assignment contract law canada

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The Assignment of Commercial Contracts in Legal Practice

Contracts are a prime example of intangible property. Parties to commercial contracts, like other property owners, frequently want to transfer their property to a third party. The transfer of a contract refers to the assignment of some or all of a party’s rights or the delegation of some or all of a party’s performance, or both, to a non-party to the agreement.

Some common instances in which a contracting party in a commercial context may desire to assign contractual rights, performance responsibilities, or both are as follows:

• In an asset sale, a corporation sells parts or all of its company.
• A contractor who subcontracts its work under certain projects.
• A business conglomerate that is going through an internal corporate reorganization.
• The borrower who offers its lender a security interest in its assets.
• A manufacturer who sells its receivables to a third party.

In any of these cases, the non-transferring party may object to assignment or delegation for a variety of grounds, including:

• The desire to choose the party with whom it does business.
• Concern that a different obligor or obligee may jeopardize the non-transferring party’s capacity to benefit from the contractual deal

To decide whether the transferring party (also known as the transferor) can execute the proposed transfer without gaining the non-transferring party’s approval, the transferring party must turn to relevant legislation and the plain text of the contract. If consent is necessary and not obtained, the transferring party faces the following risks:

• Violation of the contract.
• Making an ineffective and invalid transfer.

The Definitions of Assignment and Delegation

Each party to a contract is an:

• Obligee in terms of its contractual rights; and
• Obligor in terms of its contractual performance responsibilities.

Contract “assignability” is a term frequently used by contracting parties and practitioners. While they may expressly address the assignment of a party’s rights under the contract in some contexts, they frequently use the term “assignment” to refer to both:

• The delegation of duty to perform.
• The assignment of rights to obtain performance.

However, assignment and delegation are two distinct legal concepts that must be treated individually due to the fact that they might have different outcomes.

What is an Assignment?

Assignment is the transfer of some or all of an obligee’s (assignor’s) rights to receive performance under a contract, generally but not always to a non-party (assignee). A contract benefit is a right (a chose in action) that, in theory, may be delegated by the benefiting party to a non-party. For clarity purposes, this informative piece will assume that the assignee is a non-party, although the rights and responsibilities of the parties addressed apply equally to an assignee who is also a party to the agreement. When these rights are assigned, the assignor no longer has any claim to the advantages of the given rights, which are completely passed to the assignee.

Technically, a contract’s burden cannot be assigned under the law (see National Trust Co. v. Mead [i] and Irving Oil Ltd. v. Canada [ii] ). Transferring performance responsibilities under a contract requires the approval of all parties, making such a transfer a novation.

In practice, parties frequently refer to “assigning a contract” or “allowing the assignment of a contract,” which is actually an inaccurate representation of their intentions. For example, the parties may plan for some or all of the following:

• The contract’s rights or benefits may be assigned.
• The contract’s burdens or performance duties may be transferred.
• Rights and burdens may be transferred.

The Effects of Assignment

The assignor is no longer entitled to any benefits from the assigned rights, which have all been passed to the assignee; nonetheless, even if the assignor is stripped of its contractual rights, assignment does not decrease or remove the assignor’s duties to the non-assigning party. As previously stated, a contract’s burden may only be assigned to a third party with the approval of all parties. As a result, the assignor is still obligated to fulfill its contractual commitments. The non-assigning party retains the following:

• Its entitlement to get performance from the assignor; and
• Its remedies against the assignor in the event of non-performance.

The ordinary rule is that a party can only assign its benefits without the consent of the other party to the contract and will remain liable to the other party for its performance obligations (see National Trust Co. v. Mead [iii] and Rodaro v. Royal Bank [iv] ). If the assignor intends to transfer its obligations and both the non-transferring party and the potential assignee agree, the parties should enter into a novation agreement, which results in a new contract between the assignee and the old contract’s remaining (non-transferring) party. In practice, the assignee often undertakes the contract’s performance responsibilities as of the date of assignment, and the assignor gets an indemnity from the assignee in the event of a breach or failure to perform.

A clear, present, purpose to transfer the assigned rights without needing any additional action by the assignee is required for an assignment to be effective, which means that a promise to assign in the future is ineffective as an actual transfer. Otherwise, no special terminology is necessary to draft an effective assignment.

What is Delegation?

Delegation is the transfer of some or all of an obligor’s (delegating party’s) performance responsibilities (or conditions demanding performance) under a contract to a non-party (delegatee). To be effective, a delegation requires the delegatee to agree to take on the delegated performance; however, unless the non-delegating party has consented to a novation, the delegating party remains accountable for the delegated performance, whether or not it has also transferred its contractual rights.

This is distinct from an assignment of rights, in which the assignor relinquishes its contractual claims upon assignment. As a result, even if the delegating party can effectively delegate its actual performance to the delegatee (such that the delegatee’s actual performance discharges the delegating party’s duty), the delegating party cannot be relieved of its obligation to perform and liability for non-performance unless the non-delegating party agrees to a novation.

There is no precise wording necessary to create an effective delegation, just as there is not for the assignment of rights. When performance is effectively delegated, the delegatee assumes liability for the delegating party’s performance obligations (under an assumption agreement), even if the delegating party retains liability to the non-delegating party for the delegatee’s failure to adequately perform the delegated obligations in the absence of a novation. Under an assumed agreement, the delegating party may have recourse against the delegatee, which is frequently addressed through a contractual indemnity right.

