Assignability of Commercial Contracts (TX) | Practical Law
Assignability of Commercial Contracts (TX) _ Practical Law.html[4/9/2019 3:03:50 PM]
Non-assignable contracts (where consents are not obtained) are excluded from the transaction (see, for
example, Standard Document, Asset Purchase Agreement (Pro-Buyer Long Form): Section 2.02). For a
sample form of request for consent to the
assignment of a commercial contract, see Standard
Document, Request for Consent to Assignment of Contract (TX).
The result usually differs for a transaction structured either as a stock sale or a
reverse triangular
merger. Typically, neither of these structures involves a technical transfer of the contracting party's
assets, and in many jurisdictions, including Delaware, generally they do not implicate anti-
assignment
or anti-delegation clauses (see Meso Scale Diagnostics, LLC v. Roche Diagnostics GmbH, 62 A.3d 62,
88 (Del. Ch. 2013) and Legal Update, Delaware Court of Chancery Holds that Reverse Triangular
Mergers Do Not Trigger "
Assignment by Operation of Law" Provisions).
Texas courts have not directly addressed whether a stock acquisition triggers an anti-
assignment
provision. The Texas Supreme Court, however, held that a stock acquisition was not a sale or
assignment that would trigger a right of first refusal provision where the parties failed to include "change
of control" language (see Tenneco, 925 S.W.2d at 646). In the context of an anti-assignment clause,
this approach is consistent with Delaware law that a stock acquisition generally does not trigger an
anti-
assignment and anti-delegation provision (see Baxter Pharm. Products, Inc. v ESI Lederle Inc.,
1999 WL 160148, at *5 (Del. Ch. 1999)).
Merger-based transactions may or may not implicate anti-
assignment and anti-delegation restrictions,
depending on the type of merger involved and applicable state law. Under Texas law, however, in a
corporate merger of any type, generally:
All rights, title, and interests of a merging party are vested in the surviving entity (or the new entity
created by the merger).
No transfer or assignment occurs.
(Tex. Bus. Orgs. Code Ann. § 10.008(a)(2).)
Although Texas courts have not specifically ruled on the effect of an anti-
assignment and anti-
delegation provision on a reverse triangular merger, like most jurisdictions, they are unlikely to find that a
reverse triangular merger triggers a simple anti-
assignment and anti-delegation clause (see TXO Prod.
Co. v. M.D. Mark, Inc., 999 S.W.2d 137, 143 (Tex. App. - Houston [14th Dist.] 1999, pet. denied)
(holding that a merger of a subsidiary into its parent did not violate an anti-
assignment clause); see also
Tex. Bus. Orgs. Code Ann. § 10.008(a)(2)).
Although an equity purchase or reverse triangular merger generally does not trigger anti-
assignment
provisions, counsel should carefully review applicable contracts for change of control provisions that
may be triggered by the transaction.
In light of § 10.008(a)(2), it is unlikely that a forward or forward triangular merger would trigger a simple
anti-
assignment provision. However, a forward or forward triangular merger might trigger a specifically
worded anti-
assignment and anti-delegation provision that expressly addresses this type of merger or
that contains change of control language. Otherwise, a prohibited transfer is not implied by merger under
Texas law unless the agreement specifically provides that merger violates an anti-
assignment provision
(see M.D. Mark, Inc. v. Nuevo Energy Co., 988 S.W.2d 463, 465 (Tex. App.- Houston [1st Dist.] 1999, no
pet.) and TXO Prod. Co., 999 S.W.2d at 143).
Parties should be aware that certain anti-
assignment and anti-delegation provisions may be drafted
broadly to:
Restrict all forms of mergers (including reverse triangular mergers).
Deem a change of control to be an assignment for purposes of the anti-assignment provision.