assignment by operation of law meaning

Corporations
Definitions

Operation of Law (Best Overview: Definition And Examples)

What is operation of law ?

How do you define operation of law?

Can the law create rights or obligations automatically and by default?

In this article, we will break down the notion of “ operation of law ” so you know all there is to know about it.

We will look at the operation of law definition , how it works , how the law can operate a termination of rights, assignment or transfer , we’ll look at an agency by operation of law example , operation of law in real estate and more.

Be sure to read this entire post as we have amazing content for you!

We are super excited to start!

Are you ready?

Let’s do this!

Table of Contents

Operation of law definition

According to Cornell Law School’s Legal Information Institute, operation of law is defined as:

A way in which someone gets certain rights (or sometimes responsibilities) automatically under the law without taking action, requiring cooperation from another person, or being the subject of a court order. Author

What is notable with this definition is that certain “ rights ” or “ responsibilities ” will apply to a situation by default or automatically by applying the legal regime or statute.

What does operation of law mean

Operation of law or by operation of law means that a person’s rights and obligations are created by the application of the law, statute or regulation regardless of the person’s desire or intention.

In other words, a person may acquire certain rights or become liable for certain obligations through the application of legal rules without consideration of his or her intention .

The law can grant rights, impose restrictions or prohibitions on a person by operation of law or determine what a person can or cannot do.

For example:

If two people own a property as joint tenants with right of survivorship, in the event one dies, the other will acquire full title to the property by operation of law Author

In this example, the law operates a transfer of title of the property by the application of the joint tenancy rules.

Agency by operation of law

The rights, responsibilities and obligations of parties to an agency contract may be affected by the operation of law.

For instance, termination of agency by operation of law occurs when:

The parties expressly provide for termination by operation of law
For defined cause
The agent’s performance is partially or fully executed

In a contract of agency , the principal does not have an obligation to remain in the contract and can terminate the agency by giving reasonable notice to the agent at any time.

This termination right is granted to the principal by ‘operation of law’.

Assignment by operation of law

Assignment by operation of law is when certain rights are assigned to another.

Title to a patent can be assigned in a financial transaction such as a merger or as a result of operation of law in the event of bankruptcy Author

Termination by operation of law

In contract law , a contract may be terminated by operation of law.

In the following situations, a contract may be terminated without consideration of the intention of the parties:

An offer may become null and void if the person dies
A contract may be terminated (or voided) if it was formed based on fraudulent acts
A contract may be terminated if a person did not have the capacity to sign
A contract may be deemed unenforceable and voided in full by operation of law

Discharge by operation of law

Discharge by operation of the law is when a person is freed or liberated from certain obligations by operation of law.

When a person goes bankrupt, the person’s debts are discharged. This means that the person is no longer legally bound to make any payments to his or her creditors. Author

Reset by operation of law

Reset by operation of law is when a court resets the case for a legal reason that it has identified.

When a case is reset, it means that the litigants will need to start the case from the beginning.

Typically, a case is reset by a judge exercising its judicial powers .

Power of attorney operation of law

In a power of attorney, the person appointing an attorney can define that by operation of law, the power of attorney may lapse or not .

KNOW ALL PERSONS BY THESE PRESENTS that the undersigned hereby appoint John Doe as my attorney-in-fact. My attorney-in-fact shall have the power to act hereunder. The duration of such powers shall not be affected by the lapse of time, and all such powers shall remain in effect until express revocation of the present power of attorney, the execution of these same powers to any other individual, or expiration by operation of law. Author

Transfer by operation of law

What’s common is the transfer of property by operation of law.

In other words, by applying certain laws, statutes or rules, an asset will be transferred or titled conveyed by operation of law.

The common example is with respect to the following ownership rights :

Joint tenants with right of survivorship
Joint tenants in common
Intestate death

If two people own a property together as joint tenants with right of survivorship , in the event of the death of one, the survivor becomes the full owner of the property.

In this case, the title to the property is transferred by operation of law.

Similarly, if a property is held by two people as tenants in common , in the event one dies, the deceased share in the property will be transferred to his or her estate.

In a case when a person dies without a will ( intestate death ), the law will determine the heirs and have the person’s assets transferred to those heirs.

Operation of law real estate

A typical example of how the operation of law works in real estate is with regard to the doctrine of adverse possession .

A non-owner of a property , by “operation of law”, may get title to land, property or real estate as he or she has been occupying the same for a certain period of time .

The rights granted to a non-owner of a property are granted regardless of the intention of the property owner or the non-owner.

Operation of law clause

The parties to a contract can include an operation of law clause where they define certain events to trigger certain legal consequences without the need of a party to act in any way.

“Operation of law” means the assignment of Party A’s assets by the court order in the context of a merger. Author

Operation of law examples

There are many examples where, by operation of law, a person acquires certain rights or obligations.

Here are examples of how a person may be impacted by the operation of the law:

If a person passes away without a will, the heirs will be determined by the operation of law
A person’s assets may be transferred upon death to his or her heirs without a will through the operation of law
The title of land can pass to a non-owner by operation of law through adverse possession
The title to a property or asset held by joint tenants with right of survivorship will be transferred to the survivor in the event one dies by operation of law
An easement by prescription rights occurs by operation of law
When a party fails to pursue a complaint will lead to its dismissal by operation of law
The assets of a bankrupt person or entity will be transferred to the trustee or bankruptcy estate by operation of law through the application of the bankruptcy laws
When a child turns 18 , by operation of law the guardianship ends
Operation of law discharge happens when a person’s debt is discharged by filing for bankruptcy
Operation of law agency occurs when the law creates a principal and agent relationship not because of an agreement but by application of the law

Operation of law FAQ

What does operation of law mean?

The operation of law legal definition is when a person acquires legal rights or obligations automatically through the application of the law.

A contract may be void by operation of law if the person did not have the capacity to sign. In this example, for a contract to be legally formed in compliance with contract laws, you must strictly observe the contract formation elements which include capacity. Without capacity, by operation of law, the contract is void. Author

What does assignment by operation of law mean?

Assignment by operation of law means when certain rights, property or assets are assigned or transferred to another legally without the need of the property owner to act in any way.

In the event of bankruptcy, the assets of the bankrupt are assigned to the bankruptcy trustee by operation of law Author

In the event of a person’s death without a will, the assets of a person are assigned, by operation of law, to the heirs designated by law Author

Can a corporation be created by operation of law?

