assignments under us law

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Assignments: The Basic Law

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

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

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

Basic Definitions and Concepts:

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

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

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

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

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

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

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

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

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

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

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

Novation Compared to Assignment:

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

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

Equitable Assignments:

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

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

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

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

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

Enforceability of Assignments:

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

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

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

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

Assignment of Contractual Rights:

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

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

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

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

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

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

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

Noncompete Clauses and Assignments:

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

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

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

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

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

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

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

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

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

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

Conclusion:

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

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

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

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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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The Government restricts bans on assignment

United Kingdom |  Publication |  November 2018

Legislation now in force preventing parties from prohibiting the assignment of receivables under certain contracts.

At the moment, a contract can prohibit or restrict the parties’ ability to assign or transfer rights created under the contract. The extent of the restriction is a matter of interpretation of the clause concerned. If one of the parties to the contract attempts to assign the benefit of the contract in breach of the restriction, the purported assignment is ineffective.

One of the key assets of any business is its receivables, and restrictions on assignment can prevent the parties from factoring receivables or otherwise raising finance on them. The Government has decided that it should be easier for businesses to raise finance on their receivables. Accordingly the Small Business, Enterprise and Employment Act 2015 allows regulations to be made to invalidate restrictions on the assignment of receivables in particular types of contract. The regulations have now been made. They are contained in The Business Contract Terms (Assignment of Receivables) Regulations 2018. Draft regulations published in July, have been approved by both Houses of Parliament and are now in force.

What types of contracts do the Regulations apply to?

The Regulations apply to contracts for the supply of goods, services or intangible assets under which the supplier is entitled to be paid money. But there are a number of important exclusions from their application, including the following:

• They only apply to contracts entered into on or after 31 December 2018.
• They only apply where the person who supplies the goods, services or intangible assets concerned, and is therefore entitled to the receivable, is a small or medium-sized enterprise which is not a special purpose vehicle. Whether or not an entity qualifies in any particular case requires a detailed examination of the precise wording of the
• Regulations. Counter-intuitively, the test is not applied at the time the contract is entered into, but at the time the assignment takes place.
• There is a specific exemption for contracts “for, or entered into in connection with, prescribed financial services”: These are widely defined to include “any service of a financial nature”.
• There are specific exclusions for particular types of contract, including certain commodities, project finance, energy, land, share purchase and business purchase contracts and operating leases.
• As a general rule, it would seem that the Regulations only apply to contracts governed by English law or the law of Northern Ireland, but they prevent the parties from choosing a foreign law if it can be established that the purpose of doing so was to evade the Regulations.
• The Regulations do not apply if none of the parties to the contract has entered into it in the course of carrying on a business in the United Kingdom.

What is the effect of the Regulations?

The Regulations provide that “a term in a contract has no effect to the extent that it prohibits or imposes a condition, or other restriction , on the assignment of a receivable arising under that contract or any other contract between the same parties.”

A receivable is the right to be paid any amount under a contract for the supply of goods, services, or intangible assets. The Regulations do not prevent the parties from restricting the assignment of other contract rights.

More difficult is to establish what is meant by assignment. Receivables are transferred in various ways in practice. Sometimes the transfer is outright (for instance by way of sale); and sometimes it is by way of security (for instance to secure a loan). The transfer may be effected by a statutory assignment, an equitable assignment, a charge or a trust. “Assignment” is not defined in the Regulations, and so there is some doubt as to which of these transactions are covered.

Although charges are not expressly referred to, they might be covered by the expression “assignment” if it is given a broad interpretation. But because of the uncertainty, the best course is to take an assignment by way of security over a receivable where there is, or might be, a restriction. That way, it is clear that the Regulations do apply.

Non-assignment clauses come in a variety of forms. They will be covered by the Regulations if they prohibit or impose a condition , or other restriction on the assignment of a receivable. The Regulations expressly invalidate terms which prevent the assignee from determining the validity or value of the receivable or their ability to enforce it. Whether or not the Regulations apply in any particular case will require an analysis of the precise terms of the restriction.

The Regulations will be of particular importance to businesses involved in the financing of receivables. And they will also be of concern to buyers because they will override their contractual protections.

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The Law of Assignment (3rd Edition)

Marcus smith, nico leslie.

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

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Affiliations are at time of print publication..

Marcus Smith, author

Nico Leslie, author

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• Foreword to The Third Edition
• Foreword to the Second Edition
• Foreword to the First Edition
• Preface to The Third Edition
• Preface to the First Edition
• Summary Contents
• Detailed Contents
• Table of Cases
• Statutory Instruments
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• List of Authority Abbreviations
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Out-Law Guide 4 min. read

Assignment and novation

19 Aug 2011, 4:40 pm

Assignment involves the transfer of an interest or benefit from one person to another. However the 'burden', or obligations, under a contract cannot be transferred.

Assignment in construction contracts

As noted above only the benefits of a contract can be assigned - not the burden. In the context of a building contract:

• the employer may assign its right to have the works constructed, and its right to sue the contractor in the event that the works are defective – but not its obligation to pay for the works;
• the contractor may assign its right to payment of the contract sum - but not its obligation to construct the works in accordance with the building contract or its obligation to meet any valid claims, for example for defects.

After assignment, the assignee is entitled to the benefit of the contract and to bring proceedings against the other contracting party to enforce its rights. The assignor still owes obligations to the other contracting party, and will remain liable to perform any part of the contract that still has to be fulfilled since the burden cannot be assigned. In practice, what usually happens is that the assignee takes over the performance of the contract with effect from assignment and the assignor will generally ask to be indemnified against any breach or failure to perform by the assignee.  The assignor will remain liable for any past liabilities incurred before the assignment.

In construction contracts, the issue of assignment often arises in looking at whether collateral warranties granted to parties outside of the main construction contract can be assigned.

Funders may require the developer to assign contractual rights against the contractor and the design team as security to the funder, as well as the benefit of performance bonds and parent company guarantees. The developer may assign such rights to the purchaser either during or after completion of the construction phase.

Contractual assignment provisions

Many contracts exclude or qualify the right to assignment, and the courts have confirmed that a clause which provides that a party to a contract may not assign the benefit of that contract without the consent of the other party is legally effective and will extend to all rights and benefits arising under the contract, including the right to any remedies. Other common qualifications on the right to assign include:

• a restriction on assignment without the consent of the other party, whether or not such consent is not to be unreasonably withheld or delayed;
• only one of the parties may assign;
• only certain rights may be assigned – for example, warranties and indemnities may be excluded;
• a limit on the number of assignments - as is almost always the case in respect of collateral warranties;
• a right to assign only to a named assignee or class of assignee.

Note that in some agreements where there is a prohibition on assignment, it is sometimes possible to find the reservation of specific rights to create a trust or establish security over the subject matter of the agreement instead.

Legal and equitable assignment

The Law of Property Act creates the ability to legally assign a debt or any other chose in action where the debtor, trustee or other relevant person is notified in writing. If the assignment complied with the formalities in the Act it is a legal assignment, otherwise it will be an equitable assignment.

Some transfers can only take effect as an equitable assignment, for example:

• an oral assignment;
• an assignment by way of charge;
• an assignment of only part of the chosen in action;
• an assignment of which notice has not been given to the debtor;
• an agreement to assign.

If the assignment is equitable rather than legal, the assignor cannot enforce the assigned property in its own name and to do so must join the assignee in any action. This is designed to protect the debtor from later proceedings brought by the assignor or another assignee from enforcing the action without notice of the earlier assignment.

Security assignments

Using assignment as a way of taking security requires special care, as follows:

• if the assignment is by way of charge, the assignor retains the right to sue for any loss it suffers caused by a breach of the other contract party;
• if there is an outright assignment coupled with an entitlement to a re-assignment back once the secured obligation has been performed, it is an assignment by way of legal mortgage.

Please see our separate Out-Law guide for more information on types of security.

