no assignment by operation of law

• Follow us on Twitter
• Join us on LinkedIn
• Like us on Facebook
• Follow us on instagram
• Follow us on YouTube

Anti-Assignment Provisions and Assignments by ‘Operation of Law’: What Do I Have to Do? What Should I Do?

Introduction.

One of the key roles of legal due diligence in mergers and acquisitions (M&A) is to assist in the efficient and successful completion of any proposed M&A transaction. Due diligence is not merely a procedural formality but can serve as a proactive shield against unforeseen challenges and risks. One essential aspect of the legal due diligence process is reviewing third-party contracts to which the target entity is party, in order to better understand the scope of its commercial relationships and to anticipate any issues that may arise via the underlying contractual relationships as a result of completing the proposed M&A transaction.

A frequent reality in many M&A transactions is the requirement to obtain consents from third parties upon the “change of control” of the target entity and/or the transfer or assignment of a third-party contract to which the target is party. Notwithstanding the wording of such contracts, in many instances, the business team from the purchaser will often ask the question: “When is consent actually required?” While anti-assignment and change of control provisions are fairly ubiquitous in commercial contracts, the same cannot be said for when the requirement to obtain consent is actually triggered. The specifics of the proposed transaction’s structure will often dictate the purchaser’s next steps when deciding whether the sometimes-cumbersome process of obtaining consents with one or multiple third parties is actually needed.

This article examines what anti-assignment provisions are and how to approach them, depending on the situation at hand, including in the context of transactions where a change of control event may be triggered. This article also discusses how to interpret whether consent is required when faced with an anti-assignment provision which states that an assignment, including an assignment by operation of law , which requires consent from the non-assigning party.

Understanding Anti-Assignment Provisions

Generally, an anti-assignment provision prohibits the transfer or assignment of some or all of the assigning party’s rights and obligations under the contract in question to another person without the non-assigning party’s prior written consent. By way of example, a standard anti-assignment provision in a contract may read as follows:

Company ABC shall not assign or transfer this agreement, in whole or in part, without the prior written consent of Company XYZ.

In this case, Company ABC requires Company XYZ’s prior written consent to assign the contract. Seems simple enough. However, not all anti-assignment provisions are cut from the same cloth. For example, some anti-assignment provisions expand on the prohibition against general contractual assignment by including a prohibition against assignment by operation of law or otherwise . As is discussed in greater detail below, the nuanced meaning of this phrase can capture transactions that typically would not trigger a general anti-assignment provision and can also trigger the requirement to get consent from the non-assigning party for practical business reasons.

To explore this further, it is helpful to consider anti-assignment provisions in the two main structures of M&A transactions: (i) asset purchases and (ii) share purchases.

Context of M&A Transactions: Asset Purchases and Share Purchases

There are key differences between what triggers an anti-assignment provision in an asset purchase transaction versus a share purchase transaction.

i) Asset Purchases

An anti-assignment provision in a contract that forms part of the “purchased assets” in an asset deal will normally be triggered in an asset purchase transaction pursuant to which the purchaser acquires some or all of the assets of the target entity, including some or all of its contracts. Because the target entity is no longer the contracting party once the transaction ultimately closes (since it is assigning its rights and obligations under the contract to the purchaser), consent from the non-assigning party will be required to avoid any potential liability, recourse or termination of said contract as a result of the completion of the transaction.

ii) Share Purchases

Provisions which prohibit the assignment or transfer of a contract without the prior approval of the non-assigning party will not normally, under Canadian law, be captured in a share purchase transaction pursuant to which the purchaser acquires a portion or all of the shares of the target entity. In other words, no new entity is becoming party to that same contract. General anti-assignment provisions are not typically triggered by a share purchase because the contracts are not assigned or transferred to another entity and instead there is usually a “change of control” of the target entity. In such cases, the target entity remains the contracting party under the contract and the consent analysis will be premised on whether the contract requires consent of the third party for a “direct” or “indirect” change of control of the target entity and not the assignment of the contract.

Importantly, some anti-assignment provisions include prohibitions against change of control without prior written consent. For example, the provision might state the following:

Company ABC shall not assign or transfer this agreement, in whole or in part, without the prior written approval of Company XYZ. For the purposes of this agreement, any change of control of Company ABC resulting from an amalgamation, corporate reorganization, arrangement, business sale or asset shall be deemed an assignment or transfer.

In that case, a change of control as a result of a share purchase will be deemed an assignment or transfer, and prior written consent will be required.

A step in many share purchase transactions where the target is a Canadian corporation that often occurs on or soon after closing is the amalgamation of the purchasing entity and the target entity. So, what about anti-assignment provisions containing by operation of law language – do amalgamations trigger an assignment by operation of law? The short answer: It depends on the jurisdiction in which the anti-assignment provision is being scrutinized (typically, the governing law of the contract in question).

Assignments by Operation of Law

In Canada, the assignment of a contract as part of an asset sale, or the change of control of a party to a contract pursuant to a share sale – situations not normally effected via legal statute or court-ordered proceeding in M&A transactions – will not in and of itself effect an assignment of that contract by operation of law . [1]

Still, one must consider the implications of amalgamations, especially in the context of a proposed transaction when interpreting whether consent is required when an anti-assignment provision contains by operation of law language. Under Canadian law, where nuances often blur the lines within the jurisprudence, an amalgamation will not normally effect the assignment of a contract by operation of law . The same does not necessarily hold true for a Canadian amalgamation scrutinized under U.S. legal doctrines or interpreted by U.S. courts. [2]

Difference Between Mergers and Amalgamations

As noted above, after the closing of a share purchase transaction, the purchasing entity will often amalgamate with the target entity ( click here to read more about amalgamations generally). When two companies “merge” in the U.S., we understand that one corporation survives the merger and one ceases to exist which is why, under U.S. law, a merger can result in an assignment by operation of law . While the “merger” concept is commonly used in the U.S., Canadian corporations combine through a process called “amalgamation,” a situation where two corporations amalgamate and combine with neither corporation ceasing to exist. For all of our Canadian lawyer readers, you will remember the Supreme Court of Canada’s description of an amalgamation as “a river formed by the confluence of two streams, or the creation of a single rope through the intertwining of strands.” [3] Generally, each entity survives and shares the pre-existing rights and liabilities of the other, including contractual relationships, as one corporation. [4]

MTA Canada Royalty Corp. v. Compania Minera Pangea, S.A. de C.V.

As a practical note and for the reasons below, particularly in cross-border M&A transactions, it would be wise to consider seeking consent where a contract prohibits assignment by operation of law without the prior consent of the other contracting party when your proposed transaction contemplates an amalgamation.

In MTA Canada Royalty Corp. v. Compania Minera Pangea, S.A. de C.V. (a Superior Court of Delaware decision), the court interpreted a Canadian (British Columbia) amalgamation as an assignment by operation of law , irrespective of the fact that the amalgamation was effected via Canadian governing legislation. In essence, the Delaware court applied U.S. merger jurisprudence to a contract involving a Canadian amalgamation because the contract in question was governed by Delaware law. This is despite the fact that, generally, an amalgamation effected under Canadian common law jurisdictions would not constitute an assignment by operation of law if considered by a Canadian court. As previously mentioned, under Canadian law, unlike in Delaware, neither of the amalgamating entities cease to exist and, technically, there is no “surviving” entity as there would be with a U.S.-style merger. That being said, we bring this to your attention to show that it is possible that a U.S. court (if the applicable third-party contract is governed by U.S. law or other foreign laws) or other U.S. counterparties could interpret a Canadian amalgamation to effect an assignment by operation of law . In this case, as prior consent was not obtained as required by the anti-assignment provision of the contract in question, the Delaware court held that the parties to that agreement were bound by the anti-assignment provision’s express prohibition against all assignments without the other side’s consent. [5]

To avoid the same circumstances that resulted from the decision in MTA Canada Royalty Corp. , seeking consent where an anti-assignment provision includes a prohibition against assignment by operation of law without prior consent can be a practical and strategic option when considering transactions involving amalgamations. It is generally further recommended to do so in order to avoid any confusion for all contracting parties post-closing.

Practical Considerations

The consequences of violating anti-assignment provisions can vary. In some cases, the party attempting to complete the assignment is simply required to continue its obligations under the contract but, in others, assignment without prior consent constitutes default under the contract resulting in significant liability for the defaulting party, including potential termination of the contract. This is especially noteworthy for contracts with third parties that are essential to the target entity’s revenue and general business functions, as the purchaser would run the risk of losing key contractual relationships that contributed to the success of the target business. As such, identifying assignment provisions and considering whether they are triggered by a change of control and require consent is an important element when reviewing the contracts of a target entity and completing legal due diligence as part of an M&A transaction.

There can be a strategic and/or legal imperative to seek consent in many situations when confronted with contractual clauses that prohibit an assignment, either by operation of law or through other means, absent the explicit approval of the non-assigning party. However, the structure of the proposed transaction will often dictate whether consent is even required in the first place. Without considering this nuanced area of M&A transactions, purchasers not only potentially expose themselves to liability but also risk losing key contractual relationships that significantly drive the value of the transaction.

The  Capital Markets Group  at Aird & Berlis will continue to monitor developments in cross-border and domestic Canadian M&A transactions, including developments related to anti-assignment provisions and commercial contracts generally. Please contact a member of the group if you have questions or require assistance with any matter related to anti-assignment provisions and commercial contracts generally, or any of your cross-border or domestic M&A needs.

[1] An assignment by operation of law can be interpreted as an involuntary assignment required by legal statute or certain court-ordered proceedings. For instance, an assignment of a contract by operation of law may occur in, among other situations: (i) testamentary dispositions; (ii) court-ordered asset transfers in bankruptcy proceedings; or (iii) court-ordered asset transfers in divorce proceedings.

[2] MTA Canada Royalty Corp. v. Compania Minera Pangea, S.A. de C.V ., C. A. No. N19C-11-228 AML, 2020 WL 5554161 (Del. Super. Sept. 16, 2020) [ MTA Canada Royalty Corp. ].

[3] R. v. Black & Decker Manufacturing Co. , [1975] 1 S.C.R. 411.

[4] Certain Canadian jurisdictions, such as the Business Corporations Act (British Columbia), explicitly state that an amalgamation does not constitute an assignment by operation of law (subsection 282(2)).

[5] MTA Canada Royalty Corp .

With extensive experience in a broad range of corporate finance and commercial matters, Jeffrey offers clients a practical and business-minded approac...

Jeffrey K. Merk

• [email protected]
• T 416.865.7768
• C 416.722.7988

Liam is a driven and forward-thinking corporate lawyer, with a passion for helping public and private clients achieve their growth objectives.

Liam Tracey-Raymont

• [email protected]
• T 416.865.3964

Gary is a trusted legal business partner and is committed to building long-standing client relationships.

Gary Volman

• [email protected]
• T 647.426.2799

Christian advises clients on a range of capital markets transactions, bringing to bear a strong work ethic and problem-solving skills which make him a...

Christian Nianiaris

• [email protected]
• T 647.426.2810

Josh summered at the firm in 2021 and 2022. He recently graduated with Distinction from the University of Ottawa Faculty of Law, achieving Dean’...

Joshua Ward

• [email protected]
• T 416.863.1500

Related Areas of Expertise

• Capital Markets
• Mergers & Acquisitions
• International Transactions

Related publications

Know the limit, play within it: restrictive covenants in canada, budget 2024: capital gains inclusion rate to increase, first reading of bill 185 and the draft 2024 provincial planning statement.

A Fresh Take

Insights on M&A, litigation, and corporate governance in the US.

Delaware Court holds anti-assignment clause prevents enforcement of contract after merger

Get in touch.

On September 16, 2020, the Superior Court of Delaware issued an order with potential implications for companies contemplating acquisitions of businesses or assets.  In MTA Can. Royalty Corp. v. Compania Minera Pangea , S.A. De C.V. , No. N19C-11-228 AML CCLD, 2020 Del. Super. LEXIS 2780 (Sept. 16, 2020), Judge Abigail M. LeGrow held that, following a merger,[1] the surviving company lacked standing to enforce a contract entered into by its predecessor (the non-surviving company in the merger) because the contract’s anti-assignment clause prohibited assignment “by operation of law”. 

Companies considering acquisitions should carefully review their target’s contracts for anti-assignment clauses that prohibit assignment “by operation of law”, which Delaware courts interpret to include certain mergers.  In addition, where a target’s key contracts contain anti-assignment clauses with such language, companies should carefully consider the preferred transaction structure.  In a reverse triangular merger, the acquirer’s newly formed subsidiary is merged into the target, with the result being that the target survives and becomes the acquirer’s subsidiary.  By contrast, in a forward triangular merger, the target does not “survive” and its rights are transferred to the existing subsidiary, which may implicate anti-assignment clauses.  Reverse triangular mergers do not face the same issue because the target continues its corporate existence as a subsidiary of the acquirer.

Background of the contract and subsequent merger

In 2016, Compania Minera Pangea, S.A. de C.V. (“CMP”) purchased mineral rights in the El Gallo Mine from 1570926 Alberta Ltd. (“Alberta”).  In exchange, CMP paid Alberta $5.25m in cash at closing and agreed to pay Alberta an additional $1m in 2018 subject to certain conditions.  Of note, the agreement contained the following anti-assignment clause (the “Anti-Assignment Clause”):

Neither this Agreement nor any of the rights, interests or obligations under this Agreement may be assigned or delegated, in whole or in part, by operation of law or otherwise, by [Alberta] without the prior written consent of each other party, and any such assignment without such prior written consent shall be null and void. . . . [T]his Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns.

In July 2017, Alberta merged with Global Royalty Corp. (“Global”), a subsidiary of Metalla Royalty & Streaming Ltd., and Global was the surviving entity.  Following that transaction, Global changed its name to MTA Canada Royalty Corp. (“MTA”).  In November 2019, MTA brought a breach of contract claim against CMP based on CMP’s alleged failure to pay the $1m in consideration due in 2018.

Superior Court holds that anti-assignment clause extends to certain mergers

CMP argued that MTA lacked standing to enforce Alberta’s contract with CMP because, per the Anti-Assignment Clause, Alberta was required to obtain CMP’s written consent before assigning its rights to MTA.  MTA argued that the Anti-Assignment Clause was meant to prevent third-party assignments, not “successor assignments” like Alberta’s merger.   Id. at *11-12.  To make this argument, it relied on a 1993 Chancery decision, in which then-Vice Chancellor Jacobs had held that, subject to certain conditions, anti-assignment clauses do not apply to mergers unless mergers are explicitly prohibited.   Star Cellular Tel. Co. v. Baton Rouge CGSA ., 1993 Del. Ch. LEXIS 158, at *25 (July 30, 1993).  According to MTA, because the last sentence of the Anti-Assignment Clause referred to “successors”, it was clearly not intended to extend to mergers.

The Superior Court disagreed.  It explained that, as a result of the merger, Alberta had ceased to exist, so MTA could only enforce the contract if it showed that the Anti-Assignment Clause did not apply.   MTA , at *6.  It then held that the Anti-Assignment Clause clearly barred Alberta’s transfer of rights through a merger because the clause prevented assignment “by operation of law”, which Delaware case law had interpreted as referring to forward triangular mergers.   Id.  at *7-14.  In light of what it regarded as a straightforward application of the Anti-Assignment Clause, the Superior Court did not engage in the  Star Cellular analysis.  The Superior Court found that the reference to “successors” in the Anti-Assignment Clause meant only that “valid successors” had the right to enforce the contract.   Id. at *13.