A de facto corporation or de jure corporation is an enterprise recognized by operation of law although it did not comply with every aspect of the law in regards to its formation.

The law creates a corporation or enterprise by operation of law to provide some protection against third parties.

Articles Recommended For You!

If you enjoyed this article on “operation of law”, we recommend you check out our articles on the following topics that you may also enjoy:

Business and law blog - Incorporated.Zone

Legal Definition

Sandbagging meaning (explained: all you need to know), corporation vs incorporation (differences: all you need to know), b2b meaning in business (explained: all you need to know), most popular, what is a special purpose entity (all you need to know), what is corporate raiding (explained: all you need to know), what are golden shares (explained: all you need to know), what is a targeted repurchase (explained: all you need to know), what is a friendly takeover (explained: all you need to know), editor's picks, what does it mean when a company goes public (overview), what does as per mean (explained: all you need to know), no strings attached meaning in business (all you need to know), capital outlay (definition, examples and why it’s important), articles of incorporation by state (guide: all you need to know).

138. Assignment by operation of law.

The rights and liabilities 1 of either party to a contract may in certain circumstances be assigned by operation of law, as, for example, when a party

To view this document in full, take a free 7 day trial of LexisNexis and benefit from:

Access to 20 million legal documents from over 1,600 Sources as part of our archive
The ability to download court judgments within 30 minutes of their release
New enactments available within 24 hours of publication on legislation.gov.uk
Exclusive Sources to LexisNexis include; Halsbury’s Laws, Atkin’s Court Forms, Encyclopedia of Forms and Precedents and the All England Law Reports

** Trials are provided to all LexisNexis products and content, excluding Practice Compliance, Practice Management and Risk and Compliance, subscription packages are tailored to your specific needs. To discuss trialling these LexisNexis services please email customer service via our online form. Free trials are only available to individuals based in the UK, Ireland and selected UK overseas territories and Caribbean countries. We may terminate this trial at any time or decide not to give a trial, for any reason. Trial includes one question to LexisAsk during the length of the trial.

To view the latest version of this document and millions of others like it, sign-in to LexisNexis or register for a free trial.

EXISTING USER? SIGN IN CONTINUE READING

HELP & SUPPORT

Legal Help and Support
Tolley Tax Help and Support

LEGAL SOLUTIONS

Compliance and Risk
Forms and Documents
Legal Drafting
Legal Research
Magazines and Journals
News and Media Analysis
Practice Management
Privacy Policy
Cookie Settings
Terms & Conditions
Data Protection Inquiry
Protecting Human Rights: Our Modern Slavery Agreement

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

Budget 2024: capital gains inclusion rate to increase, first reading of bill 185 and the draft 2024 provincial planning statement, ontario releases a revised draft provincial planning statement.

Do Change of Control Transactions Constitute an Assignment by Operation of Law?

Commercial landlords often rely on anti-assignment provisions to restrict the ability of tenants to assign their interest in a lease to a third party. Such provisions often restrict assignments by “operation of law,” which are generally considered involuntary assignments mandated via a court order. Commercial landlords may assume that a change of control transaction violates a basic anti–assignment clause. Landlords wishing to restrict change of control of a tenant entity, however, should have clear anti-assignment provisions in their leases that expressly restrict such transactions and characterize such “changes of control” as assignments.

A change of control is a significant change in the equity, ownership, or management of a business entity. This can occur through a merger, consolidation or acquisition.

The general rule is that change of control of a corporate entity is not an assignment by operation of law, and therefore does not violate a basic anti-assignment provision. Courts have reasoned that a landlord entering into a lease with a corporate tenant should be aware that a corporation, or limited liability company, is an entity which exists separate and apart from its ownership, and that a change in ownership of the corporate entity does not change the tenant entity under the lease.

Courts in many states including Florida, New York and Delaware have held that a change of control is not an assignment by operation of law. In Sears Termite & Pest Control, Inc. v. Arnold , a Florida court held, “[t]he fact that there is a change in the ownership of corporate stock does not affect the corporation’s existence or its contract rights, or liabilities.” Further, in Meso Scale Diagnostics LLC v. Roche Diagnostics GMBH , a Delaware court ruled, “[g]enerally mergers do not result in an assignment by operation of law of assets that began as property of the surviving entity and continued to be such after the merger.”

Importantly, the rule is different if the tenant entity does not survive the transaction. In MTA Canada Royalty Corp. v. Compania Minera Pangea , a Delaware Superior Court held that a merger in which the contracting entity does not survive may be held to be an assignment by operation of law.

If a landlord intends for a change of control of a tenant to violate the anti-assignment clause in its lease, the landlord should ensure that its lease expressly states that a change of control constitutes an assignment.

Latest Posts

Will Recorded Covenants Hold and Remain Binding on Successors in Title to Real Property? A Pivotal Certified Question Heads to the Florida Supreme Court
Protect Your Property: Register for Florida’s Title Fraud Alert Service
New Law Further Reduces Florida’s Sales Tax Rate on Commercial Rent
Orange County's AMI Jumps to $90,400 in 2024: What It Means for Affordable Housing
Protecting Elderly Loved Ones: The Role of Guardianship Practices

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

Refine your interests »

Written by:

Published In:

Lowndes on:.

"My best business intelligence, in one easy email…"

operation of law

Primary tabs.

A way in which someone gets certain rights (or sometimes responsibilities) automatically under the law without taking action, requiring cooperation from another person, or being the subject of a court order . This situation usually arises from the happening of an event, such as a death, that triggers a change in human affairs as created by functions of the law. Some examples of such actions by operation of law include a joint tenancy where any surviving joint tenants get title to the jointly owned property automatically when one joint tenant dies; asset transfers when someone dies without a will and that person's legal heirs automatically inherit property from their estate ; or the transfer of property from the debtor to a bankruptcy estate pursuant to the Bankruptcy Code . Just as the death in the first two examples automatically triggers the transfer of property title or assets, in the third example the mere commencement of the bankruptcy case triggers the transfer without the need for any transfer-related activity by the debtor.

Operation of law can also describe what a person can or cannot do, or what rights or interests a person has. For example, a prohibition created by statute , a business license granted by an agency , or a property rights determined by the judicial interpretation of a will. In each case, the outcome or effect is created by operation of law.