Restrictions on assignment

There are restrictions on the assignment of certain types of interest on public policy grounds, as follows:

• certain personal contracts – for example, a contract for the employment of a personal servant or for the benefit of a motor insurance policy cannot be assigned;
• a bare cause of action or 'right to sue' where the assignee has no commercial interest in the subject matter of the underlying transaction cannot be assigned;
• certain rights conferred by statute – for example, a liquidator's powers to bring wrongful trading proceedings against a director – cannot be assigned;
• an assignment of a contract may not necessarily transfer the benefit of an arbitration agreement contained in the contract;
• the assignment of certain rights is regulated – for example, the assignment of company shares or copyright.

If you want to transfer the burden of a contract as well as the benefits under it, you have to novate. Like assignment, novation transfers the benefits under a contract but unlike assignment, novation transfers the burden under a contract as well.

In a novation the original contract is extinguished and is replaced by a new one in which a third party takes up rights and obligations which duplicate those of one of the original parties to the contract. Novation does not cancel past rights and obligations under the original contract, although the parties can agree to novate these as well.

Novation is only possible with the consent of the original contracting parties as well as the new party. Consideration (the 'price' paid, whether financial or otherwise, by the new party in return for the contract being novated to it) must be provided for this new contract unless the novation is documented in a deed signed by all three parties.

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Contract Assignment: New York | Practical Law

Contract Assignment: New York

Practical law state q&a w-000-2743  (approx. 13 pages).

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Commercial Contracts in the USA

Use the  Lexology Getting the Deal Through   tool to compare the answers in this article with those from other jurisdictions.

Contract formation

Good faith in negotiating

Is there an obligation to use good faith when negotiating a contract?

In the United States, the Uniform Commercial Code (UCC) generally governs commercial agreements (such as supply contracts for the sale of goods and services), and has been codified by each state, with some states making modifications to certain UCC requirements. Thus, both state statutes and common law concerning commercial contracts vary among states, so a careful analysis of the state law governing the contract is recommended.

Generally, absent an agreement to negotiate in good faith, there is no such obligation for parties to negotiate a contract in good faith. Some parties may execute a preliminary agreement - such as a term sheet or letter of intent - as part of their negotiations before entering into a formal written contract, especially for more complex transactions. Often, such preliminary agreements include a provision that expressly states that the parties agree to negotiate the deal points within the term sheet or letter of intent in good faith. Some states will enforce these agreements to negotiate in good faith, while other states have held such provisions to be unenforceable. Some courts that have enforced such an obligation in a preliminary agreement do not necessarily find that the duty assumes exclusive negotiations, and other courts have further stated that the term sheet or letter of intent should be detailed and include a ‘framework’ for the court to determine whether the duty has been breached.

‘Battle of the forms’ disputes

How are ‘battle of the forms’ disputes resolved in your jurisdiction?

A ‘battle of the forms’ arises in the United States when, rather than preparing a single contract for the sale of goods, the offeree and offeror each send the other party what they consider to be their respective standard terms and conditions. Of course, such terms tend to be inconsistent - and more favourable to each respective party - resulting in a conflict over which party’s terms will govern the contractual relationship. When such a conflict occurs, as a general rule, no contract is formed because each communication is considered a counter-offer, not an acceptance of the other party’s terms. A ‘conditional acceptance’ is a type of counter-offer that purports to ‘accept’ the other party’s offer, but only with additional or different terms. Most states require express language for a conditional acceptance. In this situation, approval by the other party remains necessary to form a contract.

The UCC has a ‘merchant rule’ for commercial contracts between merchants. Under the UCC, the additional terms will automatically become part of the contract unless the offer expressly limits acceptance to the terms of the offer; the additional terms materially alter the agreement; or one of the parties has notified the other party that it objects to the additional terms (or notified the other party within a reasonable time). Most state courts have held that this merchant rule applies just to additional terms and does not include different or inconsistent terms; instead, the different or inconsistent terms are cancelled out and replaced by the ‘gap-filling’ provisions under the UCC (such as provisions for the course of performance and the time and place of delivery). Other states will treat the additional terms and inconsistent terms in the same way; thus, the different terms become a part of the contract between merchants unless one of the exceptions listed above applies. A review of state-specific laws and court interpretations is recommended to determine how the state has adopted the UCC’s rule.

Language requirements

Is there a legal requirement to draft the contract in the local language?

There is no obligation in the United States to draft commercial contracts in English; however, the vast majority of both domestic and international contracts are prepared in English. A review of state-specific laws is recommended if entering into a consumer contract. Some states, like California, can require certain consumer contracts to be translated into another language.

Online contracts

Is it possible to agree a B2B contract online?

Yes. In the United States, a legally binding contract generally does not need to be in any particular form. With some exceptions, commercial contracts may be formed electronically and are subject to the Electronic Signatures in Global and National Commerce Act at a federal level, and the Uniform Electronic Transactions Act as adopted by all states except for Illinois, New York and Washington. These laws authorise electronic signatures in most commercial and business transactions, subject to certain exceptions. The terms of the contract must be accessible for review, and it is recommended that the full text be provided (such as via a click-to-accept scroll box).

Statutory controls and implied terms

Controls on freedom to agree terms

Are there any statutory or other controls on parties’ freedom to agree terms in contracts between commercial parties in your jurisdiction?

In the United States, parties are generally free to draft commercial contracts with terms of their choosing without any statutory or other controls. Yet, there are statutes that regulate certain aspects of contracts, including the Federal Arbitration Act (which governs contract arbitration clauses) and the Magnuson-Moss Warranty Act (which governs written warranties and some aspects of implied warranties on consumer products). As a general matter, commercial parties cannot enter into contracts that are contrary to public policy of the state in which the contract is made or to be enforced (eg, requiring indemnification for intentional tortious conduct or an overly broad non-competition covenant). Commercial parties also cannot enter into contracts that would violate the law if enforced as written.

Standard form contracts

Are standard form contracts treated differently?

For commercial contracts between two businesses, standard form contracts are treated the same as negotiated commercial contracts. The general rules regarding contract construction and enforceability are the same.

Implied terms

What terms are implied by law into the contract? Is it possible to exclude these in a commercial relationship?

The UCC creates implied warranties in contracts for the sale of goods. The two implied warranties are the warranty of ‘merchantability’ of the goods being sold, and the warranty that the goods are ‘fit for a particular purpose’.

For goods to meet the definition of merchantability, goods must be at least of average quality, properly packaged and labelled, conform to their labels and fit for the ordinary purposes they are intended to serve. The implied warranty of fitness for a particular purpose applies when the seller of the goods is aware that the buyer plans to use the purchased goods for a particular purpose. If the seller knows that the goods will not be suitable for the buyer’s specific purpose, the seller will breach the implied warranty if it continues to sell the buyer goods for that specific purpose.

Implied warranties can be disclaimed with express language in the contract. A common method for disclaiming implied warranties is an ‘as is’ clause, which provides that the buyer is purchasing the product with no implied warranty. Disclaiming implied warranties must be done with conspicuous contract language (eg, in bold, all caps font) and cannot be concealed in the fine print.

Vienna Convention

Is your jurisdiction a signatory to the United Nations Convention on Contracts for the International Sale of Goods (the Vienna Convention)?

Yes, the United States became a signatory to the Vienna Convention in 1981.

Good faith in entering and peforming

Is there an obligation to use good faith when entering and performing a contract?

Yes, each contract may contain an implied covenant of good faith and fair dealing. The implied covenant requires each party not to do anything that will deprive the other party of the benefits of the contract, and a breach of this covenant by failure to deal fairly in good faith gives rise to a potential action for damages.

There are a myriad of potential problems that can arise between contracting parties during a contractual relationship. The implied covenant of good faith and fair dealing was established by courts to address these issues. States generally imply this duty into most consumer contracts, and the UCC has also adopted it for contracts it governs. The UCC defines good faith as ‘honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade’.

