1 Fenrishicage

Bb0026 Assignment Of Contract

(a) [Effect of modification on assignee.]

A modification of or substitution for an assigned contract is effective against an assignee if made in good faith. The assignee acquires corresponding rights under the modified or substituted contract. The assignment may provide that the modification or substitution is a breach of contract by the assignor. This subsection is subject to subsections (b) through (d).

(b) [Applicability of subsection (a).]

Subsection (a) applies to the extent that:

(1) the right to payment or a part thereof under an assigned contract has not been fully earned by performance; or

(2) the right to payment or a part thereof has been fully earned by performance and the account debtor has not received notification of the assignment under Section 9-406(a).

(c) [Rule for individual under other law.]

This section is subject to law other than this article which establishes a different rule for an account debtor who is an individual and who incurred the obligation primarily for personal, family, or household purposes.

(d) [Inapplicability to health-care-insurance receivable.]

This section does not apply to an assignment of a health-care-insurance receivable.

Contract Assignment in M&A Transactions

Bloomberg BNA Corporate Law & Accountability Report

March 14, 2016, Ryan M. Murphy


Given the pace of M&A transactions and the abundance of issues to be negotiated, there is a danger that transferability of third-party contracts (i.e., the need for consent and obtaining the same) can be lost in the shuffle. The deal complications associated with assignment of contracts—including delays in closing and a third party extracting concessions as a quid pro quo for consent—can erode transaction value. As such, it is incumbent upon deal counsel to identify potential hurdles to assignment and develop a strategy to avoid these potential impediments to closing. This article focuses on the intersection of Delaware law with contract assignment, namely the default rules for transferability as well as guidance on interpreting nonassignment clauses commonly confronted in the M&A context. In addition, practical considerations are offered to develop a strategy to manage the contract assignment process.

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