Navigate regulatory and capital uncertainties, January 20, 2022 - Age of Majority. The first, which we will call simple anti-assignment clauses, simply prohibit the contractual right from being assigned without the consent of the other party to the contract. Few things are more fundamental to M&A due diligence than determining whether any of the material contracts to which the target is a party require a counterpartys consent as a condition to the proposed acquisition. 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]. As the obligations owed to the plaintiff's insured by the defendant were transferred by operation of law, through merger and not by assignment, the court found that the contract was valid and enforceable. The Venture Alley is edited by Trent Dykes and Andrew Ledbetter, corporate and securities lawyers at DLA Piper. This allows a company to undertake a strategic transaction without worry. 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. Accordingly, to assign contracts with comprehensive anti-assignment provisions, the target must seek the consent of the counterparties to each such contract. Massachusetts laws. MGL c.71A Bilingual education. Privacy Policy Hes author ofA Manual of Style for Contract Drafting, and he offers online and in-person training around the world. The sale of some or all of the assets of a company is one method of transferring part or full ownership in the underlying business. Contact us today or call us at (508) 480-8202 to schedule a consultation. 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. 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). Other Types of Transfers. Written by: 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 . An assignment that changes what is expected or impacts the performance of the contract isn't allowed. Hes also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts. 1. They include court-ordered property transfers, bankruptcy-related transfers, and transfers to or from an executor or an administrator. 18. The target survives as a wholly-owned subsidiary of the acquiror following the merger, and continues to own its assets, owe its liabilities, and be party to its contracts. Because courts construe anti-assignment and anti-delegation clauses narrowly, many courts permit involuntary transfer of contracts by operation of law, even if the contract includes a general transfer restriction (see Nat'l Union, 171 Cal. 8, 2011), by the Court in the same case that concluded that there was ambiguity regarding whether an "assignment by operation of law" provision In MTA Canada Royalty v. Compania Minera Pangea, Judge Abigail LeGrow considered whether . Many courts have found that an assignment "by opera-tion of law" occurs when the target company's liabilities change hands. Springfield, MA 01103 (413) 731-5134. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); This site uses Akismet to reduce spam. 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. The assignment is against the law. 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. Copyright 2006 - 2023 Law Business Research. However, under Delaware law, a general prohibition on a party transferring or assigning an agreement does not automatically prohibit a merger involving a contracting party, even one in which the contracting party is not the survivor of such merger. For example, a right and a corresponding obligation may dis-appear if they vest in the same person, as might happen in a merger or acquisition. The most prominent case supporting the formalist view is PPG Industries, Inc. v. Guardian Industries Corp. 95 This case involved a grant of patent. If you have an issue that deals with the assignment of a contract, the Katz Law Group can help you enforce your rights and protect the interests of your business. As such, the Court accepted that the amalgamation resulted in the entity that was party to the acquisition agreement ceasing to exist. If I do so, Im not delegating an obligation, Im delegating performance aimed at satisfying a condition. And the Meso Scale Diagnostics case provides a great example of exactly that. 30 September 202123 June 2011 | Ken Adams, In Meso Scale Diagnostics, LLC v. Roche DiagnosticsGMBH (go here for a PDF copy), the Delaware Court of Chancery held that its not clear whether for purposes of a no-assignment provision a reverse triangular merger constitutes an assignment by operation of law. (A reverse triangular merger is when Sub merges into Target. Importantly,the rule is different if the tenant entity does not survive the transaction. 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. Extract the contract data you need to help your clients run their businesses more efficiently, Corporations 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. 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An inclusion could be negotiated by the parties to broaden the anti-assignment clause and to ensure that an assignment occurring by operation of law requires counterparty approval: [Party A] agrees that it will not assign, sublet or otherwise transfer its rights hereunder, either voluntarily or by operations of law, without the prior written consent of [Party B]. 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. (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.) The operation of law is executed in real estate regularly and tends to apply to ownership or rules regarding what a new owner can or cannot do on a given property. [1] Of course, the consequences of termination would have to be thought through and suitably addressed. Transfers by operation of law are generally considered involuntary transfers. 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. An official website of the Commonwealth of Massachusetts Here's how you know. Oracle, held that a reverse triangular merger did result in an assignment by operation of law of a license agreement of the target company. 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. 