreement are true and correct with respect to such designee or assignee as of the date of such designation or assignment, and will be true and correct as of the Closing, and (iv) otherwise be in form and substance satisfactory to Seller and (d) such Assignee is approved by Manager as an assignee of the Management Agreement under Article X of the Management Agreement. For purposes of this Section 16.4, “Affiliate” shall include any direct or indirect member or shareholder of the Person in question, in addition to any Person that would be deemed an Affiliate pursuant to the definition of “Affiliate” under Section 1.1 hereof and not by way of limitation of such definition.

Security Exchange Commission - Edgar Database,  EX-10.8 3 dex108.htm PURCHASE AND SALE AGREEMENT , Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1490985/000119312510160407/dex108.htm >.

Sample 3 – Share Purchase Agreement

Assignment . Neither this Agreement nor any right or obligation hereunder may be assigned by any Party without the prior written consent of the other Parties, and any attempted assignment without the required consents shall be void.

Security Exchange Commission - Edgar Database,  EX-4.12 3 dex412.htm SHARE PURCHASE AGREEMENT , Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1329394/000119312507148404/dex412.htm >.

Sample 4 – Asset Purchase Agreement

Assignment . This Agreement and any of the rights, interests, or obligations incurred hereunder, in part or as a whole, at any time after the Closing, are freely assignable by Buyer. This Agreement and any of the rights, interests, or obligations incurred hereunder, in part or as a whole, are assignable by Seller only upon the prior written consent of Buyer, which consent shall not be unreasonably withheld. This Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and permitted assigns.

Security Exchange Commission - Edgar Database,  EX-2.1 2 dex21.htm ASSET PURCHASE AGREEMENT , Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1428669/000119312510013625/dex21.htm >.

Sample 5 – Asset Purchase Agreement

Assignment; Binding Effect; Severability

This Agreement may not be assigned by any party hereto without the other party’s written consent; provided, that Buyer may transfer or assign in whole or in part to one or more Buyer Designee its right to purchase all or a portion of the Purchased Assets, but no such transfer or assignment will relieve Buyer of its obligations hereunder. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors, legal representatives and permitted assigns of each party hereto. The provisions of this Agreement are severable, and in the event that any one or more provisions are deemed illegal or unenforceable the remaining provisions shall remain in full force and effect unless the deletion of such provision shall cause this Agreement to become materially adverse to either party, in which event the parties shall use reasonable commercial efforts to arrive at an accommodation that best preserves for the parties the benefits and obligations of the offending provision.

Security Exchange Commission - Edgar Database,  EX-2.4 2 dex24.htm ASSET PURCHASE AGREEMENT , Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1002047/000119312511171858/dex24.htm >.

Common Contracts with Assignment Clauses

Common contracts with assignment clauses include:

• Real estate contracts
• Sales contract
• Asset purchase agreement
• Purchase and sale agreement
• Bill of sale
• Assignment and transaction financing agreement

Assignment Clause FAQs

Assignment clauses are powerful when used correctly. Check out the assignment clause FAQs below to learn more:

What is an assignment clause in real estate?

Assignment clauses in real estate transfer legal obligations from one owner to another party. They also allow house flippers to engage in a contract negotiation with a seller and then assign the real estate to the buyer while collecting a fee for their services. Real estate lawyers assist in the drafting of assignment clauses in real estate transactions.

What does no assignment clause mean?

No assignment clauses prohibit the transfer or assignment of contract obligations from one part to another.

What’s the purpose of the transfer and assignment clause in the purchase agreement?

The purpose of the transfer and assignment clause in the purchase agreement is to protect all involved parties’ rights and ensure that assignments are not to be unreasonably withheld. Contract lawyers can help you avoid legal mistakes when drafting your business contracts’ transfer and assignment clauses.

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No assignment or delegation

No assignment or delegation clause samples

14.6     No Assignment or Delegation. No party may assign any right or delegate any obligation hereunder, including by merger, consolidation, operation of law, or otherwise, without the written consent of the other parties hereto; provided, that such assignment shall not prevent or impede the Acquisition Merger from qualifying for the Intended Tax Treatment. Any purported assignment or delegation that does not comply with the immediately preceding sentence shall be void, in addition to constituting a material breach of this Agreement.

