assignment under us law

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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.

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Deed of Assignment or Deed of Novation: Key Differences and Legal Implications of Novation and Assignment Contracts

Novation and assignment stand out as pivotal processes for the transfer of contractual rights and obligations. These legal concepts allow a party to the contract to adapt to changing circumstances, ensuring that business arrangements remain relevant and effective. This article explores the nuances of novation and assignment, shedding light on their distinct legal implications, procedures, and practical applications. Whether you’re a business owner navigating the transfer of service contracts, or an individual looking to understand your rights and responsibilities in a contractual relationship, or a key stakeholder in a construction contract, this guide will equip you with the essential knowledge to navigate these complex legal processes.

Table of Contents

• What is a Deed of Novation? 
• What is a Deed of Assignment? 

Key Differences Between Novation and Assignment Deeds

Need a deed of novation or assignment key factors to consider, selecting the right assignment clause for your contract – helping you make the right choice, what is a deed of novation.

Novation is a legal process that allows a new party to a contract to take the place of an original party in a contract, thereby transferring both the responsibilities and benefits under the contract to a third party. In common law, transferring contractual obligations through novation requires the agreement of all original parties involved in the contract, as well as the new party. This is because novation effectively terminates the original contract and establishes a new one.

A novation clause typically specifies that a contract cannot be novated without the written consent of the current parties. The inclusion of such a clause aims to preclude the possibility of novation based on verbal consent or inferred from the actions of a continuing party. Nevertheless, courts will assess the actual events that transpired, and a novation clause may not always be enforceable. It’s possible for a novation clause to allow for future novation by one party acting alone to a party of their choosing. Courts will enforce a novation carried out in this manner if it is sanctioned by the correct interpretation of the original contract.

Novation is frequently encountered in business and contract law, offering a means for parties to transfer their contractual rights and duties to another, which can be useful if the original party cannot meet their obligations or wishes to transfer their contract rights. For novation to occur, there must be unanimous consent for the substitution of the new party for the original one, necessitating a three-way agreement among the original party, the new party, and the remaining contract party. Moreover, the novation agreement must be documented in writing and signed by all involved parties. Understanding novation is essential in the realms of contracts and business dealings, as it provides a way for parties to delegate their contractual rights and responsibilities while freeing themselves from the original agreement.

What is a Deed of Assignment?

A deed of assignment is a legal document that facilitates the transfer of a specific right or benefit from one party (the assignor) to another (the assignee). This process allows the assignee to step into the assignor’s position, taking over both the rights and obligations under the original contract. In construction, this might occur when a main contractor assigns rights under a subcontract to the employer, allowing the employer to enforce specific subcontractor duties directly if the contractor fails.

Key aspects of an assignment include:

• Continuation of the Original Contract: The initial agreement remains valid and enforceable, despite the transfer of rights or benefits.
• Assumption of Rights and Obligations: The assignee assumes the role of the assignor, adopting all associated rights and responsibilities as outlined in the original contract.
• Requirement for Written Form: The assignment must be documented in writing, signed by the assignor, and officially communicated to the obligor (the party obligated under the contract).
• Subject to Terms and Law: The ability to assign rights or benefits is governed by the specific terms of the contract and relevant legal statutes.

At common law, parties generally have the right to assign their contractual rights without needing consent from the other party involved in the contract. However, this does not apply if the rights are inherently personal or if the contract includes an assignment clause that restricts or modifies this general right. Many contracts contain a provision requiring the consent of the other party for an assignment to occur, ensuring that rights are not transferred without the other party’s knowledge.

Once an assignment of rights is made, the assignee gains the right to benefit from the contract and can initiate legal proceedings to enforce these rights. This enforcement can be done either independently or alongside the assignor, depending on whether the assignment is legal or equitable. It’s important to note that while rights under the contract can be assigned, the contractual obligations or burdens cannot be transferred in this manner. Therefore, the assignor remains liable for any obligations under the contract that are not yet fulfilled at the time of the assignment.

Choosing Between Assignment and Novation in a Construction Contract

Choosing between a deed of novation and an assignment agreement depends on the specific circumstances and objectives of the parties involved in a contract. Both options serve to transfer rights and obligations but in fundamentally different ways, each with its own legal implications, risks, and benefits. Understanding these differences and considering various factors can help in making an informed decision that aligns with your goals.

The choice between assignment and novation in a construction project scenario, where, for instance, an employer wishes to engage a subcontractor directly due to loss of confidence in the main contractor, hinges on several factors. These are:

• Nature of the Contract:  The type of contract you’re dealing with (e.g., service, sales) can influence which option is more suitable. For instance, novation might be preferred for service contracts where obligations are personal and specific to the original parties.
• Parties Involved: Consent is a key factor. Novation requires the agreement of all original and new parties, making it a viable option only when such consent is attainable. Assignment might be more feasible if obtaining consent from all parties poses a challenge.
• Complexity of the Transaction: For transactions involving multiple parties and obligations, novation could be more appropriate as it ensures a clean transfer of all rights and obligations. Assignment might leave the original party with ongoing responsibilities.
• Time and Cost: Consider the practical aspects, such as the time and financial cost associated with each option. Novation typically involves more complex legal processes and might be more time-consuming and costly than an assignment.

If the intention is merely to transfer the rights of the subcontractor’s work to the employer without altering the subcontractor’s obligations under a contract, an assignment might suffice. However, if the goal is to completely transfer the main contractor’s contractual role and obligations to the employer or another entity, novation would be necessary, ensuring that all parties consent to this new arrangement and the original contractor is released from their obligations.

The legal interpretations and court decisions highlight the importance of the document’s substance over its label. Even if a document is titled a “Deed of Assignment,” it could function as a novation if it transfers obligations and responsibilities and involves the consent of all parties. The key is to clearly understand and define the objective behind changing the contractual relationships and to use a deed — assignment or novation — that best achieves the desired legal and practical outcomes, ensuring the continuity and successful completion of the construction project.

Understanding the distinction between assignment deeds and novation deeds is crucial for anyone involved in contractual agreements. Novation offers a clean slate by transferring both rights and obligations to a new party, requiring the consent of all involved. Assignment, conversely, allows for the transfer of contractual benefits without altering the original contract’s obligations. Each method serves different strategic purposes, from simplifying transitions to preserving original contractual duties. The choice between novation and assignment hinges on specific legal, financial, and practical considerations unique to each situation. At PBL Law Group, we specialise in providing comprehensive legal advice and support in contract law. Our team is dedicated to helping clients understand their options and make informed decisions that align with their legal and business objectives. Let’s discuss!

Authored By Raea Khan

Director Lawyer, PBL Law Group

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• Patent Laws, Regulations, Policies & Procedures
• Manual of Patent Examining Procedure
• Chapter 0300
• Section 301

301 Ownership/Assignability of Patents and Applications [R-10.2019]

35 u.s.c. 261   ownership; assignment..

Subject to the provisions of this title, patents shall have the attributes of personal property. The Patent and Trademark Office shall maintain a register of interests in patents and applications for patents and shall record any document related thereto upon request, and may require a fee therefor.

Applications for patent, patents, or any interest therein, shall be assignable in law by an instrument in writing. The applicant, patentee, or his assigns or legal representatives may in like manner grant and convey an exclusive right under his application for patent, or patents, to the whole or any specified part of the United States.

A certificate of acknowledgment under the hand and official seal of a person authorized to administer oaths within the United States, or, in a foreign country, of a diplomatic or consular officer of the United States or an officer authorized to administer oaths whose authority is proved by a certificate of a diplomatic or consular officer of the United States, or apostille of an official designated by a foreign country which, by treaty or convention, accords like effect to apostilles of designated officials in the United States, shall be prima facie evidence of the execution of an assignment, grant, or conveyance of a patent or application for patent.

An interest that constitutes an assignment, grant, or conveyance shall be void as against any subsequent purchaser or mortgagee for valuable consideration, without notice, unless it is recorded in the Patent and Trademark Office within three months from its date or prior to the date of such subsequent purchase or mortgage.

35 U.S.C. 262   Joint owners.

In the absence of any agreement to the contrary, each of the joint owners of a patent may make, use, offer to sell, or sell the patented invention within the United States, or import the patented invention into the United States, without the consent of and without accounting to the other owners.