The determination of whether a party failed to act in good faith does not depend on societal standards of fairness or reasonableness, but instead emphasises the adherence to the contractual agreement and the reasonable expectations of the other party. The failure of one party to act in good faith does not necessarily discharge the other party’s obligation to perform. While parties may have an obligation to act in good faith, the implied covenant of good faith and fair dealing generally cannot be used by a party to override express language in the contract or improve its position. Thus, breach of the implied covenant of good faith will not be found where the other party merely enforces rights it bargained for under the contract, regardless of its motive for enforcing those rights as written.

Limiting liability

Prohibition on exclusions and limitations

What liabilities cannot be excluded or limited by a supplier in a contract?

There is a trend in favour of limitation of liability clauses in contracts subject to certain exceptions. For example, a contract governed by the UCC may include terms that limit or exclude consequential damages ‘unless the limitation or exclusion is unconscionable’. Under the UCC, the limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable, but the limitation of damages where the loss is commercial is not.

The ability to limit liability in a contract may also vary depending upon the state law that governs that contract. Most courts disfavour contract provisions that limit a party’s liability for gross negligence, fraud or intentional torts. Some states also refuse to enforce these clauses if the party seeking protection acted in bad faith.

Financial caps

Are there any statutory controls on using financial caps to limit liability for breach of contract?

No, there are no statutes that enforce financial caps on contracts to limit liabilities, but contracting parties are free to include financial caps within their contract. Also, most jurisdictions in the United States adhere to the traditional common law rule against punitive damages for breach of contract, if there is no tortious conduct. In the consumer setting, financial caps can be set aside if found to be unconscionable. While commercial parties are generally free to contract as they see fit, parties seeking to take advantage of such provisions would be wise to include such financial caps in clear, conspicuous language and also include representation and warranties about the provision, providing further additional evidence as to their reasonableness for the situation at hand.

Indemnities

Are there any statutory controls on indemnities used to cover liability risks in contracts?

Indemnification provisions are interpreted under the same rules that govern other provisions in contracts, including the general rule that contracts are interpreted to give effect to the intent of the parties. Most states do not permit indemnification clauses for intentional wrongful acts or punitive damages, as they are deemed against public policy. Also, many states restrict businesses that provide essential services to the public from being indemnified for their own negligence, due to public policy considerations.

Liquidated damages

Are liquidated damages clauses enforceable and commonly used in your jurisdiction?

Liquidated damages clauses are generally enforceable in the United States and commonly used, especially in the commercial setting. Courts have upheld such damages where ‘they are a fair and reasonable attempt to provide just compensation for an anticipated loss resulting from a breach of contract.’ Under the UCC, liquidated damage provisions will be enforced unless they are considered ‘excessive’ and, if deemed to be so, are ‘considered unenforceable as a penalty on the grounds of public policy’. Disproportionate liquidated damages may be declared a penalty, which will void the clause and limit recovery to the actual damages resulting from the breach.

As a general matter, courts consider two things in determining whether a liquidated damages clause is enforceable: whether the injury caused by the breach is difficult to calculate, and whether the amount of the liquidated damages is reasonable in proportion to the anticipated injury.

Payment terms

Statutory time limits on payments

Are there statutory time limits for paying invoices? Is it possible to agree a different payment period?

While there are no statutes in the United States specifically addressing the timing of payment of invoices, the UCC provides a time frame as one of its ‘gap-filling’ provisions to be implied when a contract for the sale of goods is silent on this issue. Under the UCC, if the contract is silent with respect to the time for payment, the time will be when the purchaser is to receive the goods.

Further, the payment obligation under the contract would be subject to the statute of limitations under the UCC and applicable state law. The statute of limitations for breach of contract under the UCC (ie, non-payment of an invoice) is four years from the cause of action; however, this can vary by each state’s commercial code (for example, the statute of limitations for breach of contract claims in New Jersey is six years). Generally, parties do agree to a payment schedule, either within the contract itself or within the terms of the invoice, such as ‘net thirty (30) days’ from the date of the invoice.

We note that while there are no statutes addressing time limits for paying invoices with respect to general commercial contracts, there are such statutes in some states for other types of contracts, such as construction or government contracts.

Late payment interest

Is statutory interest charged on late payments? Is it possible to agree a different rate of interest?

Yes, subject to state law. In most states, statutory interest may be charged on late payments under a commercial contract; however, state law varies on the rate of interest and when interest begins to accrue (usually the due date). When a commercial contract does not include an interest rate, the pre-judgment interest laws of many states may impose a statutory interest rate on late payments, which can vary widely. For example, under Illinois law, the legal interest rate is 5 per cent (or as agreed to by contract), while in Nebraska, the legal interest rate is 12 per cent (or as agreed to by contract). Some states do not impose an interest obligation on late payments under a commercial contract that does not expressly include such a provision. Typically, the law that governs the amount of the interest rate and when it accrues is where the money owed is payable. The interest is generally simple interest, and may be different from the maximum interest rate for loans under state law.

Although commercial contracts are not generally considered to be loans, courts will examine a transaction to determine whether a contract for the sale of goods is actually a loan - in which case usury laws will apply. Usury laws apply to loans and set limits on the maximum interest rate that can be charged to avoid excessively high rates.

Civil penalties

What are the civil penalties for failing to comply with statutory interest rate or late payment of invoices?

The civil penalties for failing to comply with a statutory interest rate vary by state. For example, in Illinois, if a party knowingly contracts for or receives unlawful interest, the obligor may recover twice the total of all interest, discount and charges determined by the loan contract or paid by the obligor, whichever is greater, plus such reasonable attorneys’ fees and court costs as may be assessed by a court.

For late payment of invoices, some states have what are known as ‘prompt payment laws’ for certain kinds of contracts that include civil penalties; however, these laws tend to focus on contracts where the government or a government agency is a party.

Termination

Do special rules apply to termination of a supply contract that will be implied by law into a contract? Can these terms be excluded or limited by including appropriate language in the contract?

Under the UCC, if a contract is indefinite as to duration, it will be valid for a reasonable time. Unless the parties agree otherwise, either party may terminate the contract at any time (though many courts have held that reasonable notification to the other party is required).

Parties to a long-term contract for the sale of goods may expressly agree to certain termination provisions. Some provisions may permit one or both parties to terminate for convenience, meaning a party can simply terminate at will, without the other party being in breach. These ‘at will’ provisions may be subject to other applicable laws or notice requirements.

A contract may also include the right to terminate for cause. Termination for cause typically occurs when one party is either in general breach of the agreement or one or more enumerated ‘events of default’ have occurred (for example, non-payment, failure to deliver, or breach of warranty). Again, reasonable notification is typically required to terminate, unless the parties agree otherwise.

Notice period

If a contract does not include a notice period to terminate a contract, how is it calculated?

Under the UCC, reasonable notification is that which will give the non-terminating party reasonable time to seek out an alternative arrangement. What is reasonable will depend on the particular facts and circumstances applicable to the case.

Automatic termination on insolvency

Will a commercial contract terminate automatically on insolvency of the other party?

Although it is common for commercial contracts to provide for immediate termination upon the insolvency or bankruptcy of a party (an ipso facto provision), these clauses are subject to US business bankruptcy laws and are therefore not always enforceable if the insolvent party has filed for bankruptcy. If the insolvent party has not filed for bankruptcy, however, the other party may be able to rely on the ipso facto provision to terminate the contract. Although the insolvency of a party does not automatically terminate a commercial contract, it is generally considered to be sufficient grounds to terminate a contract in connection with other factors that constitute a default.

Termination for financial distress

Are there restrictions on terminating a contract if the other party is in financial distress?

Yes, if the distressed party has filed for bankruptcy, the other party may not be able to terminate the contract, as mentioned above. US bankruptcy laws generally protect the distressed business’s property, assets and contract interests during the proceedings and give the distressed party additional time and rights to determine what to do with the contract (cure and perform, reject, etc). If bankruptcy has not been filed and the distressed party has defaulted under the contract, the other party may issue a notice of default (as specified in the contract) or terminate under an ipso facto provision.