[Last updated in August of 2020 by the Wex Definitions Team ]

property & real estate law
THE LEGAL PROCESS
wex definitions

What Does Operation of Law Mean: Everything You Need to Know

What does operation of law mean is a common question among those unfamiliar with how assets are passed from one party to another through legal means. 4 min read updated on February 01, 2023

What does operation of law mean is a common question among those unfamiliar with how assets are passed from one party to another through legal means. Essentially, all contracts operate as legally binding agreements. This means that by law, the parties must abide by the contract or else they will be in breach. Such asset transfers include the following types of legal documents:

Wills and estates
Business contracts
Real estate contracts

Transfer Through Operation of Law

When wanting to transfer assets that are owned by two or more owners, there are certain requirements, depending on the law in the particular state you live in. Some examples of this type of ownership include:

Joint Tenants with Right of Survivorship
Joint Tenants in Common
Intestate Death

Joint Tenants with Right of Survivorship involve the ownership over real estate by two or more people. If John and Rose own a home equally, and want to operate the asset as joint tenants with Right of Survivorship, then when either John or Rose die, the other will take 100% ownership over the property.

If John and Rose own the property as Joint Tenants in Common, they each own the home with 50% interest. If Rose dies, then her 50% interest will be passed onto her estate and not John.

Intestate death refers to dying without a will. For example, let’s assume that John and Rose are married. If Rose dies intestate, her assets will pass on to John, her husband. However, some states provide that when Rose dies intestate, only a portion will go to her husband. The remaining assets might go to their children, Rose’s siblings, or other family members depending on the state laws.

Contract Termination Through Operation of Law

Contracts can be terminated in a number of ways, including a termination by either party or through operation of law . Such examples of when the contract might be terminated include the following:

If the person making or receiving the offer dies or becomes incapacitated
Illegalities, i.e., illegal or fraudulent acts identified in the contract itself
Contracts that might be deemed unenforceable, i.e., lack of legal capacity, etc.
Subject matter that is otherwise destroyed

If either party dies or becomes incapacitated after signing the contract but before performance occurs, the contract will automatically terminate. Similarly, if the contract is deemed unenforceable, it will be void altogether. This might occur if the parties didn’t abide by all elements required when entering into the contract. Such elements include an offer, acceptance, consideration, mutual assent, and legal capacity . Therefore, if the parties are not legally capable of entering into a contract, the contract might be unenforceable. Examples of legal incapacity include if the parties are under the age of 18, mentally incompetent, or under the influence of drugs or alcohol.

Furthermore, if the parties can’t prove consideration, the contract will be void and unenforceable . Mutual assent must occur between the parties. If one of the parties was forced, threatened or coerced in any way, then the contract will be unenforceable.

If the subject matter itself is destroyed, the contract will be automatically terminated. For example, let’s assume that John and Rose entered into a contract to sell John’s car to Rose for $500. After they signed the contract, but before they performed under the agreement, John’s car was destroyed by a fire. This means that the contract is automatically terminated, since at no fault of either party, the car was destroyed.

Termination of Principal/Agent Contract

Any contract entered into between a principal and agent might be terminated if one of the following circumstances arises:

Partial performance under the agreement
Express contract permitting termination

If the agent only partially performs his duties under the agreement, the principal can terminate the contract for future performance.

If the principal/agent contract is entered into for a specific duration, and the principal has a valid reason, he can revoke the agreement before the expiration date on the contract. If the contract isn’t for a fixed term, but rather continuous with no end date, the principal can terminate the agreement with reasonable notice for any reason. This means that the principal doesn’t have to continue the principal/agent relationship if he chooses to end it. But he must give the agent reasonable notice of such termination. Lastly, if the agent has some sort of interest in the subject matter of the agreement, the contract can be revoked only if there is an express provision in the contract allowing termination.

If you need help learning more about the operation of law, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law, and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

Hire the top business lawyers and save up to 60% on legal fees

Content Approved by UpCounsel

Contract Cancellation
Contract Termination Terms
Contracts 101
Null and Void Contract
How to Void a Contract Legally: Everything you Need to Know
Understanding Contract Law
Termination of Contract by Mutual Consent
Contract Rescission Letter
Requirements of a Contract
Terminate Contract

“By Operation of Law” (Including Draft No-Assignment Language)

30 September 2021 23 June 2011 | Ken Adams

In Meso Scale Diagnostics, LLC v. Roche Diagnostics GMBH (go here for a PDF copy), the Delaware Court of Chancery held that it’s not clear whether for purposes of a no-assignment provision a reverse triangular merger constitutes an assignment “by operation of law.” (A reverse triangular merger is when Sub merges into Target.)

I’m not going to go into any detail regarding the case, as that information is readily available elsewhere. (Plucking a couple of examples at random, go here for Milbank’s analysis and go here for Shearman & Sterling’s analysis.)

Transfers by operation of law are generally considered involuntary transfers. They include court-ordered property transfers, bankruptcy-related transfers, and transfers to or from an executor or an administrator. Whether mergers and consolidations are transfers by operation of law is an open question. The cases reach inconsistent results.

That suggests that if you use the phrase by operation of law , you run the risk of getting into a fight over exactly what it means. And the Meso Scale Diagnostics case provides a great example of exactly that.

So what should you do instead? Koncision’s confidentiality-agreement template uses a bare-bones no-assignment provision that doesn’t get into by-operation-of-law territory, so here’s a more detailed version that I’ve just come up with:

Without the prior written consent of the other party, neither party may voluntarily or by court order (1) assign any of its rights under this agreement, whether by contract or by merger (whether that party is the surviving or disappearing entity), consolidation, dissolution, or otherwise, or (2) delegate any of its obligations under this agreement or its performance in satisfaction of any conditions to any obligations of the other party under this agreement. Any assignment or delegation in breach of this section X will be void.

