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.
Posted in Selected Provisions16 Comments
The Assignment clause determines whether rights, obligations and duties under an agreement may be transferred in whole in or part to another, and under what conditions. Under U.S. law, contractual rights are freely assignable or delegable, unless prescribed or limited by agreement.
The cause frequently overlaps with "Successors and Assigns" or "Parties In interest" clauses that controls whether successors or assigns can assume the rights and obligations under the contract.
An assignment clause will be enforced unless (i) agreement prohibits assignment; (ii) the assignment materially alters contractual rights or obligations, or (iii) it violates the law or public policy.
2. Implications in Mergers and Acquisitions
Albert J. Li of DLA provides a good examination of assignment provisions in the context of acquisitions. He concludes: "[a]s a central part of negotiating the sale of assets or a merger, or simply conducting due diligence in any acquisition, reviewing anti-assignment clauses is important from both the buyer's and seller's perspectives. Having third parties involved in the midst of a significant transaction will both complicate, and potentially sidetrack the transaction. Better drafting and clearer anti-assignment language should be a goal at the time of drafting contracts so that parties can accommodate a future acquisition." Understanding Anti-Assignment Clauses and their Implications on Your Acquisition, July 12, 2004.
Assignment and consent provisions "can give the non-assigning party quite a bit of leverage if the assigning party finds itself in an M&A or situation." Assignment-consent provisions, by D. C. Toedt III)
3. Assignment Considerations
- Rights and Obligations: Can either or both the parties assign their rights and obligations?
- Duties or Performance of Obligations: Can performance be transferred, delegated or subcontracted?
- Conditions: If permitted, what conditions apply?
- of Obligations: Can successors assume rights and obligations?
4. Assignment Checklist
- Do you want the freedom to delegate tasks in the agreement?
- Do you want the ability to assign the revenue you receive from a contract?
- Do you want the ability to assign all rights under the agreement to a company that acquires your business?
- Do you want to make sure that the other party to the agreement will always be responsible to you, even if the agreement is assigned?
- Do you want to prevent the other side from assigning the delegating their obligations?
See also, Assignment (of contract)