Force majeure

Is force majeure recognised in your jurisdiction? What are the consequences of a force majeure event?

Yes. In commercial contracts, force majeure events typically include acts of God, war, acts of terrorism or similar events, fires, strikes, embargoes or other government actions, natural disasters, riots, shortages of power or transportation, or other events beyond the control of either party.

The parties may include a force majeure clause in the contract, which serves to excuse non-performance due to a force majeure event, or allocate the risk if certain events were foreseeable (for example, a severe hurricane in the south-eastern region of the United States) by negotiating the monetary terms of the contract. If a contract is silent as to a force majeure event, the court will look to its foreseeability to determine whether to excuse non-performance under the contract. If a force majeure event was foreseeable, the court will generally hold that the non-performing party bore the risk of the event and is therefore not excused from performance. If the force majeure event was not foreseeable, the non-performing party is generally excused.

Subcontracting, assignment and third-party rights

Subcontracting without consent

May a supplier subcontract its obligations under the contract without seeking consent from the other party?

Generally, it is assumed that both parties are permitted to subcontract a commercial contract without the other party’s consent, unless the contract states otherwise. Most commercial contracts between businesses typically address subcontracting rights within their boilerplate provisions. There are exceptions to this general rule for personal service and other types of contracts.

Statutory rules

Are there any statutory rules that apply to subcontracting in your jurisdiction?

No, not with respect to subcontracting general commercial contracts for the supply of goods and services between two businesses; however, states may regulate subcontracts within certain industries (such as construction).

Assignment of rights and obligations

May a party assign its rights and obligations under the contract without seeking the other party’s consent?

Contracts are typically freely assignable absent an anti-assignment provision to the contrary unless an assignment would violate public policy or materially alter the circumstances of the contract (the duty of the obligor would be materially changed, the burden or risk on the obligor would increase materially, or the assignment would materially reduce the value of the contract to the obligor). Some examples of assignments that would violate public policy include assignments of claims for personal injuries, or rights that are personal, such as those under a non-compete. Federal law also limits the assignment of rights under certain government contracts.

Further, with respect to the delegation of obligations under a commercial contract, a party may delegate its duty to perform under the contract unless otherwise agreed or unless the other party has a substantial interest in having the original promisor perform or control the acts required by the contract. The delegation of performance does not relieve the party delegating of any duty to perform or any liability for breach. If the delegating party wishes to relieve itself from liability for non-performance under the contract, it must obtain the non-delegating party’s consent, which is referred to as a novation. Generally, in a novation, the delegating party, the non-delegating party, and the delegatee agree that the delegatee is substituted for the delegating party; the delegating party is no longer liable for performance; and the delegatee is liable for performance.

What statutory controls apply to the assignment of rights or obligations under a supply contract?

In general, contracts for the sale of goods are also assignable and the rights thereunder are generally delegable, although there are exceptions for a contract for exclusive requirements, or for a unique product. Under the UCC, if performance is delegated, the delegation may be treated as a reasonable ground for insecurity, and the non-delegating party may request assurances of performance from the delegating party. If the delegating party does not oblige, it can be treated as a repudiation of the contract.

The UCC also permits a party to assign its right to sue for breach of contract, notwithstanding any anti-assignment and anti-delegation provisions. Further, the UCC invalidates assignment restrictions on accounts, including the right to receive payment under the contract, so that a party cannot be restricted from using receivables as collateral to borrow money from a lender or selling its receivables to a third party.

Enforcement by third party

How may a third party enforce a term of the contract?

Generally, a person or entity that is not a party to a contract only has enforcement rights if the contract expressly states an intent to grant them to the third party. An ‘intended beneficiary’ under a contract is one who acquires a right to enforce the contract by virtue of the promise made under the contract, while an ‘incidental beneficiary’ is one who benefits by the performance of a promise, but is not a party to the contract or an intended beneficiary and cannot enforce the contract. Courts have consistently held that the language of the contract must clearly state an intent to grant the third party the right to enforce the contract.

Limitation periods

What are the limitation periods for breach of contract claims? Is it possible to agree a shorter limitation period?

Statutes of limitations vary among the states and also vary in relation to the type of contractual claim. For example, New York allows a party six years from the date of execution of a written or oral contract to bring a claim for breach of contract, but only three years after the alleged injury occurred. California allows a party to bring a claim within four years of the date of execution of a written contract (and two years for an oral contact), and the claim must be brought within two years of the alleged injury. Under the UCC, a breach of any contract for sale must be commenced within four years after the cause of action has accrued. If claims are not brought within these times, they will generally be barred.

Most states do allow parties to agree to a shorter period in which claims must be brought. Service-based contracts often include clauses that shorten the statute of limitations. Most states have statutes setting a minimum period for shortening the time to bring an action. The UCC also allows parties to reduce the period of limitation in a commercial contract for the sale of goods to a minimum of one year.

Choice-of-law clauses

Do your courts recognise and respect choice-of-law clauses stipulating a foreign law?

In the United States, contracting parties are generally free to choose the law that governs the contract. Yet, some states require there be a reasonable relationship between the jurisdiction of the chosen law and the transaction. Certain states, such as New York, will allow parties to apply New York law to commercial contracts if the underlying transaction is valued at or more than US$250,000, even if the parties have no relationship to New York.

Do your courts recognise and respect choice-of-jurisdiction clauses stipulating a foreign jurisdiction?

US courts typically enforce forum selection clauses in an international context based upon international comity and public policy. Jurisdictions within the United States have differing case law related to forum selection clauses, but they are generally enforced unless the challenging party can identify drastic and unexpected changes in the forum’s legal process since the contract was executed, and show that these changes deprive the challenging party of its day in court.

Efficiency of local legal system

How efficient and cost-effective is the local legal system in dealing with commercial disputes?

The US legal system is not commonly characterised as efficient or cost-effective. First, litigants are generally responsible for their own legal fees (the ‘American rule’), though at times the prevailing party may be able to recover its attorneys’ fees in certain contractual causes of action or based on certain statutes. For commercial contract claims, most attorneys will work for an hourly fee, though there is a recent trend towards ‘alternative billing arrangements’. Under these arrangements, some attorneys are willing to handle a party’s litigation for a flat fee, capped fee, or some other arrangement, but this is still a minority trend.

Attorney cost structures are generally the same when arbitrating, but most parties find that arbitration costs are cheaper than normal litigation because a binding decision is reached more efficiently and quickly. Arbitration usually does not involve the costly discovery obligations that are imposed in judicial proceedings; and this is becoming more significant in recent years owing to the high costs of producing vast quantities of electronically stored information. If the contracting parties desire to narrow the type of discovery or the time periods over which claims are arbitrated, it is best to include such terms in the arbitration agreement. Among other things, it is also important to include language in the arbitration agreement describing the types of claims to be arbitrated. The parties can agree to arbitrate some claims but not others. It is important to consider state and US law when drafting the arbitration agreement.

New York Convention

Is your jurisdiction a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards? Which arbitration rules are commonly used in your jurisdiction?

Yes, the United States is a signatory to the New York Convention. Arbitrations in the United States are commonly governed by the set of rules explicitly named in the contract. The Federal Arbitration Act will apply if the case could be filed in federal court. State law will normally govern the contract unless foreign law is chosen. Parties tend to use different arbitration rules and fora to decide their disputes, including the American Arbitration Association, CPR International Institute for Conflict Prevention and Resolution, or JAMS. The rules for the particular organisation chosen to administer the dispute must be considered, as each differs.

Available remedies

What remedies may a court or other adjudicator grant? Are punitive damages awarded for a breach of contract claim in your jurisdiction?