If the delegating party wishes to entirely exclude itself from liability for non-performance, it must get the non-delegating party’s approval to the contract (novation). In the majority of novations, the delegating party, the delegatee, and the non-delegating party all agree on the following:

• The delegatee replaces the delegating party as a party to the contract.
• The delegating party is no longer liable for contract performance.
• The delegatee is directly and solely liable for the delegating party’s contract fulfillment.

Types of Assignment – Legal (Statutory) Assignment vs. Equitable Assignment

• Legal (Statutory) Assignment: An assignment that satisfies the provisions of the appropriate province or territory laws (for example, the Conveyancing and Law of Property Act [v] )
• Equitable Assignment: An equitable assignment may be enforced even if it does not fulfill the statutory requirements for a legal assignment.

Requirements for a Legal (Statutory) Assignment

All of Canada’s common law provinces have enacted legislation allowing the transfer of contract rights. Notably, the legislation for Ontario is the Conveyancing and Law of Property Act .

These statutory assignments are enforceable if the parties comply with the following procedures:

• The assignment is absolute.
• The assignment is in writing, signed by the assignor
• the non-assigning obligor is given express written notice.

A statutory assignment does not need consideration, and no precise words or form are necessary. They can be made as gifts and be valid.

Requirements for an Equitable Assignment

An assignment may be enforceable as an equitable assignment even if it does not fulfill the formality criteria of a statutory assignment. An equitable assignment does not necessitate the use of any specific terms or form. However, in order to comply with any provincial statutes of frauds regulations, the assignment must be in writing. The phrasing must clearly indicate that the assignee is to benefit from the rights being assigned. In contrast to a statutory assignment, consideration is required until there is a full transfer, such as a gift. It is not necessary to provide the non-assigning obligor with express written notification (except in the case of a transfer of land). However, notification is often given largely to assure that:

• The obligor ceases to pay the assignor.
• The assignee has priority over subsequent encumbrances.

Contractual Anti-Assignment & Anti-Delegation Clauses

Rather than relying on relatively uncertain legal rules, most commercial contract parties handle transferability issues in the written agreement. As a result, most commercial contracts include a negative covenant that restricts one or both parties’ rights to assign.

These clauses frequently include specific exceptions that allow one or more of the parties to assign and delegate rights and duties, often to designated non-parties such as affiliates and successors-in-interest to the transferring party’s business.

Courts frequently uphold provisions that prevent assignment because they favor the rights of parties to freely contract. However, subject to specific limitations, there is a broad assumption that contractual rights are assignable. As a result, the case law on anti-assignment provisions is a little erratic. Some courts have upheld anti-assignment clauses and declared the agreement unenforceable. Others have argued that an anti-assignment provision cannot preclude assignment.

Overall, contractual anti-assignment and anti-delegation provisions are commonly included in many types of business contracts. If not, transferability is determined by the contract’s subject matter and the nature of the rights and obligations to be transferred. It is important to stay knowledgeable the existence of such contractual terms when dealing with various commercial contracts…such as contracts for the sale of goods, personal service contracts, commercial real estate leases and various other types of contracts.

If you have any questions about your business’s contractual assignment or delegation needs, contact Cactus Law today to speak with a lawyer specializing in commercial law.

Disclaimer:

The information presented above is solely for general educational and informational purposes. It is not intended to be, and should not be taken as, legal advice. The information given above may not be applicable in all cases and may not even reflect the most recent authority after the date of its publication. As a result, please refer to all updated legislation, statutes, and amendments. Nothing in this article should be relied on or acted upon without the benefit of legal advice based on the specific facts and circumstances described, and nothing in this article should be interpreted otherwise.

About the Author:

Kanwar Gujral is entering his third year at Osgoode Hall Law School in Toronto, Ontario. He has a dedicated interest in real estate, business, and corporate law.

[i] National Trust Co. v. Mead , 1990 CarswellSask 165 (S.C.C.).

[ii] Irving Oil Ltd. v. Canada , 1984 CarswellNat 137 (Fed. C.A.).

[iii] Supra note 1.

[iv] Rodaro v. Royal Bank , 2002 CarswellOnt 1047 (Ont. C.A.).

[v] Conveyancing and Law of Property Act , R.S.O. 1990, c. C.34.

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Understanding Contract Assignment (All You Need To Know)

Wondering what is contract assignment and how it works?

You’re looking to assign your contract and need to better understand the assignment process.

Don’t go any further…

We’ve got what you need!

In this article, we will talk about everything there is to know about a contract assignment process.

We’ve divided this article into the following sections:

What is the assignment of contract

Assignment clause in a contract, types of assignment clauses in a commercial contract, is a contract assignment enforceable.

• Who is involved in contract assignments

How does the assignment of a contract work

Type of contract that can be assigned, assignment vs delegation.

Let’s get started…

An assignment of contract is when a party to a contract hands off the contract terms and conditions to another party.

The assigning party is the “assignor” and the party receiving the contract is the “assignee”.

Once the assignor assigns the contract to the assignee, then the terms and conditions of the contract will apply to the assignee as well.

In some cases the assignor will be completely liberated from its obligations under the contract and in other cases the assignor will have varying degrees of responsibility or liability.

We will cover such details in this article.

When you are looking to assign a contract, the first thing that you should do is to look at your contract and see if you have an assignment clause.

In most commercial contracts, businesses will plan ahead and include an assignment clause.

In most instances, the assignment clause will state that the parties to the contract are not authorized to assign the contract to another unless it is approved by the other party.

The assignment clause will also state in some cases the liability applicable to the assignor.

The assignment clause may state that the assignor will remain obligated to the same extent as the assignee towards the other party to the original contract.