Potentially at odds with Chancery precedent?

Of special relevance is the Superior Court’s treatment of existing Delaware case law on anti-assignment clauses and forward triangular mergers.  Existing precedent from the Court of Chancery held that anti-assignment clauses containing both a prohibition on assignment “by operation of law” and a reference to “successors” were ambiguous.  Under the Star Cellular test, this ambiguity was construed against the application of the anti-assignment clause. 

Specifically, MTA  appears at odds with the Chancery ruling in Tenneco Auto. Inc. v. El Paso Corp. , which also involved the impact of an anti-assignment clause following a forward triangular merger.  C.A. No. 18810-NC, 2002 Del. Ch. LEXIS 26 (Mar. 20, 2002).  The language of the anti-assignment clause in Tenneco  was similar to that in MTA :  both clauses prohibited assignment “by operation of law” while also referencing “successors”.  In Tenneco , Vice Chancellor Noble found that those conflicting references made the anti-assignment clause ambiguous, meaning that, under the Star Cellular test, the successor company could enforce the contract.   Id. at *7-10.  The MTA Court did not explain why it reached the opposite result.

Similarly, in ClubCorp, Inc. v. Pinehurst, LLC , Vice Chancellor Parsons held that, following a forward triangular merger, an anti-assignment clause with language like that in Tenneco was ambiguous because the agreement both referenced “successors” and prohibited assignment “by operation of law”.  No. 5120-VCP, 2011 Del. Ch. LEXIS 176, at *26-29 (Nov. 15, 2011).  Again, the ambiguity militated in favor of finding that the anti-assignment clauses did not apply to the merger.   MTA did not address Pinehurst.

Insights from MTA

MTA has several significant implications for practitioners.  The first is a reminder to carefully review a target’s contracts for anti-assignment clauses.  Such clauses in important contracts should be flagged and thoughtfully evaluated. 

In addition, practitioners should remain aware that Delaware courts interpret the phrase “by operation of law” in assignment clauses to refer to mergers in which the target company does not survive.  The presence of this language in anti-assignment clauses in a target’s important contracts (if those contracts are governed by Delaware law) should prompt a discussion about the appropriate transaction structure.  For example, in MTA , the Court suggested that MTA would have had standing to enforce the contract with CMP if it had been merged through a reverse triangular merger rather than a forward triangular merger.  The Superior Court cited a 2013 Chancery decision, Meso Scale Diagnostics, LLC v. Roche Diagnostics GmbH , in which Vice Chancellor Parsons found that “a reverse triangular merger does not constitute an assignment by operation of law”.  62 A.3d 62, 83 (Del. Ch. 2013). 

If dealing with similar language in anti-assignment clauses in important agreements, practitioners should consider alternative transaction structures that would allow the target to retain its corporate existence.  According to MTA , such alternatives should allow successor companies to enforce agreements without running afoul of anti-assignment clauses prohibiting “assignment by operation of law”.[2]

[1] The transaction was an amalgamation under Canadian law, which the parties and the Court agreed was the equivalent of a merger under Delaware law.  The transaction structure was equivalent to a forward triangular merger. 

[2] This may not be true in other jurisdictions.  For example, under California law, a reverse triangular merger has been found to be a transfer of rights by operation of law .  See SQL Sols. v. Oracle Corp. , 1991 U.S. Dist. LEXIS 21097, at *8-12 (N.D. Cal. Dec. 18, 1991). 

Country Selector

Our regional experience.

• Netherlands
• Scandinavia
• Switzerland
• United Kingdom
• Latin America and the Caribbean
• United States

Asia-Pacific

• Southeast Asia
• South Korea

Middle East

• Saudi Arabia

International language sites

• Chinese | 汉语/漢語
• German | Deutsch
• Japanese | 日本語

Spotting issues with assignment clauses in M&A Due Diligence

Written by: Kira Systems

January 19, 2016

6 minute read

Although not nearly as complex as change of control provisions , assignment provisions may still present a challenge in due diligence projects. We hope this blog post will help you navigate the ambiguities of assignment clauses with greater ease by explaining some of the common variations. (And, if you like it, please check out our full guide on Reviewing Change of Control and Assignment Provisions in Due Diligence. )

What is an Assignment Clause?

First, the basics:

Anti-assignment clauses are common because without them, generally, contracts are freely assignable. (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.) For all other contracts, parties may want an anti-assignment clause that allows them the opportunity to review and understand the impact of an assignment (or change of control) before deciding whether to continue or terminate the relationship.

In the mergers and acquisitions context, an assignment of a contract from a target company entity to the relevant acquirer entity is needed whenever a contract has to be placed in the name of an entity other than the existing target company entity after consummation of a transaction. This is why reviewing contracts for assignment clauses is so critical.

A simple anti-assignment provision provides that a party may not assign the agreement without the consent of the other party. Assignment provisions may also provide specific exclusions or inclusions to a counterparty’s right to consent to the assignment of a contract. Below are five common occurrences in which assignment provisions may provide exclusions or inclusions.

Common Exclusions and Inclusions

Exclusion for change of control transactions.

In negotiating an anti-assignment clause, a company would typically seek the exclusion of assignments undertaken in connection with change of control transactions, including mergers and sales of all or substantially all of the assets of the company. This allows a company to undertake a strategic transaction without worry. If an anti-assignment clause doesn’t exclude change of control transactions, a counterparty might materially affect a strategic transaction through delay and/or refusal of consent. Because there are many types of change of control transactions, there is no standard language for these. 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.

Exclusion for Affiliate Transactions

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. 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. 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 party’s obligations hereunder. All or any portion of the rights and obligations of [Party A] under this Agreement may be transferred by [Party A] to any of its Affiliates without the consent of [Party B].

Assignment by Operation of Law

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. 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].

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.

This helps settle any ambiguity regarding assignments and their effects under mergers statutes (particularly in forward triangular mergers and forward mergers since the target company ceases to exist upon consummation of the merger).

Direct or Indirect Assignment

More ambiguity can arise regarding which actions or transactions require a counterparty’s consent when assignment clauses prohibit both direct and indirect assignments without the consent of a counterparty. Transaction parties will typically choose to err on the side of over-inclusiveness in determining which contracts will require consent when dealing with material contracts. An example clause prohibiting direct or indirect assignment might be:

Except as provided hereunder or under the Merger Agreement, such Shareholder shall not, directly or indirectly, (i) transfer (which term shall include any sale, assignment, gift, pledge, hypothecation or other disposition), or consent to or permit any such transfer of, any or all of its Subject Shares, or any interest therein.

“Transfer” of Agreement vs. “Assignment” of Agreement

In some instances, assignment provisions prohibit “transfers” of agreements in addition to, or instead of, explicitly prohibiting “assignments”. Often, the word “transfer” is not defined in the agreement, in which case the governing law of the contract will determine the meaning of the term and whether prohibition on transfers are meant to prohibit a broader or narrower range of transactions than prohibitions on assignments. Note that the current jurisprudence on the meaning of an assignment is broader and deeper than it is on the meaning of a transfer. In the rarer case where “transfer” is defined, it might look like this:

As used in this Agreement, the term “transfer” includes the Franchisee’s voluntary, involuntary, direct or indirect assignment, sale, gift or other disposition of any interest in…

The examples listed above are only of five common occurrences in which an assignment provision may provide exclusions or inclusions. As you continue with due diligence review, you may find that assignment provisions offer greater variety beyond the factors discussed in this blog post. However, you now have a basic understand of the possible variations of assignment clauses. For a more in-depth discussion of reviewing change of control and assignment provisions in due diligence, please download our full guide on Reviewing Change of Control and Assignment Provisions in Due Diligence.

This site uses cookies. 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 .

• What’s New on the Watch?
• COVID-19 Updates
• Private Equity Webinar Series
• Private Equity Finance
• Global PE Update
• Glenn West Musings
• Quarterly Private Funds Update
• Ancillary Agreements
• Co-investments
• Cybersecurity
• Going Privates
• Legal Developments
• Minority Investments
• Portfolio Company Matters
• Purchase Agreements
• R&W Insurance
• Secondaries
• Securities Laws
• Shareholder Agreements
• Specialist Areas
• Contributors
• Global Team
• Privacy Policy

Private Equity

Watch your inbox.

Get the latest views and developments in the private equity world from the Global Private Equity Watch team at Weil.

• Skip to header navigation
• Skip to main content
• Skip to footer navigation
• What we think

Prohibition of assignment clause did not prevent a transfer of rights by operation of law

What happened, what did the court of appeal say, what does this mean for me.

Dassault Aviation SA v Mitsui Sumitomo Insurance Co. Ltd [2024] EWCA Civ 5 involved a contract for the sale of two aircraft and spare parts.

Under the contract, which was governed by English law, Dassault Aviation would sell the aircraft to Mitsui Bussan Aerospace (MBA). Under a separate contract (governed by Japanese law), MBA would subsequently on-sell the aircraft to the Japanese Coastguard.

MBA was concerned that, if Dassault delivered the aircraft late to MBA, this would affect delivery times under MBA’s contract with the Coastguard and MBA could be liable for late delivery to the Coastguard.

To protect itself against this risk, MBA took out an insurance policy from Mitsui Sumitomo Insurance (MSI) (which, despite the name, was not connected in any way with MBA). The insurance policy was governed by Japanese law.

As it happened, the aircraft were delivered late. MBA claimed under the insurance policy, and MSI duly paid the claim.

Under article 25 of the Japanese Insurance Act (No. 56 of 2008), where an insurer pays out under a Japanese policy of insurance, the insurer is automatically subrogated to any claim the policyholder may have in connection with the event that led to the pay-out. In other words, the policyholder’s right to claim damages passes automatically to the insurer.

Essentially, the same position applies in England and Wales under the common law. See the box “ What is subrogation? ” for more information.

In this scenario, this would mean that MBA’s right to claim against Dassault for breach of contract (due to the late delivery by Dassault) would pass to MSI, so that MSI could claim directly against Dassault.

However, the sale contract between Dassault and MBA contained the following clause (the assignment prohibition):

“[T]his Contract shall not be assigned or transferred in whole or in part by any Party to any third party, for any reason whatsoever, without the prior written consent of the other Party and any such assignment, transfer or attempt to assign or transfer any interest or right hereunder shall be null and void without the prior written consent of the other Party.”

Dassault argued that the prohibition prevailed and prevented MBA’s rights under the contract from transferring to MSI under the Insurance Act. If correct, this would mean that MSI would have no right to claim against Dassault to recover the amount it had paid out to MBA.

Subrogation is a broad doctrine which essentially states that, if a person (X) pays or discharges a debt or obligation of someone else (Y), then X steps into Y’s shoes and acquires Y’s rights.

Under English law, subrogation applies in a wide range of circumstances, including the following.

• When an insurer pays out to a policyholder . The insurer is subrogated to the policyholder’s rights and can take action in place of the policyholder. For example, an individual might take out buildings and contents insurance on their property and, at some point during the policy term, a leak develops, flooding the property and causing damage. The damage is caused by faulty workmanship by a plumber. The individual may be able to claim against the plumber in negligence but instead claims under their insurance policy. The insurer is subrogated to the claim in negligence against the plumber in place of the individual.
• When a guarantor pays out under a guarantee . For example, a person (X) borrows a sum of money from a lender. Another person (Y) gives a guarantee for X’s obligation to repay the sum. The lender calls on the guarantee and Y repays the sum instead of X. By way of subrogation, Y can bring proceedings against X to claim back the amount Y has paid out to the lender. (This is also described as a right of reimbursement, rather than subrogation.)
• Where a person pays someone else’s secured debt . For example, a person (K) takes out a mortgage loan from a bank, which is secured by a mortgage over K’s property. The mortgage becomes payable, but K’s colleague (L) pays the mortgage off instead of K. Until K reimburses L, L is subrogated to the mortgage security over the property. If K does not reimburse L, L can enforce the mortgage and take possession of the property (and sell it).
• Where an agent pays out for their principal . For example, an individual appoints an agent to negotiate a purchase of land on the individual’s behalf. The purchase contract is settled and the individual is required to pay the purchase price. However, for whatever reason (perhaps for ease), the agent pays the purchase price. The seller transfers the land to the individual. By virtue of subrogation, until the agent is paid back, the agent has all the rights over the land which the seller had before the sale.

Subrogation can be complicated and how it works in practice varies greatly depending on the legal and factual circumstances. In many respects, subrogation is less a doctrine and more a form of remedy which a person who has discharged someone else’s obligations can seek in an appropriate form. The principal point of subrogation is that the person whose obligations have been discharged should not be unjustly enriched by failing to perform those obligations themselves.

However, one common factor to all types of subrogation is that it involves an automatic transfer of rights , which occurs by operation of law and does not require a specific assignment by anyone.

Initially, the dispute was referred to arbitration at the ICC in London. The arbitration panel held (by a majority) that MBA’s rights under the sale contract had transferred to MSI under the Insurance Act.

Dassault appealed to the High Court of England and Wales. The High Court overturned the arbitrators’ decision, finding that the prohibition was wide enough to capture a transfer by operation of law.

The High Court noted the words “by any Party” in the assignment prohibition were ambiguous and needed to be interpreted. It therefore embarked on the traditional process of contractual interpretation that applies when the wording of a contract is unclear. See the box “ How will the court interpret a contract? ” for more information.

It held that the words indicated an element of action or willingness by a Party, and that this was what was required for the prohibition to apply. A transfer would fall outside the prohibition only if it were outside the voluntary control of the transferring party (here, MBA).

In this case, although MBA had not directly assigned its rights to MSI, it had entered willingly into the insurance policy and made a claim under it, with the direct and predictable result that its rights would be transferred to MSI under the Insurance Act. In the High Court’s view, this amounted to an assignment by MBA and was caught by the prohibition.

MSI appealed to the Court of Appeal of England and Wales.

The court re-examined the words “by any Party” and found that they were unambiguous and clear. They covered a transfer effected by a party to the sale contract, but that did not include a transfer that occurred automatically by operation of law (as was the case under the Insurance Act).

The judges disagreed with the High Court’s approach that the key question was whether the transfer was outside MBA’s voluntary control. Rather, it was a simple case of reading the contract to decide whether the transfer had been made by MBA.

It had not. The transfer had taken place automatically under the Insurance Act and so was not prohibited by the assignment prohibition.

In reaching its decision, the court noted that the sale contract between Dassault and MBA contained provisions that specifically contemplated the parties taking out insurance (Dassault insurance against loss or damage to certain specific equipment, and MBA insurance in connection with ferry flight delivering the aircraft).

Although these specific provisions did not cover the insurance policy that MBA had placed with MSI, they did indicate that the parties were happy for insurance to cover the arrangements, suggesting in turn that they understood that rights under the contract might transfer to an insurer.

The court found, therefore, that MBA’s rights had transferred to MSI and the assignment prohibition did not apply.

If the wording of an agreement is clear, the courts will assume that it reflects the parties’ intentions and enforce the literal word of the contract. This will be the case even if the result is unusual or uncommercial.