37 CFR 3.1  Definitions.

For purposes of this part, the following definitions shall apply:

Application means a national application for patent, an international patent application that designates the United States of America, an international design application that designates the United States of America, or an application to register a trademark under section 1 or 44 of the Trademark Act, 15 U.S.C. 1051 or 15 U.S.C. 1126, unless otherwise indicated.

Assignment means a transfer by a party of all or part of its right, title and interest in a patent, patent application, registered mark or a mark for which an application to register has been filed.

Document means a document which a party requests to be recorded in the Office pursuant to § 3.11 and which affects some interest in an application, patent, or registration.

Office means the United States Patent and Trademark Office.

Recorded document means a document which has been recorded in the Office pursuant to § 3.11 .

Registration means a trademark registration issued by the Office.

Ownership of a patent gives the patent owner the right to exclude others from making, using, offering for sale, selling, or importing into the United States the invention claimed in the patent. 35 U.S.C. 154(a)(1) . Ownership of the patent does not furnish the owner with the right to make, use, offer for sale, sell, or import the claimed invention because there may be other legal considerations precluding same (e.g., existence of another patent owner with a dominant patent, failure to obtain FDA approval of the patented invention, an injunction by a court against making the product of the invention, or a national security related issue).

For applications filed on or after September 16, 2012, the original applicant is presumed to be the owner of the application for an original patent. See 37 CFR 3.73(a) . For applications filed before September 16, 2012, the ownership of the patent (or the application for the patent) initially vests in the named inventors of the invention of the patent. See Beech Aircraft Corp. v. EDO Corp., 990 F.2d 1237, 1248, 26 USPQ2d 1572, 1582 (Fed. Cir. 1993). A patent or patent application is assignable by an instrument in writing, and the assignment of the patent, or patent application, transfers to the assignee(s) an alienable (transferable) ownership interest in the patent or application. 35 U.S.C. 261 .

“Assignment,” in general, is the act of transferring to another the ownership of one’s property, i.e., the interest and rights to the property. The U.S. Patent and Trademark Office cannot explain or interpret laws that govern assignments and related documents, nor can it act as counselor for individuals. Assignments and other documents are contracts that are governed by the relevant state or jurisdictional law.

In 37 CFR 3.1 , assignment of patent rights is defined as “a transfer by a party of all or part of its right, title and interest in a patent [or] patent application....” An assignment of a patent, or patent application, is the transfer to another of a party’s entire ownership interest or a percentage of that party’s ownership interest in the patent or application. In order for an assignment to take place, the transfer to another must include the entirety of the bundle of rights that is associated with the ownership interest, i.e., all of the bundle of rights that are inherent in the right, title and interest in the patent or patent application. 35 U.S.C. 261 requires transfer of ownership by an assignment to be in writing. See Realvirt, LLC v. Lee, 195 F.Supp.3d 847, 859 (E.D. Va. 2016).

As compared to assignment of patent rights, the licensing of a patent transfers a bundle of rights which is less than the entire ownership interest, e.g., rights that may be limited as to time, geographical area, or field of use. A patent license is, in effect, a contractual agreement that the patent owner will not sue the licensee for patent infringement if the licensee makes, uses, offers for sale, sells, or imports the claimed invention, as long as the licensee fulfills its obligations and operates within the bounds delineated by the license agreement.

An exclusive license may be granted by the patent owner to a licensee. The exclusive license prevents the patent owner (or any other party to whom the patent owner might wish to sell a license) from competing with the exclusive licensee, as to the geographic region, the length of time, and/or the field of use, set forth in the license agreement.

A license is not an assignment of the patent. Even if the license is an exclusive license, it is not an assignment of patent rights in the patent or application.

Individual ownership - An individual entity may own the entire right, title and interest of the patent property. This occurs where there is only one inventor, and the inventor has not assigned the patent property. Alternatively, it occurs where all parties having ownership interest (all inventors and assignees) assign the patent property to one party.

Joint ownership - Multiple parties may together own the entire right, title and interest of the patent property. This occurs when any of the following cases exist:

• (A) Multiple partial assignees of the patent property;
• (B) Multiple inventors who have not assigned their right, title and interest; or
• (C) A combination of partial assignee(s), and inventor(s) who have not assigned their right, title and interest.

Each individual inventor may only assign the interest he or she holds; thus, assignment by one joint inventor renders the assignee a partial assignee. A partial assignee likewise may only assign the interest it holds; thus, assignment by a partial assignee renders a subsequent assignee a partial assignee. All parties having any portion of the ownership in the patent property must act together as a composite entity in patent matters before the Office.

An assignment can be made of record in the United States Patent and Trademark Office (Office) in two different ways, for two different purposes. The differences are important to note:

• (A) An assignment can be made of record in the assignment records of the Office as provided for in 37 CFR Part 3 . Recordation of the assignment provides legal notice to the public of the assignment. It should be noted that recording of the assignment is merely a ministerial act; it is not an Office determination of the validity of the assignment document or the effect of the assignment document on the ownership of the patent property. See 37 CFR 3.54 , MPEP § 317.03 , and Realvirt, LLC v. Lee, 195 F.Supp.3d 847, 862-3 (E.D. Va. 2016). For a patent to issue to an assignee, the assignment must have been recorded or filed for recordation in accordance with 37 CFR 3.11 . See 37 CFR 3.81(a) .
• (B) An assignment can be made of record in the file of a patent application, patent, or other patent proceeding (e.g., reexamination proceeding). This step may be necessary to permit the assignee to “take action” in the application, patent, or other patent proceeding under the conditions set forth in 37 CFR 1.46 and 37 CFR 3.81(a) and MPEP § 325 (for applications filed on or after September 16, 2012) or under the conditions set forth in pre-AIA 37 CFR 3.73 and MPEP § 324 (for applications filed before September 16, 2012). Recordation of an assignment in the assignment records of the Office does not , by itself, permit the assignee to take action in the application, patent, or other patent proceeding.

Additionally, for applications filed under 35 U.S.C. 111(a) , 363 , or 385 on or after September 16, 2012, an assignment may contain the statements required to be made in an oath or declaration (“assignment-statement”), and if the assignment is made of record in the assignment records of the Office, then the assignment may be utilized as the oath or declaration. See 35 U.S.C. 115(e) , 37 CFR 1.63(e) , and MPEP §§ 302.07 , 317 , and MPEP § 602.01(a) .

301.01 Accessibility of Assignment Records [R-10.2019]

37 cfr 1.12  assignment records open to public inspection..

• (1) Separate assignment records are maintained in the United States Patent and Trademark Office for patents and trademarks. The assignment records, relating to original or reissue patents, including digests and indexes (for assignments recorded on or after May 1, 1957), and published patent applications are open to public inspection at the United States Patent and Trademark Office, and copies of patent assignment records may be obtained upon request and payment of the fee set forth in § 1.19 of this chapter. See § 2.200 of this chapter regarding trademark assignment records.
• (2) All records of assignments of patents recorded before May 1, 1957, are maintained by the National Archives and Records Administration (NARA). The records are open to public inspection. Certified and uncertified copies of those assignment records are provided by NARA upon request and payment of the fees required by NARA.
• (b) Assignment records, digests, and indexes relating to any pending or abandoned patent application, which is open to the public pursuant to § 1.11 or for which copies or access may be supplied pursuant to § 1.14 , are available to the public. Copies of any assignment records, digests, and indexes that are not available to the public shall be obtainable only upon written authority of an inventor, the applicant, the assignee or an assignee of an undivided part interest, or a patent practitioner of record, or upon a showing that the person seeking such information is a bona fide prospective or actual purchaser, mortgagee, or licensee of such application, unless it shall be necessary to the proper conduct of business before the Office or as provided in this part.
• (1) Be in the form of a petition including the fee set forth in § 1.17(g) ; or
• (2) Include written authority granting access to the member of the public to the particular assignment records from an inventor, the applicant, the assignee or an assignee of an undivided part interest, or a patent practitioner of record.
• (d) An order for a copy of an assignment or other document should identify the reel and frame number where the assignment or document is recorded. If a document is identified without specifying its correct reel and frame, an extra charge as set forth in § 1.21(j) will be made for the time consumed in making a search for such assignment.

