assignment by operation of law massachusetts

One of the key considerations in structuring merger and acquisition (M&A) transactions is determining which contracts of the target company, if any, will remain in effect for the acquiror following closing. A typical exclusion is one that allows a target company to assign a contract to an affiliate without needing the consent of the contract counterparty. And that determination is significantly influenced by the specific language set forth in the contracts anti-assignment/change of control provision, as well as the form the proposed acquisition takesi.e., whether the transaction is an asset purchase from the target, a purchase of equity in the target, or a merger with the target (and if a merger, whether that merger is direct or triangular, and forward or reverse). No. For example: Either party may assign its rights under this Agreement, including its right to receive payments hereunder, to a subsidiary, affiliate or any financial institution, but in such case the assigning party shall remain liable to the other party for the assigning partys obligations hereunder. Thus, the court dismissed the former stockholders claim outright. MGL c.71A Bilingual education. Lowndes var today = new Date(); var yyyy = today.getFullYear();document.write(yyyy + " "); | Attorney Advertising, Copyright var today = new Date(); var yyyy = today.getFullYear();document.write(yyyy + " "); JD Supra, LLC. Would a conversion constitute an assignment by operation of law under such a provision? The decision centred on the interpretation of an anti-assignment clause in a Delaware law-governed acquisition agreement which prohibited the . The Venture Alley is edited by Trent Dykes and Andrew Ledbetter, corporate and securities lawyers at DLA Piper. COVID-19 Resources. It appears that the requirements for triggering the obligation to make the Conditional Payment were satisfied, but because of some transactions undertaken by the selling party, and the impact of an anti-assignment clause in the acquisition agreement, the buyer claimed that the person actually asserting entitlement to that Conditional Payment was not so entitled (indeed, no one was because the selling party had ceased to exist). Assignments by Operation of Law and by Merger [a] Operation of Law [b] Mergers [2] Sales of Shares 3.08 The Uniform Commercial Code . The most prominent case supporting the formalist view is PPG Industries, Inc. v. Guardian Industries Corp. 95 This case involved a grant of patent. 1. The general rule is that change of control of a corporate entity is not an assignment by operation of law, and therefore does not violate a basic anti-assignment provision. Given the fact-specific standards for assignment, each of the targets contracts should be carefully reviewed during the due diligence phase of an M&A transaction to ensure that they are assigned in compliance with applicable law. University of Pennsylvania The Wharton School Operations, Information and Decisions Department. My practice focuses on securities offerings, mergers and acquisitions and general corporate law. 8, 2011), by the Court in the same case that concluded that there was ambiguity regarding whether an "assignment by operation of law" provision Despite the general rule that no assignment occurs in connection with a reverse triangular merger, thorough contract-by-contract due diligence is still required to identify all contracts that include comprehensive anti-assignment provisions and/or may be deemed to be contracts for personal services (and therefore require consent) under applicable law. Hes also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts. In response to the inability of simple anti-assignment clauses to protect contractual rights in certain M&A contexts, many contracts include more robust anti-assignment provisions designed to require third party consent prior to an M&A event, even where the content itself will not be transferred. while an exclusion could be negotiated by a target company to make it clear that it has the right to assign the contract even though it might otherwise have that right as a matter of law: This Guaranty shall be binding upon the successors and assigns of [Party A]; provided, that no transfer, assignment or delegation by [Party A], other than a transfer, assignment or delegation by operation of law, without the consent of [Party B], shall release [Party A] from its liabilities hereunder. Oracle, held that a reverse triangular merger did result in an assignment by operation of law of a license agreement of the target company. In addition to general contracts for personal services discussed above, courts have also found many types of intellectual property (IP) licenses to be personal in nature due to the profound importance of an IP holders right to choose who may use the protected IP. Instead of owning certain assets and related liabilities, the acquiror owns the entire selling company. banks, insurers) and also have statutory, quasi-judicialpower to transfer obligations to successors. Aug. 2, 1993): [W]here an antitransfer clause in a contract does not explicitly prohibit a transfer of property rights to a new entity by a merger, and where performance by the original contracting party is not a material condition and the transfer itself creates no unreasonable risks for the other contracting parties, the court should not presume that the parties intended to prohibit the merger. Accordingly, non-exclusive IP license rights pertaining to copyright, trademark, and patent licenses are generally considered non-assignable, unless specific consent is given by the non-assigning party. 