Some observations:

I’m aware it doesn’t read very easily.
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.
I think it’s helpful to distinguish the issue of volition (voluntary or or by court order) from the mechanism of assignment (by contract or something else).
I suggest that “by court order” is what’s left if you eliminate mergers, consolidations, and dissolution from by operation of law .
The reference to “the surviving or disappearing entity” covers both direct mergers, triangular mergers, and reverse triangular mergers.
Don’t simply prohibit assigning the entire contract—a court might construe that as prohibiting just delegation of duties.
The reference to “performance in satisfaction of any conditions” acknowledges that if you promise to pay me $50 if I mow your lawn, I might want to delegate the task of mowing your lawn to someone else. If I do so, I’m not delegating an obligation, I’m delegating performance aimed at satisfying a condition. I got this idea from Negotiating and Drafting Contract Boilerplate , but I’ve chosen to articulate it differently.
Saying that any assignment or delegation in breach will be void might be enough by itself. But including a prohibition too would provide a remedy if the other party nevertheless tries to assign or delegate, thereby causing you to incur legal fees.
Saying that a court-ordered assignment will be void won’t work if the law overrides any restriction on assignment. See this August 2006 post on AdamsDrafting on how that plays out in bankruptcy.
If you’re worried about a change of control, you might want to handle that by means of an event-of-default provision rather than a no-assignment provision: it’s a bit of a stretch to consider a change in Acme’s ownership as constituting assignment by Acme of its rights under a contract.

But once you have your broad no-assignment wording, you have to determine whether for a given transaction you need the full monty , something less, nothing at all, or a provision authorizing assignment. I won’t get into that 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.

9 thoughts on ““By Operation of Law” (Including Draft No-Assignment Language)”

Ken, thanks for the mention of the book. Language involving “by operation of law”, seems a bit specialist for a confidentiality agreement. As to what it means, I think it is a sweep-up that may cover oddities, eg:

– contracts with an individual that may continue when he dies, eg copyright licence agreements? – contracts that become contracts with a new entity by virtue of a law.

In the latter category, I can cite my former client Royal Free Hospital School of Medicine, which was dissolved and whose assets transferred to University College London under the University College London Act 1996 (see section 5 which deals with automatic transfer of property without any assignment). See http://www.legislation.gov.uk/ukla/1996/3/contents/enacted

To tee up a potential Plan B, counsel for a non-assigning party might ask for a termination right — if the other party engages in a merger that the non-assigning party doesn’t like, and the merger would not be considered an “assignment” under applicable law, then the non-assigning party can terminate the agreement.[1] [2]

[1] Of course, the consequences of termination would have to be thought through and suitably addressed.

[2] I’ve never been 100% comfortable with the concept of terminating the Agreement. My late partner and mentor Tom Arnold was of the school of thought that contracts per se are historical facts and can never be terminated – only specific rights and duties can be terminated.

I have some nitpicks.

The Texas statute on the effect of a merger (section 10.008 at http://www.statutes.legis.state.tx.us/Docs/BO/pdf/BO.10.pdf ) specifically says that a merger vests rights in property in the successor organization without any assignment or transfer having occurred. Someone who knows this law better than me might be able to comment on whether that would include, for example, a lease to either real property or capital equipment. If you nonetheless want to prohibit the lease vesting int he successor, i think your language will have to use a word other than “assign.”

Along the same lines, the statute makes the successor entity be the primary obligor without calling it a delegation, so the non-delegation language might not be effective. The statute does allow a contract to specify additional obligors.

The two points above are important mainly because Texas law allows a merger to have multiple surviving or new entities result from the merger. So, your valuable lease might end up being held by a much less creditworthy entity. I don’t have a solution for this problem that would be generally applicable. I think instead, the drafter will have to look towards protections elsewhere, like warranties that the lessee would breach by becoming less creditworthy or a termination right that kicks in on any organic event.

You might want to change “court order” to “government action” to handle situations where regulatory bodies take control of a company (e.g. banks, insurers) and also have statutory, quasi-judicial power to transfer obligations to successors.

Finally, your construction of “neither party may” seems to run afoul of the guidance in MSCD 2.150. But the meaning of “may” in the construction remains consistent with MCSD and the alternative construction — each party shall not — is a clunky here, so I see why you chose the alternative.

Chris: Hmm. Regarding your first two points, I’ll have to put on my thinking cap. I might take a while to respond.

Yes, I will change “court order” to something that refers to “Government Body” or some such. I did something similar for purposes of Koncision’s confidentiality-agreement template.

I periodically fall foul of my own guidelines, and I’m delighted when people point that out. But regarding “neither party may,” have a look at MSCD 2.152.

“By operation of law” could also cover death, if one of the parties is an individual. I doubt it would be any more effective than trying to prohibit assignment by court order. There are, of course, ways of addressing the effect of death directly, if it’s a real issue.

Pingback: Koncision » Rethinking the “No Assignment” Provision

One senior lawyer advised me a one-sided transfer of shares from A to B under “operation of law” without any transfer deed or court order. He explained the following: 1. A breached the shareholders agreement. The agreement said that in case any shareholder breaches, his shares will be bought by other shareholders. 2. Since the agreement was breached, hence the shares were transferred to other shareholders under “operation of law”. 3. Since it came under operation of law, hence the transfer of shares became “transmission of shares” which needs no court order or transfer deed. I was shocked to listen this approach. Can you comment.

so does permanent disability fall under operation of the law and therefore Transmission applies?

Your page is very useful for us mortals to understand some technical language. I am grateful indeed.

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]

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 .

Canada: Anti-Assignment Provisions And Assignments By 'Operation Of Law': What Do I Have To Do? What Should I Do?

Introduction

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 provisionsare 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 , 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:

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.

Assignments by Operation of Law

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.

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

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.

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 .

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Login to Mondaq.com

Password Passwords are Case Sensitive

Forgot your password?

Why Register with Mondaq

Free, unlimited access to more than half a million articles (one-article limit removed) from the diverse perspectives of 5,000 leading law, accountancy and advisory firms

Articles tailored to your interests and optional alerts about important changes

Receive priority invitations to relevant webinars and events

You’ll only need to do it once, and readership information is just for authors and is never sold to third parties.

Your Organisation

We need this to enable us to match you with other users from the same organisation. It is also part of the information that we share to our content providers ("Contributors") who contribute Content for free for your use.

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

Assignments Contract Clauses (8,849)

Grouped into 236 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

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

operation of law

An automatic process under law leading to rights or responsibilities, without requiring personal action or a court order
Upon his friend's death, he became the sole owner of their shared boat due to operation of law.
By operation of law, the daughter inherited her father's property because he died without a will.
Due to operation of law, the business was equally split between the surviving partners after the death of a co-founder.
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.

op er a tion of law

Legal definition of operation of law, dictionary entries near operation of law.

operational

operation of law

Cite this Entry

“Operation of law.” Merriam-Webster.com Legal Dictionary , Merriam-Webster, https://www.merriam-webster.com/legal/operation%20of%20law. Accessed 20 Apr. 2024.