In such a scenario, the assignment of the contract will benefit the other party as it will now have the assignor and assignee responsible and liable towards it.

Before performing an assignment, it’s important to consult the assignment clause in the contract to ensure you respect its terms. 

There are different variations of an assignment clause in business contracts.

We’ll go over the three main contract assignment flavours.

The first type of assignment clause in a contract is when the assignment is entirely prohibited.

In this case, neither party may assign the contract without the prior consent of the other.

Another scenario is that the assignment is generally not authorized unless a party wishes to assign the contract to a subsidiary, an affiliate or an entity of its own corporate group.

If the assignor intends to assign the contract to another entity in its own group of entities the assignment will generally be authorized if the assignor owns more than fifty percent of the shares of the assignee or controls the management. 

A third scenario is when the assignment is generally authorized but subject to a prior notification of the other party.

In such clauses, the other party will still be required to give consent for the assignment but the consent must not be unreasonably withheld.

A contract assignment, to the extent the assignor has followed the terms and conditions of the contract, will be enforceable against the other party.

However, if the assignor does not follow the terms of the contract, the assignment will be unenforceable against the other original contracting party.

If the assignment is not done properly, the assignor, assignee and the other party to the original contract may all get entangled in unwanted legal risk.

To avoid creating legal risk for all parties involved, make sure that you ensure that the contract authorizes the assignment.

If the contract allows for the assignment, make sure the assignor gives the proper preliminary notifications to the other contracting party and receives any required consent or authorization before assigning the contract.

In the assignment agreement between the assignor and assignee, make sure the assignee understands the terms and conditions of the contract so it will perform its obligations as it was originally intended between the original contracting parties. 

It is also important for the assignor to ensure it understands the extent of liability or responsibility it will continue to have following the assignment should the contract require the assignor to remain responsible in some way.

If the assignor continues to have ongoing responsibilities after the assignment, the assignor must include terms and conditions in its own assignment agreement with the assignee to ensure the assignee adequately observes the contract terms to avoid triggering the responsibility of the assignor towards the other contracting party.

Provided the terms and conditions of the assignment are respected, the assignment of the contract will be enforceable.

And assignment will not be effective if it substantially changes the terms and conditions for the other contracting party.

For example, if you are a software company, you will not be able to assign the contract to a real estate company.

This goes without saying!

Who is involved in contract assignments 

There are typically at least three parties to an assignment.

You will have two original contracting parties and a third party.

Among the two original contracting parties, one party intends to assign the contract to the third party.

That party is the assignor.

The third-party agreeing to take over the contract from the assignor is referred to as the assignee.

Essentially, once the contract assignment is performed, the third party becomes a contracting party and the assignor becomes a third party.

So the assignor and assignee swap positions in relation to the other contracting party.

The assignment of a contract is fundamentally not complicated.

The process starts with one party to a contract notifies in writing of its intention to assign the contract to a third-party or assignee.

The other contracting party will either consent or not to the request.

If the consent is given, then the assignor enters into a commercial agreement with the assignee.

This agreement will typically cover the terms and conditions and the commercial considerations between the assignor and the assignee.

Every contract has a value and the assignor will probably require the assignee to pay for the right to take over the contract.

The agreement between the assignor and assignee will also clarify their obligations and responsibilities towards the other contracting party.

Once the assignor and assignee agree on the assignment terms and conditions between themselves, the assignor will prepare an assignment agreement that will be executed between the assignor, the assignee and the other contracting party. 

This assignment agreement will clarify the terms and conditions of the actual assignment and will formally result in the assignment of the contract as of that date.

In the business world, nearly all types of business contracts can be assigned.

The assignment clause will govern the assignment process from a legal point of view.

Although most types of contracts can be assigned, some types of contracts cannot be effectively assigned. 

If a business contract was signed with a person specifically for the skills and abilities of that individual, that individual may not assign the contract.

For example, you’ve asked your favorite band to sign at your wedding, the band could not assign that contract to another because you don’t care for the other signers to be at your wedding.

So a contract signed with an individual or entity based on the considerations and value brought by that specific person or entity cannot be assigned.

In some cases we talk about contract assignment and in other cases we talk about contract delegation.

What is the difference between a contract assignment and contract delegation?

The assignment of a contract is when you hand off the entire contract to another party.

The assignor will typically want to be discharged from its own obligations and the assignee inherits all the contract obligations towards the other party.

When we talk about contract delegation, this is a case when a party does not assign the entire contract but delegates part of its own responsibilities to another party.

A contract assignment is a process where a party to an existing contract transfers or gives up its contract rights and obligations for the benefit of another party.

Contract assignments are relatively frequent in cases where a company restructures and changes its corporate operations.

It can also happen between a company and its suppliers.

No matter the reason for the contract assignment, you’ll need to ensure that you follow the terms and conditions of your contract, particularly the assignment clause.

If you follow the assignment terms of the contract, your assignment will be enforceable against the other contracting party.

We hope that this article was useful to you.

Should you need any legal advice on contract assignment or contract law , we are here to support you.

In the meantime, best of luck!

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Assignment of contract

How it relates to the law in british columbia canada.

In British Columbia, an assignment of contract is a legal document that allows one party to transfer their rights and obligations under a contract to another party. This can be useful in situations where the original party is unable or unwilling to fulfill their obligations under the contract, or where they wish to transfer the benefits of the contract to another party. Under British Columbia law, an assignment of contract is generally valid and enforceable, provided that certain conditions are met. These conditions may include obtaining the consent of the other party to the contract, ensuring that the assignment does not violate any laws or regulations, and ensuring that the assignee is capable of fulfilling the obligations under the contract. In some cases, an assignment of contract may also be subject to specific legal requirements or restrictions, depending on the nature of the contract and the parties involved. For example, certain types of contracts may be subject to specific statutory requirements, such as the requirement for written consent or notice of assignment. Overall, an assignment of contract can be a useful tool for parties in British Columbia to transfer their rights and obligations under a contract, but it is important to ensure that all legal requirements are met in order to avoid any potential legal issues or disputes.