09/10/2020 (Chelsea Worldwide Inc.)

Section 5.12 No Assignment or Delegation. No Party may assign any right or delegate any obligation hereunder, including by merger, consolidation, operation of law, or otherwise, without the written consent of the all of the other Parties and any purported assignment or delegation without such consent shall be void, in addition to constituting a material breach of this Agreement. This Agreement shall be binding on the permitted successors and assigns of the Parties.

11/01/2019 (Lone Star Value Management LLC)

Section9. Binding Effect; No Assignment or Delegation. This Pledge Agreement shall be binding upon and inure to the benefit of the Pledgor, the Pledgee and their respective successors and assigns, except that the Pledgor may not assign or transfer its rights hereunder without the prior written consent of the Pledgee (which consent shall not unreasonably be withheld). Each duty or obligation of the Pledgor to the Pledgee pursuant to the provisions of this Pledge Agreement shall be performed in favor of any person or entity designated by the Pledgee, and any duty or obligation of the Pledgee to the Pledgor may be performed by any other person or entity designated by the Pledgee.

06/06/2016 (Ottawa Bancorp Inc)

Section 10.16 No Assignment or Delegation. No Party may assign any right or delegate any obligation hereunder, including by merger, consolidation, operation of law, or otherwise, without the written consent of the all of the other Parties and any purported assignment or delegation without such consent shall be void, in addition to constituting a material breach of this Agreement. Notwithstanding this restriction, the Buyer may assign this Agreement to an affiliate that effectuates the Roll-Up Transactions (the “Permitted Assignee”). In the event of any assignment to the Permitted Assignee, the capitalization of the Assignee shall be identical to the capitalization of the Buyer as provided for in this Agreement (only with such changes as are not adverse to the Sellers and do not diminish any rights to which the Sellers were otherwise entitled) and all other representations and warranties of the Buyer shall be true and correct as they apply to the Permitted Assignee, and the Buyer shall continue to be bound by the terms of this Agreement as a primary obligor hereunder such that should the Permitted Assignee fail to perform any of its obligations hereunder, the Sellers and Sellers’ Representative shall be entitled to pursue performance against the Buyer. This Agreement shall be binding on the permitted successors and assigns of the Parties; provided, however, no such assignment will relieve any Party of their obligations under this Agreement.

11/05/2020 (HARVEST HEALTH & RECREATION INC.)

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Consent to Assignment: Everything You Need to Know

Consent to assignment refers to allowing a party of a contract (the assignor) to assign a contract and move the obligations to another party (the assignee). 3 min read updated on February 01, 2023

Consent to assignment refers to allowing a party of a contract to assign a contract and move the obligations to another party. The party of the existing contract, known as the assignor, will pass on the contract to another party, known as the assignee. The goal is for the assignee to take over the rights and obligations of the contract. For a contract to be assigned, the other party must be aware of what is happening.

Contract Assignments

The assignment of a contract differs depending on the type of contract and the language in the original agreement. Some contracts contain a clause that doesn't allow assignment at all, while other contracts have clauses that require the other party to consent before assignment can be finalized.

Consider the following scenario. A business owner contracts with a computer company to have a processor delivered every time a new model is released. The computer company assigns the business owner's contract to another provider. As long as the business owner is aware of the changes and still receives the processors as scheduled, his contract is now with the new computer company.

However, assigning a contract doesn't always exempt the assignor from their duties and responsibilities. Some contracts include a clause that states that even if the agreement is assigned to another party, the original parties guarantee that the terms of the contract will be fulfilled.

Unenforceable Assignments

There are a number of situations where a contract assignment won't be enforced , including:

• The contract has an anti-assignment clause that can stop or invalidate any assignments.
• The assignment changes the nature of the contract. An assignment that changes what is expected or impacts the performance of the contract isn't allowed. This also applies if the assignment lowers the value one party will receive or adds risk to the deal that the other party didn't originally agree to.
• The assignment is against the law. In some cases, laws or public policies don't allow assignment. Many states forbid employees to assign future wages. The federal government doesn't allow the assignment of particular claims against the government. Some assignments violate public policy. For example, a personal injury claim cannot be assigned because it could lead to litigation against a party who was not responsible for the injury.