2010 massachusetts code part ii real and personal property and domestic relations title ii descent and distribution, wills, estates of deceased persons and absentees, guardianship, conservatorship and trusts chapter 190b massachusetts uniform probate code article ii intestacy, wills and donative transfers section 2-801 disclaimer of property . The general rule is that change of control of a corporate entityisnotan assignment by operation of law,and thereforedoes not violate a basicanti-assignment provision. I welcome comments. Official websites use .mass.gov. InMTA Canada Royalty Corp. v.CompaniaMinera Pangea, aDelaware Superior Court held that amerger in which the contracting entity does not survive may be held to be an assignment by operation of law. The examples listed above are only of five common occurrences in which an assignment provision may provide exclusions or inclusions. See generally Tina L. Stark, Negotiating and Drafting Contract Boilerplate, 3.01-3.14 (ALM Publishing 2003).; See e.g., Tex. Streamline the contract review process with Kiras out-of-the-box smart fields, Quick Study Notwithstanding any general or special law to the contrary, in all intensive care units the patient assignment for the . On the other hand, I find Meso's arguments as to why language that prohibits "assignments by operation of law or otherwise" should be construed to encompass reverse triangular mergers unpersuasive and its related construction of Section 5.08 to be unreasonable. 9 MIN READ, Legal Due Diligence: Evolving Roles, Expanding Benefits, November 23, 2021 - 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. For over two decades now, the law in Connecticut with regards to antiassignment provisions in commercial leases has been that they will be found valid so long as the landlord's discretion to withhold consent was carried out in good faith. However, courts have created considerable ambiguity around the applicability of this general rule in the context of forward triangular mergers. 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). Get the latest views and developments in the private equity world from the Global Private Equity Watch team at Weil. 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 exceptions to the general rule of free assignability fall into two broad categories: (1) contractual prohibitions on free assignability (anti-assignment clauses) and (2) case law prohibitions on free assignability of certain types of contracts that arise out of public policy concerns. 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.. A breached the shareholders agreement. Courts in many states including Florida, New York and Delaware have held that a change of control is not an assignment by operation of law. If you have a problem with that, omit any mention of consent. Thus, the court dismissed the former stockholders claim outright. performance and not the assignment of rights (O.C.G.A. 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. MGL c.71 Public schools. A contract is a voluntary, legally enforceable promise between two competent to perform (or not to perform) parties some legal act in exchange for consideration. A .mass.gov website belongs to an official government organization in Massachusetts. [2] An assignment may not transfer a duty, burden or detriment without the express agreement of the assignee. Heres what Tina Starks book Negotiating and Drafting Contract Boilerplate the best U.S. source of raw material on no-assignment provisionshas to say about it (footnotes omitted): Transfers by operation of law are generally considered involuntary transfers. The general rule is that contracts are freely assignable unless the contract itself, a statute, or public policy dictates otherwise. Law Firms: Be Strategic In Your COVID-19 Guidance [GUIDANCE] On COVID-19 and Business Continuity Plans. so does permanent disability fall under operation of the law and therefore Transmission applies? While reviewing each of the deal structures that follow, please note that each of the general rules are subject to the exceptions discussed above. Thus . This seems to be the general view; in one case, for example, the Delaware chancery court ruled, on summary judgment, that "mergers do not result in an assignment by operation of law of assets that began as property of the surviving entity and continued to be such after the merger." Meso Scale Diagnostics, LLC v. The parties apparently conceded that the amalgamation was the equivalent of a merger under Delaware law. Meso Scale Diagnostics, LLC v. Roche Diagnostics GmbH, 62 A.3d 62, 88 (Del. These provisions often deem a change of control to be a transfer which triggers the landlord's consent rights in the same way that would apply to an assignment of the lease, for example. Below are five common occurrences in which assignment provisions may provide exclusions or inclusions. Ch. In Omni MedSci, Inc. v. Apple Inc., ___ F.4th ___, Nos. Assignments by operation of law typically occur in the context of transfers of rights and obligations in accordance with merger statutes and can be specifically included in or excluded from assignment provisions. Code 91.005 (leases).And don't forget the statutory restrictions on assignment of government contracts. Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. See e.g., 41 U.S.C. contracts that become contracts with a new entity by virtue of a law. An inclusion could be negotiated by the parties to broaden the anti-assignment clause and to ensure that an assignment occurring by . By continuing to browse this site you are agreeing to our use of cookies.Learn more about what we do with these cookies in our privacy policy. A lock icon ( ) or https:// means you've safely . For example, a comprehensive anti-assignment clause might state: Party X shall not assign this Agreement in whole or in part without Party Ys prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed. 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. So, your valuable lease might end up being held by a much less creditworthy entity. [1] A recent Delaware Superior Court decision, MTA Canada Royalty Corp. v. Compania Minera Pangea, S.A. de C.V., 2020 WL 5554161 (Del. Corporations Code Section 1158(a) would appear to say "no" because it states that an entity that converts to another entity pursuant to Chapter 11.5 is "for all purposes" the same entity that existed before the conversion (except for the purposes of . MGL c.71, 69 National flags and Pledge of Allegiance. Apr. While the amalgamation was a creature of Canadian law, the original acquisition agreement containing the anti-assignment clause was governed by Delaware law. Any assignment or delegation in breach of this section X will be void. The Tenant seeking to enforce its lease has the burden of proving that the new owner was aware of the lease before taking title to the property. 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