A court or other adjudicator generally can grant all remedies available under the law, unless the parties’ contract or the applicable rules provide otherwise. The main categories of remedies available in a cause of action arising from contract law are:

• monetary damages (the most common remedy), which provides compensation to put the non-breaching party in the same position that it would have been in but for the breach of contract;
• declaratory judgment, which declares the rights of the parties;
• injunctive relief, which prohibits the defeated party from performing an act or requiring the party to perform an act; and
• specific performance, which requires the defeated party to perform its obligations under the contract.

Monetary damages primarily fit into one of three categories:

• expectation damages, which are not based on a sustained injury but rather on a loss of some future or speculative income;
• reliance damages, which are sustained when a party acts in reliance on a party who failed to fulfil their obligation; and
• restitution damages (or unjust enrichment), which occur where one party has conferred a benefit on another party but cannot collect the full payment for that benefit.

Punitive damages are rarely awarded for a breach of contract claim, but have been awarded where a party has engaged in tortious conduct.

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Kluwer Patent Blog

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

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

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

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

Did UM’s Bylaws Effectuate an Automatic Assignment?

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

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

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

Takeaways: How to Play it Safe

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

Concluding Remarks

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

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If you’re new to the process of protecting your rights to your invention by applying for a patent, you’re in the right place. This page will direct you to everything you need to know about U.S. and international patents. If what you see doesn’t answer your questions, we’ll show you where to go to dig deeper.

Patent essentials

Here you’ll find what you need to know if you know nothing about patents. We’ll take you from “What is a patent?” to assistance with the application process.

• Basic questions about patents
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Applying for patents

This section dives into more detail about how you can apply for a patent. It covers legal representation, deadlines, fees, and other essential parts of the process.

• Search for patents
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Here we take you from being successfully granted a patent to maintaining your rights. You’ll learn how to maintain, enforce, transfer, and protect your rights.

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WAGE AND HOUR DIVISION

UNITED STATES DEPARTMENT OF LABOR

Fact Sheet #22: Hours Worked Under the Fair Labor Standards Act (FLSA)

Revised July 2008

This fact sheet provides general information concerning what constitutes compensable time under the FLSA . The Act requires that employees must receive at least the minimum wage and may not be employed for more than 40 hours in a week without receiving at least one and one-half times their regular rates of pay for the overtime hours. The amount employees should receive cannot be determined without knowing the number of hours worked.

Definition of "Employ"

By statutory definition the term "employ" includes "to suffer or permit to work." The workweek ordinarily includes all time during which an employee is necessarily required to be on the employer's premises, on duty or at a prescribed work place. "Workday", in general, means the period between the time on any particular day when such employee commences his/her "principal activity" and the time on that day at which he/she ceases such principal activity or activities. The workday may therefore be longer than the employee's scheduled shift, hours, tour of duty, or production line time.

Application of Principles

Employees "Suffered or Permitted" to work: Work not requested but suffered or permitted to be performed is work time that must be paid for by the employer. For example, an employee may voluntarily continue to work at the end of the shift to finish an assigned task or to correct errors. The reason is immaterial. The hours are work time and are compensable.

Waiting Time:

Whether waiting time is hours worked under the Act depends upon the particular circumstances. Generally, the facts may show that the employee was engaged to wait (which is work time) or the facts may show that the employee was waiting to be engaged (which is not work time). For example, a secretary who reads a book while waiting for dictation or a fireman who plays checkers while waiting for an alarm is working during such periods of inactivity. These employees have been "engaged to wait."

On-Call Time:

An employee who is required to remain on call on the employer's premises is working while "on call." An employee who is required to remain on call at home, or who is allowed to leave a message where he/she can be reached, is not working (in most cases) while on call. Additional constraints on the employee's freedom could require this time to be compensated.

Rest and Meal Periods:

Rest periods of short duration, usually 20 minutes or less, are common in industry (and promote the efficiency of the employee) and are customarily paid for as working time. These short periods must be counted as hours worked. Unauthorized extensions of authorized work breaks need not be counted as hours worked when the employer has expressly and unambiguously communicated to the employee that the authorized break may only last for a specific length of time, that any extension of the break is contrary to the employer's rules, and any extension of the break will be punished. Bona fide meal periods (typically 30 minutes or more) generally need not be compensated as work time. The employee must be completely relieved from duty for the purpose of eating regular meals. The employee is not relieved if he/she is required to perform any duties, whether active or inactive, while eating.

Sleeping Time and Certain Other Activities:

An employee who is required to be on duty for less than 24 hours is working even though he/she is permitted to sleep or engage in other personal activities when not busy. An employee required to be on duty for 24 hours or more may agree with the employer to exclude from hours worked bona fide regularly scheduled sleeping periods of not more than 8 hours, provided adequate sleeping facilities are furnished by the employer and the employee can usually enjoy an uninterrupted night's sleep. No reduction is permitted unless at least 5 hours of sleep is taken.

Lectures, Meetings and Training Programs:

Attendance at lectures, meetings, training programs and similar activities need not be counted as working time only if four criteria are met, namely: it is outside normal hours, it is voluntary, not job related, and no other work is concurrently performed.

Travel Time:

The principles which apply in determining whether time spent in travel is compensable time depends upon the kind of travel involved.

Home to Work Travel:

An employee who travels from home before the regular workday and returns to his/her home at the end of the workday is engaged in ordinary home to work travel, which is not work time.

Home to Work on a Special One Day Assignment in Another City:

An employee who regularly works at a fixed location in one city is given a special one day assignment in another city and returns home the same day. The time spent in traveling to and returning from the other city is work time, except that the employer may deduct/not count that time the employee would normally spend commuting to the regular work site.

Travel That is All in a Day's Work:

Time spent by an employee in travel as part of their principal activity, such as travel from job site to job site during the workday, is work time and must be counted as hours worked.

Travel Away from Home Community:

Travel that keeps an employee away from home overnight is travel away from home. Travel away from home is clearly work time when it cuts across the employee's workday. The time is not only hours worked on regular working days during normal working hours but also during corresponding hours on nonworking days. As an enforcement policy the Division will not consider as work time that time spent in travel away from home outside of regular working hours as a passenger on an airplane, train, boat, bus, or automobile.

Typical Problems

Problems arise when employers fail to recognize and count certain hours worked as compensable hours. For example, an employee who remains at his/her desk while eating lunch and regularly answers the telephone and refers callers is working. This time must be counted and paid as compensable hours worked because the employee has not been completely relieved from duty.

Where to Obtain Additional Information

For additional information, visit our Wage and Hour Division Website: http://www.dol.gov/agencies/whd and/or call our toll-free information and helpline, available 8 a.m. to 5 p.m. in your time zone, 1-866-4USWAGE (1-866-487-9243).

This publication is for general information and is not to be considered in the same light as official statements of position contained in the regulations.

The contents of this document do not have the force and effect of law and are not meant to bind the public in any way. This document is intended only to provide clarity to the public regarding existing requirements under the law or agency policies.

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• Basic Importing and Exporting

Importing a Motor Vehicle

Imported motor vehicles are subject to safety standards under the Motor Vehicle Safety Act of 1966, revised under the Imported Vehicle Safety Compliance Act of 1988; to bumper standards under the Motor Vehicle Information and Cost Savings Act of 1972, which became effective in 1978; and to air pollution control standards under the Clean Air Act of 1968, as amended in 1977, and 1990.

If vehicles manufactured abroad conform to U.S. safety, bumper, and emission standards, it is because these vehicles are exported for sale in the United States. Therefore, it is unlikely that a vehicle obtained abroad meets all relevant standards. Be skeptical of claims by a foreign dealer or other seller that a vehicle meets these standards or can readily be brought into compliance. Vehicles entering the United States that do not conform with U.S. safety standards must be brought into compliance, exported, or destroyed.

This pamphlet provides essential information for U.S. residents, military or civilian government employees, and foreign nationals who are importing a vehicle into the U.S. It includes U.S. Customs and Border Protection (CBP) requirements and those of other agencies whose regulations we enforce. Since Environmental Protection Agency (EPA) and Department of Transportation (DOT) requirements are subject to change, we recommend that you contact these agencies before buying a vehicle abroad.