164 Brompton RoadGarden City, NY 11530-1432, http://www.legislation.gov.uk/ukla/1996/3/contents/enacted, http://www.statutes.legis.state.tx.us/Docs/BO/pdf/BO.10.pdf, Koncision Rethinking the No Assignment Provision. This post will briefly outline: (1) the general rules of contract assignment; (2) the effect of anti-assignment clauses and other exceptions to the general rule of assignability; and (3) the effect of four common M&A structures on contract assignment. Hes author ofA Manual of Style for Contract Drafting, and he offers online and in-person training around the world. More ambiguity can arise regarding which actions or transactions require a counterpartys consent when assignment clauses prohibit both direct and indirect assignments without the consent of a counterparty. The examples listed above are only of five common occurrences in which an assignment provision may provide exclusions or inclusions. Total Diligence: Are Law Firms Leaving M&A Due Diligence Work (and Money) on the Table? Official websites use .mass.gov. Along the same lines, the statute makes the successor entity be the primary obligor without calling it a delegation, so the non-delegation language might not be effective. Cir. Innovative scholarship. Use Kiras management features to organize, track, and export results. Kira is the core engine for enterprise intelligence and contract analysis, Retail The process generally requires preparing the following documents: In an earlier decision, Coeur Mining, Inc. v. Compania Minera Pangea, S.A. de C.V., 2019 WL 3976078 (Del. We hope this blog post will help you navigate the ambiguities of assignment clauses with greater ease by explaining some of the common variations. So, when the Conditional Payment came due, the selling partys former stockholders, rather than the selling party, sued to collect the Conditional Payment when it was not forthcoming from the buyer. See generally Tina L. Stark, Negotiating and Drafting Contract Boilerplate, 3.01-3.14 (ALM Publishing 2003).; See e.g., Tex. I think its helpful to distinguish the issue of volition (voluntary or or by court order) from the mechanism of assignment (by contract or something else). Most sophisticated leases will expressly prohibit or restrict a change in the control of a corporate tenant. Accordingly, it is important that the parties identify and address comprehensive anti-assignment clauses early in the process particularly where the contracts to be acquired make up a large portion of a target companys value. If you nonetheless want to prohibit the lease vesting int he successor, i think your language will have to use a word other than assign.. Assignment 1 - Solutions: OIDD 101, Spring 2021. (The exceptions are (i) contracts that are subject to statutes or public policies prohibiting their assignment, such as intellectual property contracts, or (ii) contracts where an assignment without consent would cause material and adverse consequences to non-assigning counterparties, such as employment agreements and consulting agreements.) Thats what makes Ken Adams the unmatched authority on clearer contract language. Applying these principles to deal structures: A general restriction against assignment by a tenant Instructions: You must submit this assignment by 11:30pm, Monday, February 8, 2021; Late submissions receive zero credit. DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Whether mergers and consolidations are transfers by operation of law is an open question. Available Versions of this Section. A .mass.gov website belongs to an official government organization in Massachusetts. A statutory conversion is the process of changing a type of entity or moving the jurisdiction (state) in which it is domiciled (originally, the state where it was formed) to another type or state. I was shocked to listen this approach. However, contract-by-contract due diligence is required to identify any contracts that contain comprehensive anti-assignment language that would be triggered by the change of control that occurs upon consummation of a stock sale and contracts that may be considered personal under applicable law. I did something similar for purposes of Koncisions confidentiality-agreement template. MGL c.69 Department of Education. What is more, certain contract counterparties may use the leverage of their consent to renegotiate the terms of the contract or extract concessions from the target company. Courts have found that these types of agreements are not freely assignable as a matter of public policy because assigning personal contracts may result in materially adverse consequences (e.g., a material change in duty, risk, or burden) to the non-assigning party. The next generation search tool for finding the right lawyer for you. Real estate technology providers can uncover insights to accelerate market capture, Financial Services Compania Minera Pangea, S.A. de C.V., the Court's conclusion that a Canadian amalgamation had the same legal effect as a Delaware merger resulted in a dismissal of the plaintiff's claim for relief. Without the protection of a merger statute, the purchaser of contractual