Assignment documents relating to patents, published patent applications, registrations of trademarks, and applications for registration of trademarks are open to public inspection. Records related to assignments of patents, and patent applications that have been published as patent application publications are available on the USPTO website. Images of assignment documents recorded June 1998 and later are also viewable on the Office website. To view images of earlier-recorded assignment documents, members of the public must place an order pursuant to 37 CFR 1.12(d) .

The Office will not open only certain parts of an assignment document to public inspection. If such a document contains two or more items, any one of which, if alone, would be open to such inspection, then the entire document will be open. Thus, if a document covers either a trademark or a patent in addition to one or more patent applications, it will be available to the public ab initio; and if it covers a number of patent applications, it will be so available as soon as any one of them is published or patented. Documents relating only to one or more pending applications for patent which have not been published under 35 U.S.C. 122(b) will not be open to public inspection.

Copies of assignment records relating to pending or abandoned patent applications which are open to the public pursuant to 37 CFR 1.11 or for which copies or access may be supplied pursuant to 37 CFR 1.14 are available to the public. For pending or abandoned applications which are not open to the public pursuant to 37 CFR 1.11 or for which copies or access may not be supplied pursuant to 37 CFR 1.14 , information related thereto is only obtainable upon a proper showing of written authority. For applications filed on or after September 16, 2012, the written authority must be from (A) an inventor, (B) an applicant, (C) the assignee or an assignee of an undivided part interest, (D) a patent practitioner of record, or (E) a person with written authority from (A), (B), or (C) or (D). See 37 CFR 1.12 . For applications filed prior to September 16, 2012, the written authority must be from the applicant or applicant’s assignee or from the attorney or agent of either, or upon a showing that the person seeking such information is a bona fide prospective or actual purchaser, mortgagee, or licensee of such application. See pre-AIA 37 CFR 1.12 .

If the application on which a patent was granted is a division, continuation, or continuation-in-part of an earlier application, the assignment records of that earlier application will be open to public inspection because copies or access may be supplied to the earlier application pursuant to 37 CFR 1.14 .

Assignment records relating to reissue applications are open to public inspection because reissue applications are open to public inspection pursuant to 37 CFR 1.11(b) .

Requests for abstracts of title for assignments of patents recorded after May 1, 1957, are provided by the Certification Division upon request and payment of fee required in 37 CFR 1.19 . Requests for copies of pre-1957 records for patents should be directed to the National Archives and Records Administration (NARA). Since these records are maintained by NARA, it is more expeditious to request copies directly from NARA, rather than from the Office, which would then have to route the requests to NARA. Payment of the fees required by NARA should accompany all requests for copies.

All assignment records from 1837 to April 30, 1957 for patents are now maintained and are open for public inspection in the National Archives Research Room located at the Washington National Records Center Building, 4205 Suitland Road, Suitland, Maryland 20746 and at the Civilian Records Division of the National Archives at College Park, 8601 Adelphi Road, College Park, MD 20740-6001. Assignment records from before 1837 are not available. Individuals should check the National Archives website, www.archives.gov , for how to obtain information from these locations.

• 301.01-Accessibility of Assignment Records
• 302.01-Assignment Document Must Be Copy for Recording
• 302.02-Translation of Assignment Document
• 302.03-Identifying Patent or Application
• 302.04-Foreign Assignee May Designate Domestic Representative
• 302.05-Address of Assignee
• 302.06-Fee for Recording
• 302.07-Assignment Document Must Be Accompanied by a Cover Sheet 
• 302.08-Mailing Address for Submitting Assignment Documents
• 302.09-Facsimile Submission of Assignment Documents
• 302.10-Electronic Submission of Assignment Documents
• 303-Assignment Documents Not Endorsed on Pending Applications
• 304‑305-[Reserved]
• 306.01-Assignment of an Application Claiming the Benefits of a Provisional Application
• 307-Issue to Non-Applicant Assignee
• 308-Issue to Applicant
• 309-Restrictions Upon Employees of U.S. Patent and Trademark Office
• 310-Government License Rights to Contractor-Owned Inventions Made Under Federally Sponsored Research and Development
• 311-Filing of Notice of Arbitration Awards
• 312-[Reserved]
• 313-Recording of Licenses, Security Interests, and Documents Other Than Assignments
• 314-Certificates of Change of Name or of Merger
• 315-Indexing Against a Recorded Certificate
• 316-[Reserved]
• 317.01-Recording Date
• 317.02-Correction of Unrecorded Returned Documents and Cover Sheets
• 317.03-Effect of Recording
• 318-Documents Not to be Placed in Files
• 319-[Reserved]
• 320-Title Reports
• 321‑322-[Reserved]
• 323.01(a)-Typographical Errors in Cover Sheet
• 323.01(b)-Typographical Errors in Recorded Assignment Document
• 323.01(c)-Assignment or Change of Name Improperly Filed and Recorded by Another Person Against Owner’s Application or Patent
• 323.01(d)-Expungement of Assignment Records
• 324-Establishing Right of Assignee To Take Action in Application Filed Before September 16, 2012
• 325-Establishing Right of Assignee To Take Action in Application Filed On or After September 16, 2012

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Assignment vs Novation: Everything You Need to Know

Assignment vs. novation: What's the difference? An assignment agreement transfers one party's rights and obligations under a contract to another party. 4 min read updated on February 01, 2023

Assignment vs. novation: What's the difference? An assignment agreement transfers one party's rights and obligations under a contract to another party. The party transferring their rights and duties is the assignor; the party receiving them is the assignee. Novation is a mechanism where one party transfers all its obligations and rights under a contract to a third party, with the consent of the original counterparty.

The transfer of a benefit or interest from one party to another is referred to as an assignment. While the benefits can be transferred, the obligation or burden behind the contract cannot be. A contract assignment occurs when a party assigns their contractual rights to a third party. The benefit that the issuing party would have received from the contract is now assigned to the third party. The party appointing their rights is referred to as the assignor, while the party obtaining the rights is the assignee. 

The assignor continues to carry the burden and can be held liable by the assignee for failing to fulfill their duties under the contract. Purchasing an indemnity clause from the assignee may help protect the assignor from a future liability. Unlike notation, assignment contracts do not annul the initial agreement and do not establish a new agreement. The original or initial contract continues to be enforced. 

Assignment contracts generally do not require the authorization from all parties in the agreement. Based on the terms, the assignor will most likely only need to notify the nonassigning party.

In regards to a contract being assignable, if an agreement seems silent or unclear, courts have decided that the contract is typically assignable. However, this does not apply to personal service contracts where consent is mandatory. The Supreme Court of Canada , or SCC, has determined that a personal service contract must be created for the original parties based on the special characteristics, skills, or confidences that are uniquely displayed between them. Many times, the courts need to intervene to determine whether an agreement is indeed a personal service contract.

Overall, assignment is more convenient for the assignor than novation. The assignor is not required to ask for approval from a third party in order to assign their interest in an agreement to the assignee. The assignor should be aware of the potential liability risk if the assignee doesn't perform their duties as stated in the assigned contract.

Novation has the potential to limit future liabilities to an assignor, but it also is usually more burdensome for the parties involved. Additionally, it's not always achievable if a third party refuses to give consent.

It's essential for the two parties in an agreement to appraise their relationship before transitioning to novation. An assignment is preferential for parties that would like to continue performing their obligations, but also transition some of their rights to another party.

A novation occurs when a party would like to transfer both the benefits and the burden within a contract to another party. Similar to assignment, the benefits are transferred, but unlike assignment, the burden is also transferred. When a novation is completed, the original contract is deleted and is replaced with a new one. In this new contract, a third party is now responsible for the obligations and rights. Generally, novation does not cancel any past obligations or rights under the initial contract, although it is possible to novate these as well.

Novation needs to be approved by both parties of the original contract and the new joining third party. Some amount of consideration must also be provided in the new contract in order for it to be novated, unless the novation is cited in a deed that is signed by all parties to the contract. In this situation, consideration is referring to something of value that is being gained through the contract.

Novation occurs when the purchaser to the original agreement is attempting to replace the seller of an original contract. Once novated, the original seller is released from any obligation under the initial contract. The SCC has established a three-point test to implement novation. The asserting party must prove:

• The purchaser accepts complete liability
• The creditor to the original contract accepts the purchaser as the official debtor, and not simply as a guarantor or agent of the seller
• The creditor to the original contract accepts the new contract as the replacement for the old one

Also, the SSC insisted that if a new agreement doesn't exist, the court would not find novation unless the precedence was unusually compelling.