Delegation vs. Assignment

It is common for a party to sign a contract and have someone else actually fulfill his duties and do the work required by the contract. However, some contracts can't be delegated, such as when a party agrees to service done by a particular person or company. If a company contracted with Oprah Winfrey to be a keynote speaker, Oprah wouldn't be permitted to delegate her performance duties to anyone else.

If both parties agree that the work can't be delegated, they should include specific language in the original contract. This can be as simple as a clause that states, “Neither party shall delegate or assign its rights.” Both parties should agree to this clause.

How to Assign a Contract

Assigning a contract is a three-step process. First, check to see if the contract has an anti-assignment clause or if there are limitations around assignments. Sometimes clauses are straightforward with language like, “This agreement may not be assigned,” and while other times, the language is less obvious and hidden in another clause. If there is language in the contract that states it can't be assigned, the other party must consent to an assignment before you can proceed.

Second, the parties must execute an assignment . Create an agreement that transfers the rights and obligations of one party to the assignee.

Third, notify the other party of the contract. Once the contract rights have been assigned to the new party, you should notify the other party of the original contract. Providing written notice removes you from being responsible for any part of the contract unless there is language in the contract that says differently or the assignment is illegal.

Anti-Assignment Clause

As you are negotiating and writing a contract, consider whether you want the contract to be able to be assigned. If you don't want assignment to be a legally viable option, that needs to be clearly stated in the contract.

If you need help with consent to assignment, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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Content Approved by UpCounsel

• Assignment Law
• Legal Assignment
• Assignment Contract Law
• Assignment of Rights and Obligations Under a Contract
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Assignments: The Basic Law

The assignment of a right or obligation is a common contractual event under the law and the right to assign (or prohibition against assignments) is found in the majority of agreements, leases and business structural documents created in the United States.

As with many terms commonly used, people are familiar with the term but often are not aware or fully aware of what the terms entail. The concept of assignment of rights and obligations is one of those simple concepts with wide ranging ramifications in the contractual and business context and the law imposes severe restrictions on the validity and effect of assignment in many instances. Clear contractual provisions concerning assignments and rights should be in every document and structure created and this article will outline why such drafting is essential for the creation of appropriate and effective contracts and structures.

The reader should first read the article on Limited Liability Entities in the United States and Contracts since the information in those articles will be assumed in this article.

Basic Definitions and Concepts:

An assignment is the transfer of rights held by one party called the “assignor” to another party called the “assignee.” The legal nature of the assignment and the contractual terms of the agreement between the parties determines some additional rights and liabilities that accompany the assignment. The assignment of rights under a contract usually completely transfers the rights to the assignee to receive the benefits accruing under the contract. Ordinarily, the term assignment is limited to the transfer of rights that are intangible, like contractual rights and rights connected with property. Merchants Service Co. v. Small Claims Court , 35 Cal. 2d 109, 113-114 (Cal. 1950).

An assignment will generally be permitted under the law unless there is an express prohibition against assignment in the underlying contract or lease. Where assignments are permitted, the assignor need not consult the other party to the contract but may merely assign the rights at that time. However, an assignment cannot have any adverse effect on the duties of the other party to the contract, nor can it diminish the chance of the other party receiving complete performance. The assignor normally remains liable unless there is an agreement to the contrary by the other party to the contract.

The effect of a valid assignment is to remove privity between the assignor and the obligor and create privity between the obligor and the assignee. Privity is usually defined as a direct and immediate contractual relationship. See Merchants case above.

Further, for the assignment to be effective in most jurisdictions, it must occur in the present. One does not normally assign a future right; the assignment vests immediate rights and obligations.

No specific language is required to create an assignment so long as the assignor makes clear his/her intent to assign identified contractual rights to the assignee. Since expensive litigation can erupt from ambiguous or vague language, obtaining the correct verbiage is vital. An agreement must manifest the intent to transfer rights and can either be oral or in writing and the rights assigned must be certain.

Note that an assignment of an interest is the transfer of some identifiable property, claim, or right from the assignor to the assignee. The assignment operates to transfer to the assignee all of the rights, title, or interest of the assignor in the thing assigned. A transfer of all rights, title, and interests conveys everything that the assignor owned in the thing assigned and the assignee stands in the shoes of the assignor. Knott v. McDonald’s Corp ., 985 F. Supp. 1222 (N.D. Cal. 1997)

The parties must intend to effectuate an assignment at the time of the transfer, although no particular language or procedure is necessary. As long ago as the case of National Reserve Co. v. Metropolitan Trust Co ., 17 Cal. 2d 827 (Cal. 1941), the court held that in determining what rights or interests pass under an assignment, the intention of the parties as manifested in the instrument is controlling.