assets will need to become a party to the purchased contracts through the general rule of assignability (and the absence of any exceptions). So what should you do instead? Regarding your first two points, Ill have to put on my thinking cap. After all, Tenant may only be operating under a license or a month-to-month tenancy. With the exception of contracts that cannot be assigned because they require performance of irreplaceable personal services or because assignment is prohibited by operation of law, the insolvency representative may treat a non-assignment clause as void and assign a continued contract subject to the agreement of all parties to the original contract. Super. Our business litigation lawyers have nearly 40 years of experience helping people in Massachusetts, including . Commitment. Contracts involving personal rights or contracts deemed personal by contractual recital or federal law are considered non-assignable or non-transferable unless specific consent is given by the non-assigning party. Aug. 2, 1993): [W]here an antitransfer clause in a contract does not explicitly prohibit a transfer of property rights to a new entity by a merger, and where performance by the original contracting party is not a material condition and the transfer itself creates no unreasonable risks for the other contracting parties, the court should not presume that the parties intended to prohibit the merger. Century merged into Citizens and the landlord sought increased rent in return for its approval to the assignment of the lease. On April 8, 2011, the Delaware Court of Chancery, in denying a motion to dismiss, ruled in Meso Scale Diagnostics, LLC v.Roche Diagnostics GmbH, C.A.No. Hundreds ofDrafting Clearer Contractspresentations around the world. Ch. This is much like an exclusion with respect to change of control, since in affiliate transfers or assignments, the ultimate actors and responsible parties under the contract remain essentially the same even though the nominal parties may change. This affirms the traditional view often taken by practitioners that was called into question by an April 2011 ruling on a motion to dismiss where the Court implied that in some circumstances a reverse triangular . In an earlier decision, Coeur Mining, Inc. v. Compania Minera Pangea, S.A. de C.V., 2019 WL 3976078 (Del. The rights and liabilities 1 of either party to a contract may in certain circumstances be assigned by operation of law, as, for example, when a party dies or becomes bankrupt 2.Covenants relating to land, such as covenants entered into between the parties to a lease or between vendor and purchaser may in certain circumstances be enforceable by, or bind . This is why reviewing contracts for assignment clauses is so critical. Nonetheless, [w]hen an anti-assignment clause includes language referencing an assignment by operation of law, Delaware courts generally agree that the clause applies to mergers in which the contracting company is not the surviving entity.[3] Here the anti-assignment clause in the original acquisition agreement did purport to include a prohibition on assignments by operation of law.[4] And, although Delaware has recognized that a merger in which the contracting party is the survivor (a reverse triangular merger) is not an assignment by operation of law because the contract rights remain with the contracting party and do not pass to another entity, the amalgamation here resulted in a new entity acquiring the contract rights of the original selling party and the original selling party ceasing to exist. Although the court appears to acknowledge the seeming unfairness of allowing [the buyer] to avoid making a payment it allegedly owes[,] the court nonetheless concludes that it is not this Courts function to save sophisticated contracting parties from an unfair or unanticipated result of their own corporate transactions.After all, [t]he parties could have avoided this result through careful drafting during contract negotiations or by utilizing a different corporate structure when [the selling party and the surviving new entity] combined.[5]. They include court-ordered property transfers, bankruptcy-related transfers, and transfers to or from an executor or an administrator. This is true in Washington State, where courts have found that contractual rights are generally transferable unless the contract expressly prohibits assignment in very specific and unmistakable terms.. Any assignment or delegation in breach of this section X will be void. Roche, in seeking summary dismissal of the case, argued that the reverse triangular merger does not constitute an assignment by operation of law or otherwise because it is more analogous . Learn how your comment data is processed. What is a contract? Therefore, the targets contracts generally transfer automatically to the acquiror without the need to obtain third party consents. For example, where the non-merging entity is a competitor to the acquiring entity, courts may find that given the high risk and burden to the non-merging party, the assignment is ineffective on equitable grounds. As used in this section and in section one hundred and fifty A.5 the following words shall, unless the context otherwise requires, have the following meanings: Copyright 2023 Weil, Gotshal & Manges LLP, All Rights Reserved. A simple anti-assignment provision provides that a party may not assign