The only exception to this is where the parties’ agreement is in some way restricted by law. For example, the court may find that a clause is unenforceable as a restraint of trade, a contractual penalty, and unreasonable exclusion or limitation of liability, or an attempt to carry out unlawful acts. In these cases, the courts may be able to strike parts of the contract out to make it work.

However, if the wording of a contract is ambiguous and could have more than one meaning, the court must embark on a process of contractual interpretation (also called construction).

The law on contractual interpretation is now settled, following three landmark cases ( Rainy Sky SA v Kookmin Bank [2011] UKSC 50; Arnold v Britton [2015] UKSC 36; and Wood v Capita Insurance Services Ltd [2017] UKSC 24).

In short, the court will examine the wording of the contract and ascertain what a reasonable person with all the relevant background knowledge at the time of the contract would have understood.

The court will look not only at the text of the contract, but also the surrounding context at the time. This is a single exercise, and the court will not automatically prefer the wording (textualism) over the surrounding circumstances (contextualism) or vice versa. However, the weight the court will give the text and the context will vary depending on the nature and formality of the contract.

If, after doing this, the court finds there is still more than one plausible interpretation of the contract, it will prefer the interpretation that is most consistent with business common sense.

The case shows the importance of formulating any prohibition of assignment provisions properly.

Here, the court felt that the wording of the sale contract was clear. By using the words “by any Party”, the prohibition extended only to direct attempts by a party to assign their rights.

Had those words not appeared (e.g. “ [T]his Contract shall not be assigned or transferred in whole or in part to any third party… ”), the court may have been required to embark on a deeper analysis of the clause to understand whether it would have prohibited transfers by operation of law. Indeed, the court might have concluded that it would have done so.

The case revolved around automatic transfers under Japanese law. The position might well be different under English law. This point was not argued – both Dassault and MSI appear to have accepted that, had the contract been governed by English law, the transfer of rights to MSI would have taken place – and so the court did not need to decide the issue.

But that does not mean that it is impossible to exclude the right to subrogation through a prohibition of assignment, and contract parties may wish to ensure any contractual prohibitions are worded broadly enough that they at least make an attempt to do so.

However, whether this is appropriate will need to be judged on a case-by-case basis, and may be more obviously covered by agreeing a subrogation waiver. For example, it is very common for a buyer of a business to deploy warranty and indemnity (W&I) insurance and for the seller(s) to require the W&I insurer to expressly waive any rights of subrogation.

Conversely, most liability insurance policies contain an express obligation on the insured party not to enter into any agreement with a third party that might restrict the insurer’s right of recovery. A prohibition of assignment that excludes a right of subrogation may do exactly that and could, in theory, invalidate the insurance policy itself.

Where insurance arrangements are contemplated under a contract, the parties should have a mind to the potential implications from an insurance-law perspective, including any potential subrogation following a claim under an insurance policy.

Any contractual provisions that do contemplate insurance are unlikely to stipulate a particular governing law for the insurance, so it may not be possible to make an informed assessment. In addition, the party taking out insurance may well not inform the other party that they are doing so and/or might take out insurance of a type not contemplated by the contract.

In each case, this could lead to a contract party facing legal proceedings under the contract by a third party whose identity is not known at the date of the contract.

Ultimately, where a contract party intends in advance to procure insurance in relation to the subject matter of the contract, it is important to seek legal advice to ensure that the policy and the contract operate smoothly and clearly alongside each other.

Access the court’s decision on whether a contract prohibited an assignment by operation of law ( Dassault Aviation SA v Mitsui Sumitomo Insurance Co. Ltd [2024] EWCA Civ 5)

• Corporate and M&A
• Litigation and Dispute Resolution
• Sign up to receive our publications

This website uses cookies

We use cookies to offer you a better browsing experience. Cookies enhance site navigation, analyse site usage, and assist in our marketing efforts.

To understand more about how we use cookies or to change your cookie preferences, click on “ Show   settings ”. By clicking “ Accept cookies ,” you agree to the storing of cookies on your device.

Your privacy

When you visit any website, it may store or retrieve information on your browser, mostly in the form of cookies. This information might be about you, your preferences or your device and is mostly used to make the site work as you expect it to. The information does not usually directly identify you, but it can give you a more personalised web experience.

Because we respect your right to privacy, below you will find descriptions on the types of cookies used on this site and options to opt out where preferred. Please note blocking some types of cookies may impact your experience of the site and the services we are able to offer.

These cookies are necessary for the website to function and cannot be switched off in our systems. They are usually only set in response to actions made by you which amount to a request for services, such as setting your privacy preferences, logging in or filling in forms.

You can set your browser to block or alert you about these cookies, but some parts of the site will not then work. These cookies do not store any personally identifiable information.

These cookies allow us to count visits and traffic sources so we can measure and improve the performance of our site. They help us to know which pages are the most and least popular and see how visitors move around the site.

All information these cookies collect is aggregated and therefore anonymous. If you do not allow these cookies we will not know when you have visited our site, and will not be able to monitor its performance.

Rethinking the “No Assignment” Provision

27 November 2023 20 November 2012 | Ken Adams

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.

[ Updated 27 November 2023: Bear in mind that in some contexts—notably bankruptcy—no-transfer provisions are unenforceable by law. See my 2014 article on termination-on-bankruptcy provisions, here .]

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of  A Manual of Style for Contract Drafting , and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.

17 thoughts on “Rethinking the “No Assignment” Provision”

I have several concerns here. First, I have never been happy with the “each party shall not” formulation. I don’t mind “may not,” or better yet, “no party may,” but if you really want to use “shall not,” then I recommend “a party shall not” as being less awkward and contrary to normal usage.

Second, I’m surprised that you would allow “by operation of law” to survive here. For the most part, this phrase is used to refer to the “automagic” continuation of the disappearing company’s contracts under the aegis of the surviving company in a merger, in which case the language is redundant when you’ve already discussed mergers. Moreover, if this language relates to some other operations of law, for example an order of a bankruptcy court, it’s rather hubristic to think a contract can trump the ruling authority. Better, if it’s such a big deal, to handle the consequences of such a mandated transfer by giving the affected party an explicit termination right (without the nasty consequences of breach).

Third, in my experience the issues surrounding “delegation” are not only that it’s a misapplied term of art, but that it mistakes the transfer of a contractual obligation for a subcontracting of its performance. In fact, reliance on delegation or transfer is misplaced if one is concerned about subcontracting (since it doesn’t really amount to a transfer of any contractual obligation, only having that obligation physically performed by someone else). A drafter should inquire carefully what the client is really concerned about here, and if it’s subcontracting, that should be explicitly mentioned.

Ah, thank you Vance. I thought My discomfort with ‘delegate’ was a translation issue from US to UK English. I,too, Think that is the wrong word to use.

“No purported transfer of one or more of the following arising from this agreement will be valid without prior written consent of the other party: (1) discretion, (2) right to satisfy a condition, (3) remedy under this agreement, and (4) obligation.”

Other than light trimming, the principal thing this version does is dump the duty not to transfer and go solely with the avoidance of purported transfers. Why prohibit killing the dead?

Because failure to comply with a prohibition gives rise to a remedy; voiding purported transfers doesn’t. I can imagine situations where that might be significant.

No one can fail to comply with a prohibition against transfer when purported transfers are void. Void transfers are non-transfers. Killing the dead isn’t wicked, it’s just impossible.

It’s wicked and depraved! Actually, what happens if Acme makes a purported assignment that results in costly and protracted litigation? Widgetco would like to be able to go after Acme. Wouldn’t that be easier if Widgetco could point to breach? Should the obligation refer to not attempting to transfer?

“Any purported transfer by Acme, without Widgetco’s advance written consent, of one or more of Acme’s rights or obligations under this agreement will be void and will constitute a breach of this agreement.”

This game is based so much on underlying US laws on the meaning of assignment, merger, etc, that it is impossible for a non-US lawyer to participate. We don’t generally have mergers where a party disappears into a puff of smoke. A sale of a business [nearly] always happens by a sale of shares or a sale of assets.

I think the concept of assigning rights under a contract is well established in case law and using different terminology is reinventing the wheel.

I think the “if you do it despite the prohibition, it will be void” concept is strange, but one that I have seen before in US contracts. I don’t think it works, under English law, in respect of prohibitions on assignments of IP. I am doubtful whether it works for assignments of rights under contracts.

For what it is worth, my English law version would be very different and would simply say:

Neither party may assign any rights, or transfer any obligations, under this agreement, without the prior written agreement of the parties.

I have used the word “agreement” rather than “consent” to try to avoid case law on whether a term should be implied that consent should not be unreasonably withheld. The terminology of assignment and transfer is based on a House of Lords case, Linden Gardens v Lenesta Sludge – see http://www.bailii.org/uk/cases/UKHL/1993/4.html

As usual, caselaw is of less interest to me than the scope for confusion. I suspect that if you ask many lawyers what is meant by assignment of rights under a contract, you’d get quite a variety of answers.

Okay, Ken I’ll take your word for it. English lawyers who keep Chitty on Contracts under their pillows won’t be so variegated

Mark: Regarding your statement, “I think the ‘if you do it despite the prohibition, it will be void’ concept is strange, but one that I have seen before in US contracts,” consider the probable source of such provisions:

Since U.S. contract law is the province of the states, we have the high court of each of the 50 states reviewing the handiwork of probably twice that number of state appellate courts, which in turn have reviewed the work of probably thousands of trial courts. In addition, we have almost 90 federal district courts trying to predict how the supreme courts of the various states would rule if they were hearing the contracts cases that have fallen into the laps of the federal courts due to accidents of jurisdiction, plus the dozen courts of appeals and the Supreme Court. Then there are specialty federal courts such as the bankruptcy and tax courts which provide an additional source of cases for the federal district and appellate courts to review. And did I mention the extensive administrative law system that probably dwarfs all of the above in scope and which I’m sure has plenty to say about contracts?

Somewhere, sometime in the distant past one of those courts had an unfortunate fact pattern and, wanting to avoid the effect of an anti-assignment provision, decided that although the purported assignment was a breach of the contract in which it was found, the assignment was still effective. Other courts picked up on the work-around, and commercial lawyers have all been covering that base ever since.

Thanks Brian, interesting insight. I would have posted on your site but For the reasons given above I didn’t have a useful contribution.

• Pingback: Koncision » Quora as a Source of Misinformation

The language as being quoted from Negotiating and Drafting Boilerplate is incomplete. Here is the full language, along with explanations of some of the text. Many of my points will be at odds with those of Ken and arise because of differences in drafting philosophy.

Assignment and Delegation.

(a) No Assignments. No party may assign any of its rights under this Agreement, except with the prior written consent of the other party. [That party shall not unreasonably withhold its consent.] All assignments of rights are prohibited under this subsection, whether they are voluntary or involuntary, by merger, consolidation, dissolution, operation of law, or any other manner. For purposes of this Section,

(i) a “change of control” is deemed an assignment of rights; and

(ii) “merger” refers to any merger in which a party participates, regardless of whether it is the surviving or disappearing corporation.

(b) No Delegations. No party may delegate any performance under this Agreement.

(c) Consequences of Purported Assignment or Delegation. Any purported assignment of rights or delegation of performance in violation of this Section is void.

1. The provision is divided into three separate subsections, each dealing with a different topic. A long provision violates the so-called “three-line rule.” Sentences longer than three lines are hard for the reader to take in. Also, by separating assignment from delegation, the drafter is reminded that each of these provisions may need to be elaborated based on facts. (Perhaps delegation is permitted subject to certain conditions.)

2. Generally, exceptions should not begin a sentence. The usual rule is to state the rule – so that the reader has context – and then state the exception. This is also helpful if the sentence contains multiple exceptions that the drafter might want to tabulate.

3. I prefer “No party may” to “Each party shall not.” The sentence’s purpose is to express a prohibition that applies to all – no one can do it. In this context, a negative subject is appropriate: no party/neither party. When using a negative subject “may” is correct. “Shall not” works perfectly well when the subject of the sentence is a single party. “Sam shall not borrow any money.”

4. As to whether consent can be unreasonably withheld is a matter of state law. Some states read into a provision that grants discretionary authority an implied promise of good faith and fair dealing, stated differently, they read in reasonableness. Others do not imply a reasonableness requirement. For example, in New York, landlords may be unreasonable in denying consent to assignment.

5. Courts seriously dislike anti-assignment provisions. They view them as interfering with the free flow of commerce. They insist that if a particular assignment is to be prohibited, it must be listed. For example, if a provision prohibits the assignment of rights, the issue arises as to whether the provision prohibits the assignment of rights by merger. In all states that I’ve checked, unless the assignment by merger is explicitly prohibited, it’s permitted. The courts are rather adamant. They’ll turn their decisions inside out to find the anti-assignment provision unenforceable. They don’t like them and if the provision isn’t explicit, the courts will say that if the parties had really wanted to prohibit assignments by merger, they knew how to use their words. “Voluntarily or involuntarily” is used consistent with these cases.

6. Drafters have tried multiple ways to create all-inclusive provisions, but the courts reject them as not having been specific. “or in any other manner” was blessed by one court, so it’s used in the provision. Another court rejected the phrase “or by any other transfer,” stating that it did not know what “transfer” meant and it therefore could not act as an omnibus savings provision.

7. An anti-assignment provision should also address whether a change of control is deemed an assignment. If Parent Company A sells all of its issued and outstanding shares in Subsidiary A to Buyer Company, Subsidiary A becomes a wholly-owned subsidiary of Buyer Company. Nothing has happened at the Subsidiary A level; there’s been no assignment. Courts hold that unless the change of control is expressly prohibited, it does not rise to the level of an assignment. This prohibition can generally be accomplished in one of two ways: either through a definition, as in the stated provision, or by including a change of control as a default.

8. Assignment and delegation are terms of art, not misapplied terms of art. The Restatement (Second) of Contracts carefully defines them, as do legions of cases. Unfortunately, some lawyers are unfamiliar with them because their contracts courses didn’t cover them. That doesn’t mean new words should be created.

9. Rights are the flip-side of an obligation. If I have an obligation to pay you $100, you have a right to my performance. The transfer of the right to performance is what the assignment is all about. It’s technical. Using terms in a technical way creates precision. If one has discretionary authority, that is a colloquial right but not a contract right. That’s the reason why “right” is not used to signal discretionary authority. Instead, the correct verb to signal discretionary authority is “may”. Incorrect: The publisher has the right to reject the book. Correct: The publisher may reject the book.

Rights can also refer to remedies, but that is consistent with the definition of rights. If a party has a right to have its deposit returned, the flipside obligation is the obligation to return it. If a party has a right to an injunction, the flipside obligation is the promise not to contest the right to the injunction.

10. “Will be void” v. “is void.” I can’t get too excited about this issue. I start from the premise that the contract should always read as if it presently applies and that, therefore, the present tense is correct.

11. Subsection (c) is another consequence of the courts’ dislike for anti-assignment provisions. Mere prohibition does not void the assignment. The courts draw a distinction between the “right” to assign and the “power” to assignment. A flat prohibition merely prohibits the assignment of the right to assignment. Violation of the prohibition is a breach, like any other contract breach. The assignment is enforceable, but gives rise to damages. Unfortunately, the nonassigning party often has trouble finding damages to claim. What difference does it make to whom it pays money? If the nonassigning party’s performance is somehow changed, then damages might be claimed. To make the purported assignment unenforceable, a provision must take away the “power” to assign. That is accomplished through language along the lines of subjection (c).