Our pages “Know Before You Go” and “For International Visitors” contain general information for persons entering the U.S. You may obtain copies from your nearest CBP office or by writing to:

U.S. Customs and Border Protection P.O. Box 7407 Washington, D.C. 20044

It is also possible to obtain copies from American embassies and consulates abroad.

EPA has a detailed automotive fact manual describing emission requirements for imported vehicles. You may obtain a copy of this manual, called the Automotive Imports Facts Manual , or other information about importing motor vehicles by calling EPA's Imports Hotline at (734) 214-4100 . You may also communicate by fax at (734) 214-4676 , or write to:

U.S. Environmental Protection Agency Ariel Rios Building, Manufacturer Operations Division (6405-J) Investigation/Import Section 1200 Pennsylvania Avenue, N.W. Washington, D.C. 20460

EPA's page on Importing Vehicles and Engines contains additional information.

You may reach DOT's vehicle hotline at (202) 366-5291 or communicate by fax at (202) 366-1024 . Additionally, you can write to:

National Highway Traffic Safety Administration (NSA-32) 400 7th Street, S.W. Washington, D.C. 20590

The DOT website can provide further assistance.

Note: Importations from Afghanistan (Taliban), Cuba, Iran, Iraq, Libya, North Korea, Sudan, Serbia/Montenegro/Kosovo, or Yugoslavia that involve the governments of those countries, are generally prohibited pursuant to regulations issued by the Treasury Department's Office of Foreign Assets Control. Before attempting to make such an importation, information concerning the prohibitions and licensing policy should be obtained by contacting:

Director, Office of Foreign Assets Control U.S. Department of the Treasury, 2nd Floor Anx. 1500 Pennsylvania Avenue, N.W. Washington, D.C. 20220

You can call either (202) 622-2500 or (202) 622-2480 , or fax (202) 622-1657 ; or visit the U.S. Department of the Treasury's Office of Foreign Assets Control website.

Prior Arrangements

The owner must make arrangements for shipping a vehicle. Have your shipper or carrier notify you of the vehicle's arrival date so that you can make arrangements to process it through CBP. Shipments are cleared at the first port of entry unless you arrange for a freight forwarder abroad to have the vehicle sent in bond to a CBP port more convenient to you.

Law prohibits CBP officers from acting as agents or making entries for an importer. However, you may employ a commercial CBP broker to handle your entry.

Documentation

For CBP clearance you will need the shipper's or carrier's original bill of lading, the bill of sale, foreign registration, and any other documents covering the vehicle. You will also be required to complete EPA form 3520-1 and DOT form HS-7, declaring the emissions and safety provisions under which the vehicle is being imported. Vehicles that meet all U.S. emission requirements will bear manufacturer's label on the engine compartment in English, attesting to that fact. For vehicles that lack such a label, the CBP inspector at the port of entry may require proof of eligibility to import under the EPA exemptions or exclusions specified on form 3520-1.

Vehicles that do not meet all U.S. emission requirements, unless eligible for exemption or exclusion must be imported through an independent commercial importer (ICI). EPA will not allow the vehicles' release to the vehicle owner until ICI work is complete. The ICI will perform any EPA-required modifications and be responsible for assuring that all EPA requirements have been met. Some vehicles cannot be successfully imported or modified by an ICI, however, and in general, ICI fees are very high.

Cleaning the Undercarriage

To safeguard against importation of dangerous pests, the U.S. Department of Agriculture requires that the undercarriage of imported cars be free of foreign soil. Have your car steam-sprayed or cleaned thoroughly before shipment.

Your Car is Not a Shipping Container

For your own safety, security, and convenience, do not use your car as a container for personal belongings.

• Your possessions are susceptible to theft while the vehicle is on the loading and unloading docks and in transit.
• Many shippers and carriers will not accept your vehicle if it contains personal belongings.
• The entire contents of your car must be declared to CBP on entry. Failure to do so can result in a fine or seizure of the car and its contents.
• Your vehicle may be subject to seizure, and you may incur a personal penalty, if anyone uses it as a conveyance of illegal narcotics.

Dutiable Entry

Foreign-made vehicles imported into the U.S., whether new or used, either for personal use or for sale, are generally dutiable at the following rates:

• Motorcycles 2.4% or free

Duty rates are based on price paid or payable. 

As a returning U.S. resident, you may apply your $800 CBP exemption and those of accompanying family members toward the value of the vehicle if it:

• Accompanies you on your return;
• Is imported for personal use;
• Was acquired during the journey from which you are returning.

For CBP purposes, a returning U.S. resident is one who is returning from travel, work, or study abroad.

After the exemption has been applied, a flat duty rate of 3% is applied toward the next $1,000 of the vehicle's value. The remaining amount is dutiable at the regular duty rate.

• U.S. citizens employed abroad or government employees returning on TDY or voluntary leave may import a foreign-made car free of duty provided they enter the U.S. for a short visit, claim nonresident status, and export the vehicle when they leave.
• Military and civilian employees of the U.S. government returning at the end of an assignment to extended duty outside the CBP territory of the U.S. may include a conforming vehicle among their duty-free personal and household effects. The auto must have been purchased abroad and be in its owner's possession prior to departure. Generally, extended duty is 140 days or more. Navy personnel serving aboard a U.S. naval vessel or a supporting naval vessel from its departure from the U.S. to its return after an intended overseas deployment of 120 days or more are entitled to the extended-duty exemption. Conforming vehicles imported under the duty-free exemption are dutiable if sold within one year of importation. Duty must be paid at the most convenient CBP office before the sale is completed. Conforming vehicles so imported may remain in the U.S. indefinitely once a formal entry is made for EPA purposes.
• Nonresidents may import a vehicle duty-free for personal use up to (1) one year if the vehicle is imported in conjunction with the owner's arrival. Vehicles imported under this provision that do not conform to U.S. safety and emission standards must be exported within one year and may not be sold in the U.S. There is no exemption or extension of the export requirements.
• USMCA Eligibility U.S. Goods Returned. To qualify for duty-free treatment under the United States-Mexico-Canada Agreement (USMCA), all vehicles – new and used – must meet the USMCA rules of origin for automotive goods, including regional value content (RVC), labor value content (LVC), steel purchasing, and aluminum purchasing requirements. The requirements are so stringent that vehicles produced prior to 2020 are not likely eligible for duty-free status under the USMCA.  Vehicles produced on or after July 1, 2020 may meet the USMCA rules of origin.  However, under the USMCA Implementation Act there are three vehicle certifications related to the above requirements that must be provided by the producer of the covered vehicle. If these documents are not made available upon request, then applicable duties and fees will be collected on personal and commercial importations of new and used vehicles from Canada and Mexico. Certain vehicles may be eligible for duty-free treatment as U.S. Goods Returned. In accordance with Section 904(b) of the Trade Facilitation and Trade Enforcement Act of 2015 (Pub. L. 114-125, February 24, 2016), subheading 9801.00.10 of the Harmonized Tariff Schedule of the United States provides for the duty-free treatment of:
• Products of the United States when returned after having been exported, or any other products when returned within three years after having been exported, without having been advanced in value or improved in condition by any process of manufacture or other means while abroad.
• Under this provision, qualifying vehicles that are being returned may be eligible for duty-free treatment. This provision may be applied to either personal or commercial importations of used vehicles. The burden of substantiating eligibility lies with the importer and claims are subject to verification. See HQ H314176 (March 18, 2021).”