The intent of the parties to an assignment is a question of fact to be derived not only from the instrument executed by the parties but also from the surrounding circumstances. When there is no writing to evidence the intention to transfer some identifiable property, claim, or right, it is necessary to scrutinize the surrounding circumstances and parties’ acts to ascertain their intentions. Strosberg v. Brauvin Realty Servs., 295 Ill. App. 3d 17 (Ill. App. Ct. 1st Dist. 1998)

The general rule applicable to assignments of choses in action is that an assignment, unless there is a contract to the contrary, carries with it all securities held by the assignor as collateral to the claim and all rights incidental thereto and vests in the assignee the equitable title to such collateral securities and incidental rights. An unqualified assignment of a contract or chose in action, however, with no indication of the intent of the parties, vests in the assignee the assigned contract or chose and all rights and remedies incidental thereto.

More examples: In Strosberg v. Brauvin Realty Servs ., 295 Ill. App. 3d 17 (Ill. App. Ct. 1st Dist. 1998), the court held that the assignee of a party to a subordination agreement is entitled to the benefits and is subject to the burdens of the agreement. In Florida E. C. R. Co. v. Eno , 99 Fla. 887 (Fla. 1930), the court held that the mere assignment of all sums due in and of itself creates no different or other liability of the owner to the assignee than that which existed from the owner to the assignor.

And note that even though an assignment vests in the assignee all rights, remedies, and contingent benefits which are incidental to the thing assigned, those which are personal to the assignor and for his sole benefit are not assigned. Rasp v. Hidden Valley Lake, Inc ., 519 N.E.2d 153, 158 (Ind. Ct. App. 1988). Thus, if the underlying agreement provides that a service can only be provided to X, X cannot assign that right to Y.

Novation Compared to Assignment:

Although the difference between a novation and an assignment may appear narrow, it is an essential one. “Novation is a act whereby one party transfers all its obligations and benefits under a contract to a third party.” In a novation, a third party successfully substitutes the original party as a party to the contract. “When a contract is novated, the other contracting party must be left in the same position he was in prior to the novation being made.”

A sublease is the transfer when a tenant retains some right of reentry onto the leased premises. However, if the tenant transfers the entire leasehold estate, retaining no right of reentry or other reversionary interest, then the transfer is an assignment. The assignor is normally also removed from liability to the landlord only if the landlord consents or allowed that right in the lease. In a sublease, the original tenant is not released from the obligations of the original lease.

Equitable Assignments:

An equitable assignment is one in which one has a future interest and is not valid at law but valid in a court of equity. In National Bank of Republic v. United Sec. Life Ins. & Trust Co. , 17 App. D.C. 112 (D.C. Cir. 1900), the court held that to constitute an equitable assignment of a chose in action, the following has to occur generally: anything said written or done, in pursuance of an agreement and for valuable consideration, or in consideration of an antecedent debt, to place a chose in action or fund out of the control of the owner, and appropriate it to or in favor of another person, amounts to an equitable assignment. Thus, an agreement, between a debtor and a creditor, that the debt shall be paid out of a specific fund going to the debtor may operate as an equitable assignment.

In Egyptian Navigation Co. v. Baker Invs. Corp. , 2008 U.S. Dist. LEXIS 30804 (S.D.N.Y. Apr. 14, 2008), the court stated that an equitable assignment occurs under English law when an assignor, with an intent to transfer his/her right to a chose in action, informs the assignee about the right so transferred.

An executory agreement or a declaration of trust are also equitable assignments if unenforceable as assignments by a court of law but enforceable by a court of equity exercising sound discretion according to the circumstances of the case. Since California combines courts of equity and courts of law, the same court would hear arguments as to whether an equitable assignment had occurred. Quite often, such relief is granted to avoid fraud or unjust enrichment.