Tina: Thanks; some readers might find that extract helpful.

More generally, the only drafting philosophy I buy into is identifying the clearest contract language.

Do you see any issues with making the transfer voidable by the non-transferring party instead of void ab initio?

• Pingback: Koncision » What Is a Contract “Right”?

Leave a Comment Cancel reply

This site uses Akismet to reduce spam. Learn how your comment data is processed .

The voice that matters.

Innovative scholarship. Extensive writings. Hundreds of  Drafting Clearer Contracts  presentations around the world. Commitment. That’s what makes Ken Adams the unmatched authority on clearer contract language.

164 Brompton Road Garden City, NY 11530-1432

(516) 318-6956

[email protected]

© 2024 Kenneth A. Adams

Non-assignment clauses, subrogation rights and transfers by operation of law

Dassault Aviation SA -v- Mitsui Sumitomo Insurance Co Ltd [2024] EWCA Civ 5

• Using your device

In a dispute arising out of an insurance claim for delayed delivery of aircraft, the Court of Appeal has held that the non-assignment clause in the sale contract did not apply to a transfer of the buyer’s rights to Japanese insurers by operation of Japanese insurance law. 

In doing so, it disagreed with the Commercial Court that there were two possible meanings of the non-assignment clause. In the Court of Appeal’s view, the wording of the clause was unambiguous and clear and the objective meaning of the language used was that it did not invalidate a transfer of rights by operation of law.

Whilst the parties seemed to agree that English law subrogated rights would not fall foul of the non-assignment clause in this case, the Court of Appeal did not need to decide the issue and declined to do so. Ultimately, in the case of other non-assignment clauses, the answer will likely depend on the particular wording of the clause, read in the context of the other contractual provisions and the wider commercial context.

The background facts

This was a sale contract for military surveillance aircraft that was governed by English law. The buyer was Japanese and entered into a sub-sale on the same day with the Japanese Coast Guard that was governed by Japanese law. 

Article 15 of the sale contract was a non-assignment/transfer clause in the following terms:

“this Contract shall not be assigned or transferred in whole or in part by any Party to any third party, for any reason whatsoever, without the prior written consent of the other Party and any such assignment, transfer or attempt to assign or transfer any interest or right hereunder shall be null and void without the prior written consent of the other Party. Notwithstanding the above and subject to a Seller’s prior notice to Buyer, Seller shall have the right to enter into subcontracting arrangements with any third party, for the purpose of the performance of this Contract.”

Other provisions in the sale contract envisaged both parties taking out insurance.

The buyer took out insurance from Japanese insurers to insure against the risk of any liability to the Japanese Coast Guard in the event that the aircraft were delivered late. In fact, the delivery of the aircraft was delayed and the buyer made a claim under the insurance contract. 

The insurers paid out on the claim. It was not disputed that, pursuant to Japanese insurance law, the buyer’s claims against the seller were thereby transferred to the insurers by operation of law. In addition, article 35 of the sale contract provided expressly for the transfer of third party damage claims from the buyer to the insurers.

The seller refused to reimburse the insurers, arguing that the non-assignment clause prohibited any transfer of the buyer’s rights to the insurers without the seller’s prior written consent, which had not been obtained in this instance.

The ICC arbitration

The majority tribunal held that article 15 did not apply to involuntary transfers or assignments or those by operation of law. Here, the transfer to the insurers was by operation of Japanese law. Therefore, the non-assignment clause did not apply and the seller’s consent to the transfer was not necessary. Accordingly, the tribunal had jurisdiction to deal with the insurers’ direct claim against the seller. 

The dissenting arbitrator thought that the transfer of rights was a direct result of the buyer’s voluntary decision to enter into the insurance contract and the transfer was, therefore, voluntary.

The Commercial Court decision

The Court allowed the appeal from this decision, albeit reluctantly. The Court decided that the wording of clause 15 was wide enough to encompass the transfer of rights to insurers by operation of law.

The Court interpreted the authorities as making a distinction between voluntary and involuntary transfers and decided that there was a presumption that such a non-assignment clause would apply if the assignment was voluntary in the sense that it was consented to. 

In this case, in the Court’s opinion, the transfer of rights from the buyer to the insurers could be described as voluntary. Among other things: the buyer could have chosen a policy governed by a different system of law; or it could have excluded the operation of the relevant provision of Japanese insurance law; or it could have chosen not to make a claim.

An issue arose as to whether the non-assignment clause would have applied to subrogation under English law because that does not involve a transfer. Instead, a subrogated insurer that has indemnified its assured in respect of an insured claim can step into the assured’s shoes and pursue a claim in the assured’s name to recover the indemnity payment from a liable third party.

The Court did not need to decide the point so did not determine the issue. However, it did note that academic commentary inclined to the view that rights in subrogation were not caught by a non-assignment clause.

The Court of Appeal decision

The Court of Appeal has allowed the appeal and held that, on its true construction, article 15 did not invalidate the transfer of the buyer’s claims to the insurers. 

The Court of Appeal thought that the authorities relied on by the Commercial Court were not relevant to the issue in dispute and that there was no presumption that a non-assignment clause would apply to a ‘voluntary’ transfer. Rather, it was a question of interpreting the relevant wording of the non-assignment clause in question.

In this case, the words of article 15 were clear. The key words for present purposes were ‘by any Party’ . The arbitrators had unanimously decided that the buyer’s claims against the seller were transferred to the insurers by operation of Japanese insurance law. The correct question was not whether the transfer was the consequence of the voluntary decision of the buyer and the insurers to enter into the insurance contract. The right question was whether the transfer was made by the buyer, not whether the transfer was a consequence of certain actions taken by the buyer. 

The Court of Appeal noted that while the sale contract did not envisage that the buyer would take out insurance against liability for delay under the sub-sale contract, it did envisage that both parties would take out other insurances. This was part of the commercial background to the sale contract.

Given that it was not in issue in this case, the Court of Appeal declined to consider whether English law subrogation would or would not be caught by the non-assignment clause. However, it noted that the parties had appeared to accept that article 15 would not have applied to such a subrogated claim.

It should not be assumed that subrogated rights will never offend against a non-assignment clause or similar exclusive provision. All will depend on the language used in the context of the other contractual provisions and the wider commercial background. In this case, the Court of Appeal thought the wording of the clause was unambiguous, in other cases the Court might conclude otherwise.

Such clauses should be worded carefully, therefore, when they are being incorporated into a contract in order that they achieve the intended result. They should also be considered in detail by any party that is looking to take out insurance and/or to make a claim under that insurance.

• subrogation
• non-assignment

Related insights

It's a “win win” for hill dickinson legal team in vessel constructive total loss claim.

28 March 2024

Our Piraeus team successfully represented clients in a claim for constructive total loss of the vessel “WIN WIN” following a series of events that took place in Singapore in February 2019.

Marine insurance

Marine insurance is at the heart of what we do. Our team has extensive experience in understanding and analysing the legal issues that arise under marine insurance policies, and the factors driving the marine insurance sector.

How our cargo and logistics lawyers can help you

In addition to our claims and dispute resolution services, we provide specialist advice on the handling and resolution of policy coverage issues and disputes, understanding the commercial relationships and factors that may be at play.

We partner with our clients to share industry knowledge to drive best practice and work with loss adjusters, marine surveyors, investigators and other marine experts to provide our clients with a 360-degree marine legal service.

Our commercial drafting specialists can provide guidance on policy wordings and interpretations that protect our clients’ interests whilst delivering commercial and effective products for the market.

No assignment

No assignment clause samples

No Assignment .ExecutiverepresentsandwarrantsthatExecutive has made no assignment or other transfer, and covenants that Executive will make no assignment or other transfer, of any interest in any claim which Executive may have against the Company or any of the other Releasees (as defined in the Release).

11/06/2020 (Summit Midstream Partners, LP)

17. No Assignment . The Employee represents and warrants that Employee has made no assignment , and will make no assignment , of any claim, action, or right of any kind whatsoever, embodied in any of the matters referred to in this Agreement, and that no person or entity of any kind had or has any interest in any of the demands, obligations, actions, claims, debts, liabilities, rights, contracts, damages, attorneys’ fees, costs, expenses, losses, or claims referred to in this Agreement. By signing this Agreement, Employee has released all claims against the Releasees on behalf of Employee’s self, heirs, spouse, representatives, attorneys, advisors, family members, agents, or assigns.

05/01/2019 (NUVASIVE INC)

6. NO ASSIGNMENT . No party hereto may assign its rights, interests or obligations hereunder to any other person (except by operation of law) without the prior written consent of each other party hereto; provided, however, that the Guarantor may assign all or a portion of its obligations hereunder, with prior written notice to the Guaranteed Party accompanied by a guarantee in the form identical to this Limited Guarantee duly executed and delivered by the assignee, to an Affiliate of the Guarantor; provided, further, that no such assignment shall relieve the Guarantor of any liability or obligations hereunder except to the extent actually performed or satisfied by the assignee.

11/21/2017 (JA Solar Holdings Co., Ltd.)

5. No Assignment . This letter and the commitment of the Investor described herein shall not be assignable by Parent without the prior written consent of the Investor, and the granting of such consent in a given instance shall be solely in the discretion of the Investor and, if granted, shall not constitute a waiver of this requirement as to any subsequent assignment. The Investor may without the prior written consent of Parent assign some or all of its obligations under Section1 to any of its Affiliates if such assignment is not reasonably expected to have the effect of impairing or delaying the Closing or the funding of the Investor’s Commitment at the time set forth in Section1, but may not otherwise assign its rights or obligations hereunder. No assignment by the Investor of any of its obligations hereunder will relieve the Investor of its obligations under this letter. Any purported assignment in contravention of this Section5 shall be void.

07/17/2017 (NCI, Inc.)

12. No Assignment . This Note shall not be assignable by Payee without the prior written consent of Maker.

08/17/2018 (Collective Wisdom Technologies, Inc.)

C. No Assignment . A Participant or Participant’s beneficiary shall have no right to anticipate, alienate, sell, transfer, assign, pledge or encumber any right to receive any incentive made under the Plan, nor will any Participant or Participant’s beneficiary have any lien on any assets of any Participating Employer, or any affiliate thereof, by reason of any Award made under the Plan.

02/14/2017 (Vistra Energy Corp)

9) NO ASSIGNMENT . The Option Agreement and the Option Rights shall not be assignable, whether by operation of law or otherwise, and any attempt to do so shall be void.

08/19/2020 (SIGNET INTERNATIONAL HOLDINGS, INC.)

11. No Assignment . The Commitments evidenced by this Agreement shall not be assignable, in whole or in part, by Newco without each Fund’s prior written consent, and the granting of such consent in a given instance shall be solely in the discretion of such Fund, and, if granted, shall not constitute a waiver of this requirement as to any subsequent assignment. No assignment by any Fund shall relieve such Fund of any of its obligations under this Agreement (including, without limitation, with respect to the Commitment), and, without limitation of the foregoing, if any assignee is unable or unwilling to fund, including by reason of the failure to obtain any approvals required by any Governmental Authorities relating to such assignment, the assignor Fund shall fund the previously assigned portion of its Commitment. Any purported assignment of this Agreement or the Commitment in contravention of this Section11 shall be void.

10/30/2017 (Gigamon Inc.)

Cut contract prep time in half for free

Build document automations that allow you, your staff, and your clients to auto-populate contract templates.

“ I've found it very easy to use. It allows me to work quickly, get something straight from my head and out into the public.”

Partner, Siskind Susser PC

2500 Executive Parkway Suite 300 Lehi, Utah 84043 (866) 638-3627

Level 11, 1 Margaret Street Sydney NSW 2000 Australia +61 2 8310 4319

8th Floor South Reading Bridge House George Street Reading RG1 8LS +44 20 3129 9324

Latin America

Mexico +52 55 5985 3005

Brazil +55 21 4040 4623

• How to Successfully Switch Your DMS
• DocuSign + NetDocuments
• How Ice Miller Adopted the Cloud Completely Remote
• Case Studies
• Resource Library
• Partner Integrations
• App Directory
• Locate a Partner
• Partner Portal
• Become a Partner

© NetDocuments Software, Inc.

• Terms of Use
• Privacy policy
• Cookie policy
• Privacy policy for california residents