Impact on Business Owners in British Columbia

The impact of the assignment of contract on small businesses in British Columbia, Canada, is that it provides them with the ability to transfer their contractual rights and obligations to a third party. This can be useful for small businesses that are unable or unwilling to fulfill their obligations under a contract, or for those who wish to transfer the benefits of the contract to another party. However, small businesses must ensure that all legal requirements are met, such as obtaining the consent of the other party to the contract and ensuring that the assignee is capable of fulfilling the obligations under the contract, in order to avoid any potential legal issues or disputes.

Potential Legal Risks, Legal Challenges, or Legal Pitfalls for Businesses in British Columbia

As a small business owner in British Columbia, it is important to be aware of the potential legal risks and challenges associated with the assignment of contract. This refers to the transfer of rights and obligations under a contract from one party to another. One potential legal risk is that the assignment may be prohibited by the terms of the contract itself. It is important to carefully review the contract to ensure that there are no restrictions on assignment, or to obtain the consent of the other party to the assignment. Another potential legal challenge is that the assignment may not be valid if it is not properly executed. This could result in a breach of contract and potential legal action against the business. To avoid these issues, it is important to seek legal advice before entering into any contract that may be subject to assignment. This can help ensure that the contract is properly drafted and that any potential restrictions on assignment are identified and addressed. In addition, it is important to ensure that any assignment is properly executed and that all necessary steps are taken to transfer the rights and obligations under the contract to the new party. By being aware of these potential legal risks and challenges, small businesses in British Columbia can take steps to avoid or mitigate them and ensure that their contracts are properly assigned.

BC Business Practices and Consumer Protection Act (BPCPA)

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Assignment and Assumption Agreement

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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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• Baudouin, Jean-louis. "Contract Law in Canada". The Canadian Encyclopedia , 30 October 2020, Historica Canada . www.thecanadianencyclopedia.ca/en/article/contract-law. Accessed 17 May 2024.
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Contract Law in Canada

Article by Jean-louis Baudouin

Updated by Andrew McIntosh

Published Online February 6, 2012

Last Edited October 30, 2020

A contract is a legally binding agreement between two or more persons for a particular purpose. It is an instrument for the economic exchange of goods and services. In Canada, contract law is administered both in common law and, in Quebec, civil law .

Economic Exchange

In general, contracts are always formed on the same pattern. A person offers to give another person something (for example: to deliver an item in return for a certain price); to provide a service (to work for a certain salary); or to refrain from doing something (not to compete for a period of time in return for compensation). If the offer is accepted, the contract is then valid in principle. A contract is, above all, an instrument for the economic exchange of goods and services.

Types of Contracts

The four most common types of contracts are:

• the contract of sale, whereby a person acquires the ownership of property in return for payment;
• the lease and hire of services, whereby a person offers his services to another in return for payment;
• the lease and hire of things, whereby a person is temporarily granted the use of property (e.g., an apartment) in return for a price (rent);
• and the mandate, whereby a person gives another the power to represent her.

Contracts Under Civil and Common Law

Unlike other agreements, a contract is a legally binding promise. If one of the parties fails or refuses to fulfil its promise without a valid reason recognized by law, the party suffering the consequence of this breach of promise may call upon the courts either to force the defaulting party to carry out its promise (specific performance) or to demand compensation in the form of damages.

Quebec civil law  and Canadian  common law  generally follow similar rules in this regard: a contract legally entered into represents a legal bond between the parties. Parties are free to contract whenever and for whatever reason they wish. The only limits to absolute contractual freedom are certain restrictions imposed by legislation and by accepted ethics . Contracts contrary to a statutory law such as the Canadian  Criminal Code  are null and void. (Examples of this might include a work contract for a professional killer, or for a sex trade worker ). The same is true for a contract that goes against accepted ethics; or in civil law, public order.

Civil Code  regulations governing contracts in Quebec (articles 1377, 1456 of the  Québec Civil Code  – QCC) are derived mainly from French civil law. (French civil law is sourced from Roman law.) In other provinces, regulations governing contracts are based mostly on jurisprudence (previous court decisions) and on traditional British common law.

Many provinces, however, have adopted legislation codifying the rules of certain contracts. This is particularly true of sales and consumer contracts. Although Canada’s two major legal systems differ in certain respects for contract law, the practical solutions they provide are very similar when not identical.

For a contract to be valid and therefore legally binding, five conditions must be met. First, there must be the mutual consent of both parties. No one can be held to a promise involuntarily made. When consent is given by error, either under physical or moral duress, or as a result of fraudulent practices, the contract may be declared null and void at the request of the aggrieved party. In certain types of contractual relationship, the law demands that the consent of the party be both free and informed. This is the case, for instance, with contracts involving medical treatment.

The second is contractual capacity — the mental ability to keep the promise one has made. A young child, a person suffering from a serious mental disorder, and in some cases a minor are all considered incapable of contracting.

The third condition is that the contract should have an object or a purpose. It must concern a specific and agreed-upon good or service.