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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 .

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Assignment is a legal definition that refers to the transfer of rights, property, or other benefits between two parties. The party allocating the rights is known as the “assignor”, while the one receiving them is called the “assignee”. The other original party to the contract is known as the “ obligor ”.

A burden, duty, or detriment cannot be transferred as an assignment without the agreement of the assignee . Furthermore, the assignment can be carried out as a gift, or it may be paid for with a contractual consideration .

Keep reading to learn how this important legal term is used both in contract and property law and to see relevant examples.

• Assignment Examples

A common example of assignment within property law can be seen in rental agreements between landlords and tenants. For example, a tenant may be renting from a landlord but wants another party to take over the property . In this scenario, the tenant may be able to choose between assigning the lease to a new tenant or subleasing it.

If assigning it, the new tenant will be given the entire balance of the term, with no reversion to anyone else being possible. In other words, the new tenant would have a legal relationship with the landlord. On the other hand, if subleasing the property, the new tenant would be given a limited term and no legal responsibility towards the property owner, only towards the original tenant.

Another example of assignment can be seen within contract law . Let’s say that a school hires a piano teacher for a monthly employment contract with a salary of $2000 per month. As long as there is consent from all parties, the teacher could assign their contract to another qualified piano instructor.

This would be an assignment both of the piano teacher’s rights to receive $2000 per month, and a delegation of their duty to teach piano lessons. This illustrates the fact that under contract law, assignment always includes a transfer of both rights and duties between the parties. If a breach of contract is made by either party, for example for defective performance, then the new teacher or the school can sue each other accordingly.

• Legal Requirements for Assignment

For an assignment to be legally valid, it must meet certain requirements . If these are not met, a trial court can determine that the transfer of rights did not occur. The legal requirements for assignment are as follows:

• All parties must consent and be legally capable to carry out the assignment.
• The objects, rights, or benefits being transferred must be legal.
• The assignment is not against public policy or illegal.
• Some type of consideration is included if necessary.
• The contract in question must already be in place and doesn’t prohibit assignment.
• If a duty is being transferred, and it requires a rare genius or skill, then it cannot be delegated.
• The assignment doesn’t significantly change the expected outcome of a contract.
• Assignment Steps

To successfully assign a contract, certain steps must be followed to ensure the process is legally valid. The necessary assignment steps are listed below:

• Ensuring there is no anti-assignment clause in the contract.
• Executing the assignment by transferring the obligations and rights to a third party.
• Notifying the obligor of the transfer, which in turn relieves the assignor of any liability.
• Avoiding Assignment

In certain situations, one of the two parties may not want to allow their counterpart to assign the contract. This can be prevented by setting anti-assignment clauses in the original contract. An example of this is making it necessary for prior written consent to be attained from the other parties before the assignment is approved. Nevertheless, an anti-assignment clause cannot be included in an assignment that was issued or ordered by a court.

• Assignment vs. Novation

Novation occurs when a party would like to transfer both the benefits and burden of a contract to another party. This is similar to assignment in the sense that the benefits are transferred, but in this case, the burden is also passed on. When novation is finalized, the original contract is deleted and a new one is created, in which a third party becomes responsible for all the obligations and rights of the original contract.

• Assignment vs. Delegation

Although delegation and assignment are similar in purpose, they are two different concepts. Delegation refers to transferring the obligation to a third party without an assignment contract . While in assignment an entire contract and its rights and benefits can be passed on, in delegation only a particular contractual task or activity is transferred.

Let’s look at an example . Lisa is a homeowner that wants to hire Michael with an independent contractor agreement to remodel her garage. He plans to do all the work himself, but he’s not a painter, so he wants to delegate the painting work to his friend Valentina.

In this example, the contract is between Lisa, the obligor, and Michael, the delegator. Valentina would then be known as a delegatee, she doesn’t assume responsibility for the contract nor does she receive the contractual benefits, which in this case would be monetary compensation. However, Michael may have a separate agreement with Valentina to pay her in return for her work.

It’s also important to note that some duties are so specific in nature that it’s not possible to delegate them. In addition, if a party wants to avoid delegation , it’s recommended to add a clause to prevent the other party from delegating their duties.

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• Library of Congress
• Research Guides
• Law Library

Guide to Law Online: U.S. Federal

United states constitution.

• Introduction
• Executive Branch
• Judicial Branch
• Legislative Branch
• Legal Guides
• General Sources

Law Library : Ask a Librarian

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The Constitution of the United States (1789) is the written charter of government for the United States of America. It currently consists of a Preamble, seven Articles, and 27 Amendments (Amendments 1-10 are known as the Bill of Rights). The authority to amend or change the Constitution is described within the Constitution.

Below, find links to government and non-government websites that provide access to free online legal resources related to the Constitution of the United States.

U.S. Constitution: Text, Commentaries, Judicial Decisions, Influences

• Text and Commentaries
• Historical Texts
• Judicial Decisions
• Constitution of the United States of America: Analysis and Interpretation (Congress.gov) The Constitution of the United States of America: Analysis and Interpretation (also known as Constitution Annotated ) is a regularly updated resource that includes the text of the U.S. Constitution and provides a legal analysis and interpretation of the U.S. Constitution based on a comprehensive review of U.S. Supreme Court case law and, where relevant, historical practices that have defined the text of the Constitution. more... less... A print/PDF or bound edition of this title is available from the U.S. Government Publishing Office on govinfo.gov.
• Constitution of the United States of America: Analysis and Interpretation (govinfo) This print or bound edition of the Constitution Annotated is published every ten years, with cumulative updates printed as a supplement insert every two years. more... less... This regularly updated resource includes the text of the U.S. Constitution and provides a legal analysis and interpretation of the U.S.Constitution based on a comprehensive review of U.S. Supreme Court case law and, where relevant, historical practices that have defined the text of the Constitution.
• Constitution of the United States of America as Amended: Unratified Amendments, Analytical Index (PDF) (govinfo) This publication (H.R. Doc. No. 110-50 (2007) contains the text of the U.S. Constitution, including amendments and proposed amendments not ratified, a historical note, and an index.
• Transcription of the Introduction and the U.S. Constitution from the First Volume of the Annals of Congress (A Century of Lawmaking for a New Nation) "When Joseph Gales compiled the early debates and proceedings of Congress for publication in 1834 he chose to introduce the first volume with a brief history of the making of the Constitution followed by the text of the Constitution itself, 'as originally adopted,' that is, without the amendments we know as the Bill of Rights." That Introduction can be found in volume 1 of the Annals of Congress .
• The Constitution of the United States (U.S. National Archives and Records Administration) This resource, within the National Archives' America's Founding Documents collection, contains images of the original documents, links to amendments, and articles about the Constitution.
• U.S. Constitution External (Legal Information Institute, Cornell Law School) Contains the text of the U.S. Constitution, with links to "explanations" as found in the Constitution of the United States of America: Analysis and Interpretation .
• Interactive Constitution External (National Constitution Center) This private nonprofit organization invited legal scholars, from diverse perspectives, to provide commentary and analysis of the text, history, and meaning of the U.S. Constitution.
• The Constitution of the United States (translations) External (National Constitution Center) PDF copies of the U.S. Constitution in Arabic, French, German, Italian, Japanese, Korean, Portuguese, Russian, and Simplified Chinese.
• United States of America: Constitutions/Constituciones External (Political Database of the Americas, Edmund A. Walsh School of Foreign Service, Georgetown University) Includes text in English and Spanish.

The Federalist Papers (1788) and various other historical documents, such as Magna Carta (1215), are sometimes credited with having influenced the content of the Constitution of the United States or its initial Amendments (the Bill of Rights). The Constitution of the Confederate States of America was influenced by the U.S. Constitution, although it radically attempted to change its effect.