Jump to main content

Contact us at (949) 353-6347

California Corporate & Securities Law

• Speaking Engagements
• Corporate Governance (305)
• California Corporations Code (98)
• California Secretary of State (93)
• Corporate Securities Law (80)
• Legislation (73)
• Department of Financial Protection and Innovation (72)
• Securities and Exchange Commission (60)
• General Corporation Law (51)
• Nevada Corporations (51)
• Limited Liability Companies (50)
• Limited Liability Company (50)
• California Securities Laws (44)
• California Financing Law (37)
• Mergers & Acquisitions (36)
• Choice of Law/Conflict of Law (34)
• California Sui Generis (32)
• nonprofit corporation law (32)
• derivative action (31)
• foreign corporation (28)
• contract (27)
• Department of Business Oversight (26)
• nevada corporation (23)
• Derivative Suits (22)
• Nevada (22)
• board of directors (21)
• Banking and Financial Institutions (20)
• Finance Lenders Law (20)
• Securities Litigation (20)
• Corporations Code (19)
• Finance Lenders (19)
• Insider Trading (19)
• Administrative Procedure (17)
• Alter Ego (17)
• Delaware General Corporation Law (17)
• Financial Institutions (17)
• Legal History (17)
• Uncategorized (17)
• nonprofit corporations (17)
• Administrative Procedure Act (16)
• Broker-Dealers (16)
• California Legislature (16)
• Investment Advisers (16)
• dissolution (16)
• fiduciary duty (16)
• internal affairs doctrine (16)
• revised uniform limited liability (16)
• securities fraud (16)
• Non competition agreements (15)
• federal securities law (15)
• personal jurisdiction (15)
• derivative suit (14)
• stockholder inspection (14)
• California General Corporation Law (13)
• Pseudo-Foreign Corporations (13)
• Secretary of State (13)
• Uniform Commercial Code (13)
• broker-dealer (13)
• Enforcement & Investigations (12)
• Nevada General Corporation Law (12)
• Non-Compete Covenants (12)
• Uniform Partnership Act (12)
• Whistleblowers (12)
• Constitution (11)
• Partnerships (11)
• Securities Act of 1933 (11)
• Attorney-Client Privilege/Work Product (10)
• California Constitution (10)
• Executive Compensation (10)
• Financial Code (10)
• conversion (10)
• derivative lawsuit (10)
• unincorporated association (10)
• Delaware General Corproration Law (9)
• First Amendment (9)
• Investment Adviser (9)
• Nevada Revised Statutes (9)
• Pseudo foreign corporation (9)
• attorney-client privilege (9)
• climate change (9)
• nonprofit mutual benefit (9)
• Delaware law (8)
• Labor Code (8)
• Nevada legislature (8)
• Stephen Bainbridge (8)
• business judgment rule (8)
• jurisdiction (8)
• nonprofit mutual benefit corporation (8)
• CARULLCA (7)
• Commissioner of Business Oversight (7)
• Nevada Supreme Court (7)
• Section 2116 (7)
• Section 25401 (7)
• choice of law (7)
• employees (7)
• limited partnership (7)
• officers (7)
• CalPERS (6)
• Department of Corporations (6)
• Finance Lender (6)
• Public Records Act/FOIA (6)
• Special Litigation Committee (6)
• articles of incorporation (6)
• real estate broker (6)
• strategic lawsuit against public participation (6)
• suspended (6)
• Civil Code (5)
• Delaware (5)
• Investment Company Act (5)
• Political Speech (5)
• Rule 10b-5 (5)
• Section 25019 (5)
• derivative (5)
• director (5)
• dissenters' rights (5)
• distributions to shareholders (5)
• dividend (5)
• exemption (5)
• finders (5)
• qualification (5)
• reverse veil piercing (5)
• scienter (5)
• section 25110 (5)
• shareholder voting (5)
• unfair competition law (5)
• usurious (5)
• venture capital (5)
• Anti-SLAPP (4)
• Attorney General (4)
• Attorney's fees (4)
• California (4)
• California Commodity Law (4)
• Civil Procedure (4)
• Dodd-Frank Act (4)
• Exchange Act (4)
• Investment Advisers Act (4)
• NRS 78.138 (4)
• Nevada limited liability company (4)
• Nevada secretary of state (4)
• Regulation S-K (4)
• cannabis (4)
• compliance and disclosure (4)
• department of real estate (4)
• election (4)
• emergency services act (4)
• environmental social governance (4)
• exclusive forum (4)
• forum selection (4)
• fractional shares (4)
• franchise tax board (4)
• legal writing (4)
• liability of director (4)
• nonprofit public benefit (4)
• preemption (4)
• proxy advisor (4)
• proxy voting guidelines (4)
• service of process (4)
• social activism (4)
• stock option (4)
• tortious interference (4)
• uniform limited partnership act (4)
• virtual annual meeting (4)
• whistleblower (4)
• Administrative Review (3)
• Broc Romanek (3)
• Franchise Tax (3)
• Government Code (3)
• Jennifer A. Dorsey (3)
• Litigation (3)
• Nevada constitution (3)
• Rule 147 (3)
• Rule 147A (3)
• Salman v. U.S. (3)
• Section 25402 (3)
• Section 407 (3)
• Senator Bill Dodd (3)
• Silver Hills (3)
• Uniform Voidable Transactions Act (3)
• cannabizfile (3)
• commodity (3)
• condominium (3)
• corporate attorney (3)
• criminal conviction (3)
• draft legislation (3)
• entitled to vote (3)
• entity name (3)
• exculpation (3)
• fictitious name (3)
• forum selection bylaw (3)
• forum selection clause (3)
• free speech (3)
• hybrid annual meeting (3)
• indemnification (3)
• intrastate offering (3)
• investment contract (3)
• jury trial (3)
• officer liability (3)
• partnership (3)
• private fund (3)
• promissory notes (3)
• repurchase (3)
• reverse stock split (3)
• sale of all or substantially all (3)
• section 228 (3)
• section 309 (3)
• securities (3)
• standing (3)
• "parol evidence rule" (2)
• 926 North Ardmore (2)
• AB 1517 (2)
• Accountants (2)
• Annual meeting (2)
• Auerbach (2)
• Bernard Sharfman (2)
• California Consumer Financial Protection Act (2)
• California Supreme Court (2)
• Calstrs (2)
• Classified Board (2)
• Credit Union (2)
• Davis Test Only Smog Testing (2)
• Delaware precedents (2)
• Director Inspection Rights (2)
• Dodd-Frank (2)
• Drulias v. 1st Century (2)
• Form 1-A (2)
• Form 10-K (2)
• Gantler v. Stephens (2)
• Harvard Shareholder Rights Project (2)
• Institutional Shareholder Services (2)
• Insurance (2)
• Jury trial waiver (2)
• Limited (2)
• Milton Freeman (2)
• Mueller v. San Diego (2)
• Muratsuchi (2)
• NRS 78.139 (2)
• New York (2)
• North American Securities Administrators (2)
• Office of Administrative Law (2)
• Part 205 Rules (2)
• Pay Ratio Rule (2)
• People v. Black (2)
• Postal Instant Press (2)
• Proposition 13 (2)
• Regulation A (2)
• Restatement (Second) Agency (2)
• Roughing It (2)
• SEC v. Howey (2)
• Section 12 (2)
• Section 16 (2)
• Section 17703.04 (2)
• Section 18 (2)
• Section 2(a)(1) (2)
• Section 204 (2)
• Section 22050 (2)
• Section 25130 (2)
• Section 25217 (2)
• Section 25501 (2)
• Section 3(c)(5)(C) (2)
• Section 953(b) (2)
• Supermajority vote (2)
• Wells Fargo (2)
• Wynn Resorts (2)
• abstentions (2)
• administrative proceeding (2)
• agency law (2)
• amendment (2)
• annual report (2)
• attorney fees (2)
• binary options (2)
• business name (2)
• chapter 5 (2)
• chevron deference (2)
• civil service (2)
• conflict of laws (2)
• consent (2)
• de novo (2)
• fiduciary (2)
• forum non conveniens (2)
• fraudulent (2)
• hacking (2)
• liability (2)
• limited offering exemption (2)
• liquidated damages (2)
• lucian bebchuk (2)
• marijuana (2)
• negotiating permit (2)
• nonprofit cooperative associations (2)
• operating agreement (2)
• pay ratio (2)
• penalty (2)
• personal property broker (2)
• practice of law (2)
• private contracting (2)
• real estate fund (2)
• record date (2)
• reincorporation (2)
• revlon duties (2)
• section 602(a) (2)
• security definition (2)
• statute of frauds (2)
• successor-in-interest (2)
• termination (2)
• trade secrets (2)
• votes cast (2)
• work product doctrine (2)
• writing (2)
• written consent (2)
• 10 CCR 260.015.23 (1)
• 10 CCR 260.102 (1)
• 10 CCR 30.105 (1)
• 10 CCR Section 146 (1)
• 10 CCR Section 260.140.1 (1)
• 10 CCR Section 260.238 (1)
• 100% owned (1)
• 101 Geo. L.J. 923 (1)
• 102(b)(7) (1)
• 17703.04 (1)
• 2015 U.S. Dist. LEXIS 187188 (1)
• 2015 U.S. Dist. LEXIS 8795 (1)
• 2017 Cal. App. LEXIS 523 (1)
• 2017 Cal. App. LEXIS 959 (1)
• 2017 Del. LEXIS 522 (1)
• 2017 U.S. Dist. LEXIS 2352 (1)
• 2017 U.S. Dist. LEXIS 40831 (1)
• 2017 U.S. Dist. LEXIS 77643 (1)
• 2017 U.S. Dist. LEXIS 9657 (1)
• 204(a)(10) (1)
• 206 Cal. App. 4th 384 (1)
• 210.1-02 (1)
• 210.3-10 (1)
• 26 FR 11896 (1)
• 260.105.22 (1)
• 260.105.29 (1)
• 260.141.11 (1)
• 260.211.4 (1)
• 260.211.5 (1)
• 260.211.6 (1)
• 260.211.7 (1)
• 35 persons (1)
• 44 U.S.C. Sec. 3502(5) (1)
• 463 U.S. 646 (1)
• 574 F.3d 42 (1)
• 66 2/3 vote (1)
• 9 Cal. 2d 126 (1)
• 926 N. Ardmore (1)
• 95 Theses (1)
• AB 1104 (1)
• AB 123 (Ellison) (1)
• AB 1535 (1)
• AB 1541 (1)
• Action by written consent (1)
• Advisory mandamus (1)
• Allergia (1)
• Anderson v. Alexza (1)
• Andre G. Bouchard (1)
• Anzhela Knyazeva (1)
• Apollo Capital (1)
• Apollo Capital Fund (1)
• Applied Medical Corp. v. Thomas (1)
• Armistice Day (1)
• Article 7 (1)
• Article 8 (1)
• Article I (1)
• Article IV (1)
• Article VII (1)
• Auerbach v. Bennett (1)
• Baldwin (1)
• Bayless Manning (1)
• Beachcomber Management (1)
• Benjamin Cardozo (1)
• Benninghoff v. Superior Court (1)
• Bill Holden (1)
• Birmingham v. Good (1)
• Blue Chip Stamps v. Manor Drugs (1)
• Board of Equalization (1)
• Bob Lamm (1)
• Bovet v. Chiang (1)
• Braden v. BH Fin. Services (1)
• Brady v. Maryland (1)
• Brian Sandoval (1)
• Broadridge (1)
• BrokerCheck (1)
• Bucket Shop (1)
• Bureau of Real Estate (1)
• Bus. & Prof. Code (1)
• Business and Professions (1)
• C. Arlen Beam (1)
• CCP Section 382 (1)
• CORRESP (1)
• Cal. Const. Art. XV (1)
• Cal. Corp. Code Section 312 (1)
• Cal. Fin. Code (1)
• California Civil Code (1)
• California Pines Property Owners Association v. Pe (1)
• California Secure Choice Retirement Savings Progra (1)
• Calvin H. Higbie (1)
• Caremark claim (1)
• Central Laborers (1)
• Central Laborers' Pension fund (1)
• Cheveron deference (1)
• Civil Code Section 1476 (1)
• Civil Code Section 2026 (1)
• Cohen v. Mirage (1)
• Commissioner of Real Estate (1)
• Commissioner's Rules (1)
• Compliance and Disclosure Interpretation (1)
• Concepts Statement No. 8 (1)
• Conrad L. Rushing (1)
• Consipio holdings bv v. carlberg (1)
• Consuelo Maria Callahan (1)
• Contract assignments (1)
• Corp Fin (1)
• Corporate Council (1)
• Correspondence (1)
• Council of Institutiona Investors (1)
• Court of Appeal (1)
• Court of Chancery (1)
• Curci Investments (1)
• Cydney Posner (1)
• Cymbeline (1)
• D&O (1)
• DSCL-100 (1)
• Dana Sabraw (1)
• Daniel M. Gallagher (1)
• Davis Polk (1)
• De Leon (1)
• De Officiis (1)
• Deborah A. Demott (1)
• Debt Collectors Licensing Act (1)
• Declassified board (1)
• Delaware Supreme Court (1)
• Desaigoudar v. Meyercord (1)
• Desert Place v. Michael (1)
• Diamond View v. Herz (1)
• Disputesuite.com (1)
• Documentary Transfer Tax Act (1)
• Duke Energy (1)
• Duke v. Superior Court (1)
• Dwight Eisenhower (1)
• Echeverria (1)
• EchoStar (1)
• Ed Chau (1)
• Ed Tiryakian (1)
• Elizabeth Holmes (1)
• Erhart v. BofI (1)
• Financial Choice Act (1)
• Financial Code Section 17000 (1)
• Financial Code Section 22340 (1)
• Financial Code Section 22600 (1)
• Flowers v. FINRA (1)
• Form 10-Q (1)
• Form 8-K (1)
• Form ADV (1)
• Form PF (1)
• Form SD (1)
• Fourth of July (1)
• Frances T. v. Village Green (1)
• Franchise Investment Law (1)
• Free Enterprise Fund v. PCAOB (1)
• Friese v. Superior Court (1)
• G.W. Warrens (1)
• Gaillard v. Natomas (1)
• Galaviz v. Berg (1)
• Gantler v. Stevens (1)
• Gardner v. Henderson Water Park (1)
• Gayle M. Hyman (1)
• George Foley (1)
• George Santayana (1)
• Glass Lewis (1)
• Goldfield (1)
• Gonzolo P. Curiel (1)
• Government Code Section 7603 (1)
• Grafton partners v. Superior court (1)
• Greb v. Diamond International (1)
• Grosset v. Wenaas (1)
• Gutierrez-Brizuela v. Lynch (1)
• Hardwick v. Wilcox (1)
• Harold Marsh (1)
• Harold Marsh Jr (1)
• Hazel Bradford (1)
• Henry VI (1)
• Hollis v. Hill (1)
• Hornstein v. Berry (1)
• Howey test (1)
• Hullinger v. Anand (1)
• Hutchinson v. Hutchinson (1)
• IAR Systems Software (1)
• ITV Gurney Holding Inc. v. Gurney (1)
• Ignazio Ruvolo (1)
• In re Dish (1)
• In re Dish Network (1)
• In re Dish Network Derivative (1)
• In re Holy Hill Community Church (1)
• In re Sagent Technology (1)
• In re Stephan (1)
• In re: CytRX Corp. (1)
• Inc. v. Bouboulis (1)
• Inc. v. Dabney (1)
• Inc. v. Guardian (1)
• Inc. v. Northway (1)
• Insurance Code (1)
• Intelligent Digital Systems v. Beazley (1)
• Ira p. Robbins (1)
• Item 2.02 (1)
• Item 2.04 (1)
• Item 303 (1)
• Item 402 (1)
• Item 407 (1)
• Item 501 (1)
• J. Travis Laster (1)
• JAMES D.C. Barrall (1)
• Jacobs v. Locatelli (1)
• James W. Hardesty (1)
• Janis L. Sammartino (1)
• John Carney (1)
• John Carreyrou (1)
• John Coates (1)
• John Jenkins (1)
• Johnson & Johnson (1)
• Joint Rule 51 (1)
• Joint Rule 61 (1)
• Jon L. Pritchett (1)
• Jon S. Tigar (1)
• Jon Tigar (1)
• Jon b. Streeter (1)
• Joseph A. Grundfest (1)
• Joseph P. Kennedy (1)
• Judge Beth Freeman (1)
• Judge Brian C. Walsh (1)
• Judge Cynthia Ann Bashant (1)
• Judge Gonzalo P. Curiel (1)
• Judge Gonzolo Curiel (1)
• Judge Jeffrey S. White (1)
• Judge Kimberly J. Mueller (1)
• Judge Marcy Friedman (1)
• Judge Marla Miller (1)
• Judge Michael W. Fitzgerald (1)