Cars Imported for Other Purposes

Nonresidents may import an automobile or motorcycle and its usual equipment free of duty for a temporary stay to take part in races or other specific purposes. However, prior written approval from the EPA is required and such approval is granted only to those racing vehicles that EPA deems not capable of safe or practical use on streets and highways. If the contests are for other than money purposes, the vehicle may be admitted for 90 days without formal entry or bond if the CBP officer is satisfied as to the importer's identify and good faith. The vehicle becomes subject to forfeiture if it is not exported or if a bond is not given within 90 days of its importation. Prior written approval must be obtained from DOT. A vehicle may be temporarily imported for testing, demonstration, or racing purposes. A vehicle may be permanently imported for show or display. Written approval from DOT is required and should be obtained before the vehicle is exported from the foreign country to the U.S. Information on how to import a vehicle under show or display is available at DOT's NHTSA Vehicle Importation Regulations website. A vehicle permanently imported for show and display must comply with all U.S. emission requirements as well, and in general must be imported through an EPA-authorized ICI for modification and testing. EPA will not allow the vehicle to be released to its owner until ICI work is complete.

Safety, Bumper, and Theft Prevention Standards

Importers of motor vehicles must file form HS-7 at the time of vehicle is imported to declare whether the vehicle complies with DOT requirements. As a general rule, motor vehicles less than 25 years old must comply with all applicable Federal Motor Vehicle Safety Standards (FMVSS) in order to be imported permanently into the United States. Vehicles manufactured after September 1, 1978, must also meet the bumper standard, and vehicles beginning with model year 1987 must meet the theft-prevention standard. For more information, please contact the DOT import hotline at (202) 366-5291 .

Vehicles manufactured to meet these standards will have a certification label affixed by the original manufacturer near the driver's side door. If you purchase a vehicle abroad that is certified to U.S. standards, you may expedite your importation by making sure the sales contract identifies this fact and by presenting the contract to CBP at the time of importation.

A vehicle must be imported as a nonconforming vehicle unless it bears the manufacturer's label certifying that it meets U.S. standards. If it is a nonconforming vehicle, the importer must contract with a DOT-registered importer (RI) to modify the vehicle and certify that it conforms to all applicable FMVSS. The importer must also post a DOT bond for one and a half times the vehicle's dutiable value. This bond is in addition to the normal CBP entry bond. Copies of the DOT bond and the contract with the RI must be attached to the HS-7 form.

Before a RI can modify your vehicle, however, it must first be determined whether the vehicle is capable of being modified to comply with the FMVSS. If a vehicle has not previously been determined to be eligible for importation, it must go through a petition process to determine whether it's capable of being modified for such compliance. If the vehicle under petition is not similar to one sold in the United States, the process of bringing it into compliance becomes very complex and costly. A List of Nonconforming Motor Vehicles that are Eligible for Importation (By or Through a Registered Importer may be obtained from a RI or from NHTSA's website.

The cost of modifying a nonconforming vehicle and the time required to bring it into conformance may affect your decision to purchase a vehicle abroad. NHTSA strongly recommends discussing these aspects with a RI before buying and shipping a vehicle purchased overseas.

Federal Tax

Certain imported automobiles may be subject to the gas-guzzler tax imposed by section 4064 of the Internal Revenue Code. An individual who imports an automobile for personal use, or a commercial importer, may be considered an importer for purposes of this tax and thus liable for payment of the tax.

The amount of the tax is based on a combined urban/highway fuel-economy (miles per gallon) rating assigned by the EPA for gas-guzzler tax purpose. This EPA rating may be different from fuel-economy ratings indicated by the manufacturer.

If the EPA has not assigned a gas-guzzler fuel- economy rating for the model automobile you import, a rating must be independently determined. No tax is imposed on automobiles that have a combined fuel-economy rating of at least 22.5 miles per gallon.

Information on determining fuel-economy rating and liability for the tax are contained in section 4064 of the Code, Revenue Procedure 86-9, 1986-1 Cumulative Bulletin 530, Revenue Procedure 87-10, 1987-1 Cumulative Bulletin 530, Revenue Procedure 87-10, 1987-1 Cumulative Bulletin 545, and Revenue Ruling 86-20, 1986-1 Cumulative Bulletin 319.

The gas-guzzler tax is reported on Form 720, Quarterly federal Excise Tax Return, and form 6197, Gas-Guzzler Tax. Additional information may be obtained from your local district office of the Internal Revenue Service.

Emission Standards

The following passenger cars, light-duty trucks, heavy-duty engines and motorcycles are subject to federal emission standards:

• Gasoline-fueled cars and light-duty trucks originally manufactured after December 31, 1967.
• Diesel-fueled cars originally manufactured after December 31, 1974.
• Diesel-fueled light-duty trucks originally manufactured after December 31, 1975.
• Heavy-duty engines originally manufactured after December 31, 1969.
• Motorcycles with a displacement more than 49 cubic centimeters originally manufactured after December 31, 1977.

Vehicles must be certified to U.S. federal emission standards by their manufacturers for sale in the U.S. Vehicles that do not meet these requirements are considered nonconforming. A currently certified ICI, a list of which is available from the EPA, must import Nonconforming vehicles for you. The only EPA-authorized ICIs are located in the U.S. It is therefore recommended that you contact an ICI to discuss costs for modification and testing before you decide to import a nonconforming vehicle. The ICI will be responsible for assuring that your car complies with all U.S. emission requirements. (As of July 1, 1998, EPA no longer has the one-time exemption for vehicles five or more model-years old.) Be aware that EPA will deny entry to certain makers, models, and model year if an ICI is not certified or is unwilling to accept responsibility for the vehicle(s) in question.

You may obtain additional information on emission control requirements or on ICIs from the U.S. EPA Vehicle Programs and Compliance Division/Imports at (734) 214-4100 , fax (734) 214-4676 ; or visit the website.

Individual state emission requirements may differ from those of the federal government. Proper registration of a vehicle in a state may depend upon satisfaction of its requirements, so you should contact the appropriate state authorities prior to importation. Be aware, however, that EPA will not accept compliance with a state's emission requirements as satisfying EPA's requirements.

A Word of Caution

Both the DOT and the EPA advise that although a nonconforming car may be conditionally admitted, the modification required to bring it into compliance may be so extensive and costly that it may be impractical and even impossible to achieve such compliance. It is highly recommended that these prohibitions and modifications be investigated before a vehicle's purchased for importation.

• Re-Importing A Previously Exported Vehicle -  A vehicle taken from the United States for non-commercial, private use may be returned duty free by proving to CBP that it was previously owned and registered in the United States. This proof may be a state-issued registration card for the automobile or a bill of sale for the car from a U.S. dealer. Repairs or accessories acquired abroad for your vehicle must be declared on your return and may be subject to duty. In some countries, it will be difficult or impossible to obtain unleaded fuel for your vehicle. If the vehicle is driven using leaded gasoline, it will be necessary for you to replace the catalyst and oxygen sensor upon its return to the U.S. To avoid the expense of replacing these parts you may obtain authorization from EPA to remove the catalyst and oxygen sensor before the vehicle is shipped overseas. The EPA telephone number for these authorizations is (202) 564-2418 . When the vehicle returns to the U.S., the original catalyst and oxygen sensor will need to be reinstalled. However, you may now reenter your U.S. version vehicle into the U.S. without bond, upon your assurance that you will have the reinstallation performed.
• Using Conveyances to Transporting Goods of a Commercial/Personal Nature -  Goods of a commercial nature that are being transported in a privately owned conveyance will require the purchase of a user fee decal and the payment of duty may be required. Goods being transported for personal use within a privately owned vehicle do not require the purchase of this decal. However, the payment of duty may be required. Rental vehicles may be used to transport personal goods without the purchase of a decal if the driver has not been paid to operate the vehicle.

The following vehicles need not conform to emission or safety requirements but may NOT be sold in the U.S. and may require EPA and DOT declarations:

• Those imported by nonresidents for personal use not exceeding one year. The vehicle must be exported at the end of that year - there are no exceptions or extensions.
• Those belonging to members of foreign armed forces, foreign diplomatic personnel, or other individuals who come within the class of persons for whom free entry has been authorized by the Department of State in accordance with international law.
• Those temporarily imported for testing, demonstration, or competition, provided they are not licensed for use, or driven on public roads. These vehicles may be operated on public roads or highways provided the operations are an integral part of the test. Parties responsible for such vehicles must submit proper documents - forms EPA 3520-1 and DOT HS-7 - to CBP at the time entry is made. Also, applicable written approvals from these agencies must be obtained in advance and presented to CBP along with these forms. Remember, the cost to return vehicles that have been refused prior approval can be very high and must be borne by the vehicle owner(s).