• Articles of Confederation (1781) External (The Avalon Project: Documents in Law, History and Diplomacy, Yale Law School)
• A Century of Lawmaking for a New Nation: U.S. Congressional Documents and Debates, 1774-1875 (A Century of Lawmaking for a New Nation) This collection contains congressional publications from 1774 to 1875, including, for example, the Journals of the Continental Congress , the Letters of Delegates to Congress, 1774-1789 , The Debates in the Several State Conventions on the Adoption of the Federal Constitution ( Elliot's Debates ), and The Records of the Federal Convention of 1787 ( Farrand's Records ).
• Confederate States of America: Documents External (The Avalon Project: Documents in Law, History and Diplomacy, Yale Law School) Includes the Constitution of Confederate States of America, and other Confederate legal documents.
• Documents from the Continental Congress and the Constitutional Convention, 1774 to 1789 (Library of Congress) Digital collection of 277 documents relating to the work of Congress and the drafting and ratification of the U.S. Constitution.
• Declaration of Independence, including Thomas Jefferson's draft (Library of Congress) Provides the text of the Declaration of Independence of 1776, along with a scanned images of the original document and the four pages of Thomas Jefferson's draft of the document.
• Declaration of Independence (U.S. National Archives and Records Administration) This resource, within the National Archives' America's Founding Documents collection, includes the text and scanned images of the original document and the initial stone engraving of the document, as well as articles and commentaries.
• Declaration of Independence: Right to Institute New Government (Library of Congress) Online exhibit on Thomas Jefferson, including a section focused on Jefferson's work drafting and revising the document.
• Federalist Papers: Primary Documents in American History (Library of Congress) The Federalist (also known as The Federalist Papers ) was issued as a series of highly influential essays in support of the proposed United States Constitution, most of which appeared initially in New York newspapers under the pen name "Publius" during 1787 and 1788. The actual authors were Alexander Hamilton, John Jay, and James Madison.
• The Federalist Papers External (The Avalon Project: Documents in Law, History and Diplomacy, Yale Law School)
• Virginia Declaration of Rights (U.S. National Archives and Records Administration) The immensely influential Virginia Declaration of Rights, written by George Mason, was adopted by the colonial convention June 12, 1776. The opening of the Declaration of Independence (adopted a few weeks later) borrowed from this document, and the U.S. Bill of Rights was adopted directly from this version of the natural rights of man, as previously proclaimed in the English Bill of Rights of 1689 and philosophers such as John Locke.
• Virginia Declaration of Rights External (The Avalon Project: Documents in Law, History and Diplomacy, Yale Law School)

Below, please find free resources regarding the texts that influenced the drafting of the U.S. Constitution, arranged by country or group of origin:

• Magna Carta, 1215 External (The Avalon Project: Documents in Law, History and Diplomacy, Yale Law Library) Translation from Latin to English of what is believed to be the first version (from 1215) of the "Great Charter." Includes glossary.
• Exhibit: Magna Carta (U.S. National Archives and Records Administration) The "Great Charter" version of 1297, which, despite its original limited application, has long been regarded as a foundation for the development of English liberties and political rights. A translation of the text of the version of 1297, used to confirm its continuing effect at the coronation of Edward I, is offered at this site along with images of this original document, and commentaries. more... less... Although King John of England was pressured into signing the first version, in 1215, and he violated its terms almost immediately, later kings adhered to the limits that the Magna Carta placed on royal powers, and the document proved immensely important hundreds of years after it was initially ignored. Portions are even reflected closely in the U.S. Bill of Rights.
• Magna Carta: Muse and Mentor (Library of Congress) This exhibition commemorates the 800th anniversary of the creation of Magna Carta and contains a section on the Magna Carta and the U.S. Constitution.
• English Bill of Rights of 1689: An Act Declaring the Rights and Liberties of the Subject and Settling the Succession of the Crown External (The Avalon Project: Documents in Law, History and Diplomacy, Yale Law School) Provided specific inspiration for American "Bill of Rights" which was made into law almost a century later.
• Declaration of the Rights of Man, 1789 (in English) External (The Avalon Project: Documents in Law, History and Diplomacy, Yale Law School) French counterpart to the American "Bill of Rights" drafted by Lafayette with the assistance of Thomas Jefferson, and approved by the National Assembly of France August 26, 1789.
• Déclaration des droits de l'homme et du citoyen de 1789 (in French) External (Assemblée Nationale) Declaration of the Rights of Man, 1789.
• Athenian Constitution by Aristotle (in English) External (The Avalon Project: Documents in Law, History and Diplomacy, Yale Law School) Sir Frederic G. Kenyon's translation of Aristotle on the political structure (or constitution) of the ancient city-state of Athens, which is usually considered a prime inspiration for the form of government chosen for the United States.
• Iroquois Constitution / The Great Binding Law Gayanshagowa (in multiple languages) External (Indigenous Peoples Literature) The English version of the historic Great Binding Law ("Gayanshagowa") of the Iroqouis Five Nations Confederacy, which is as much a social document as a legal document.
• Constitution of the United States of America: Analysis and Interpretation (Congress.gov) The Constitution of the United States of America: Analysis and Interpretation (also known as Constitution Annotated ) is a regularly updated resource which includes the text of the U.S. Constitution and provides a legal analysis and interpretation of the U.S.Constitution based on a comprehensive review of U.S. Supreme Court case law and, where relevant, historical practices that have defined the text of the Constitution. Provides links to cases online. more... less... A print/PDF or bound edition of this title is available from the U.S. Government Publishing Office on govinfo.gov.
• How to Find Free Case Law Online (Law Library of Congress)
• Supreme Court Collection: Decisions by Topic External (Legal Information Institute, Cornell Law School)

U.S. Constitution: Constitution Day and Citizenship Day

• Online Resources
• Executive Branch Documents
• Legislative Branch Documents

Constitution Day and Citizenship Day is observed each year on September 17 to commemorate the signing of the Constitution on September 17, 1787, and “recognize all who, by coming of age or by naturalization, have become citizens.”

This commemoration had its origin in 1940, when Congress passed a joint resolution authorizing and requesting the President to issue annually a proclamation setting aside the third Sunday in May for the public recognition of all who had attained the status of American citizenship. The designation for this day was “I Am An American Day.”

In 1952, Congress repealed this joint resolution and passed a new law moving the date to September 17 to commemorate “the formation and signing, on September 17, 1787, of the Constitution of the United States.” The day was still designated as “Citizenship Day” and retained its original purpose of recognizing all those who had attained American citizenship. This law urged civil and educational authorities of states, counties, cities, and towns to make plans for the proper observance of the day and “for the complete instruction of citizens in their responsibilities and opportunities as citizens of the United States and of the State and locality in which they reside.”

In 2004, under Senator Byrd's urging, Congress changed the designation of this day to "Constitution Day and Citizenship Day" and added two new requirements in the commemoration of this day. First, the head of every federal agency is directed to provide each employee with educational and training materials concerning the Constitution on September 17th. Second, each educational institution that receives Federal funds should hold a program for students every September 17th.

• Celebrating Constitution Day (Federal Depository Library Program, Government Publishing Office)
• Constitution Day Teacher Resources (Library of Congress)
• Constitution Day and Citizenship Day (U.S. Courts)
• Constitution Day (U.S. Senate)
• Commemorating Constitution Day and Citizenship Day (U.S. Department of Education)
• Observing Constitution Day (U.S. National Archives and Records Administration)
• Lesson Plans: Constitution Day September 17th External (Center for Civic Education) This Center works with a network of state civics, government, and law programs sponsored by state bar associations and foundations, colleges and universities, and other civic and law non-profit organizations promoting teaching and learning about the U.S. Constitution and Bill of Rights.
• Teacher's Guide: Commemorating Constitution Day External (National Endowment for the Humanities)
• Constitution Day External (National Constitution Center) Includes a link to the classroom edition of the Interactive Constitution
• Teaching the Constitution External (Annenberg Classroom, Annenberg Public Policy Center)
• 1952 - President Truman proclaims the first Citizenship Day (Law Library of Congress) Proclamation No. 2984, 17 Fed. Reg. 6931 (July 30, 1952)
• 1955 - President Eisenhower proclaims the first Constitution Week (Law Library of Congress) Proclamation No. 3109, 20 Fed. Reg. 6209 (Aug. 25, 1955)
• 2000 - President Clinton proclaims Citizenship Day and Constitution Week (Federal Register) Proclamation No. 7343, 65 Fed. Reg. 56,771 (Sept. 19, 2000)
• 2005 - Department of Education Notice of Implementation of Constitution Day and Citizenship Day on September 17 of Each Year (govinfo) 70 Fed. Reg. 29,727 (May 24, 2005)
• 2009 - President Obama designates the week of September 17-23 as Constitution Week (Office of the Federal Register) Proclamation No. 8418, 74 Fed. Reg. 48,129 (Sept. 21, 2009)
• Constitution Day and Citizenship Day (Office of Law Revision Counsel, U.S. House of Representatives) 36 U.S.C. § 106
• To revise, codify, and enact without substantive change certain general and permanent laws, related to patriotic and national observances, ceremonies, and organizations, as title 36, United States Code . . . (govinfo) 112 Stat. 1253, 1255-56 (1998) (codified as amended at 36 USC § 106)
• Joint Resolution designating September 17 of each year as “Citizenship Day” (govinfo) ch. 49, 66 Stat. 9 (1952)
• Joint Resolution authorizing the President...to proclaim I Am An American Day, for the recognition,...of American citizenship [PDF] External (Internet Archive) ch. 183, 54 Stat. 178 (1940)

