A standard successors and assigns clause would be something like:
“This Agreement shall be binding upon and shall inure to the benefit of the parties and their permitted successors and assigns.”
A successor is a third party that either acquired or merged with one of the parties to the agreement. Assigns are third parties that the agreement has been assigned to as may be allowed under the terms of the agreement. Generally you do not allow parties to assign the agreement to another party without your consent, but a common exception to that is when the
Agreement is used by a business and that business is sold to a third party.
In the book Negotiating and Drafting Contract Boilerplate author Tina Stark noted that courts have interpreted a successors and assigns provision five different ways.
1.To bind an assignee to perform.
2.To bind the non-assigning party to continue to perform.
3.To determine whether rights are assignable.
4.To determine whether performance is delegable.
5.To bind those successors and assigns to the agreement.
Since the intent isn’t clear let’s looks at how these things may be managed without such a clause.
1.To bind an assignee to perform. This can be managed by simply requiring that with any assignment, there must also be an assumption section or agreement where the assignee assumes responsibility for performance.
2.To bind the non-assigning party to continue to perform. As long as the assignment was allowed under the agreement the non-assigning party is not excused from performance. Assignment does not excuse either or the original parties from performance. The assigning party is only excused when there is a novation where the non-assigning party has agreed to excuse them.
3.To determine whether rights are assignable. If a contract allows for the assignment by either party and the assignment meets the requirements of the agreement for the assignment all rights and obligations both parties have in the agreement remain in place. In signing an assumption, the assignee has agreed to assume them. In allowing the assignment the non-assigning party has allowed those rights and obligations to be assumed, but with the assigning party secondarily liable. In agreeing to an assignment and novation, the non-assigning party has agreed to only looks to the assignee for performance and no longer has any obligations with the assigning party.
4.To determine whether performance is delegable. In an assignment the parties are not delegating anything. They are transferring rights and obligations under the agreement. The assignee, when they provide an assumption has agreed to provide all performance. The assignor is only excused from performance if there is a novation.
5.To bind those successors and assigns to the agreement. Assigns are bound when they sign an assumption. Successors who get contracts as a part of an acquisition or merger are not excused from performance. They remain obligated to perform until performance is excused. The law excuses performance under a contract only when:
•Subsequently illegality such as a change in the law that makes the performance illegal,
•Impossibility, where the work cannot be done.
•Impracticability, where it is not capable of being done
•Frustration, such as one party failing to meet their obligations can frustrate the other party allowing them not to perform
•Rescission, where the parties have agreed to stop it.
•Novation, where the parties agree that another party will complete the work and the original party is excused from performance, and
•Lapse; such as where the contract term may have lapsed without the work being completed.
My opinion is that you can accomplish anything a “successors and assigns” clause purports to do in the assignment provision by requiring that for an assignment to be effective the assignee must sign an assumption section or document agreeing to assume all rights and obligations under the agreement. With successors no language is needed as when they assume control over the original party they still have the rights and obligation. The sole exception to that would be when one party includes special termination rights in the agreement where they have the right to terminate the agreement if there is a "change of control" the the is acquired by a competitor. In that situation both parties continue to have their own respective rights and obligations until the party with right elects to exercise it.