The fourth condition is “lawful cause” in  civil law ; or a “valuable consideration” in  common law . In this area, important technical differences exist between the two legal systems. Briefly, according to this fourth condition, the promise made must be serious and each obligation assumed by one of the parties must find a corresponding (but not necessarily equivalent or equal) promise made by the other party. A person may thus legally sell goods at a price that does not represent their actual market value. The contract would still be a valid one.

The fifth condition, which is not required in all cases, is the compliance in certain circumstances to formalities provided by law , such as a valid written instrument. In general, this condition holds for contracts that may have serious consequences for the parties; or those for which certain measures of publicity are required.

Parties to a valid contract are always bound by law to carry out their promise. Should they fail to, the other party is free to go to court to force them to comply. At times, the court may order the defaulting party to do exactly what he had promised (specified promise). In that respect, civil law provides more readily for the forced execution of promises than common law, for which specific performance appears to be still an exception to the rule. ( See also   Torts in Canada ;  Law of Delict in Québec .)

Courts may also award financial compensation in the form of damages equal in value to the loss suffered and profits lost as a result of the breach of contract; however, this loss and profit must be directly related to the non-fulfillment of promise (article 1611 QCC). Furthermore, courts award only damages equivalent to those benefits that the parties might reasonably have expected to receive at the time the agreement was made.

The rapid increase of class actions both in contractual and delictual fields has had a significant impact on the amount of damages awarded by courts; in certain cases, the amount can reach millions of dollars.

Consumer Protection and Good Faith

Increasingly, provincial and federal legislatures are acting to protect citizens against certain abusive commercial practices. Consumer protection law , in which rules and standards are imposed to suppress fraud , to avoid forced sales and to protect the consumer against dishonest practices, is an example of this type of action. The Quebec Civil Code  has provisions concerning performance in good faith (article 1375 QCC), as well as abusive, illegible or incomprehensible clauses (article 1379 QCC). These go a long way to promote fairness in contractual relationship.

In recent years, good faith has played an increasingly important role in  Quebec  case law. In other provinces, a recent judgement of the  Supreme Court of Canada  has also set a new requirement of good faith in contractual matters, but in limited circumstances.

See also Landlord and Tenant Law ; Employment Law ; Torts in Canada ; Restitution ; Insurance .

• legal system
• Criminal Code

Further Reading

John McCamus, The Law of Contracts , 2nd ed. (2013).

• Angela Swan, Jukab Admaski and Annie Y. Na, Canadian Contract Law , 4th (2018).

Recommended

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Family law in canada, landlord and tenant law, employment law, torts in canada, restitution (legal).

Assignment of Contract

Jump to section, what is an assignment of contract.

An assignment of contract is a legal term that describes the process that occurs when the original party (assignor) transfers their rights and obligations under their contract to a third party (assignee). When an assignment of contract happens, the original party is relieved of their contractual duties, and their role is replaced by the approved incoming party.

How Does Assignment of Contract Work?

An assignment of contract is simpler than you might think.

The process starts with an existing contract party who wishes to transfer their contractual obligations to a new party.

When this occurs, the existing contract party must first confirm that an assignment of contract is permissible under the legally binding agreement . Some contracts prohibit assignments of contract altogether, and some require the other parties of the agreement to agree to the transfer. However, the general rule is that contracts are freely assignable unless there is an explicit provision that says otherwise.

In other cases, some contracts allow an assignment of contract without any formal notification to other contract parties. If this is the case, once the existing contract party decides to reassign his duties, he must create a “Letter of Assignment ” to notify any other contract signers of the change.

The Letter of Assignment must include details about who is to take over the contractual obligations of the exiting party and when the transfer will take place. If the assignment is valid, the assignor is not required to obtain the consent or signature of the other parties to the original contract for the valid assignment to take place.

Check out this article to learn more about how assigning a contract works.

Contract Assignment Examples

Contract assignments are great tools for contract parties to use when they wish to transfer their commitments to a third party. Here are some examples of contract assignments to help you better understand them:

Anna signs a contract with a local trash company that entitles her to have her trash picked up twice a week. A year later, the trash company transferred her contract to a new trash service provider. This contract assignment effectively makes Anna’s contract now with the new service provider.

Hasina enters a contract with a national phone company for cell phone service. The company goes into bankruptcy and needs to close its doors but decides to transfer all current contracts to another provider who agrees to honor the same rates and level of service. The contract assignment is completed, and Hasina now has a contract with the new phone company as a result.

Here is an article where you can find out more about contract assignments.

Benjamin W.

Nicholas M.

Assignment of contract in real estate.

Assignment of contract is also used in real estate to make money without going the well-known routes of buying and flipping houses. When real estate LLC investors use an assignment of contract, they can make money off properties without ever actually buying them by instead opting to transfer real estate contracts .

This process is called real estate wholesaling.

Real Estate Wholesaling

Real estate wholesaling consists of locating deals on houses that you don’t plan to buy but instead plan to enter a contract to reassign the house to another buyer and pocket the profit.

The process is simple: real estate wholesalers negotiate purchase contracts with sellers. Then, they present these contracts to buyers who pay them an assignment fee for transferring the contract.

This process works because a real estate purchase agreement does not come with the obligation to buy a property. Instead, it sets forth certain purchasing parameters that must be fulfilled by the buyer of the property. In a nutshell, whoever signs the purchase contract has the right to buy the property, but those rights can usually be transferred by means of an assignment of contract.

This means that as long as the buyer who’s involved in the assignment of contract agrees with the purchasing terms, they can legally take over the contract.

But how do real estate wholesalers find these properties?