U.S. Constitution: Legal Guides

• America's Historical Documents (National Archives and Records Administration)
• The American Constitution: A Documentary Record External (The Avalon Project: Documents in Law, History and Diplomacy, Yale Law School) Includes digital images of approximately 100 documents, with citations to the source books and materials.
• Constitutional Law: An Overview External (Legal Information Institute, Cornell Law School) Brief entry in online encyclopedia, Wex.
• Constitution of the United States: Primary Documents in American History (Library of Congress)
• Framing of the United States Constitution: A Beginner's Guide (Law Library of Congress)
• Primary Documents in American History (Library of Congress) More than 30 research guides are available under the topic "Primary Documents in American History." These guides focus on specific amendments to the U.S. Constitution (e.g., 13th, 14th, and 19th Amendments) as well as major federal laws, treaties, and U.S. Supreme Court cases.
• Timeline: American History as Seen in Congressional Documents, 1774-1873 (A Century of Lawmaking for a New Nation)
• << Previous: Introduction
• Next: Executive Branch >>
• Last Updated: Apr 26, 2024 12:11 PM
• URL: https://guides.loc.gov/us-federal-law

Assignments: why you need to serve a notice of assignment

It's the day of completion; security is taken, assignments are completed and funds move. Everyone breathes a sigh of relief. At this point, no-one wants to create unnecessary paperwork - not even the lawyers! Notices of assignment are, in some circumstances, optional. However, in other transactions they could be crucial to a lender's enforcement strategy. In the article below, we have given you the facts you need to consider when deciding whether or not you need to serve notice of assignment.

What issues are there with serving notice of assignment?

Assignments are useful tools for adding flexibility to banking transactions. They enable the transfer of one party's rights under a contract to a new party (for example, the right to receive an income stream or a debt) and allow security to be taken over intangible assets which might be unsuitable targets for a fixed charge. A lender's security net will often include assignments over contracts (such as insurance or material contracts), intellectual property rights, investments or receivables.

An assignment can be a legal assignment or an equitable assignment. If a legal assignment is required, the assignment must comply with a set of formalities set out in s136 of the Law of Property Act 1925, which include the requirement to give notice to the contract counterparty.

The main difference between legal and equitable assignments (other than the formalities required to create them) is that with a legal assignment, the assignee can usually bring an action against the contract counterparty in its own name following assignment. However, with an equitable assignment, the assignee will usually be required to join in proceedings with the assignor (unless the assignee has been granted specific powers to circumvent that). That may be problematic if the assignor is no longer available or interested in participating.

Why should we serve a notice of assignment?

The legal status of the assignment may affect the credit scoring that can be given to a particular class of assets. It may also affect a lender's ability to effect part of its exit strategy if that strategy requires the lender to be able to deal directly with the contract counterparty.

The case of General Nutrition Investment Company (GNIC) v Holland and Barrett International Ltd and another (H&B) provides an example of an equitable assignee being unable to deal directly with a contract counterparty as a result of a failure to provide a notice of assignment.

The case concerned the assignment of a trade mark licence to GNIC . The other party to the licence agreement was H&B. H&B had not received notice of the assignment. GNIC tried to terminate the licence agreement for breach by serving a notice of termination. H&B disputed the termination. By this point in time the original licensor had been dissolved and so was unable to assist.

At a hearing of preliminary issues, the High Court held that the notices of termination served by GNIC , as an equitable assignee, were invalid, because no notice of the assignment had been given to the licensee. Although only a High Court decision, this follows a Court of Appeal decision in the Warner Bros Records Inc v Rollgreen Ltd case, which was decided in the context of the attempt to exercise an option.

In both cases, an equitable assignee attempted to exercise a contractual right that would change the contractual relationship between the parties (i.e. by terminating the contractual relationship or exercising an option to extend the term of a licence). The judge in GNIC felt that "in each case, the counterparty (the recipient of the relevant notice) is entitled to see that the potential change in his contractual position is brought about by a person who is entitled, and whom he can see to be entitled, to bring about that change".

In a security context, this could hamper the ability of a lender to maximise the value of the secured assets but yet is a constraint that, in most transactions, could be easily avoided.

Why not serve notice?

Sometimes it's just not necessary or desirable. For example:

• If security is being taken over a large number of low value receivables or contracts, the time and cost involved in giving notice may be disproportionate to the additional value gained by obtaining a legal rather than an equitable assignment.
• If enforcement action were required, the equitable assignee typically has the option to join in the assignor to any proceedings (if it could not be waived by the court) and provision could be made in the assignment deed for the assignor to assist in such situations. Powers of attorney are also typically granted so that a lender can bring an action in the assignor's name.
• Enforcement is often not considered to be a significant issue given that the vast majority of assignees will never need to bring claims against the contract counterparty.

Care should however, be taken in all circumstances where the underlying contract contains a ban on assignment, as the contract counterparty would not have to recognise an assignment that is made in contravention of that ban. Furthermore, that contravention in itself may trigger termination and/or other rights in the assigned contract, that could affect the value of any underlying security.

What about acknowledgements of notices?

A simple acknowledgement of service of notice is simply evidence of the notice having been received. However, these documents often contain commitments or assurances by the contract counterparty which increase their value to the assignee.

Best practice for serving notice of assignment

Each transaction is different and the weighting given to each element of the security package will depend upon the nature of the debt and the borrower's business. The service of a notice of assignment may be a necessity or an optional extra. In each case, the question of whether to serve notice is best considered with your advisers at the start of a transaction to allow time for the lender's priorities to be highlighted to the borrowers and captured within the documents.

For further advice on serving notice of assignment please contact Kirsty Barnes or Catherine Phillips  from our Banking & Finance team.

• [email protected]
• T:  +44 (0)370 733 0605
• Download vCard for  Catherine Phillips

Related Insights & Resources

• Practical Law

Practical Law UK Glossary 1-107-6442  (Approx. 4 pages)

Kluwer Patent Blog

A cautionary tale for assignment of rights in u.s. patents.

In Omni MedSci, Inc. v. Apple Inc. , ___ F.4th ___, Nos. 2020-1715, -1716 (Fed. Cir. Aug. 2, 2021), the U.S. Court of Appeals for the Federal Circuit held that the University of Michigan’s technology transfer bylaws did not constitute an automatic assignment of a professor’s patent rights. This decision has important implications for the drafting of employee agreements as they relate to the ownership of inventions, which in the U.S. vest initially in the inventors.

In 2012, Dr. Islam, a tenured professor at University of Michigan (“UM”), took an unpaid leave-of-absence in order to start a new company, Omni. During his leave, Dr. Islam filed several provisional patent applications that he expected to form the backbone of the IP portfolio for the new company. In 2013, after resuming work at UM, Dr. Islam assigned the issued patents to Omni.

Omni subsequently brought suit against Apple for infringement of two patents descended from the provisional applications filed by Dr. Islam during his leave. Apple moved to dismiss alleging that Omni lacked standing because UM was the real patent owner. Apple argued that UM’s bylaws automatically transferred legal title to the patents to UM, leaving Dr. Islam with no rights to assign to Omni. The district court rejected Apple’s arguments and denied the motion; in a split decision, the Federal Circuit affirmed.

Did UM’s Bylaws Effectuate an Automatic Assignment?