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!

Play Quordle: Guess all four words in a limited number of tries. Each of your guesses must be a real 5-letter word.

Can you solve 4 words at once?

Word of the day.

See Definitions and Examples »

Get Word of the Day daily email!

Popular in Grammar & Usage

Your vs. you're: how to use them correctly, every letter is silent, sometimes: a-z list of examples, more commonly mispronounced words, how to use em dashes (—), en dashes (–) , and hyphens (-), absent letters that are heard anyway, popular in wordplay, the words of the week - apr. 19, 10 words from taylor swift songs (merriam's version), a great big list of bread words, 10 scrabble words without any vowels, 12 more bird names that sound like insults (and sometimes are), games & quizzes.

Play Blossom: Solve today's spelling word game by finding as many words as you can using just 7 letters. Longer words score more points.

What is an Assignment Clause?

Jennifer Tsai • January 12, 2023 • 8 minute read

Why Do Assignment Clauses Matter?

How do you review assignment clauses in contracts.

After locating all the assignment language in each agreement, the following variables should be noted as part of the review: (1) Scope of assignment provision, (2) Consequences of failure to obtain consent, (3) Standard for refusing consent, and (4) Differences among counterparties in rights to assign.

1. Scope. Assignment provisions may provide exclusions or inclusions to a counterparty’s right to approve an assignment of a contract. See the examples in the following section below.

2. Consequences of Failure to Obtain Consent. Assignment provisions may specify that, if one party attempts to assign the agreement without the required consent of the counterparty:

The purported assignment is null and void; and/or
The applicable contract is void and terminated.

Contracts should be carefully reviewed to determine which of the foregoing scenarios may apply.

3. Standard for Refusing Consent. Assignment provisions frequently include limitations stating that any counterparty’s consent that is required shall not be “unreasonably withheld,” although the reasonableness standard is rarely defined more specifically in the contract.

In an M&A context, the effect of this language is that it provides a target company with some opportunity to challenge a counterparty that withholds its consent to an assignment. Winning this challenge is far from guaranteed, and this opportunity generally comes at a cost of time and expense since it usually involves a legal challenge to the counterparty’s refusal to grant a consent. Consequently, a target company is incentivized to undertake this challenge only when the applicable contract is material to its post-acquisition business or to the consummation of its proposed transaction. Still, undertaking such a challenge may buy the target company time and provide it with some negotiating leverage in seeking a reversal of a counterparty’s refusal to consent to an assignment.

Determining whether consent has been unreasonably withheld is specific to the facts and circumstances underlying each request for consent. For example, in Athar v. Hudson Serv. Mgmt., Inc., 853 N.Y.S.2d 170 (N.Y. App. Div. 2008), a New York appellate court held that this standard requires the non-consenting party to show some reasonable and objective basis for withholding consent. The withholding of consent cannot be arbitrary or based on unique and personal preferences of the non-consenting party. Generally, the burden of proof to show an unreasonable withholding of consent is on the party requesting consent. Also, the party requesting consent is responsible for providing all information required or necessary to determine whether consent should be granted.

4. Differences Among Counterparties in Rights to Assign. It is important to note any differences in assignment rights between and among contracting parties and the consequences of those differences, as parties with greater negotiating power often have broader assignment rights. These differences can become important if there is a lag of time between signing and closing an M&A transaction. If a target company is required to obtain consent in order to assign an agreement, but the counterparty has rights to freely assign, care should be taken to ensure that any consent granted to a target company to assign a contract does not become subject to review or alteration by any parties to whom the counterparty may freely assign its rights after it has granted its consent to assignment. This is particularly relevant to consents that may lapse or lose their effectiveness if transactions do not close within a certain period of time. For example, if (i) a landlord or licensor subsequently transfers the contract after granting its initial consent, and (ii) such consent lapses pursuant to its terms, the target company might have to re-submit consent requests to completely different parties.

Software that uses AI to identify and extract Assignment clauses can accelerate the work of finding these clauses, and enables a more comprehensive review than can otherwise be done manually.

Examples of Common Exclusions and Inclusions in Assignment Clauses

Exclusion for Change of Control Transactions

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

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

[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.

Direct or Indirect Assignment

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

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 …

Share this article:

Learn about more clauses

Contract Central

What is an Automatic Renewal Clause?

An automatic renewal clause is a contractual provision that automatically extends the term for a specified period of time.

What is an Arbitration Clause?

An arbitration clause is a contractual provision that establishes arbitration as a mechanism for resolving contract-related disputes.

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.

Assignment Clause

Get free proposals from vetted lawyers in our marketplace.

Contract Clauses

Acceleration Clause
Arbitration Clause
Cancellation Clause
Choice of Law Clause
Confidentiality Clause
Consideration Clause
Definitions Clause
Dispute Resolution Clause
Entire Agreement Clause
Escalation Clause
Exclusivity Clause
Exculpatory Clause
Force Majeure Clause
Governing Law Clause
Indemnification Clause
Indemnity Clause
Insurance Clause
Integration Clause
Merger Clause
Non-Competition Clause
Non-Disparagement Clause
Non-Exclusivity Clause
Non-Solicitation Clause
Privacy Clause
Release Clause
Severability Clause
Subordination Clause
Subrogation Clause
Survival Clause
Termination Clause
Time of Essence Clause

Jump to Section

Assignment clause defined.

Assignment clauses are legally binding provisions in contracts that give a party the chance to engage in a transfer of ownership or assign their contractual obligations and rights to a different contracting party.

In other words, an assignment clause can reassign contracts to another party. They can commonly be seen in contracts related to business purchases.

Here’s an article about assignment clauses.

Assignment Clause Explained

Assignment contracts are helpful when you need to maintain an ongoing obligation regardless of ownership. Some agreements have limitations or prohibitions on assignments, while other parties can freely enter into them.

Here’s another article about assignment clauses.

Purpose of Assignment Clause

The purpose of assignment clauses is to establish the terms around transferring contractual obligations. The Uniform Commercial Code (UCC) permits the enforceability of assignment clauses.

