M&A Lawyer New York : Assignment and Assumption Agreements

New York law recognizes that certain contracts cannot be assigned without the consent of the non-assigning party, particularly when the contract involves personal services or when assignment would materially alter the performance obligations. The Restatement of Contracts, which New York courts frequently reference, establishes that an assignment is effective only when the assignor demonstrates clear intent to transfer rights. Courts in New York have consistently held that ambiguous assignment language will be construed against the party seeking to enforce the assignment. Additionally, New York General Obligations Law Section 15-101 requires that assignments of future earnings or rights must comply with specific statutory formalities to be enforceable.

During M&A transactions, assignment and assumption agreements must address third-party consents, indemnification obligations, and representations and warranties regarding the assigned contracts. The acquiring company must conduct thorough due diligence to identify all contracts requiring assignment and to determine whether counterparty consent is necessary. Many commercial contracts contain change-of-control provisions that prohibit assignment without prior written approval from the other party. Failure to obtain necessary consents can result in breach of contract claims or termination of critical business relationships. Our firm works with clients to develop comprehensive consent strategies and negotiates favorable assumption terms that minimize risk exposure.

The assignment and assumption agreement must identify the assignor (the party transferring rights), the assignee (the party receiving rights), and the obligor (the third party whose consent may be required). The agreement should clearly state whether the assignment is a complete transfer of all rights and obligations or a partial assignment of specific rights only. Indemnification provisions are critical, as they allocate responsibility for breaches or liabilities arising from the assigned contract. New York courts have found that absent clear indemnification language, the assignee may not be able to recover damages from the assignor for undisclosed liabilities. The agreement must also address whether the assignor will remain liable for performance or whether the assignee assumes full responsibility. When dealing with complex commercial relationships, such as those involving maritime commerce or fraud prevention measures, the assignment agreement may need to reference specialized legal principles. For example, parties engaged in Admiralty and Maritime Law transactions may need to include specific provisions addressing the transfer of shipping contracts or vessel-related obligations.

The assignor typically represents that it has full authority to assign the contract, that the contract is valid and enforceable, and that no defaults or breaches exist. The assignee may represent that it has the financial capability and operational capacity to assume the obligations. Conditions precedent, such as obtaining third-party consents or regulatory approvals, should be clearly identified and may include a termination right if conditions are not satisfied. New York law recognizes that failure to satisfy material conditions precedent excuses performance obligations, so these provisions must be drafted with precision to reflect the parties' true intentions.

When seeking consent to assignment, the acquiring company should prepare a comprehensive consent request that addresses the counterparty's concerns regarding the assignee's ability to perform. The request should include financial statements, evidence of operational capability, and any necessary regulatory approvals. Some counterparties may demand additional consideration, increased performance guarantees, or modifications to the underlying contract as a condition of consent. New York courts recognize that counterparties have a duty of good faith in considering consent requests, but this duty does not require unreasonable agreement to assignment. If a counterparty unreasonably withholds consent, the acquiring company may have grounds to seek specific performance or damages, though litigation is typically a last resort. Our firm negotiates consent agreements that balance the interests of all parties and minimize transaction delays.

Proceeding with an assignment without obtaining required consent exposes the acquiring company to significant legal and commercial risks. The non-assigning party may terminate the underlying contract, seek damages for breach, or obtain injunctive relief preventing the assignment. In some cases, failure to obtain consent may also trigger acceleration clauses, increasing payment obligations or changing other material contract terms. New York courts have consistently enforced consent requirements, even when the parties' failure to obtain consent results in significant economic harm. Therefore, our firm prioritizes consent strategies early in the M&A process to ensure that all necessary approvals are obtained before closing.

When disputes arise regarding assignment and assumption agreements, parties may pursue resolution through the New York court system or through arbitration, depending on the dispute resolution provisions in the underlying contract. The Commercial Division of the Supreme Court in New York County has developed specialized procedures for commercial disputes, including expedited discovery and motion practice that can accelerate resolution. Parties may also pursue claims in the Appellate Division, First Department, which covers New York County and other areas in lower New York State. Many M&A transactions include arbitration clauses that require disputes to be resolved through private arbitration rather than litigation, which may provide greater confidentiality and specialized expertise. Our firm has extensive experience litigating and arbitrating assignment and assumption disputes in New York forums, and we work to resolve disputes efficiently while protecting our clients' interests.

Depending on the nature of the assigned contracts, additional regulatory considerations may apply to assignment and assumption agreements. For example, contracts involving regulated industries, such as telecommunications, energy, or financial services, may require regulatory approvals before assignment is permitted. Contracts involving government agencies or contractors may be subject to Federal Acquisition Regulation requirements regarding assignment and assumption. Additionally, when assignment involves the transfer of intellectual property rights or customer relationships, intellectual property law and trade secret protections may impose additional requirements. Our firm coordinates with regulatory agencies and ensures that all necessary approvals are obtained before the assignment becomes effective. In some cases, assignments may involve complex fraud prevention measures, particularly when the underlying contract involves financial instruments or sensitive business information. Parties should be aware of potential risks related to Aiding and Abetting Fraud and ensure that all representations and warranties in the assignment agreement are accurate and truthful.

Indemnification provisions typically require the indemnifying party to defend and hold harmless the indemnified party from losses arising from specified events or circumstances. The provision should address whether indemnification covers losses arising from breaches of the assigned contract, misrepresentations regarding the contract, or third-party claims related to performance of the contract. New York courts have held that indemnification provisions must be interpreted according to their plain language, and ambiguous provisions will be construed against the party seeking indemnification. The indemnification provision should also address procedures for notice, investigation, and settlement of claims, including whether the indemnified party has the right to control defense of third-party claims. Our firm drafts indemnification provisions that clearly allocate risk and provide practical procedures for managing and resolving indemnification claims.

Indemnification provisions typically include survival periods specifying how long after the assignment date the indemnifying party remains liable for indemnification claims. New York courts have held that survival periods are enforceable contract provisions that effectively limit the time period during which indemnification claims may be brought. Liability caps specify the maximum amount the indemnifying party must pay for indemnification claims, and may be expressed as a fixed dollar amount, a percentage of the transaction value, or a multiple of earnings. New York law recognizes that liability caps are enforceable between sophisticated parties, provided that the caps are clearly expressed and do not violate public policy. Our firm negotiates survival periods and liability caps that reflect the parties' risk allocation preferences and the nature of the assigned contracts.