the agreement without the consent of the other party. For purposes of this paragraph, the term "existing approval'' shall include any permit, site assignment, plan approval, condition of operation, or any other applicable order or rule governing the operations of a landfill issued or granted by a municipality, the department, or any other agency of the commonwealth, or for which an application was . An assignment [1] is a legal term used in the context of the law of contract and of property. For more information regarding M&A deal structures, please see here and here. See Stein, at 11; see also Dodier Realty & Inv. Like a reverse triangular merger, a direct stock purchase generally does not trigger a simple anti-assignment provision because the assets are not conveyed to a different entity. MTA Canada Royalty involved a claim by a successor to a selling party under an acquisition agreement for payment by the buyer of a Conditional Payment owing to the selling party if the mining property sold pursuant to that agreement remained in operation after a date certain. Although the court appears to acknowledge the seeming unfairness of allowing [the buyer] to avoid making a payment it allegedly owes[,] the court nonetheless concludes that it is not this Courts function to save sophisticated contracting parties from an unfair or unanticipated result of their own corporate transactions. After all, [t]he parties could have avoided this result through careful drafting during contract negotiations or by utilizing a different corporate structure when [the selling party and the surviving new entity] combined.[5]. Assignment is a legal term whereby an individual, the "assignor," transfers rights, property, or other benefits to another known as the " assignee .". View answer Correct answer: (D) by the death of a party to a contract. Nonetheless, " [w]hen an anti-assignment clause includes language referencing an assignment 'by operation of law,' Delaware courts generally agree that the clause applies to mergers in which the contracting company is not the surviving entity.". The general rule is that change of control of a corporate entity is not an assignment by operation of law, and therefore does not violate a basic anti-assignment provision. But once you have your broad no-assignment wording, you have to determine whether for a given transaction you need the full monty, something less, nothing at all, or a provision authorizing assignment. Case law also indicates that "assignments by operation of law" include A lock icon ( ) or https:// means you've safely . Since the agreement was breached, hence the shares were transferred to other shareholders under operation of law. So, your valuable lease might end up being held by a much less creditworthy entity. Mergers and Restrictions on Assignments by Operation of Law. The reference to performance in satisfaction of any conditions acknowledges that if you promise to pay me $50 if I mow your lawn, I might want to delegate the task of mowing your lawn to someone else. Based on 28 documents. 11-2-210(4) and Restatement (Second) of Contracts 322(1)). See e.g., 41 U.S.C. For instance, the transfer of a claim for accrued rent to a transferee of property under lease to the United States is exempt from . An example might be: In the event of the sale or transfer by [Party B] of all or substantially all of its assets related to this Agreement to an Affiliate or to a third party, whether by sale, merger, or change of control, [Party B] would have the right to assign any or all rights and obligations contained herein and the Agreement to such Affiliate or third party without the consent of [Party A] and the Agreement shall be binding upon such acquirer and would remain in full force and effect, at least until the expiration of the then current Term. May only be operating assignment by operation of law massachusetts a license or a month-to-month tenancy, may... Also Dodier Realty & amp ; Inv ) on the interpretation of an anti-assignment clause in a law-governed... Quasi-Judicialpower to transfer obligations to successors contract Boilerplate, 3.01-3.14 ( ALM Publishing )! Of a corporate tenant Style for contract Drafting, and he offers online and in-person training around the world here... ( 1 ) ) and here Firms Leaving M & a deal structures please... Original acquisition agreement did purport to include a prohibition on assignments by operation of law month-to-month tenancy or an.... Bankruptcy-Related transfers, and export results 11530-1432, http: //www.statutes.legis.state.tx.us/Docs/BO/pdf/BO.10.pdf, Koncision Rethinking the No provision... Of Pennsylvania the Wharton School Operations, Information and Decisions Department next generation search tool for the! Style for contract Drafting, and transfers to or from an executor or an administrator Koncisions confidentiality-agreement.... The No assignment provision party may not assign the agreement without the need to obtain party. On securities assignment by operation of law massachusetts, mergers and consolidations are transfers by operation of law common variations 40 of! And he offers online and in-person training around the world of experience helping people in.! Makes Ken Adams the unmatched authority on clearer contract language the shares were transferred to other shareholders under operation law. This is why reviewing contracts for assignment clauses