Assignment Clause Examples

Examples of assignment clauses include:

Example 1 . A business closing or a change of control occurs
Example 2 . New services providers taking over existing customer contracts
Example 3 . Unique real estate obligations transferring to a new property owner as a condition of sale
Example 4 . Many mergers and acquisitions transactions, such as insurance companies taking over customer policies during a merger

Here’s an article about the different types of assignment clauses.

Assignment Clause Samples

Sample 1 – sales contract.

Assignment; Survival . Neither party shall assign all or any portion of the Contract without the other party’s prior written consent, which consent shall not be unreasonably withheld; provided, however, that either party may, without such consent, assign this Agreement, in whole or in part, in connection with the transfer or sale of all or substantially all of the assets or business of such Party relating to the product(s) to which this Agreement relates. The Contract shall bind and inure to the benefit of the successors and permitted assigns of the respective parties. Any assignment or transfer not in accordance with this Contract shall be void. In order that the parties may fully exercise their rights and perform their obligations arising under the Contract, any provisions of the Contract that are required to ensure such exercise or performance (including any obligation accrued as of the termination date) shall survive the termination of the Contract.

Reference :

Security Exchange Commission - Edgar Database, EX-10.29 3 dex1029.htm SALES CONTRACT , Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1492426/000119312510226984/dex1029.htm >.

Sample 2 – Purchase and Sale Agreement

Assignment . Purchaser shall not assign this Agreement or any interest therein to any Person, without the prior written consent of Seller, which consent may be withheld in Seller’s sole discretion. Notwithstanding the foregoing, upon prior written notice to Seller, Purchaser may designate any Affiliate as its nominee to receive title to the Property, or assign all of its right, title and interest in this Agreement to any Affiliate of Purchaser by providing written notice to Seller no later than five (5) Business Days prior to the Closing; provided, however, that (a) such Affiliate remains an Affiliate of Purchaser, (b) Purchaser shall not be released from any of its liabilities and obligations under this Agreement by reason of such designation or assignment, (c) such designation or assignment shall not be effective until Purchaser has provided Seller with a fully executed copy of such designation or assignment and assumption instrument, which shall (i) provide that Purchaser and such designee or assignee shall be jointly and severally liable for all liabilities and obligations of Purchaser under this Agreement, (ii) provide that Purchaser and its designee or assignee agree to pay any additional transfer tax as a result of such designation or assignment, (iii) include a representation and warranty in favor of Seller that all representations and warranties made by Purchaser in this Agreement are true and correct with respect to such designee or assignee as of the date of such designation or assignment, and will be true and correct as of the Closing, and (iv) otherwise be in form and substance satisfactory to Seller and (d) such Assignee is approved by Manager as an assignee of the Management Agreement under Article X of the Management Agreement. For purposes of this Section 16.4, “Affiliate” shall include any direct or indirect member or shareholder of the Person in question, in addition to any Person that would be deemed an Affiliate pursuant to the definition of “Affiliate” under Section 1.1 hereof and not by way of limitation of such definition.

Security Exchange Commission - Edgar Database, EX-10.8 3 dex108.htm PURCHASE AND SALE AGREEMENT , Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1490985/000119312510160407/dex108.htm >.

Sample 3 – Share Purchase Agreement

Assignment . Neither this Agreement nor any right or obligation hereunder may be assigned by any Party without the prior written consent of the other Parties, and any attempted assignment without the required consents shall be void.

Security Exchange Commission - Edgar Database, EX-4.12 3 dex412.htm SHARE PURCHASE AGREEMENT , Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1329394/000119312507148404/dex412.htm >.

Sample 4 – Asset Purchase Agreement

Assignment . This Agreement and any of the rights, interests, or obligations incurred hereunder, in part or as a whole, at any time after the Closing, are freely assignable by Buyer. This Agreement and any of the rights, interests, or obligations incurred hereunder, in part or as a whole, are assignable by Seller only upon the prior written consent of Buyer, which consent shall not be unreasonably withheld. This Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and permitted assigns.

Security Exchange Commission - Edgar Database, EX-2.1 2 dex21.htm ASSET PURCHASE AGREEMENT , Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1428669/000119312510013625/dex21.htm >.

Sample 5 – Asset Purchase Agreement

Assignment; Binding Effect; Severability

This Agreement may not be assigned by any party hereto without the other party’s written consent; provided, that Buyer may transfer or assign in whole or in part to one or more Buyer Designee its right to purchase all or a portion of the Purchased Assets, but no such transfer or assignment will relieve Buyer of its obligations hereunder. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors, legal representatives and permitted assigns of each party hereto. The provisions of this Agreement are severable, and in the event that any one or more provisions are deemed illegal or unenforceable the remaining provisions shall remain in full force and effect unless the deletion of such provision shall cause this Agreement to become materially adverse to either party, in which event the parties shall use reasonable commercial efforts to arrive at an accommodation that best preserves for the parties the benefits and obligations of the offending provision.

Security Exchange Commission - Edgar Database, EX-2.4 2 dex24.htm ASSET PURCHASE AGREEMENT , Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1002047/000119312511171858/dex24.htm >.

Common Contracts with Assignment Clauses

Common contracts with assignment clauses include:

Real estate contracts
Sales contract
Asset purchase agreement
Purchase and sale agreement
Bill of sale
Assignment and transaction financing agreement

Assignment Clause FAQs

Assignment clauses are powerful when used correctly. Check out the assignment clause FAQs below to learn more:

What is an assignment clause in real estate?

Assignment clauses in real estate transfer legal obligations from one owner to another party. They also allow house flippers to engage in a contract negotiation with a seller and then assign the real estate to the buyer while collecting a fee for their services. Real estate lawyers assist in the drafting of assignment clauses in real estate transactions.

What does no assignment clause mean?

No assignment clauses prohibit the transfer or assignment of contract obligations from one part to another.

What’s the purpose of the transfer and assignment clause in the purchase agreement?

The purpose of the transfer and assignment clause in the purchase agreement is to protect all involved parties’ rights and ensure that assignments are not to be unreasonably withheld. Contract lawyers can help you avoid legal mistakes when drafting your business contracts’ transfer and assignment clauses.