It is easier than you might think. Here are a few examples of ways that wholesalers find cheap houses to turn a profit on:

• Direct mailers
• Place newspaper ads
• Make posts in online forums
• Social media posts

The key to finding the perfect home for an assignment of contract is to locate sellers that are looking to get rid of their properties quickly. This might be a family who is looking to relocate for a job opportunity or someone who needs to make repairs on a home but can’t afford it. Either way, the quicker the wholesaler can close the deal, the better.

Once a property is located, wholesalers immediately go to work getting the details ironed out about how the sale will work. Transparency is key when it comes to wholesaling. This means that when a wholesaler intends to use an assignment of contract to transfer the rights to another person, they are always upfront about during the preliminary phases of the sale.

In addition to this practice just being good business, it makes sure the process goes as smoothly as possible later down the line. Wholesalers are clear in their intent and make sure buyers know that the contract could be transferred to another buyer before the closing date arrives.

After their offer is accepted and warranties are determined, wholesalers move to complete a title search . Title searches ensure that sellers have the right to enter into a purchase agreement on the property. They do this by searching for any outstanding tax payments, liens , or other roadblocks that could prevent the sale from going through.

Wholesalers also often work with experienced real estate lawyers who ensure that all of the legal paperwork is forthcoming and will stand up in court. Lawyers can also assist in the contract negotiation process if needed but often don’t come in until the final stages.

If the title search comes back clear and the real estate lawyer gives the green light, the wholesaler will immediately move to locate an entity to transfer the rights to buy.

One of the most attractive advantages of real estate wholesaling is that very little money is needed to get started. The process of finding a seller, negotiating a price, and performing a title search is an extremely cheap process that almost anyone can do.

On the other hand, it is not always a positive experience. It can be hard for wholesalers to find sellers who will agree to sell their homes for less than the market value. Even when they do, there is always a chance that the transferred buyer will back out of the sale, which leaves wholesalers obligated to either purchase the property themselves or scramble to find a new person to complete an assignment of contract with.

Learn more about assignment of contract in real estate by checking out this article .

Who Handles Assignment of Contract?

The best person to handle an assignment of contract is an attorney. Since these are detailed legal documents that deal with thousands of dollars, it is never a bad idea to have a professional on your side. If you need help with an assignment of contract or signing a business contract , post a project on ContractsCounsel. There, you can connect with attorneys who know everything there is to know about assignment of contract amendment and can walk you through the whole process.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

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A Guide to Contract Law in Canada

How does contract law work.

Contract law is a form of private law that governs how businesses interact with each other. It provides certainty when they enter into agreements, transactions, or arrangements with each other. If one party breaches an existing contract by not living up to its end of the agreement, the other can ask for the court’s assistance to remedy the breach.

Working closely with Toronto business lawyers is crucial if you’re in business. They can evaluate your business to ensure it complies with the contract law in Canada. They can also help you resolve legal disputes while partnering, transacting, or interacting with other business entities.

Contracts Are Legally Binding

Contracts are the backbone of business transactions, serving as promises between two or more parties. They signify a legal obligation to honour the terms of the business transaction, describing what each party must do and what it is entitled to from the other party.

Contract laws stipulate the principles determining whether an agreement is legally binding. That is crucial because not all agreements are contracts. Skilled Ontario contract agreement lawyers can evaluate your business agreements to determine if they’re legally enforceable, depending on whether specific conditions have been met.

Business contracts and corporate agreements are crucial because they protect you and your business when properly drafted. They protect tangible assets like business premises and employees and intangible assets such as intellectual property, goodwill, names, and websites. You can quickly lose these assets if you don’t protect them adequately.

In What Areas of Business is Contract Law Applicable?

While contracts are the “law of parties,” they must not contradict public order. That means that freedom of contract is not absolute, but contract law is generally used for the following purposes:

• Leasing agreements
• Sales agreements
• Loan and mortgage
• Employment agreements
• Rental agreements
• Donation agreements
• Company and service agreements
• Consumer agreements
• Agreements with foreign parties
• Non-disclosure Agreements (NDAs)

Skilled contract agreement lawyers in Ontario can help you create contracts around these issues. They can also help you resolve problems arising from a breach of contracts.

What is Breach of Contract?

Ideally, contracts should serve the interests of all the parties involved, but this doesn’t always happen. Agreements aren’t always clear, and the terms can be complex. A breach occurs when one party to a contract fails to meet or uphold its contractual duties. The party that suffers the consequences of this breach may have a cause of action for damages.

In Canada, various statutes govern breach of contract issues, including the Construction Lien Act and Court of Justice Act, Criminal Code, and the Canadian Business Corporations Act. Despite the laws, even the most comprehensive contract doesn’t guarantee that the other party will not breach it. Contract breaches happen daily, and the consequences can be frustrating and costly.

That’s why having the counsel of knowledgeable business lawyers in Toronto is crucial to protect your business rights. They can evaluate the contract and the breach and help you remedy the issue.

How Can a Lawyer Help Me Resolve a Breach of Contract?

Canadian law recognizes the enforceability of written or oral contracts, provided there is a flow of consideration from either party to the agreement or mutuality of promises. Courts must establish the parties’ bargain to determine an objective or show that the parties’ intent existed.

Courts must also determine whether there has been an “offer” and “acceptance” depending on the type and transmission of communication between the parties.

Before commencing a lawsuit for a breach of contract , skilled contract agreement lawyers in Thornhill can help you establish the following:

• An enforceable contract exists
• One party breached a term of the contract
• Whether you suffered actual damages or losses as a result of the breach

Remedies Available in a Breach of Contract Lawsuit

Canadian law provides a multitude of remedies against those who breach contracts. As the aggrieved party, you can use self-help remedies such as set-off contract termination. Alternatively, you can seek redress through the court, where you may be eligible for the following legal remedies depending on your case circumstances:

The most common and usual remedy for a breach of contract will be an award of damages to place the aggrieved party in the same position they would have been if the contract had not been breached.