• Judge Otis D. Wright (1)
• Judge Paul M. Marigonda (1)
• Judge Peter H. Kirwan (1)
• Judge Susan Illston (1)
• Justice Conrad L. Rushing (1)
• Justice Kristina Pickering (1)
• Justice Mark B. Simons (1)
• Justice Stephen G. Breyer (1)
• Kathryn M. Werdegar (1)
• Katz v. Chevron (1)
• Kenneth R. Yegan (1)
• Kevin LaCroix (1)
• Kevin McCarthy (1)
• King Lear (1)
• Kirschner v. Natomas (1)
• LLC v. Scoreinc.com (1)
• Labor Code Section 1102.5 (1)
• Labor Code Section 2854 (1)
• Labor Code Section 2865 (1)
• Laboratory Specialists International (1)
• Las Vegas (1)
• Le v. Sunlan (1)
• Leondra (1)
• Literature (1)
• Louis Freeh (1)
• MAUCRSA (1)
• MAtthew P. Digesti (1)
• Magna Carta (1)
• Maienschein (1)
• Marcus Tullius Cicero (1)
• Maren Nelson (1)
• Marine Bank v. Weaver (1)
• Mark Gibbons (1)
• Mark Twain (1)
• Markley v. City Council (1)
• Marshall v. Galvanoni (1)
• Martijn Cremers (1)
• Martin Luther (1)
• Martin Luther King Jr. (1)
• McCarran Airport (1)
• Meinhard v. Salmon (1)
• Michael King (1)
• Michal Barzuza (1)
• Military & Veterans Code (1)
• Munchee (1)
• NRS 49.095 (1)
• NRS 78.115 (1)
• NRS 78.130 (1)
• NRS 78.150 (1)
• NRS 78.205 (1)
• NRS 78.225 (1)
• NRS 78.257 (1)
• NRS 78.335 (1)
• NRS 78.347 (1)
• Nathanael Cousins (1)
• National Grange (1)
• Nedlloyd (1)
• Nones of April (1)
• North American Securities Administrators Associati (1)
• November 11 (1)
• Otis D. Wright II (1)
• Outdoor Advertising Act (1)
• Overland (1)
• Overland Storage (1)
• Parametric Sound Corp. (1)
• Pat McCarran (1)
• Pederson v. Owen (1)
• People v. Martinez (1)
• Pharmacyclics (1)
• Pharmaplast S.A.E. v. Zeus Medical (1)
• Professor Stephen Bainbridge (1)
• Proposition 20 (1)
• Q&A (1)
• Real v. St. Jude Medical (1)
• Regulation S-X (1)
• Removal of office holders (1)
• Restatement (Second) Conflicts (1)
• Restatement (Third) of Agency (1)
• Rev. & Tax. Code (1)
• Revlon Standard (1)
• Richard M. Aronson (1)
• Richard d. fybel (1)
• Rincon EV Realty LLC v. CP III Rincon (1)
• Robert H. Volk (1)
• Robert L. Jackson (1)
• Roberta Romano (1)
• Roger T. Benitez (1)
• Roman law (1)
• Rossdale Group LLC v. Walton (1)
• Roth Capital (1)
• Rule 13q-1 (1)
• Rule 144 (1)
• Rule 14a-8 (1)
• Rule 15c2-12 (1)
• Rule 203(m)-1 (1)
• Rule 206(4)-5 (1)
• Rule 21F-2 (1)
• Rule 23.1 (1)
• Rule 240.21F-7 (1)
• Rule 260.012.12 (1)
• Rule 260.102.1 (1)
• Rule 260.102.13 (1)
• Rule 260.140.46 (1)
• Rule 260.302 (1)
• Rule 303A.03 (1)
• Rule 701(e) (1)
• Rule 8312 (1)
• SB 1234 (1)
• SEC Rel. No. 33-4434 (1)
• SEC v. Dorozhko (1)
• SEC v. Obus (1)
• SEC white paper (1)
• Samuel Alito (1)
• Samuel Clemens (1)
• Samuel L. Clemens (1)
• Schoff v. Clough (1)
• Seaborn v. Wingfield (1)
• Sean J. Griffith (1)
• Second Circuit (1)
• Section 1 (1)
• Section 10 (1)
• Section 10(b) (1)
• Section 1001 (1)
• Section 1002 (1)
• Section 109.5 (1)
• Section 11346.4 (1)
• Section 11901 (1)
• Section 12(a)(2) (1)
• Section 12160 (1)
• Section 1503 (1)
• Section 162 (1)
• Section 1671 (1)
• Section 17 (1)
• Section 17(a) (1)
• Section 17(b) (1)
• Section 171 (1)
• Section 17157(d) (1)
• Section 1717 (1)
• Section 17702.09 (1)
• Section 17704.01 (1)
• Section 17705.03 (1)
• Section 17713.03 (1)
• Section 189 (1)
• Section 19(d) (1)
• Section 194.8 (1)
• Section 2(a)(2) (1)
• Section 2000 (1)
• Section 202(a)(29) (1)
• Section 204(a) (1)
• Section 204(a)(10) (1)
• Section 204(a)(5) (1)
• Section 207 (1)
• Section 21(a) (1)
• Section 2105 (1)
• Section 211 (1)
• Section 2114 (1)
• Section 2115 (1)
• Section 213 (1)
• Section 216 (1)
• Section 21F (1)
• Section 21F(h)(2) (1)
• Section 220 (1)
• Section 22000 (1)
• Section 22009 (1)
• Section 2203 (1)
• Section 22203 (1)
• Section 22502 (1)
• Section 2295 (1)
• Section 23151 (1)
• Section 2322 (1)
• Section 23301 (1)
• Section 24d (1)
• Section 25002 (1)
• Section 25011 (1)
• Section 25013 (1)
• Section 25100(f) (1)
• Section 25100(o) (1)
• Section 25102 (1)
• Section 25102(a) (1)
• Section 25102(f) (1)
• Section 25102(o) (1)
• Section 25102.1 (1)
• Section 25104(f) (1)
• Section 25113 (1)
• Section 25120 (1)
• Section 25206.1 (1)
• Section 25211 (1)
• Section 25300 (1)
• Section 25400(d) (1)
• Section 25403 (1)
• Section 25500 (1)
• Section 26000 (1)
• Section 26228 (1)
• Section 2787 (1)
• Section 2819 (1)
• Section 2860 (1)
• Section 2900 (1)
• Section 291 (1)
• Section 29500 (1)
• Section 29536 (1)
• Section 3 (1)
• Section 3(a)(10) (1)
• Section 3(a)(11) (1)
• Section 3(a)(9) (1)
• Section 3(c)(7) (1)
• Section 300 (1)
• Section 302 (1)
• Section 305 (1)
• Section 307 (1)
• Section 310 (1)
• Section 31101 (1)
• Section 312 (1)
• Section 31300 (1)
• Section 317 (1)
• Section 3310 (1)
• Section 3344.1 (1)
• Section 3439.09 (1)
• Section 3513 (1)
• Section 408 (1)
• Section 410.10 (1)
• Section 425.16 (1)
• Section 500 (1)
• Section 506 (1)
• Section 527.6 (1)
• Section 553 (1)
• Section 60 (1)
• Section 600(e) (1)
• Section 602 (1)
• Section 603 (1)
• Section 6068(e) (1)
• Section 6250 (1)
• Section 6258 (1)
• Section 701 (1)
• Section 703 (1)
• Section 710 (1)
• Section 7132 (1)
• Section 8 (1)
• Section 8(a) (1)
• Section 800 (1)
• Section 8333 (1)
• Section 902(a) (1)
• Section 922 (1)
• Senate Insurance (1)
• Shaev v. Baker (1)
• Shaffer v. Heitner (1)
• Sharemaster v. SEC (1)
• Sheila K. Oberto (1)
• Sheley v. Harrop (1)
• Shimadzu (1)
• Shining light on Corporate Political Spending (1)
• Shlensky v. Wrigley (1)
• Show Ready (1)
• Simone M. Sepe (1)
• Sleep EZ v. Mateo (1)
• Small v. Fritz (1)
• Smith v. Van Gorkom (1)
• Snap Inc. (1)
• Somers v. Digital Realty Trust (1)
• Sonoro Invest SA v. Miller (1)
• Souza v. Elevate (1)
• Special Situations Fund (1)
• Special Situations Fund III (1)
• State Compensation Insurance Fund v. Riley (1)
• Statements of Information (1)
• Strong v. Cochran (1)
• Strong v. Repide (1)
• Super Pawn Jewelry & Loan v. Am. Envtl. (1)
• Superior court (1)
• Supreme Court (1)
• Susan B. Anthony List v. Driehaus (1)
• TSC Industries (1)
• Tena Campbell (1)
• The City of God (1)
• Theranos (1)
• Tick Segerblom (1)
• Tooley v. Donaldson (1)
• Tract No. 7260 Ass'n v. Parker (1)
• Treasurer John Chiang (1)
• Tucker Ellis LLP v. Superior Court (1)
• Uniform Electronic Transactions (1)
• Uniform Fraudulent Transfer Act (1)
• Unocal standard (1)
• Vahoora v. Masood (1)
• Veteres (1)
• Vladimir Ivanov (1)
• Voss v. Sutardja (1)
• Wadler v. Bio-Rad (1)
• Washington College of Law (1)
• Wellisch v. Pennsylvania Higher (1)
• Western Surety v. La Cumbre Office Partners (1)
• White & Whitley Grp. v. Wilson (1)
• Wilkinson v. Schulman (1)
• William Cos. v. Energy (1)
• William Griffith Wilson (1)
• Wireless Carriers (1)
• Wittenberg (1)
• You can't go home again (1)
• Zetwick v. County of Yolo (1)
• accredited investor (1)
• administrative mandate (1)
• advancement of expenses (1)
• advertising (1)
• advice of counsel (1)
• alex kozinski (1)
• alma cohen (1)
• alternative due date (1)
• ambiguous (1)
• anthony rendon (1)
• applicable filing period (1)
• approval of the outstanding shares (1)
• assessor (1)
• association (1)
• at issue (1)
• authority (1)
• bassam salman (1)
• because of test (1)
• best efforts (1)
• bizfile California (1)
• blockchain (1)
• brief case (1)
• buy-sell agreement (1)
• buyback rights (1)
• caltrans (1)
• cannabis cooperative (1)
• casuitry (1)
• catalyst theory (1)
• chairman of the board (1)
• change in control (1)
• change of ownership (1)
• church debt (1)
• church extension fund (1)
• classical theory (1)
• coin offerings (1)
• collusion (1)
• comitia (1)
• commission merchant (1)
• compensation (1)
• compensatory plan (1)
• confidentiality (1)
• conflicts (1)
• contracting out (1)
• control person liability (1)
• conventicle (1)
• convivio (1)
• corporate giving (1)
• corporate philanthropy (1)
• corporation (1)
• cremers (1)
• crowdfunding (1)
• crowdfunding permi (1)
• custodianship (1)
• dante alighieri (1)
• debt versus equity (1)
• deceased personality (1)
• declassification (1)
• declassify (1)
• deed of trust (1)
• default (1)
• defense costs (1)
• definition of security (1)
• demand futility (1)
• department of tax and fee administration (1)
• direct harm (1)
• disclaim appointment (1)
• disclosure only (1)
• disparagement clause (1)
• disqualification (1)
• distribution of assets (1)
• documentary transfer tax (1)
• doing business (1)
• donald trump (1)
• due execution (1)
• duly appointed (1)
• duly elected (1)
• earliest dated consent (1)
• earnings release (1)
• effective (1)
• empanel (1)
• emphyteusis (1)
• emphyteuta (1)
• emphyteutic (1)
• enforcement actions (1)
• equitable (1)
• escheat (1)
• evidentiary hearing (1)
• examination (1)
• exclusive meaning (1)
• exoneration (1)
• extraordinary writ (1)
• fair value (1)
• fake news (1)
• false news (1)
• family trust (1)
• fiduciary in fact (1)
• financial difficulties (1)
• financial reporting (1)
• for cause removal (1)
• forbearance (1)
• foreclosure (1)
• foreign (1)
• foreign exchange (1)
• foreign registrant (1)
• foreign subsidiary (1)
• fraction (1)
• fractions (1)
• franchise (1)
• fundamental interest (1)
• gaming debt (1)
• george wingfield (1)
• good faith (1)
• grammatical gender (1)
• grand jury (1)
• guidance (1)
• hamartia (1)
• heightened scrutiny (1)
• hewlett-Packard v. Commissioner (1)
• homograph (1)
• ides of march (1)
• illegal offer (1)
• impanel (1)
• improper purpose (1)
• in this state (1)
• inclusive meaning (1)
• incorrect (1)
• independent judgment (1)
• independent regulatory agency (1)
• initial list (1)
• insider (1)
• insured versus insured (1)
• integration clause (1)
• interest (1)
• internal investigation (1)
• interstate business (1)
• intrastate business (1)
• issuer transaction (1)
• judge jennifer A. Dorsey (1)
• judge lawrence j. o'neill (1)
• justice Terry B. O'Rourke (1)
• kanno v. marwit capital (1)
• kevin de leon (1)
• kevin kiley (1)
• krechuniak v. Noorzoy (1)
• lammers (1)
• landlord (1)
• lay person (1)
• lead generators (1)
• lead independent director (1)
• leidos v. Indiana Public Retirement (1)
• lex incorporationis (1)
• libelous or slanderous (1)
• listing manual (1)
• lyman P.Q. Johnson (1)
• lynn LoPucki (1)
• manager (1)
• marcy friedman (1)
• market manipulation (1)
• matal v. tam (1)
• meaning of "and" (1)
• member liability (1)
• members (1)
• mining leases (1)
• misappropriation theory (1)
• money order (1)
• motion to dismiss (1)
• motor clubs (1)
• mutual water company (1)
• natural person (1)
• nautilus v. yang (1)
• negligence (1)
• neil gorsuch (1)
• nelson v. Anderson (1)
• nominated (1)
• non voting common stock (1)
• nonbinary (1)
• nonissuer transaction (1)
• notice filing (1)
• offering statement (1)
• office of investor education and Advocacy (1)
• office of legislative counsel (1)
• other constituency statute (1)
• pannellus (1)
• pay-to-play (1)
• performance (1)
• personal benefit (1)
• persons (1)
• piercing the corporate veil (1)
• pilcrow (1)
• policy exclusion (1)
• policy updates (1)
• preferred stockholders (1)
• presiding director (1)
• prevailing party (1)
• primary violator (1)
• private right of action (1)
• privilege (1)
• procedural (1)
• professor bainbridge (1)
• promoter (1)
• proper party (1)
• proper purpose (1)
• properly appointed (1)
• protected activity (1)
• public notice (1)
• public policy (1)
• purchaser (1)
• qualified (1)
• qualifying assets (1)
• real estate development (1)
• reasonable (1)
• reasonably likely (1)
• reckless (1)
• recorder (1)
• regulatory assets under management (1)
• regulatory capture (1)
• removal (1)
• required to be registered (1)
• resident agent (1)
• resignation (1)
• resource extraction rule (1)
• rim cards (1)
• risk capital (1)
• rounding (1)
• safeguards (1)
• salameh v. Tarsadia (1)
• scilicet (1)
• second declension (1)
• secretary's certificate (1)
• section 158 (1)
• section 208 (1)
• section 31202 (1)
• section symbol (1)
• securities lending (1)
• securities owners protection (1)
• securities portfolio (1)
• security (1)
• settlement (1)
• sham corporation (1)
• shareholders meeting (1)
• sheriff's levy (1)
• sheriff's sale (1)
• signature (1)
• societe anonyme (1)
• squeeze out (1)
• staggered board (1)
• standard of care (1)
• state charter (1)
• statute (1)
• statute of limiations (1)
• statute of repose (1)
• stockholder (1)
• stockholder action by consent (1)
• stockholder approval (1)
• subsidiary (1)
• subsidiary meaning (1)
• substantial evidence (1)
• substantive (1)
• successive representation (1)
• successor liability (1)
• suitability (1)
• supermajority (1)
• sureties (1)
• surrender certificates (1)
• synagogue (1)
• table funding (1)
• talcum powder (1)
• tarantulas (1)
• tax cuts and jobs act (1)
• taxpayer transparency and fairness act (1)
• test the waters (1)
• tonopah (1)
• totally held (1)
• touting (1)
• transact intrastate business (1)
• transfer (1)
• translate (1)
• troisieme voie (1)
• tweeting (1)
• umbrella registration (1)
• unclaimed property law (1)
• unicorn (1)
• vacancy (1)
• veil piercing (1)
• verification (1)
• voire dire (1)
• voltaire (1)
• voting power (1)
• webb v. shull (1)
• whistleblower disclosures to the press (1)
• wholly owned (1)
• willful misconduct (1)
• yard signs (1)

