Assignment Provision

Assignment Provision-75
suppliers obtaining products manufactured by children or in an environment-polluting way) than vice versa.Child labour or pollution of the environment are matters that a company would typically want to control upwards the product chain and not down. In case of private equity and other leveraged transactions, the purchaser may need to be able to assign its rights (and obligations) freely under the share purchase agreement, in order to be able to obtain financing more easily.

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An assignment of obligations would usually be subject to the consent of the debtor although under English law a distinction is drawn between novation and the assignment of a contract; whereby the latter does not require consent although will only be effective so as to assign the ‘benefit’ and not the ‘burden’ of the contract.

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 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.

A relaxed assignment clause facilitating the purchaser would be as follows: Assignment.

No Party may assign or transfer any of its rights or obligations under this Agreement without the prior written approval of the other Party, except that: (a) each Party may assign any of its rights under this Agreement to its Affiliates; and (b) Purchaser may assign any of its rights under this Agreement to any of its lenders or to any person acquiring all or substantially all of the rights or assets of Target after the Completion Date, provided, however, that no such assignment shall relieve an assigning Party of its obligations under this Agreement.

As discussed below, this viewpoint is untrue and can produce dire and unwanted results.

This article is intended as a reminder that these boilerplate provisions are not one-size-fits-all propositions and should be carefully reviewed and tailored to suit each contract.And in drafting a contract, have we not all, particularly as younger lawyers, felt (but, it is hoped, resisted) the impulse to "copy and paste" standard language into a contract without fully considering whether those imported words are appropriate to the parties' intentions and the nature and circumstances of their agreement?"Boilerplate"1 provisions are often viewed as time-honored (and therefore flawless), immutable (and therefore nonnegotiable), and ready-made (and therefore fungible) language that may be fluently transplanted among and between any variety of different agreements.This would be the typical example for the applicability of .However, contracting parties may seek more certainty.Because my version makes explicit what Brian’s version only alludes to, it’s longer, but not by much (85 words versus 72 words). At one point or another, we have probably all heard words to this effect: "Don't worry with that provision, it's just boilerplate - standard stuff." It is also likely that many among us have been tempted, in the course of reviewing an interminably long agreement, to skim over or pay less attention to the "miscellaneous" sections at the end of the document (with captions such as "Notices," "Counterparts," "Severability," "Further Assurances," and the like) on the assumption they are entirely standard and innocuous.This provision is useful because, generally, unless the contract contains express terms to the contrary, "all contractual rights may be assigned . For example, without more, this provision in a contract might be construed as an obstacle if one of the parties subsequently wants to sell all or substantially all of its assets, including that contract, to an acquiror.3 It might also potentially hamper a reorganization pursuant to which the party might need to transfer that contract to a wholly-owned subsidiary.To avoid potential disputes over these points, a simple fix might be to include the following proviso: "provided, however, that a Party may (i) assign this Agreement to any entity that acquires all or substantially all of such Party's assets or its business that is the subject hereof, or (ii) upon written notice to the other Party, assign this Agreement to any entity that is owned by such Party." Confidentiality Provisions A "typical" confidentiality provision in a commercial contract identifies what constitutes confidential information for purposes of the contract,4 prohibits disclosure of the confidential information and identifies countervailing factors that exempt or exclude otherwise confidential information from that prohibition (e.g., where required by law or regulation to be disclosed), and stipulates the duration of the confidentiality obligation.5As discussed above, the assignment provision in a contract may be drafted to permit a party to assign the contract to an acquiror of all of that party's assets.(For example, one should not reflexively include a "time is of essence" clause in a contract governing a performance whose timeliness is not required and cannot be assured.) This article will present examples of a few common boilerplate provisions and, in the process, some illustrations of potential unintended consequences and pitfalls associated with careless or injudicious use of such provisions.Assignment Provisions An assignment provision ordinarily requires the counterparty's consent before a party may assign its rights under the related contract. [and] the right to assign is presumed, based upon principles of unhampered transferability of property rights and of business convenience."2 A common boilerplate formulation of an assignment provision would provide as follows: "Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any Party without the prior written consent of the other Party."Of course, this assignment (or, perhaps more accurately, anti-assignment) provision should not be used in this form if a party foresees the possibility that it may assign contracts to third parties.


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