Meet some of our Lawyers

As a corporate lawyer, I have dealt with international transactions, complex litigation and arbitration, regulatory compliance, and multijurisdictional tax planning. In March 2021, I started my firm and shifted my professional focus to working with start-ups, small businesses, entrepreneurs, and families. I help my clients structure and run their businesses and take care of their assets, including intellectual property issues and estate planning for their families. I try to bring big law quality and small firm personal attention to every client.

Seasoned professional with experience in wide variety of contract negotiation and review.

I have been in practice for over 19 years. I have substantial experience across the spectrum of civil practice areas both as a litigator and transactional counsel. This includes: negotiating commercial and real estate transactions, corporate organization, commercial agreements, and resolving commercial disputes, and litigating numerous civil, administrative, and criminal cases through all phases of litigation from trial through appeal, as well as judgment enforcement. My vast experience as a litigator is an asset to my transactional clients. My background in Investigating and proving the breakdown of business relationships in court allows me a unique advantage in drafting, negotiating, and closing business transactions.

I primarily work with small businesses and the self-employed. I help my clients build sustainable businesses, navigate risk, and resolve conflicts. Most of my cases involve contract review, drafting, negotiation, and disputes; I also work on business entity formation, employment and independent contractor issues, copyright licenses, trademark registration, and more.

Attorney that has worked in both litigation and transactional fields. Motivated and personable professional. Speaks fluent Spanish and very basic Portuguese.

Seven years experience reviewing and drafting corporate and transactional documents, including NDAs, LLC operating agreements, MSAs, employment agreements, etc.

Find the best lawyer for your project

Contract lawyers by city.

Atlanta Contract Lawyers
Austin Contract Lawyers
Boston Contract Lawyers
Chicago Contract Lawyers
Dallas Contract Lawyers
Denver Contract Lawyers
Fort Lauderdale Contract Lawyers
Houston Contract Lawyers
Las Vegas Contract Lawyers
Los Angeles Contract Lawyers
Memphis Contract Lawyers
Miami Contract Lawyers
New York Contract Lawyers
Oklahoma City Contract Lawyers
Orlando Contract Lawyers
Philadelphia Contract Lawyers
Phoenix Contract Lawyers
Richmond Contract Lawyers
Salt Lake City Contract Lawyers
San Antonio Contract Lawyers
San Diego Contract Lawyers
San Francisco Contract Lawyers
Seattle Contract Lawyers
Tampa Contract Lawyers

Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.

Contracts Counsel was incredibly helpful and easy to use. I submitted a project for a lawyer's help within a day I had received over 6 proposals from qualified lawyers. I submitted a bid that works best for my business and we went forward with the project.

I never knew how difficult it was to obtain representation or a lawyer, and ContractsCounsel was EXACTLY the type of service I was hoping for when I was in a pinch. Working with their service was efficient, effective and made me feel in control. Thank you so much and should I ever need attorney services down the road, I'll certainly be a repeat customer.

I got 5 bids within 24h of posting my project. I choose the person who provided the most detailed and relevant intro letter, highlighting their experience relevant to my project. I am very satisfied with the outcome and quality of the two agreements that were produced, they actually far exceed my expectations.

How It Works

Post Your Project

Get Free Bids to Compare

Hire Your Lawyer

Find lawyers and attorneys by city

Personal Profile
See all online law products
Guided Tour
Subscriber Services

Financial Law [FBL]
International Commercial Arbitration [ICMA]
Private International Law [PRIL]
International Commercial Law [ICML]

The Law of Assignment (3rd Edition)

Marcus smith, nico leslie.

This book is the leading text on the law relating to intangible property or choses in action. Its clear and approachable structure covers all forms of intangible property (debts, rights under contract, securities, intellectual property, leases, rights/causes of action, and equitable rights), considering the nature of intangible property, how it comes into being, and how it is transferred or assigned. The first part of the book analyses the general principles regarding intangibles and their transfer, and the second examines the practical considerations relating to particular types of intangibles, securities, insurance contracts, leases, and intellectual property under the law. This new edition includes new chapters on powers of attorney and factoring, areas particularly important to legal practice. Other significant developments include the expansion of the chapter on leases to include leasing of chattels, and more material on securities, especially regarding the operation of settlement systems.

Bibliographic Information

Affiliations are at time of print publication..

Marcus Smith, author

Nico Leslie, author

Share This Facebook LinkedIn Twitter
Foreword to The Third Edition
Foreword to the Second Edition
Foreword to the First Edition
Preface to The Third Edition
Preface to the First Edition
Summary Contents
Detailed Contents
Table of Cases
Statutory Instruments
Netherlands
United States
Conventions
Regulations
International Conventions
List of References
List of Authority Abbreviations
Preliminary Material
Part III.01
[66.249.64.20|195.216.135.184]
195.216.135.184

IMAGES

Operation of Law (Best Overview: Definition And Examples)
Unlock Unmatched Help in Assignment by Operation of Law by USA Legal
Operation Of Law Definition
Chapter 18
Demystifying Retrospective and Retroactive Operation of Law
Unlock Unmatched Help in Assignment by Operation of Law by USA Legal

VIDEO

Assignment # Operation Research #
ASSIGNMENT CRIMINAL LAW GROUP 6
Assignment problem
कम्पनी अधिनियम, 2013 (Company Law)
Balanced assignment problem in Operations Research
OPERATIONS MANAGEMENT