Note that obtaining an assignment through fraudulent means invalidates the assignment. Fraud destroys the validity of everything into which it enters. It vitiates the most solemn contracts, documents, and even judgments. Walker v. Rich , 79 Cal. App. 139 (Cal. App. 1926). If an assignment is made with the fraudulent intent to delay, hinder, and defraud creditors, then it is void as fraudulent in fact. See our article on Transfers to Defraud Creditors .

But note that the motives that prompted an assignor to make the transfer will be considered as immaterial and will constitute no defense to an action by the assignee, if an assignment is considered as valid in all other respects.

Enforceability of Assignments:

Whether a right under a contract is capable of being transferred is determined by the law of the place where the contract was entered into. The validity and effect of an assignment is determined by the law of the place of assignment. The validity of an assignment of a contractual right is governed by the law of the state with the most significant relationship to the assignment and the parties.

In some jurisdictions, the traditional conflict of laws rules governing assignments has been rejected and the law of the place having the most significant contacts with the assignment applies. In Downs v. American Mut. Liability Ins. Co ., 14 N.Y.2d 266 (N.Y. 1964), a wife and her husband separated and the wife obtained a judgment of separation from the husband in New York. The judgment required the husband to pay a certain yearly sum to the wife. The husband assigned 50 percent of his future salary, wages, and earnings to the wife. The agreement authorized the employer to make such payments to the wife.

After the husband moved from New York, the wife learned that he was employed by an employer in Massachusetts. She sent the proper notice and demanded payment under the agreement. The employer refused and the wife brought an action for enforcement. The court observed that Massachusetts did not prohibit assignment of the husband’s wages. Moreover, Massachusetts law was not controlling because New York had the most significant relationship with the assignment. Therefore, the court ruled in favor of the wife.

Therefore, the validity of an assignment is determined by looking to the law of the forum with the most significant relationship to the assignment itself. To determine the applicable law of assignments, the court must look to the law of the state which is most significantly related to the principal issue before it.

Assignment of Contractual Rights:

Generally, the law 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. Restat 2d of Contracts, § 317(2)(a). This presumes that the underlying agreement is silent on the right to assign.

If the contract specifically precludes assignment, the contractual right is not assignable. Whether a contract is assignable is a matter of contractual intent and one must look to the language used by the parties to discern that intent.

In the absence of an express provision to the contrary, the rights and duties under a bilateral executory contract that does not involve personal skill, trust, or confidence may be assigned without the consent of the other party. But note that an assignment is invalid if it would materially alter the other party’s duties and responsibilities. Once an assignment is effective, the assignee stands in the shoes of the assignor and assumes all of assignor’s rights. Hence, after a valid assignment, the assignor’s right to performance is extinguished, transferred to assignee, and the assignee possesses the same rights, benefits, and remedies assignor once possessed. Robert Lamb Hart Planners & Architects v. Evergreen, Ltd. , 787 F. Supp. 753 (S.D. Ohio 1992).

On the other hand, an assignee’s right against the obligor is subject to “all of the limitations of the assignor’s right, all defenses thereto, and all set-offs and counterclaims which would have been available against the assignor had there been no assignment, provided that these defenses and set-offs are based on facts existing at the time of the assignment.” See Robert Lamb , case, above.

The power of the contract to restrict assignment is broad. Usually, contractual provisions that restrict assignment of the contract without the consent of the obligor are valid and enforceable, even when there is statutory authorization for the assignment. The restriction of the power to assign is often ineffective unless the restriction is expressly and precisely stated. Anti-assignment clauses are effective only if they contain clear, unambiguous language of prohibition. Anti-assignment clauses protect only the obligor and do not affect the transaction between the assignee and assignor.

Usually, a prohibition against the assignment of a contract does not prevent an assignment of the right to receive payments due, unless circumstances indicate the contrary. Moreover, the contracting parties cannot, by a mere non-assignment provision, prevent the effectual alienation of the right to money which becomes due under the contract.

A contract provision prohibiting or restricting an assignment may be waived, or a party may so act as to be estopped from objecting to the assignment, such as by effectively ratifying the assignment. The power to void an assignment made in violation of an anti-assignment clause may be waived either before or after the assignment. See our article on Contracts.