I've Been Thinking About Conversion, But I Haven't Decided To Convert

Conversion can be a sensitive subject for some.  In California, corporate conversions are a relatively new phenomenon, having made their first appearance with legislation enacted in 2002 (SB 399 (Ackerman)).  The General Corporation Law (GCL) rather unhelpfully defines a "conversion" as "a conversion pursuant to Chapter 11.5  . . . [of the Corporations Code]".  Cal. Corp. § 161.9.  Fundamentally, Chapter 11.5 provides the legislative alchemy for a corporation to convert into another type of legal entity or another type of legal entity to convert into a corporation.  Without this bit of thaumaturgy, the converting entity would need to effect an interspecies merger to change its legal form.

Recently, I've been thinking about conversions.  For example, a merger may or may not trigger an anti-assignment clause in a contract depending upon how it is phrased.  I suspect that most contract provisions don't expressly mention conversions, but may include language such as the following:

Neither this agreement nor any of the rights, interests or obligations under it shall be assigned, in whole or in part, by operation of law or otherwise by any of the parties without the prior written consent of the other parties . . .

Would a conversion constitute an assignment by operation of law under such a provision?  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 specified provisions of the Revenue and Taxation Code).  However, given that there has been uncertainty about the effect of such clauses on reverse triangular mergers (see, e.g., Meso Scale Diagnostics, LLC v. Roche Diagnostics GmbH, 2011 Del. Ch. LEXIS 61 (April 8, 2011)) , it may be time to modify assignment clauses to clarify whether conversions are covered. 

Another more subtle question is the effect of legal restraints imposed on the converted entity but not the converting entity.  For example, Section 317 of the General Corporation Law limits the authority of a corporation to indemnify agents.  These provisions do not apply to other types of entities (which may be subject to different limitations).  If the converting entity is a limited liability company that has entered into an indemnity agreement based on the indemnification provisions applicable to LLCs, what will be the effect of the conversion on that agreement?  Corporations Code Section 1158(b)(2) provides that all obligations of the converting entity continue as obligations of the converted entity.

Opinion questions may also arise.  For example, if a transaction is entered into when the converting entity is an LLC, the lack of any board resolutions may be questioned if a due authorization opinion is required after the LLC has converted to a corporation. 

When considering conversion, it is also a good idea not to lose sight of the Corporate Securities Law (CSL).  Section 25120(a)(4) of the Corporations Code makes it clear that an "entity conversion transaction" is subject to qualification.  However, an "entity conversion transaction" is not the same thing as a "conversion".  Compare Corporations Code Section 25005.1 (defining "entity converstion transaction" for purposes of the CSL) with Section 161.9 (defining "conversion" for puropses of the GCL).

Finally, licensing issues may arise.  Whether an entity will continue to be licensed will likely depend on the applicable licensing scheme.

Is California About To Say "Good Bye" To Columbus Day?

Section 7.1(l) of the California Civil Code designates the second Monday in October as "Columbus Day".  Earlier this week, Assemblymember Roger Hernández introduced AB 55  to rename the holiday as "Native American Day".  The bill includes the following statement of legislative intent:

In order to recognize the genocide inflicted upon Native Americans and their removal from their ancestral lands, and to acknowledge the numerous contributions made by Native Americans to California and the nation, the second Monday in October, previously known as Columbus Day, shall be known as Native American Day.

In 2007, another Californian, then Representative Joe Baca, authored H.R. 62 which designated Friday, November 28, 2008 as "Native American Heritage Day".  P.L. No. 10t-370.  For the last two decades, the City of Berkeley, California has observed "Indigenous Peoples Day".

Keith Paul Bishop

Get the latest news and analysis about california corporate & securities law. subscribe to our newsletter today.

We respect your email privacy

Copyright © 2020   Allen Matkins Leck Gamble Mallory & Natsis LLP. All Rights Reserved Disclaimer This publication is made available by Allen Matkins Leck Gamble Mallory & Natsis LLP for educational purposes only to convey general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you acknowledge there is no attorney-client relationship between you and Allen Matkins Leck Gamble Mallory & Natsis LLP. This publication should not be used as a substitute for competent legal advice from a licensed professional attorney applied to your circumstances. Attorney advertising. Prior results do not guarantee a similar outcome. Click here for full disclaimer .  Cookie Policy   Privacy Policy

• Find a Lawyer
• Ask a Lawyer
• Research the Law
• Law Schools
• Laws & Regs
• Newsletters
• Justia Connect
• Pro Membership
• Basic Membership
• Justia Lawyer Directory
• Platinum Placements
• Gold Placements
• Justia Elevate
• Justia Amplify
• PPC Management
• Google Business Profile
• Social Media
• Justia Onward Blog

Non-Assignability Contract Clauses (384)

Grouped into 15 collections of similar clauses from business contracts.

• Bankruptcy Lawyers
• Business Lawyers
• Criminal Lawyers
• Employment Lawyers
• Estate Planning Lawyers
• Family Lawyers
• Personal Injury Lawyers
• Estate Planning
• Personal Injury
• Business Formation
• Business Operations
• Intellectual Property
• International Trade
• Real Estate
• Financial Aid
• Course Outlines
• Law Journals
• US Constitution
• Regulations
• Supreme Court
• Circuit Courts
• District Courts
• Dockets & Filings
• State Constitutions
• State Codes
• State Case Law
• Legal Blogs
• Business Forms
• Product Recalls
• Justia Connect Membership
• Justia Premium Placements
• Justia Elevate (SEO, Websites)
• Justia Amplify (PPC, GBP)
• Testimonials

• assignments basic law

Assignments: The Basic Law

The assignment of a right or obligation is a common contractual event under the law and the right to assign (or prohibition against assignments) is found in the majority of agreements, leases and business structural documents created in the United States.

As with many terms commonly used, people are familiar with the term but often are not aware or fully aware of what the terms entail. The concept of assignment of rights and obligations is one of those simple concepts with wide ranging ramifications in the contractual and business context and the law imposes severe restrictions on the validity and effect of assignment in many instances. Clear contractual provisions concerning assignments and rights should be in every document and structure created and this article will outline why such drafting is essential for the creation of appropriate and effective contracts and structures.

The reader should first read the article on Limited Liability Entities in the United States and Contracts since the information in those articles will be assumed in this article.

Basic Definitions and Concepts:

An assignment is the transfer of rights held by one party called the “assignor” to another party called the “assignee.” The legal nature of the assignment and the contractual terms of the agreement between the parties determines some additional rights and liabilities that accompany the assignment. The assignment of rights under a contract usually completely transfers the rights to the assignee to receive the benefits accruing under the contract. Ordinarily, the term assignment is limited to the transfer of rights that are intangible, like contractual rights and rights connected with property. Merchants Service Co. v. Small Claims Court , 35 Cal. 2d 109, 113-114 (Cal. 1950).

An assignment will generally be permitted under the law unless there is an express prohibition against assignment in the underlying contract or lease. Where assignments are permitted, the assignor need not consult the other party to the contract but may merely assign the rights at that time. However, an assignment cannot have any adverse effect on the duties of the other party to the contract, nor can it diminish the chance of the other party receiving complete performance. The assignor normally remains liable unless there is an agreement to the contrary by the other party to the contract.

The effect of a valid assignment is to remove privity between the assignor and the obligor and create privity between the obligor and the assignee. Privity is usually defined as a direct and immediate contractual relationship. See Merchants case above.

Further, for the assignment to be effective in most jurisdictions, it must occur in the present. One does not normally assign a future right; the assignment vests immediate rights and obligations.

No specific language is required to create an assignment so long as the assignor makes clear his/her intent to assign identified contractual rights to the assignee. Since expensive litigation can erupt from ambiguous or vague language, obtaining the correct verbiage is vital. An agreement must manifest the intent to transfer rights and can either be oral or in writing and the rights assigned must be certain.

Note that an assignment of an interest is the transfer of some identifiable property, claim, or right from the assignor to the assignee. The assignment operates to transfer to the assignee all of the rights, title, or interest of the assignor in the thing assigned. A transfer of all rights, title, and interests conveys everything that the assignor owned in the thing assigned and the assignee stands in the shoes of the assignor. Knott v. McDonald’s Corp ., 985 F. Supp. 1222 (N.D. Cal. 1997)

The parties must intend to effectuate an assignment at the time of the transfer, although no particular language or procedure is necessary. As long ago as the case of National Reserve Co. v. Metropolitan Trust Co ., 17 Cal. 2d 827 (Cal. 1941), the court held that in determining what rights or interests pass under an assignment, the intention of the parties as manifested in the instrument is controlling.

The intent of the parties to an assignment is a question of fact to be derived not only from the instrument executed by the parties but also from the surrounding circumstances. When there is no writing to evidence the intention to transfer some identifiable property, claim, or right, it is necessary to scrutinize the surrounding circumstances and parties’ acts to ascertain their intentions. Strosberg v. Brauvin Realty Servs., 295 Ill. App. 3d 17 (Ill. App. Ct. 1st Dist. 1998)

The general rule applicable to assignments of choses in action is that an assignment, unless there is a contract to the contrary, carries with it all securities held by the assignor as collateral to the claim and all rights incidental thereto and vests in the assignee the equitable title to such collateral securities and incidental rights. An unqualified assignment of a contract or chose in action, however, with no indication of the intent of the parties, vests in the assignee the assigned contract or chose and all rights and remedies incidental thereto.

More examples: In Strosberg v. Brauvin Realty Servs ., 295 Ill. App. 3d 17 (Ill. App. Ct. 1st Dist. 1998), the court held that the assignee of a party to a subordination agreement is entitled to the benefits and is subject to the burdens of the agreement. In Florida E. C. R. Co. v. Eno , 99 Fla. 887 (Fla. 1930), the court held that the mere assignment of all sums due in and of itself creates no different or other liability of the owner to the assignee than that which existed from the owner to the assignor.

And note that even though an assignment vests in the assignee all rights, remedies, and contingent benefits which are incidental to the thing assigned, those which are personal to the assignor and for his sole benefit are not assigned. Rasp v. Hidden Valley Lake, Inc ., 519 N.E.2d 153, 158 (Ind. Ct. App. 1988). Thus, if the underlying agreement provides that a service can only be provided to X, X cannot assign that right to Y.

Novation Compared to Assignment:

Although the difference between a novation and an assignment may appear narrow, it is an essential one. “Novation is a act whereby one party transfers all its obligations and benefits under a contract to a third party.” In a novation, a third party successfully substitutes the original party as a party to the contract. “When a contract is novated, the other contracting party must be left in the same position he was in prior to the novation being made.”

A sublease is the transfer when a tenant retains some right of reentry onto the leased premises. However, if the tenant transfers the entire leasehold estate, retaining no right of reentry or other reversionary interest, then the transfer is an assignment. The assignor is normally also removed from liability to the landlord only if the landlord consents or allowed that right in the lease. In a sublease, the original tenant is not released from the obligations of the original lease.

Equitable Assignments:

An equitable assignment is one in which one has a future interest and is not valid at law but valid in a court of equity. In National Bank of Republic v. United Sec. Life Ins. & Trust Co. , 17 App. D.C. 112 (D.C. Cir. 1900), the court held that to constitute an equitable assignment of a chose in action, the following has to occur generally: anything said written or done, in pursuance of an agreement and for valuable consideration, or in consideration of an antecedent debt, to place a chose in action or fund out of the control of the owner, and appropriate it to or in favor of another person, amounts to an equitable assignment. Thus, an agreement, between a debtor and a creditor, that the debt shall be paid out of a specific fund going to the debtor may operate as an equitable assignment.

In Egyptian Navigation Co. v. Baker Invs. Corp. , 2008 U.S. Dist. LEXIS 30804 (S.D.N.Y. Apr. 14, 2008), the court stated that an equitable assignment occurs under English law when an assignor, with an intent to transfer his/her right to a chose in action, informs the assignee about the right so transferred.

An executory agreement or a declaration of trust are also equitable assignments if unenforceable as assignments by a court of law but enforceable by a court of equity exercising sound discretion according to the circumstances of the case. Since California combines courts of equity and courts of law, the same court would hear arguments as to whether an equitable assignment had occurred. Quite often, such relief is granted to avoid fraud or unjust enrichment.

Note that obtaining an assignment through fraudulent means invalidates the assignment. Fraud destroys the validity of everything into which it enters. It vitiates the most solemn contracts, documents, and even judgments. Walker v. Rich , 79 Cal. App. 139 (Cal. App. 1926). If an assignment is made with the fraudulent intent to delay, hinder, and defraud creditors, then it is void as fraudulent in fact. See our article on Transfers to Defraud Creditors .

But note that the motives that prompted an assignor to make the transfer will be considered as immaterial and will constitute no defense to an action by the assignee, if an assignment is considered as valid in all other respects.

Enforceability of Assignments:

Whether a right under a contract is capable of being transferred is determined by the law of the place where the contract was entered into. The validity and effect of an assignment is determined by the law of the place of assignment. The validity of an assignment of a contractual right is governed by the law of the state with the most significant relationship to the assignment and the parties.

In some jurisdictions, the traditional conflict of laws rules governing assignments has been rejected and the law of the place having the most significant contacts with the assignment applies. In Downs v. American Mut. Liability Ins. Co ., 14 N.Y.2d 266 (N.Y. 1964), a wife and her husband separated and the wife obtained a judgment of separation from the husband in New York. The judgment required the husband to pay a certain yearly sum to the wife. The husband assigned 50 percent of his future salary, wages, and earnings to the wife. The agreement authorized the employer to make such payments to the wife.

After the husband moved from New York, the wife learned that he was employed by an employer in Massachusetts. She sent the proper notice and demanded payment under the agreement. The employer refused and the wife brought an action for enforcement. The court observed that Massachusetts did not prohibit assignment of the husband’s wages. Moreover, Massachusetts law was not controlling because New York had the most significant relationship with the assignment. Therefore, the court ruled in favor of the wife.

Therefore, the validity of an assignment is determined by looking to the law of the forum with the most significant relationship to the assignment itself. To determine the applicable law of assignments, the court must look to the law of the state which is most significantly related to the principal issue before it.

Assignment of Contractual Rights:

Generally, the law allows the assignment of a contractual right unless the substitution of rights would materially change the duty of the obligor, materially increase the burden or risk imposed on the obligor by the contract, materially impair the chance of obtaining return performance, or materially reduce the value of the performance to the obligor. Restat 2d of Contracts, § 317(2)(a). This presumes that the underlying agreement is silent on the right to assign.

If the contract specifically precludes assignment, the contractual right is not assignable. Whether a contract is assignable is a matter of contractual intent and one must look to the language used by the parties to discern that intent.

In the absence of an express provision to the contrary, the rights and duties under a bilateral executory contract that does not involve personal skill, trust, or confidence may be assigned without the consent of the other party. But note that an assignment is invalid if it would materially alter the other party’s duties and responsibilities. Once an assignment is effective, the assignee stands in the shoes of the assignor and assumes all of assignor’s rights. Hence, after a valid assignment, the assignor’s right to performance is extinguished, transferred to assignee, and the assignee possesses the same rights, benefits, and remedies assignor once possessed. Robert Lamb Hart Planners & Architects v. Evergreen, Ltd. , 787 F. Supp. 753 (S.D. Ohio 1992).