Like all professors at UM, Dr. Islam signed an employment agreement when he was first hired in 1995 in which he agreed to abide by UM’s bylaws.  Those bylaws provided that patents “resulting from activities which have received no support … from the University shall be the property of the inventor,” whereas patents based on activities supported by the University “shall be the property of the University.” The question for the court was whether the bylaws created an obligation to assign or constituted an automatic assignment of the patents at issue, which would have automatically transferred title to UM and left Dr. Islam with no rights in the invention to assign to Omni.

The distinction between automatic assignments and obligations to assign is nicely illustrated by the Stanford v. Roche case. There, Professor Holodniy, a Stanford professor, conducted research at Cetus pursuant to a confidentiality agreement. After his return to Stanford, Professor Holodniy assigned the resulting patent applications to Stanford. When Stanford subsequently sued Roche, Roche raised an ownership defense based on the language in the confidentiality agreement with Cetus. The Cetus agreement stated that Holodniy “will assign and do[es] hereby assign” his rights to Cetus for inventions made “as a consequence of [his] access” to Cetus. By contrast, Holodiny’s employment agreement with Stanford stated that he “agree[d] to assign” rights in inventions resulting from his employment. The Federal Circuit held that the Cetus contract, by virtue of its present-tense “do[es] hereby assign” language, automatically assigned rights to Cetus, but the Stanford contract’s future-tense language did not.

In Omni , the Federal Circuit observed that UM’s bylaws did “not unambiguously constitute either a present automatic assignment or a promise to assign in the future.” The express purpose of the bylaws was, however, to determine under which conditions employees were obliged to assign their inventions to UM and when they would own it themselves. Moreover, after disclosing an invention to the Office of Technology Transfer, employees at UM were asked to sign an Invention Report, which referenced the bylaws and provided: “As required, I/we hereby assign.” The Federal Circuit contrasted the “unambiguous present assignment” in the Invention Report with the language in the bylaws, noting that “[e]ach case in which [the] court found a present automatic assignment examined contractual language with a present tense executing verb. Such present-tense active verbs effectuate a present action.” Thus, the Federal Circuit concluded that the bylaws were “most naturally read as a statement of intended disposition and a promise of a potential future assignment, not as a present automatic transfer.”

Takeaways: How to Play it Safe

While the Federal Circuit noted that there are no “magic words,” the following language has been held to constitute an automatic assignment: “the Employee assigns all of his or her right, interest, or title in any invention to the Employer” ( SiRF Tech v. Int’l Trade Comm’n ); “agrees to and does hereby grant and assign” ( DDB Techs. ); “hereby conveys, transfers, and assigns” ( Speedplay v. Bebop ); and “agrees to grant and does hereby grant” ( FilmTec Corp. v. Allied-Signal ). By contrast, passive verbs in indefinite or future tense are less likely to effectuate a present assignment.  Indeed, agreements providing that an invention “shall be the property of … and all rights thereto will be assigned” to an employer have been held not to be an automatic assignment, but rather, an obligation to assign in the future. By following the language of these precedents, employers and employees can ensure their agreements provide for the desired ownership of inventions.

Concluding Remarks

In dissent, Judge Newman argued that the holding “overturns decades of unchallenged understanding and implementation of the University’s employment agreement and policy documents.” Whether or not this is true, institutions and corporations would be well-advised to review the language used in their employment agreements to ensure it achieves the intended purpose.

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Jurisdictions

Submissions, green guide, future lawyers, firms & lawyers, service providers, barristers’ sets, hall of fame, interview with…, in-house lawyer, gc powerlist, gc magazine, knowledge centre, legal business, news & developments, special reports, marketing resources, newsletters, comparative guides, legal 500 tv, deutschland de, assigning rights where a contract contains a non-assignment clause.

December 13, 2023 > Singapore >

This article is produced by CMS Holborn Asia, a Formal Law Alliance between CMS Singapore and Holborn Law LLC.  

The High Court of Singapore has recently decided that a non-assignment clause in a contract did not prohibit the assignment of non-contractual (or tortious) rights arising out of or in connection with the contract. This article considers the practical implications of that decision.

Introduction

Can a party to a contract assign non-contractual rights arising out of the contract to a third party, notwithstanding the existence of a non-assignment clause in the contract?

The validity and enforceability of such an assignment were recently considered by the Singapore High Court (“HC”) in  Re Ocean Tankers (Pte) Ltd (in liquidation)  [2023] SGHC 330 (“ Ocean Tankers ”).

Contractual vs non-contractual rights

First, it is useful to understand the difference between “contractual” rights and “non-contractual” (or “tortious”) rights.  We will use the terms “non-contractual” and “tortious” interchangeably in this article to refer to the latter category of rights.

“Contractual” rights are rights which are set out in the provisions of the contract, reflecting the express agreement of the parties to the contract. Conversely, “non-contractual” rights are rights which arise as a matter of law and which are connected with (or which arise from) that contract, but are not specifically provided for in the text of a contract.

Ocean Tankers (Pte) Ltd (the “ Company ”) was placed under judicial management in August 2020. In the interim period between Company’s judicial management and its subsequent winding-up, the judicial managers of the Company (the “ JMs ”) brought actions concerning purported assignments of claims made by a creditor of the Company (the “ Assignor ”) in favour of a third-party debtor of the Company (the “ Debtor ”).

One of the issues the HC had to consider concerned the validity of an assignment of non-contractual claims made by the Assignor in favour of the Debtor, and whether that assignment was enforceable against the Company.

The assignment in question sought to assign the Assignor’s rights, title, interests and benefits in and to (amongst other things):

• a storage agreement (the “ Storage Agreement ”) made between the Assignor and the Company;
• a document (the “ Document ”) issued by the Company evidencing the existence and transfer of certain cargo; and
• any and all causes of action the Assignor had or may have had against the Company in connection with or arising from (amongst other things) the Document.

As indicated above, there were various assignments which were purported to be made by the Assignor which were being challenged by the Company.  However, for the purposes of this article, the salient assignment was the purported assignment of the Assignor’s causes of action against the Company in connection with or arising from the Document, as referred to in paragraph (3) above (which the HC referred to as the “ Vessel [B] Document Claim ”).

The court had to consider if the assignment of the Vessel [B] Document Claim was valid in light of the non-assignment clause set out in the Storage Agreement (the “ Non-Assignment Clause ”).  The HC held that the Document was “not separate and independent from the Storage Agreement”, implying that the Document was subject to the provisions of the Storage Agreement, including the restrictions on assignment set out in the Non-Assignment Clause.

Did the assignment of the Vessel [B] Document Claim breach the Non-Assignment Clause?

The Non-Assignment Clause was in the following terms:

The HC noted that the text of the Non-Assignment Clause required the Company’s consent for the assignment and novation of rights under the Storage Agreement (and, by extension, the Document), and the parties did not dispute that no such consent was obtained.

The HC was of the view that there were “ clear indications in the  [Non-Assignment Clause]  itself that it relates to contractual rights but not tortious rights ”. Three reasons were given by the HC in reaching this conclusion.

First, the Non-Assignment Clause referred to “novation”, which the HC noted is a process “ by which a  contract  between the original contracting parties is discharged through mutual consent and substituted with a new contract between the new parties ”. In the HC’s view, when the Non-Assignment Clause referred to the novation of “rights and obligations”, this must be understood to mean  contractual  rights and obligations, and the Non-Assignment Clause did not prohibit the assignment or novation of  tortious  rights and obligations.

Second, the heading of the Non-Assignment Clause – “TRANSFER OR ASSIGNMENT OF  AGREEMENT ” (emphasis added) – indicated the intention of the parties for the clause to cover only contractual rights.

Third, the HC noted that the Storage Agreement itself referred to rights other than contractual rights. For example, the Storage Agreement made references to claims “ in tort , under contract or otherwise at law” as well as obligations or liabilities “under or   arising  from [the Storage] Agreement or at law”. The HC was accordingly of the view that the Assignor and the Company (i.e., the original parties to the Storage Agreement) intended to refer specifically to  contractual  rights and obligations where the Non-Assignment Clause specifically referred to rights “under” the Agreement.

On the facts, the HC found that the assignment of the Vessel [B] Document Claim was a tortious claim and, consequently, held that the assignment of the Vessel [B] Document Claim was outside the ambit of, and did not breach, the Non-Assignment Clause.