Noncompete Clauses and Assignments:

Of critical import to most buyers of businesses is the ability to ensure that key employees of the business being purchased cannot start a competing company. Some states strictly limit such clauses, some do allow them. California does restrict noncompete clauses, only allowing them under certain circumstances. A common question in those states that do allow them is whether such rights can be assigned to a new party, such as the buyer of the buyer.

A covenant not to compete, also called a non-competitive clause, is a formal agreement prohibiting one party from performing similar work or business within a designated area for a specified amount of time. This type of clause is generally included in contracts between employer and employee and contracts between buyer and seller of a business.

Many workers sign a covenant not to compete as part of the paperwork required for employment. It may be a separate document similar to a non-disclosure agreement, or buried within a number of other clauses in a contract. A covenant not to compete is generally legal and enforceable, although there are some exceptions and restrictions.

Whenever a company recruits skilled employees, it invests a significant amount of time and training. For example, it often takes years before a research chemist or a design engineer develops a workable knowledge of a company’s product line, including trade secrets and highly sensitive information. Once an employee gains this knowledge and experience, however, all sorts of things can happen. The employee could work for the company until retirement, accept a better offer from a competing company or start up his or her own business.

A covenant not to compete may cover a number of potential issues between employers and former employees. Many companies spend years developing a local base of customers or clients. It is important that this customer base not fall into the hands of local competitors. When an employee signs a covenant not to compete, he or she usually agrees not to use insider knowledge of the company’s customer base to disadvantage the company. The covenant not to compete often defines a broad geographical area considered off-limits to former employees, possibly tens or hundreds of miles.

Another area of concern covered by a covenant not to compete is a potential ‘brain drain’. Some high-level former employees may seek to recruit others from the same company to create new competition. Retention of employees, especially those with unique skills or proprietary knowledge, is vital for most companies, so a covenant not to compete may spell out definite restrictions on the hiring or recruiting of employees.

A covenant not to compete may also define a specific amount of time before a former employee can seek employment in a similar field. Many companies offer a substantial severance package to make sure former employees are financially solvent until the terms of the covenant not to compete have been met.

Because the use of a covenant not to compete can be controversial, a handful of states, including California, have largely banned this type of contractual language. The legal enforcement of these agreements falls on individual states, and many have sided with the employee during arbitration or litigation. A covenant not to compete must be reasonable and specific, with defined time periods and coverage areas. If the agreement gives the company too much power over former employees or is ambiguous, state courts may declare it to be overbroad and therefore unenforceable. In such case, the employee would be free to pursue any employment opportunity, including working for a direct competitor or starting up a new company of his or her own.

It has been held that an employee’s covenant not to compete is assignable where one business is transferred to another, that a merger does not constitute an assignment of a covenant not to compete, and that a covenant not to compete is enforceable by a successor to the employer where the assignment does not create an added burden of employment or other disadvantage to the employee. However, in some states such as Hawaii, it has also been held that a covenant not to compete is not assignable and under various statutes for various reasons that such covenants are not enforceable against an employee by a successor to the employer. Hawaii v. Gannett Pac. Corp. , 99 F. Supp. 2d 1241 (D. Haw. 1999)

It is vital to obtain the relevant law of the applicable state before drafting or attempting to enforce assignment rights in this particular area.

Conclusion:

In the current business world of fast changing structures, agreements, employees and projects, the ability to assign rights and obligations is essential to allow flexibility and adjustment to new situations. Conversely, the ability to hold a contracting party into the deal may be essential for the future of a party. Thus, the law of assignments and the restriction on same is a critical aspect of every agreement and every structure. This basic provision is often glanced at by the contracting parties, or scribbled into the deal at the last minute but can easily become the most vital part of the transaction.

As an example, one client of ours came into the office outraged that his co venturer on a sizable exporting agreement, who had excellent connections in Brazil, had elected to pursue another venture instead and assigned the agreement to a party unknown to our client and without the business contacts our client considered vital. When we examined the handwritten agreement our client had drafted in a restaurant in Sao Paolo, we discovered there was no restriction on assignment whatsoever…our client had not even considered that right when drafting the agreement after a full day of work.

One choses who one does business with carefully…to ensure that one’s choice remains the party on the other side of the contract, one must master the ability to negotiate proper assignment provisions.

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If a contract is silent on assignment does the law imply that the assignment can only take place with consent?

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Exhibit 2. S&P 500 Post-Election Performance Scenarios

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