Damages for hurt feelings and mental distress are not typically awarded. However, courts have shown willingness in the recent past to award punitive damages for certain types of breached contracts, such as employment and insurance.

Equitable Remedies

Canadian courts don’t compel the performance of a contract but can order the specific performance of a contract or issue an injunction to prevent the temporary or permanent breach of a contract.

Additionally, or in place of this type of equitable relief, courts may also award damages, but in different principles from those governing common law damages. This is common in specific contracts, such as distributing licensed goods, entitling the aggrieved party to elect an accounting of the breaching party’s profits.

Liquidated Damages

Depending on the contract type, you can specify a liquidated sum of damages if a contract is breached. The caveat is that the specified liquidated damages cannot be a penalty. You don’t have to prove actual damages if the liquidated damage clause is enforceable. Otherwise, you’d be entitled to damages directly resulting from the breach and consequential damages.

An Experienced Business Lawyer Providing Guidance on Contract Law

Contract law is complex, and working with skilled contract agreement lawyers in Ontario is crucial when drafting an agreement. Since only some agreements are legally binding, a legal expert can review your contracts to ensure they meet the legal threshold. In case of a breach, you can seek legal remedies to compensate you for the resulting loss.

K&Y Law hosts skilled business lawyers to help you evaluate every legal aspect of your business. Whether you need help drafting a contract or enforcing one that already exists, we can provide the legal counsel you need. Call us at 647-559-7935 to schedule an initial case evaluation.

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

Contributor

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

Understanding Anti-Assignment Provisions

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

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

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

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

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

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

i) Asset Purchases

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

ii) Share Purchases

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

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

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.

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

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

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

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

5. MTA Canada Royalty Corp .

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

Corporate/Commercial Law

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• assignments basic law

Assignments: The Basic Law

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

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

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

Basic Definitions and Concepts:

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

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

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

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

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

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

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

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

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

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

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

Novation Compared to Assignment:

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

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

Equitable Assignments:

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

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

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

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

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

Enforceability of Assignments:

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

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

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

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

Assignment of Contractual Rights:

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

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

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

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

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

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

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

Noncompete Clauses and Assignments:

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

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

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

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

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

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

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

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

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

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

Conclusion:

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

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

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

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Canadian Contract Law: Essential Updates and Practical Analysis 2022

Program Length

1 Day - On Demand

Program Dates

Program Chairs

Brandon Kain

McCarthy Tétrault LLP

Samaneh Hosseini

Stikeman Elliott LLP

Recent court rulings and developing jurisprudence is having a significant and far-reaching implications on how contracts are drafted, interpreted and enforced.  Are you up-to-date?

The ongoing pandemic has severely impacted the execution and enforcement of many commercial contracts. Unexpected conditions, missed deadlines, unfulfilled obligations and power imbalances are a few of the challenges. On top of this, the Post-Bhasin landscape continues to reshape the jurisprudence, creating a lot of uncertainty. 

If your work involves negotiating, drafting, interpreting, and/or litigating contracts, it is imperative that you keep on top of these developments, this annual OsgoodePD program will give you the knowledge and skills you need to stay current and properly represent your client’s interests. 

An esteemed faculty of leading experts, including senior practitioners, academics and judges, will give you the guidance and tools you need in this time of uncertainty. 

Registration includes 120-day unlimited, online access to the recorded program.

What You’ll Learn

Recent developments on good faith in contracts, exclusion and limitation of liability clauses

How is the recent case of  Uber Technologies  being interpreted in arbitration agreements

Find guidance on contract interpretation in the face of business interruptions

How to craft terms that anticipate the unexpected

Tactics to enforce pre-COVID contract terms, including those in M&A agreements

How the balance of power between contracting parties is impacting enforceability

Strategies for drafting, clearer and more enforceable contracts

Who Should Attend

Corporate and commercial lawyers

Commercial litigators

Government and public sector lawyers

Transactional counsel

In-house counsel

Construction, contracting and procurement professionals

Risk management professionals

Compliance officers

Instructors

Andrew Bernstein

Paul Blyschak

Counsel, Fasken, Author of “M&A Agreements in Canada: Transactions & Litigation”

Audrey Boctor

Partner, IMK

The Hon. Justice David M. Brown

Court of Appeal for Ontario

Geoff R. Hall

Brian Kolenda

Lenczner Slaght LLP

Partner, Glaholt Bowles LLP

Professor John McCamus

Osgoode Hall Law School, York University

Professor Marina Pavlović

Associate Professor, University of Ottawa

Danielle Royal

Julia Shin Doi

General Counsel, Secretary of the Board of Governors, and University Privacy Officer, Toronto Metropolitan University

Partner, Clyde & Co.