In reaching its conclusion, the HC considered the judgment of the English High Court in  Burleigh House (PTC) Ltd v Irwin Mitchell LLP  (“ Burleigh House ”) [1]   which held that the non-assignment clause in that case prohibited both assignments of contractual  and  tortious rights.  However, the HC declined to follow  Burleigh House  for the following reasons:

• first,  Burleigh House  concerned assignments in the context of a former client’s claim against a law firm for professional negligence. The HC was of the view that the implications that such an assignment would have on the solicitor-client relationship were a significant consideration for the English High Court in its interpretation of the non-assignment clause in the law firm’s retainer. The HC was quite clear that this concern did not apply in the context of the case before it and, accordingly, distinguished  Burleigh House ;
• second,  Burleigh House  sought to apply the approach taken towards the construction of  arbitration  clauses, as set out in  Fiona Trust & Holding Corp v Privalov [2]  (“ Fiona Trust ”). That case held that rational businesspeople who agree to such clauses, regardless of whether they refer to disputes “arising under”, “in connection with” or “under” a contract, intend  any   dispute  arising out of their relationship to be decided by the same tribunal. While noting that  Fiona Trust  had been found by the Singapore Court of Appeal to apply to jurisdiction clauses generally [3] , the HC did not agree that the approach towards the interpretation of arbitration clauses as set out in  Fiona Trust  should  ipso facto  apply to other clauses in a contract or to non-assignment clauses generally. In the HC’s view, a non-assignment clause is not a dispute resolution clause and is intended to perform a very different function.

Implications for the drafting of non-assignment clauses

Ocean Tankers  illustrates the potential limits of a non-assignment clause under Singapore law and provides valuable guidance as to what type of rights and obligations parties can assign – or can prohibit the assignment of.

The judgment does, however, indicate that appropriate drafting  can  extend non-assignment clauses to prohibit or restrict the transfer of non-contractual rights. Such a prohibition on the assignment of non-contractual rights would work in tandem with the prohibition of an assignment of contractual rights under the agreement, such that  any  rights related to the agreement can be prevented from being assigned.

Ocean Tankers  has practical implications. For example, some industry standard form documents use language which is similar to that of the Non-Assignment Clause, in prohibiting assignments of rights or obligations “under” certain specifically identified documents.  Ocean Tankers  indicates that a Singapore court would construe this as applying only to contractual rights, and not to non-contractual/tortious ones.

Prior to  Ocean Tankers , parties to a contract would not have considered that such a clause would treat contractual and non-contractual rights differently and would have assumed that such drafting would apply to both categories of rights; there now appears to be a need to re-look and re-draft these clauses to reflect the contracting parties’ intentions.

Having expended considerable effort to explain why the assignment of the Vessel [B] Document Claim did not breach the provisions of the Non-Assignment Clause, the HC ultimately found that the assignment of the Vessel [B] Document Claim was a “ champertous assignment of a bare right to litigate and therefore void and/or ineffective against the Company, the JMs and the liquidators  [of the Company]”.

This, however, does not have any bearing on (and should not distract us from) the HC’s conclusion that the Non-Assignment Clause did not prohibit the assignment of non-contractual rights.

Link to the full article: Assigning rights where a contract contains a non-assignment clause (cms-lawnow.com)

Co-authored by: Kerith Cheriyan, Practice Trainee, Holborn Law LLC

[1]   Burleigh House (PTC) Ltd v Irwin Mitchell LLP  [2021] EWHC 834

[2]   Fiona Trust & Holding Corp v Privalov  [2007] Bus LR 1719

[3]   Bunge SA and another v Shrikant Bhasi and other appeals  [2020] 2 SLR 1223

More from CMS

35 U.S. Code § 261 - Ownership; assignment

Subject to the provisions of this title, patents shall have the attributes of personal property. The Patent and Trademark Office shall maintain a register of interests in patents and applications for patents and shall record any document related thereto upon request, and may require a fee therefor.

Applications for patent, patents, or any interest therein, shall be assignable in law by an instrument in writing. The applicant, patentee, or his assigns or legal representatives may in like manner grant and convey an exclusive right under his application for patent, or patents, to the whole or any specified part of the United States.

A certificate of acknowledgment under the hand and official seal of a person authorized to administer oaths within the United States, or, in a foreign country, of a diplomatic or consular officer of the United States or an officer authorized to administer oaths whose authority is proved by a certificate of a diplomatic or consular officer of the United States, or apostille of an official designated by a foreign country which, by treaty or convention, accords like effect to apostilles of designated officials in the United States, shall be prima facie evidence of the execution of an assignment, grant or conveyance of a patent or application for patent.

An interest that constitutes an assignment, grant or conveyance shall be void as against any subsequent purchaser or mortgagee for a valuable consideration, without notice, unless it is recorded in the Patent and Trademark Office within three months from its date or prior to the date of such subsequent purchase or mortgage.

Based on Title 35, U.S.C., 1946 ed., § 47 (R.S. 4898, amended (1) Mar. 3, 1897, ch. 391, § 5, 29 Stat. 93 [ 29 Stat. 693 ], (2) Feb. 18, 1922, ch. 58, § 6, 42 Stat. 391 , (3) Aug. 18, 1941, ch. 370, 55 Stat. 634 ).

The first paragraph is new but is declaratory only. The second paragraph is the same as in the corresponding section of existing statute. The third paragraph is from the existing statute, a specific reference to another statute is omitted. The fourth paragraph is the same as the existing statute but language has been changed.

2012— Pub. L. 112–211 inserted “The Patent and Trademark Office shall maintain a register of interests in patents and applications for patents and shall record any document related thereto upon request, and may require a fee therefor.” at end of first par. and substituted “An interest that constitutes an assignment” for “An assignment” in fourth par.

1982— Pub. L. 97–247 inserted “, or apostille of an official designated by a foreign country which, by treaty or convention, accords like effect to apostilles of designated officials in the United States”.

1975— Pub. L. 93–596 substituted “Patent and Trademark Office” for “Patent Office”.

Amendment by Pub. L. 112–211 effective on the date that is 1 year after Dec. 18, 2012 , applicable to patents issued before, on, or after that effective date and patent applications pending on or filed after that effective date, and not effective with respect to patents in litigation commenced before that effective date, see section 203 of Pub. L. 112–211 , set out as an Effective Date note under section 27 of this title .

Amendment by Pub. L. 97–247 effective Aug. 27, 1982 , see section 17(a) of Pub. L. 97–247 , set out as a note under section 41 of this title .

Amendment by Pub. L. 93–596 effective Jan. 2, 1975 , see section 4 of Pub. L. 93–596 , set out as a note under section 1111 of Title 15 , Commerce and Trade.

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Related Practices & Jurisdictions

• Labor Employment
• Intellectual Property
• Administrative Regulatory

On September 15, 2023, New York Governor Kathy Hochul signed into law a new section of the New York Labor Law limiting the assignment of inventions by employees to their employers. Specifically, Section 203-f of the Labor Law renders unenforceable provisions in employment agreements that require employees to assign certain inventions to their employer which were developed using the employee’s own property and time. The new law became immediately effective upon Governor Hochul’s signing.

New Labor Law Section 203-f bans the enforcement of invention assignment agreements that entitle employers to intellectual property developed by employees entirely on their own time without using their employer’s equipment, supplies, facilities, or trade secret information; unless the invention relates at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer, or if the invention results from any work performed by the employee for the employer. Section 203-f further provides that a requirement in an employment agreement that an employee assign, or offer to assign, any of his or her rights in an invention developed on his or her own time to an employer is against New York State public policy and shall be unenforceable. Notably, Section 203-f does not state that such a provision renders an entire employment agreement unenforceable if it contains such a provision and does not create a private right of action.

The new bill was originally sponsored by New York State Senator Jessica Ramos from the 13th Senate District. State lawmakers approved the legislation in June 2023 after other States, including California, Illinois, New Jersey, and Nevada approved similar protections.

In fact, the bill provides protections similar to California’s Labor Code Section 2870. However, the New York legislation differs from its California counterpart in that California Labor Code Section 2870 includes language that explicitly allows employers to require employees to disclose all inventions employees develop during the term of their employment. California also places a burden on employees to prove that their inventions are not covered by their employee invention assignment agreement.

As a result, employers should review their employment agreements in New York to ensure they comply with the new law and draft any new agreements accordingly. Jackson Lewis attorneys continue to monitor further developments. 

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