Driver's Plates and Permits

Imported cars should bear the International Registration Marker. The International Driving Permit, issued in five languages, is a valuable asset. Consult an international automobile federation or your local automobile club about these documents.

• U.S. residents importing a new or used car should consult the Department of Motor Vehicles (DMV) in their state of residence about temporary license plates and what documentation their DMV would require from CBP.
• Nationals of Central and South American countries that have ratified the Inter-American Convention of 1943 may drive their cars in the U.S. for touring purposes for one year or for the period of the validity of the documents, whichever is shorter, without U.S. license plates or U.S. driver's permits, provided the car carries the International Registration Marker and registration card, and the driver has the International Driving Permit.
• Motorists visiting the United States as tourists from countries that have ratified the Convention on International Road Traffic of 1949 may drive in the U.S. for one year with their own national license plates (registration tags) on their own national license plates (registration tags) on their cars and with their own personal drivers' licenses.
• Motorists from Canada and Mexico are permitted to tour in the U.S. without U.S. license plates or U.S. driver's permits, under agreements between the United States and these countries.
• Motorists from a country not a party to any of the above agreements must secure a driving permit in the U.S. after taking an examination.
• Foreign nationals employed in the U.S. may use their foreign license tags from the port of entry to their destination in the U.S.

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Suspended Counterparty Program

FHFA established the Suspended Counterparty Program to help address the risk to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks (“the regulated entities”) presented by individuals and entities with a history of fraud or other financial misconduct. Under this program, FHFA may issue orders suspending an individual or entity from doing business with the regulated entities.

FHFA maintains a list at this page of each person that is currently suspended under the Suspended Counterparty Program.

This page was last updated on 03/26/2024

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Litigation: Editor's Picks

Litigator Workloads Could Spike Under Amended Civil Procedure Rules

“Attorneys have to be very attentive to these changes because they will impact every civil case and they will add to the expense of litigation,” said Bruce Berman, a shareholder at Carlton Fields.

May 24, 2024 at 08:51 AM

5 minute read

Civil Procedure

Michael A. Mora

Share with email, thank you for sharing, what you need to know.

• The justices codified active case management in the Florida Rules of Civil Procedure.
• The rules are an attempt by the state Supreme Court to streamline cases and increase efficiency, according to an expert.
• The rule are effective Jan. 1.

The Florida Supreme Court entered an opinion Thursday that will impact the state rules of civil procedure and could significantly increase the workload for litigators.

Bruce Berman, a shareholder at  Carlton Fields in Miami who has published a book on the Florida Rules of Civil Procedure that is updated annually, said a commonality in the state Supreme Court’s two opinions is an attempt to streamline cases and increase efficiency.

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Saving money with the prescription drug law

A new prescription drug law that went into effect January 1, 2023, will help save money for people with Medicare. This law improves access to affordable treatments and strengthens the Medicare program. Here’s what the law means for you:

More vaccines covered

People with Medicare Part D drug coverage now pay nothing out-of-pocket for even more vaccines. Your Part D plan won't charge you a copayment or apply a deductible for vaccines that the Advisory Committee on Immunization Practices recommends, including the vaccines for shingles, whooping cough, and more.

Lower costs for insulin

Part D insulin costs

Your Medicare drug plan can't charge you more than $35 for a one-month supply of each Part D-covered insulin, and you don’t have to pay a deductible. You’ll pay $35 (or less) for a one-month supply of each Part D-covered insulin product, even if you get Extra Help to lower your prescription drug costs.

If you get a 3-month supply of insulin, your costs can’t be more than $105 ($35 for each month’s supply).

Other questions about insulin coverage under Part D?

Part B insulin costs

If you use an insulin pump that’s covered under Part B’s durable medical equipment benefit, or you get your covered insulin through a Medicare Advantage Plan, your cost for a month’s supply of Part B-covered insulin can’t be more than $35. The Part B deductible won’t apply. If you have Part B and Medicare Supplement Insurance ( Medigap ) that pays your Part B coinsurance, your plan should cover the $35 (or less) cost for insulin. 

If you get a 3-month supply of insulin, you'll generally pay no more than $105, because your costs can’t be more than $35 for each month’s supply of each covered insulin. 

Get more information about this new insulin benefit.  

Learn more about insulin costs.

Lower out-of-pocket drug costs

• You might pay a lower coinsurance amount for certain drugs and biologicals covered by Part B, if their prices have increased higher than the rate of inflation. The specific drugs and potential savings change every quarter.
• If you have drug costs high enough to reach the catastrophic coverage phase in your Medicare drug coverage , you won’t have to pay a copayment or coinsurance, starting in 2024.
• Extra Help affording prescription drug coverage (the Part D Low-Income Subsidy (LIS) program ) will expand to cover more drug costs for people with limited resources who earn less than 150% of the federal poverty level, starting in 2024. People who qualify for Extra Help generally will pay no more than $4.50 for each generic drug and $11.20 for each brand-name drug.
• Your yearly Part D out-of-pocket costs will be capped at $2,000, starting in 2025. You’ll also have the option to pay out-of-pocket costs in monthly amounts over the plan year, instead of when they happen.
• If the price of a drug covered by Part B (Medical Insurance) increased faster than the rate of inflation, you might pay less than 20% coinsurance for that drug. The specific drugs that are impacted and the potential savings may change every quarter.  Get more information about Part B-covered drugs .

Medicare will negotiate to get you lower drug prices

For the first time, Medicare will be able to negotiate directly with manufacturers for the price of certain high-spending brand-name Medicare Part B and Part D drugs that don’t have competition.

• Fiasp; Fiasp FlexTouch; Fiasp PenFill; NovoLog; NovoLog FlexPen; NovoLog PenFill
• Negotiated prices for these first 10 drugs will be effective in 2026.
• 15 Part D drugs in 2025 (effective in 2027).
• 15 Part B and Part D drugs in 2026 (effective in 2028).
• 20 Part B and Part D drugs in 2027 (effective in 2029).
• 20 Part B and Part D drugs in 2028 and every year after.
• Manufacturers that don’t follow the negotiation requirements will have to pay a tax, and will have to pay penalties if they don’t fulfill other manufacturer requirements.

§ 2-210. Delegation of Performance; Assignment of Rights.

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(1) A party may perform his duty through a delegate unless otherwise agreed or unless the other party has a substantial interest in having his original promisor perform or control the acts required by the contract . No delegation of performance relieves the party delegating of any duty to perform or any liability for breach.

(2) Unless otherwise agreed all rights of either seller or buyer can be assigned except where the assignment would materially change the duty of the other party, or increase materially the burden or risk imposed on him by his contract , or impair materially his chance of obtaining return performance. A right to damages for breach of the whole contract or a right arising out of the assignor's due performance of his entire obligation can be assigned despite agreement otherwise.

(3)Unless the circumstances indicate the contrary a prohibition of assignment of "the contract" is to be construed as barring only the delegation to the assignee of the assignor's performance.

(4) An assignment of "the contract" or of "all my rights under the contract" or an assignment in similar general terms is an assignment of rights and unless the language or the circumstances (as in an assignment for security) indicate the contrary, it is a delegation of performance of the duties of the assignor and its acceptance by the assignee constitutes a promise by him to perform those duties. This promise is enforceable by either the assignor or the other party to the original contract .

(5) The other party may treat any assignment which delegates performance as creating reasonable grounds for insecurity and may without prejudice to his rights against the assignor demand assurances from the assignee (Section 2-609 ).