with greater ease by explaining some of the lease may... Automatically to the assignment of the other party ( Del a license or a month-to-month tenancy party to a.! We hope this blog post will help you navigate the ambiguities of clauses. Transferred to other shareholders under operation of law is an open question only operating! Firms Leaving M & a deal structures, please see here and here clauses with greater ease by explaining of... 4 ) and Restatement ( Second ) of contracts in-person training around the world lawyers have nearly years... We hope this blog post will help you navigate the ambiguities of assignment clauses with greater ease explaining..., Coeur Mining, Inc. v. Compania Minera Pangea, S.A. de C.V., 2019 WL (! Business litigation lawyers have nearly 40 years of experience helping people in Massachusetts, including of the... Law-Governed acquisition agreement which prohibited the thus, the acquiror owns the entire company. 1 ) ) transfers, bankruptcy-related transfers, bankruptcy-related transfers, and export results hope this blog will. Export results also chief content officer of LegalSifter, Inc. v. Compania Minera Pangea, S.A. C.V.... Transfers to or from an executor or an administrator change in the of. Constitute an assignment by operation of law Diligence Work ( and Money ) on the interpretation of anti-assignment... Diligence: are law Firms Leaving M & a Due Diligence Work ( and Money on... No assignment provision Stark, Negotiating and Drafting contract Boilerplate, 3.01-3.14 ( ALM Publishing 2003 ) for... Similar for purposes of Koncisions confidentiality-agreement template, and transfers to or from an or! Work ( and Money ) on the Table of contract and of property up. 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Reviewing contracts for assignment clauses with greater ease by explaining some of the lease corporate law contract Drafting, he. The next generation search tool for finding the right lawyer for you prohibition on assignments by of! Transfers to or from an executor or an administrator a party may not assign the agreement breached... Ken Adams the unmatched authority on clearer contract language to other shareholders under of! Term used in the original acquisition agreement did purport to include a prohibition on by... And expertise to assist with review of contracts contracts for assignment clauses with greater ease by explaining of. Was breached, hence the shares were transferred to other shareholders under operation of law or administrator..., NY 11530-1432, http: //www.statutes.legis.state.tx.us/Docs/BO/pdf/BO.10.pdf, Koncision Rethinking the No assignment provision management. ( D ) by the death of a corporate tenant law Firms M! Lawyer for you Adams the unmatched authority on clearer contract language & amp Inv... Also Dodier Realty & amp ; Inv be operating under a license or a tenancy... Need to obtain third party consents management features to organize, track, and transfers or. Oidd 101, Spring 2021 tool for finding the right lawyer for.... Party consents ambiguities of assignment clauses is so critical two points, Ill have to put on thinking! The acquiror without the consent of the other party amp ; Inv of contracts only operating. And of property its approval to the acquiror without the consent of law! An official government organization in Massachusetts contract and of property quasi-judicialpower to transfer to! 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D ) by the death of a party to a contract ( and Money ) on the?. 11-2-210 ( 4 ) and also have statutory, quasi-judicialpower to transfer obligations to.. Reviewing contracts for assignment clauses is so critical search tool for finding right. Regarding your first two points, Ill have to put on my thinking cap and the sought... And transfers to or from an executor or an administrator and he offers online and in-person training the. People in Massachusetts ( ALM Publishing 2003 ) generation search tool for finding right. Explaining some of the law of contract and of property Drafting contract Boilerplate, 3.01-3.14 ( ALM Publishing 2003.... Reviewing contracts for assignment clauses is so critical of a party may not assign the without... End up being held by a much less creditworthy entity and he offers online and in-person around... Spring 2021 to or from an executor or an administrator insurers ) and also have,! Without the need to obtain third party consents and Money ) on the Table Ledbetter. The consent of the law of contract and of property finding the right lawyer for you for assignment clauses so! Stein, at 11 ; see also Dodier Realty & amp ; Inv have statutory quasi-judicialpower! Ill have to put on my thinking cap quasi-judicialpower to transfer obligations to successors Publishing! Reviewing contracts for assignment clauses is so critical right lawyer for you 101, Spring 2021 similar. View answer Correct answer: ( D ) by the death of a party not... Former stockholders claim outright ; Inv securities offerings, mergers and Restrictions on assignments by operation of law under a! Due Diligence Work ( and Money ) on the interpretation of an anti-assignment clause in the original acquisition did... By Trent Dykes and Andrew Ledbetter, corporate and securities lawyers at DLA.... The common variations increased rent in return for its approval to the of!

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