On the other hand, an assignee’s right against the obligor is subject to “all of the limitations of the assignor’s right, all defenses thereto, and all set-offs and counterclaims which would have been available against the assignor had there been no assignment, provided that these defenses and set-offs are based on facts existing at the time of the assignment.” See Robert Lamb , case, above.

The power of the contract to restrict assignment is broad. Usually, contractual provisions that restrict assignment of the contract without the consent of the obligor are valid and enforceable, even when there is statutory authorization for the assignment. The restriction of the power to assign is often ineffective unless the restriction is expressly and precisely stated. Anti-assignment clauses are effective only if they contain clear, unambiguous language of prohibition. Anti-assignment clauses protect only the obligor and do not affect the transaction between the assignee and assignor.

Usually, a prohibition against the assignment of a contract does not prevent an assignment of the right to receive payments due, unless circumstances indicate the contrary. Moreover, the contracting parties cannot, by a mere non-assignment provision, prevent the effectual alienation of the right to money which becomes due under the contract.

A contract provision prohibiting or restricting an assignment may be waived, or a party may so act as to be estopped from objecting to the assignment, such as by effectively ratifying the assignment. The power to void an assignment made in violation of an anti-assignment clause may be waived either before or after the assignment. See our article on Contracts.

Noncompete Clauses and Assignments:

Of critical import to most buyers of businesses is the ability to ensure that key employees of the business being purchased cannot start a competing company. Some states strictly limit such clauses, some do allow them. California does restrict noncompete clauses, only allowing them under certain circumstances. A common question in those states that do allow them is whether such rights can be assigned to a new party, such as the buyer of the buyer.

A covenant not to compete, also called a non-competitive clause, is a formal agreement prohibiting one party from performing similar work or business within a designated area for a specified amount of time. This type of clause is generally included in contracts between employer and employee and contracts between buyer and seller of a business.

Many workers sign a covenant not to compete as part of the paperwork required for employment. It may be a separate document similar to a non-disclosure agreement, or buried within a number of other clauses in a contract. A covenant not to compete is generally legal and enforceable, although there are some exceptions and restrictions.

Whenever a company recruits skilled employees, it invests a significant amount of time and training. For example, it often takes years before a research chemist or a design engineer develops a workable knowledge of a company’s product line, including trade secrets and highly sensitive information. Once an employee gains this knowledge and experience, however, all sorts of things can happen. The employee could work for the company until retirement, accept a better offer from a competing company or start up his or her own business.

A covenant not to compete may cover a number of potential issues between employers and former employees. Many companies spend years developing a local base of customers or clients. It is important that this customer base not fall into the hands of local competitors. When an employee signs a covenant not to compete, he or she usually agrees not to use insider knowledge of the company’s customer base to disadvantage the company. The covenant not to compete often defines a broad geographical area considered off-limits to former employees, possibly tens or hundreds of miles.

Another area of concern covered by a covenant not to compete is a potential ‘brain drain’. Some high-level former employees may seek to recruit others from the same company to create new competition. Retention of employees, especially those with unique skills or proprietary knowledge, is vital for most companies, so a covenant not to compete may spell out definite restrictions on the hiring or recruiting of employees.

A covenant not to compete may also define a specific amount of time before a former employee can seek employment in a similar field. Many companies offer a substantial severance package to make sure former employees are financially solvent until the terms of the covenant not to compete have been met.

Because the use of a covenant not to compete can be controversial, a handful of states, including California, have largely banned this type of contractual language. The legal enforcement of these agreements falls on individual states, and many have sided with the employee during arbitration or litigation. A covenant not to compete must be reasonable and specific, with defined time periods and coverage areas. If the agreement gives the company too much power over former employees or is ambiguous, state courts may declare it to be overbroad and therefore unenforceable. In such case, the employee would be free to pursue any employment opportunity, including working for a direct competitor or starting up a new company of his or her own.

It has been held that an employee’s covenant not to compete is assignable where one business is transferred to another, that a merger does not constitute an assignment of a covenant not to compete, and that a covenant not to compete is enforceable by a successor to the employer where the assignment does not create an added burden of employment or other disadvantage to the employee. However, in some states such as Hawaii, it has also been held that a covenant not to compete is not assignable and under various statutes for various reasons that such covenants are not enforceable against an employee by a successor to the employer. Hawaii v. Gannett Pac. Corp. , 99 F. Supp. 2d 1241 (D. Haw. 1999)

It is vital to obtain the relevant law of the applicable state before drafting or attempting to enforce assignment rights in this particular area.

Conclusion:

In the current business world of fast changing structures, agreements, employees and projects, the ability to assign rights and obligations is essential to allow flexibility and adjustment to new situations. Conversely, the ability to hold a contracting party into the deal may be essential for the future of a party. Thus, the law of assignments and the restriction on same is a critical aspect of every agreement and every structure. This basic provision is often glanced at by the contracting parties, or scribbled into the deal at the last minute but can easily become the most vital part of the transaction.

As an example, one client of ours came into the office outraged that his co venturer on a sizable exporting agreement, who had excellent connections in Brazil, had elected to pursue another venture instead and assigned the agreement to a party unknown to our client and without the business contacts our client considered vital. When we examined the handwritten agreement our client had drafted in a restaurant in Sao Paolo, we discovered there was no restriction on assignment whatsoever…our client had not even considered that right when drafting the agreement after a full day of work.

One choses who one does business with carefully…to ensure that one’s choice remains the party on the other side of the contract, one must master the ability to negotiate proper assignment provisions.

Founded in 1939, our law firm combines the ability to represent clients in domestic or international matters with the personal interaction with clients that is traditional to a long established law firm.

Read more about our firm

© 2024, Stimmel, Stimmel & Roeser, All rights reserved  | Terms of Use | Site by Bay Design

El Paso county judge dismisses border 'riot' charges against 140 migrants

A county court judge dismissed 140 cases against migrants charged in an April 12 "riot" at the U.S.-Mexico border after determining there was no probable cause for their arrests.

County Court at Law 7 Judge Ruben Morales dismissed the 140 cases during a hearing Monday, April 22, after ruling Texas Department of Public Safety state troopers failed to provide probable cause for the mass arrest. 

"After reviewing the affidavit, I don't believe that (probable cause) exists," Morales said during the hearing. "I don't believe there is probable cause for these individuals to continue to be detained for the offense of riot participation."

The migrants will now be released from state custody. However, all 140 migrants are still facing federal charges of illegal entry into the U.S. and will be turned over to federal custody.

The dismissal does not mean the migrants can't be charged with riot participation later. The El Paso District Attorney's Office can still indict them on those charges.

El Paso District Attorney's Office officials could not immediately be reached for comment.

"This is one step," El Paso County Public Defender Kelli Childress said after the hearing. "Can the DA go back and indict them now? Sure, but I would hope they would have the integrity to explain to a Grand Jury what probable cause means and the fact that the judge found there was none."

More: Migrants breach razor wire barrier in El Paso, overwhelm Texas National Guard

Two other cases related to the April 12 encounter between migrants and Gov. Greg Abbott's Operation Lone Star forces were not dismissed because one of the suspects is already in federal custody and the other is charged with criminal mischief, not riot participation. 

The alleged "riot" happened April 12 at the U.S.-Mexico near Riverside High School in El Paso's Lower Valley.

Childress argued during the Monday hearing that Texas Department of Public Safety troopers had no probable cause when they made a mass arrest of a large group of migrants on riot participation charges. 

"This is nothing more than an attempt to arrest and harass," Childress said during the hearing.

El Paso District Attorney's Office Assistant District Attorney Jennifer Vandenbosch countered the migrants knew when they crossed the border illegally that they were participating in a riot.

"Why were they camping and waiting for someone to cut the concertina wire?" Vandenbosch said during the hearing.

Vandenbosch declined to comment after the hearing.

Public defender calls allegations hearsay with no real evidence

Affidavits filed by DPS state troopers were the main focus of Monday's hearing stemming from the arrest of 142 migrants on riot participation charges.

The criminal affidavits against each migrant are the same, with only the defendant's names changed, Childress said.

"The affidavit for almost all of (the migrants) are identical," Childress said. "DPS agents in the affidavit use boiler plate language."

She argued the basis of the allegations against the migrants is hearsay, with the affidavits failing to identify anyone who saw the migrants participate in the riot.

"No evidence of who in the National Guard witnessed the crime," Childress said. "These affidavits are nothing more than hearsay. We have nothing that points to these (migrants) participating in a riot."

State prosecutor: Migrants' bum' rushed Texas forces

Vandenbosch argued the affidavits provided enough probable cause to show the migrants participated in the rioting.

The evidence in the affidavit includes the migrants breaching the concertina wire and "bum rushing" National Guard troops, state troopers and Border Patrol, Vandenbosch said.

"They all followed," Vandenbosch said. "When you come in force with a large group you are participating in a riot."

Judge questions whether affidavit shows riot participation 

Vandenbosch repeatedly said during the hearing that the migrants broke the law when they crossed the border illegally.

Judge Morales reminded Vandenbosch several times that the charge the migrants are facing in state court is riot participation, not illegal entry into the U.S.

Vandenbosch argued that the act of illegally crossing the border in a large group showed the migrants participated in the riot.

She added that whether the migrants were at the front or at the back of the large crowd did not matter since they still participated.

Childress ended her argument by stating state prosecutors "clearly had no evidence whatsoever."

Morales then recessed the hearing before he made the decision on probable cause.

All 142 migrants remain on U.S. Immigration and Customs Enforcement holds on the immigration charges.

No trial dates have been set on the federal charges.

Migrants, National Guard continue to face off at border fence

This is at least the second mass arrest incident at the border fence in El Paso.

On March 21, a "riot" occurred about 10:45 a.m. at Gate 36 of the border fence in El Paso's Lower Valley, about eight miles from Downtown El Paso.

A group of migrants allegedly cut down the concertina wire placed on the border by National Guard troops and rushed the troops, state troopers and U.S Border Patrol agents.

Two Texas National Guard troops were injured in the incident, court documents state.

In the end, 682 migrants were detained for illegally crossing the border during the confrontation with National Guard troops. 

DPS troopers arrested 214 migrants on state misdemeanor "riot participation" charges. Another nine migrants are facing felony state charges of rioting due to their actions allegedly resulting in two National Guard troops being injured in the altercation.

Aaron Martinez may be reached at [email protected] or on Twitter @AMartinezEPT.

Supreme Court seems skeptical of Trump’s claim of absolute immunity, but decision’s timing is unclear

WASHINGTON (AP) — The Supreme Court seems highly skeptical of former President Donald Trump’s claim of absolute immunity from prosecution, but it’s less clear that the justices are headed for a quick resolution.

Chief Justice John Roberts was among at least five members of the court Thursday who appeared likely to reject the claim of absolute immunity that would stop special counsel Jack Smith’s prosecution of Trump on charges he conspired to overturn his 2020 election loss to Democrat Joe Biden.

Arguments were in their second hour by late morning.

The timing of the Supreme Court’s decision could be as important as the outcome. Trump, the presumptive 2024 Republican presidential nominee, has been pushing to delay the trial until after the November election, and the later the justices issue their decision, the more likely he is to succeed.

Justices Neil Gorsuch and Brett Kavanaugh, two of Trump’s three high court appointees, suggested that former presidents might have some immunity and that in this case, lower courts might have to sort out whether that applied to Trump. That could further delay a trial.

Justice Amy Coney Barrett, the other Trump appointee, seemed less open to arguments advanced by Trump lawyer D. John Sauer.

Smith’s team is asking for a speedy resolution. The court typically issues its last opinions by the end of June, about four months before the election.

Trump, the first former president charged with crimes, had said he wanted to be at the Supreme Court on Thursday. Instead, he was in a courtroom in New York, where he is  standing trial  on charges that he falsified business records to keep damaging information from voters when he directed hush money payments to a former porn star to keep quiet her claims that they had a sexual encounter.

Trump’s lawyers argue that former presidents are entitled to  absolute immunity  for their official acts. Otherwise, they say, politically motivated prosecutions of former occupants of the Oval Office would become routine and presidents couldn’t function as the commander in chief if they had to worry about criminal charges.

Lower courts have rejected those arguments, including a unanimous three-judge panel on an appeals court in Washington, D.C.

The  election interference conspiracy case  brought by Smith in Washington is just one of four criminal cases confronting Trump.

Smith’s team says the men who wrote Constitution never intended for presidents to be above the law and that, in any event, the acts Trump is charged with — including participating in a scheme to enlist  fake electors in battleground states  won by Biden — aren’t in any way part of a president’s official duties.

Nearly four years ago, all nine justices rejected Trump’s claim of absolute immunity from a district attorney’s subpoena for his financial records. That case played out during Trump’s presidency and involved a criminal investigation, but no charges.

Justice Clarence Thomas, who would have prevented the enforcement of the subpoena because of Trump’s responsibilities as president, still rejected Trump’s claim of absolute immunity and pointed to the text of the Constitution and how it was understood by the people who ratified it.

“The text of the Constitution … does not afford the President absolute immunity,” Thomas wrote in 2020.

The lack of apparent support on the court for the sort of blanket immunity Trump seeks has caused commentators to speculate about why the court has taken up the case in the first place.

Phillip Bobbitt, a constitutional scholar at Columbia University’s law school, said he worries about the delay, but sees value in a decision that amounts to “a definitive expression by the Supreme Court that we are a government of laws and not of men.”

The court also may be more concerned with how its decision could affect future presidencies, Harvard law school professor Jack Goldsmith wrote on the Lawfare blog.

But Kermit Roosevelt, a law professor at the University of Pennsylvania, said the court never should have taken the case because an ideologically diverse panel of the federal appeals court in Washington adequately addressed the issues.

“If it was going to take the case, it should have proceeded faster, because now, it will most likely prevent the trial from being completed before the election,” Roosevelt said. “Even Richard Nixon said that the American people deserve to know whether their president is a crook. The Supreme Court seems to disagree.”

The court has several options for deciding the case. The justices could reject Trump’s arguments and unfreeze the case so that U.S. District Judge Tanya Chutkan can resume trial preparations, which she has indicated may last up to three months.

The court could end Smith’s prosecution by declaring for the first time that former presidents may not be prosecuted for official acts they took while in office.

It also might spell out when former presidents are shielded for prosecution and either declare that Trump’s alleged conduct easily crossed the line or return the case to Chutkan so that she can decide whether Trump should have to stand trial.

Follow the AP’s coverage of the U.S. Supreme Court at  https://apnews.com/hub/us-supreme-court .

Copyright 2024 The Associated Press. All rights reserved.

Police chief among 10 arrested in Horry County prostitution sting

Police give ‘all clear’ after bomb threat, evacuation at Carolina Forest High School

Breeze Airways announces new routes at Myrtle Beach International Airport

Darlington County deputies find woman dead in car with gunshot wounds; 1 arrested

12 arrested in Myrtle Beach, Horry County police operation

Latest news.

Wedding venue closes abruptly, leaving couples scrambling

New York prosecutors in Trump’s hush money trial say former president continues to violate gag order

Carolina Forest High School receives another bomb threat, police investigating

Myrtle Beach firefighters fly into action to save 12 ducklings