Anyone can see that violin strings are held up by the bridge, an unfinished, carved piece of wood that sits between the end of the fingerboard and the tailpiece. What is not obvious to the observer is how critical the bridge’s shape and placement is to the violin’s sound.
Violin bridges are removable; they are held in place only by the downward pressure of the strings. It is critical that the feet of the bridge properly fit the top of the violin. One can purchase a pre-carved violin bridge, and some even advertise that they are “self-adjusting.” However, for optimal sound, the feet on the bridge must be hand-carved to fit the violin’s unique shape. Fitting a bridge involves even more custom labor.
The density and quality of the wood impacts how much the strings can vibrate; maple is favored by many luthiers. A luthier not only must fit the feet, but also must carve the top curvature, height, and shape of the carvings in the bridge to obtain the optimal sound for each specific violin.
Since violins (and bridges) are made of wood, the may swell with summer humidity and contract during the dry winter heating season. Many violinists will have both a summer and a winter bridge, and they swap bridges by season to assure string height and bridge fit remain optimal year-round.
Despite the bridge’s conspicuous position on the top of the violin and its importance to the sound produced, non-violinists aren’t likely to give it a second glance. The same is true of boilerplate in contracts. The language isn’t hidden; yet, contracting parties may not even read it before signing the contract.
This article is one in a series about why boilerplate contract clauses are important. This article discusses successors and assigns clauses.
What are Successors and Assigns Clauses?
Similar to swapping out violin bridges, assignment and successor clauses in contracts describe under what circumstances parties may be substituted in a contract. A typical successors and assigns clause might read:
This agreement is binding upon and inures to the benefit of the parties and their respective heirs, successors, and assigns.
This language states the agreement is binding on “heirs, successors, and assigns,” but it might not be obvious to some what that means. “Heirs” applies only if the contracting party is an individual and that party dies. The people who inherit under the will or state law are that individual’s heirs. So, basically, that clause says that a party’s heirs must perform under the contract.
Successors is applicable when a contracting party is an entity, and when the party is an individual. A corporation’s successor might be the surviving corporation after a merger. A successor also could be the entity or person who purchases the contracting party’s business. For an individual, the executor of that person’s estate or would be a successor. A spouse who receives an asset in a divorce settlement sometimes might also be a successor.
An assign (or assignee) is someone to whom the contracting party intentionally transfers ownership of the contract. The assignment can be done directly, where the contracting party expressly assigns the specific contract. Or, the assignment can be indirect, for instance, where the contracting party transfers the assets of a business to a purchaser.
When and Why Heirs and Successors Should be Bound by a Contract
A successors and assigns clause requires both parties and the successor or assignee to honor the contract terms. Whether this is important or even desirable to the parties depends upon the circumstances.
For instance, in a commercial real estate purchase, the buyer frequently will create a special purpose entity (“SPE”) to own the real estate after the closing. In those situations, the buyer will want to be sure that it can assign the purchase agreement to the SPE without the seller negating the contract.
Similarly, with a contract for the sale of custom goods, the seller wants to be sure there will be a buyer after the goods are manufactured. Since the seller isn’t likely to be able to sell the goods to someone else, the seller won’t want the buyer to be able to get out of the contract through a merger or even death.
On the other hand, in an employment or even a services agreement, the employer won’t want someone else to perform the services. And, the employee might not want to work for a different employer.
Likewise, someone entering into a joint venture with a long-time friend might not want the business relationship to continue with the friend’s spouse or children if the friend passed away. In that instance, the contract might provide that it does not inure to the parties’ successors and heirs.
What To Look for in an Assignment Clause
The language in an assignment clause also will vary depending upon the circumstances. In the real estate purchase agreement situation described above, the assignment portion of a contract might add language similar to the following after the basic single-sentence clause:
The buyer may assign this contract to a special purpose entity affiliated with buyer without the seller’s prior consent, provided, however, that such assignment shall not relieve the buyer of any obligations under this agreement. All other assignments by the buyer shall require the seller’s prior written consent.
This language allows the buyer to assign the contract so an SPE can acquire the real estate as described above. However, this language does not allow a true real estate “flip,” where the buyer assigns the purchase agreement to a third party without ever acquiring the property.
Each party should think consider its plans when negotiating the assignment language. For example, although a real estate seller might not want the buyer to do a flip, a buyer planning a “reverse exchange” under Section 1031 of the Internal Revenue Code will need to assign the purchase agreement to an unaffiliated exchange accommodator. That should be addressed in the purchase agreement.
When a contracting party is relieved of obligations under a contract after an assignment, it is called a “novation.” To avoid disagreement later, if a contract allows assignments, it should clearly state whether (or not) there will be a novation.
Most contracts which allow assignments include language similar to the above example that says the original party is not relieved of obligations upon the contract after assignment. But the parties also should specifically state if they want the opposite to be true, and they want a new party to be substituted without the original party remaining obligated under the contract.
Pay Attention to Successors and Assigns Clauses
It is easy to buy a “self-adjusting” bridge and to hope for the best. And it is easy to ignore a successors and assigns clause as unimportant boilerplate when negotiating a contract. However, just as self-adjusting bridges don’t fit the curvature of the violin, boilerplate successors and assigns clauses may not meet the parties’ needs.
The extra time and expense required to pay a luthier to custom fit a bridge produces a pay off in improved sound. Extra time and expense spent negotiating successors and assigns language that meets the parties’ anticipated needs likely can produce a pay off with a smoother transaction and fewer disputes later.
This series draws from Elizabeth Whitman’s background in and passion for classical music to illustrate creative solutions for legal challenges experienced by businesses and real estate investors.