In a fun little experiment recently, I set up a question on Quora, “What’s the best anti-assignment provision in a contract ever?”, and invited people to submit clauses for the crowd to vote on.
Of course, asking what’s the best provision ever is a bit of a trick question, because the answer depends on the contract in which it’s to be used. For example, in a short and sweet agreement, you might want to go for minimum viable legal protection instead of a more full provision. Two of the players submitted answers along those lines. Here’s an example, which was submitted by Dana Shultz: “Neither Party may assign any of its rights or obligations under this Agreement without the prior written consent of the other Party.”
My own submission takes into account the fact that transfers of rights and obligations, such as through a merger, might not be deemed an assignment under applicable law, as well as the fact that assignments in breach of the anti-assignment provision might still be effective. I also explicitly state that the provision covers the transfer of obligations as well as rights. Here’s my 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.
In his submission, Ken Adams unpacks the categories of rights, obligations, and the like that a contract contains, spelling them out specifically, and uses the word “transfer” instead of the more common “assignment” and/or “delegation.” He also takes into account the potential importance of whether a party is the surviving or disappearing entity in a merger:
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 it under this agreement, (2) any right that it has to satisfy a condition under this agreement, (3) any remedy that it has under this agreement, or (4) any obligation imposed on it under this agreement. Any purported transfer in violation of this section X will be void.
The provisions I’ve discussed so far involve blanket prohibitions, but it’s common to carve out situations in which assignment is permitted even without consent. The most common involve internal corporate re-arrangements (e.g., transferring business assets among affiliated companies) and the sale of a business. Jay Parkhill’s submission (which Quora inexplicably “collapsed”) takes the latter into account:
Neither party may assign this Agreement or any of the rights or obligations herein, whether by operation of law or otherwise, without the prior written consent of the other party; provided that either party may assign this Agreement to its successor in the event of a merger, acquisition or sale of all or substantially all of the assets of such party. Any other purported assignment shall be void.
Lessons to be learned
Here are some of my takeaways from this exercise:
- It’s helpful to think in terms of minimum viable legal protection, both because less is sometimes more and because identifying what provides minimum protection helps distill the issue to its essence.
- Although more full provisions involve additional complexity, the building blocks are the same, or at least similar.
- Unpacking what’s really going on in a clause is instructional and a fruitful exercise.
- Although this isn’t properly a takeaway from the exercise, I support adhering to standards, even when my own preference differs, both because standardization is necessary for the efficiency improvements I envision and because it can foster improvements in quality.
What do you think?