COMMENTS

Operation of Law (Best Overview: Definition And Examples)
The parties to a contract can include an operation of law clause where they define certain events to trigger certain legal consequences without the need of a party to act in any way. For example: "Operation of law" means the assignment of Party A's assets by the court order in the context of a merger.
138. Assignment By Operation Of Law.
Halsbury's Laws Of England / Contract (Volume 22 (2019)) / 4. Consideration and Privity / (2) Privity / (ii) Exceptions to the Doctrine of Privity / a. At Common Law / 138. Assignment by operation of law. This comprehensive encyclopedia of the law covers all parts of Contract.
Anti-Assignment Provisions and Assignments by 'Operation of Law': What
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 ...
Anti-Assignment Provisions and Assignments by 'Operation of Law': What
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 ...
Do Change of Control Transactions Constitute an Assignment by Operation
A change of control is a significant change in the equity, ownership, or management of a business entity. This can occur through a merger, consolidation or acquisition. The general rule is that ...
operation of law
operation of law. A way in which someone gets certain rights (or sometimes responsibilities) automatically under the law without taking action, requiring cooperation from another person, or being the subject of a court order . This situation usually arises from the happening of an event, such as a death, that triggers a change in human affairs ...
What Does Operation of Law Mean: Everything You Need to Know
What does operation of law mean is a common question among those unfamiliar with how assets are passed from one party to another through legal means. Essentially, all contracts operate as legally binding agreements. This means that by law, the parties must abide by the contract or else they will be in breach. Such asset transfers include the ...
Including a Definition of "Operation of Law " in the Federal
Roche Diagnostics GMBH., where the Delaware Court of Chancery gave the clarification of whether a reverse triangular merger can result in an assignment by "operation of law." 124 By interpreting the statutory language of the General Corporation Law of the State of Delaware, the court concluded that during a merger and acquisition ...
Mergers and Restrictions on Assignments by "Operation of Law"
Mergers and Restrictions on Assignments by "Operation of Law". Few things are more fundamental to M&A due diligence than determining whether any of the material contracts to which the target ...
Operation of law
Operation of law. The phrase " by operation of law " is a legal term that indicates that a right or liability has been created for a party, irrespective of the intent of that party, because it is dictated by existing legal principles. For example, if a person dies without a will, their heirs are determined by operation of law. Similarly, if a ...
"By Operation of Law" (Including Draft No-Assignment Language)
In Meso Scale Diagnostics, LLC v. Roche Diagnostics GMBH (go here for a PDF copy), the Delaware Court of Chancery held that it's not clear whether for purposes of a no-assignment provision a reverse triangular merger constitutes an assignment "by operation of law." (A reverse triangular merger is when Sub merges into Target.). I'm not going to go into any detail regarding the case, as ...
Spotting issues with assignment clauses in M&A Due Diligence
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. ... Note that the current jurisprudence on the meaning of an assignment is broader and deeper than it is on the meaning of a transfer ...
Assignments by Operation of Law
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 ...
Lawrina
The operation of law definition pertains to the legal principles that apply automatically without the need for action by any entities involved. Essentially, it concerns aspects of law automatically bestowed upon individuals, such as rights and responsibilities. So, when you ask what does operation of law means, it refers to the automatic ...
Assignments Contract Clause Examples
Assignments.Neither the Company nor the Executive may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other; other party; provided, however, that the Company may assign its rights and obligations under this Agreement without the consent of Executive to a successor to substantially all of the Executive ...
operation of law Definition, Meaning & Usage
Definition of "operation of law" An automatic process under law leading to rights or responsibilities, without requiring personal action or a court order ; How to use "operation of law" in a sentence. Upon his friend's death, he became the sole owner of their shared boat due to operation of law.
Assignments: The 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 ...
Operation of law Definition & Meaning
tion of law. op· er· a· tion of law. ˌä-pə-ˈrā-shən-. : the application of law to a situation that gives rise to a result. statutory liens and other forms of security that arise by operation of law J. J. White and R. S. Summers.
What is an Assignment Clause?
Assignment by Operation of Law. ... 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 ...
Prohibition of assignment clause did not prevent a transfer of rights
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.
Assignment Clause: Meaning & Samples (2022)
Assignment Clause Examples. Examples of assignment clauses include: Example 1. A business closing or a change of control occurs. Example 2. New services providers taking over existing customer contracts. Example 3. Unique real estate obligations transferring to a new property owner as a condition of sale. Example 4.
Assignment (law)
Assignment (law) Assignment [1] is a legal term used in the context of the laws of contract and of property. In both instances, assignment is the process whereby a person, the assignor, transfers rights or benefits to another, the assignee. [2] An assignment may not transfer a duty, burden or detriment without the express agreement of the assignee.
Oxford Legal Research Library: The Law of Assignment
Abstract. This book is the leading text on the law relating to intangible property or choses in action. Its clear and approachable structure covers all forms of intangible property (debts, rights under contract, securities, intellectual property, leases, rights/causes of action, and equitable rights), considering the nature of intangible ...

Operation of Law (Best Overview: Definition And Examples)

Operation of law definition

What does operation of law mean

Agency by operation of law

Assignment by operation of law

Termination by operation of law

Discharge by operation of law

Reset by operation of law

Power of attorney operation of law

Transfer by operation of law

Operation of law real estate

Operation of law clause

Operation of law examples

Operation of law FAQ

What does operation of law mean?

What does assignment by operation of law mean?

Can a corporation be created by operation of law?

Articles Recommended For You!

RELATED ARTICLES

138. Assignment by operation of law.

To view this document in full, take a free 7 day trial of LexisNexis and benefit from:

Popular Documents :

Popular Links

HELP & SUPPORT

LEGAL SOLUTIONS

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

Understanding Anti-Assignment Provisions

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

Assignments by Operation of Law

Difference Between Mergers and Amalgamations

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

Practical Considerations

Jeffrey K. Merk

Liam Tracey-Raymont

Gary Volman

Christian Nianiaris

Joshua Ward

Related Areas of Expertise

Related publications

Do Change of Control Transactions Constitute an Assignment by Operation of Law?

Latest Posts

Written by:

Published In:

"My best business intelligence, in one easy email…"

operation of law

What Does Operation of Law Mean: Everything You Need to Know

Transfer Through Operation of Law

Contract Termination Through Operation of Law

Termination of Principal/Agent Contract

“By Operation of Law” (Including Draft No-Assignment Language)

9 thoughts on ““By Operation of Law” (Including Draft No-Assignment Language)”

Leave a Comment Cancel reply

The voice that matters.

Spotting issues with assignment clauses in M&A Due Diligence

What is an Assignment Clause?

Common Exclusions and Inclusions

Exclusion for Affiliate Transactions

Assignment by Operation of Law

Direct or Indirect Assignment

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

Canada: Anti-Assignment Provisions And Assignments By 'Operation Of Law': What Do I Have To Do? What Should I Do?

Introduction

Understanding Anti-Assignment Provisions

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

Assignments by Operation of Law

Difference Between Mergers and Amalgamations

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

Practical Considerations

Login to Mondaq.com

Why Register with Mondaq

Your Organisation

Assignments Contract Clauses (8,849)

operation of law

Assignments: The Basic Law

op er a tion of law

Cite this Entry

Can you solve 4 words at once?

Popular in Grammar & Usage

What is an Assignment Clause?

Why Do Assignment Clauses Matter?