Angela Swan

Counsel, Aird & Berlis LLP

Michael Wright

Wright Henry LLP

Program Agenda

Program Begins – Introduction (9:00 a.m. ET)

Exclusion and Limitation of Liability Clauses (9:10 a.m. ET)

Andrew Bernstein Torys LLP

Audrey Boctor IMK s.e.n.c.r.l./LLP

Andrea Lee Glaholt Bowles LLP

Exclusion and limitation of liability clauses are crucial tools for parties to place boundaries around the damages they will be responsible for. However, context is playing a greater role in the interpretation of these limits. An experienced panel will provide their views on recent developments, including:

• The circumstances in which non‑liability clauses will stand in the face of a fundamental breach ( 6362222 Canada inc. v. Prelco Inc )
• Will a court’s interpretation of a clause, hinge on whether it is found in a standard form contract? ( Intact Insurance Company v Clauson Cold & Cooler Ltd )

10:10 a.m. Break

Onerous Terms in Consumer Agreements (10:25 a.m. ET)

Professor Marina Pavlović University of Ottawa, Faculty of Law

Angela Swan, O.C. Aird Berlis LLP

Michael Wright Wright Henry LLP

This expert panel will explore how the power imbalance between contracting parties is playing an increasing role in the unwillingness of courts to uphold onerous terms.

• What is the impact of the SCC’s decision in Uber Technologies Inc. v. Heller ?
• Standard form/click through contracts – how has the decision in Pearce v 4 Pillars Consulting Group Inc. been interpreted by the courts?

11:25 a.m. Lunch

COVID‑19 and Contracts (12:25 p.m. ET)

Ellen Snow Clyde & Co LLP

The pandemic has resulted in huge losses due to unforeseen resource shortages, rising costs, and illness among workforces. This issue is playing out across a wide variety of sectors from residential construction to infrastructure development, from manufacturing to shipping. Parties are seeking to mitigate those losses.

Get the latest on the enforceability of contracts in the face of unexpected delays, including an analysis of how business interruption clauses will stand up in the context of the recent COVID‑19 pandemic.

Mergers and Acquisitions (1:35 p.m. ET)

Paul Blyschak Counsel, Fasken, Author of “M&A Agreements in Canada: Transactions & Litigation”

Danielle Royal Stikeman Elliott LLP

Unpredictability and uncertainty have thrown the future of a host of mergers and acquisitions into doubt. As parties reconsider their options, they need to be aware of how courts will interpret their material adverse event clauses. Referencing recent jurisprudence, you will learn:

• How the analysis of material adverse event clauses in Cineplex v. Cineworld is being interpreted and applied to radically altered business valuations and available purchase resources
• How to manage the challenges resulting from the analysis of material adverse events (MAE) in Fairstone Financial Holdings Inc. v Duo Bank of Canada

2:25 p.m. Break

Recent Developments on Good Faith in Contracts (2:40 p.m. ET)

Brian Kolenda Lenczner Slaght LLP

Professor John McCamus Osgoode Hall Law School, York University

The conduct of parties plays an increasingly critical role in the interpretation of contractual terms. Leading experts will discuss recent developments in the principles of good faith in a post‑ Bhasin landscape, including the following:

• Will the termination of contracts due to mistaken belief constitute bad faith as in Tokyo Smoke ?
• How does the duty of honesty impact the application of termination clauses, as determined in C.M. Callow Inc. v. Zollinger ?

Contract Drafting & Plain Language: Mini Workshop (3:50 p.m. ET)

The Hon. David M. Brown Court of Appeal for Ontario

Geoff Hall McCarthy Tétrault LLP

Julia Shin Doi General Counsel, Secretary of the Board of Governors, and University Privacy Officer, Toronto Metropolitan University

Courts are pushing back at inscrutable boilerplate language and vague terms, looking to context to help interpret contracts. Legal professionals must be aware of how this will impact the application of everything from standard‑form consumer contracts to acquisition agreements.

This dynamic session will give you the chance to review and critique various examples of the types of contract interpretation disputes where the parties failed to express clearly the allocation and assignment of risks and costs, in addition to reviewing:

• Sample releases – drafting tips post‑ Corner Brook (City) v. Bailey where the broader context of the agreement played a distinct role in interpretation
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BlackRock Keeps $7 Billion Oklahoma Pension Contract After Anti-ESG Law Pause

The Oklahoma Public Employees Retirement System approved the extension of investment contracts with BlackRock Inc., a decision that comes after a judge paused the state’s anti-ESG law targeting the company.

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(Bloomberg) — The Oklahoma Public Employees Retirement System approved the extension of investment contracts with BlackRock Inc., a decision that comes after a judge paused the state’s anti-ESG law targeting the company.

BlackRock Keeps $7 Billion Oklahoma Pension Contract After Anti-ESG Law Pause Back to video

Pension board members extended the contracts with BlackRock for the management of $7.3 billion of investments at a Thursday meeting, said Joe Fox, executive director of the pension, in an email. 

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BlackRock is one of the firms on a list of companies that Oklahoma’s Republican Treasurer, Todd Ross, says “boycotts” the fossil fuel industry. The list was created as a result of a state law called the Energy Discrimination Elimination Act. 

Read More: Oklahoma Sued Over Anti-ESG Law Targeting BlackRock

In accordance with the legislation, state agencies and political subdivisions — like cities — can’t contract with a firm unless it verifies that it doesn’t engage in energy boycotts. The law also calls for pensions to divest from companies on the list. 

Earlier this month, a state district court judge halted enforcement of the law when he granted the request of a retired public employee who had sued to temporarily block the legislation. The BlackRock contract extensions were “held over” from an April pension board meeting because of the company’s position on the state’s restricted list, Fox said. 

A spokesperson for BlackRock didn’t provide an immediate comment. 

Anti-ESG laws in Republican-led states have hurt BlackRock’s business with public pension clients, which often have billions of dollars to invest on behalf of retirees.  

Opers has over $11 billion in assets and serves more than 72,000 members, according to its 2023 financial report. The pension invests in fixed-income and international and domestic equity index funds managed by BlackRock Institutional Trust Company, the report said. 

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