assignment and assumption and bill of sale

Understanding an assignment and assumption agreement

Need to assign your rights and duties under a contract? Learn more about the basics of an assignment and assumption agreement.

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assignment and assumption and bill of sale

by Belle Wong, J.D.

Belle Wong, is a freelance writer specializing in small business, personal finance, banking, and tech/SAAS. She ...

The assignment and assumption agreement

The basics of assignment and assumption, filling in the assignment and assumption agreement.

While every business should try its best to meet its contractual obligations, changes in circumstance can happen that could necessitate transferring your rights and duties under a contract to another party who would be better able to meet those obligations.

Person presenting documents to another person who is signing them

If you find yourself in such a situation, and your contract provides for the possibility of assignment, an assignment and assumption agreement can be a good option for preserving your relationship with the party you initially contracted with, while at the same time enabling you to pass on your contractual rights and duties to a third party.

An assignment and assumption agreement is used after a contract is signed, in order to transfer one of the contracting party's rights and obligations to a third party who was not originally a party to the contract. The party making the assignment is called the assignor, while the third party accepting the assignment is known as the assignee.

In order for an assignment and assumption agreement to be valid, the following criteria need to be met:

The initial contract must provide for the possibility of assignment by one of the initial contracting parties.
The assignor must agree to assign their rights and duties under the contract to the assignee.
The assignee must agree to accept, or "assume," those contractual rights and duties.
The other party to the initial contract must consent to the transfer of rights and obligations to the assignee.

A standard assignment and assumption contract is often a good starting point if you need to enter into an assignment and assumption agreement. However, for more complex situations, such as an assignment and amendment agreement in which several of the initial contract terms will be modified, or where only some, but not all, rights and duties will be assigned, it's a good idea to retain the services of an attorney who can help you draft an agreement that will meet all your needs.

When you're ready to enter into an assignment and assumption agreement, it's a good idea to have a firm grasp of the basics of assignment:

First, carefully read and understand the assignment and assumption provision in the initial contract. Contracts vary widely in their language on this topic, and each contract will have specific criteria that must be met in order for a valid assignment of rights to take place.
All parties to the agreement should carefully review the document to make sure they each know what they're agreeing to, and to help ensure that all important terms and conditions have been addressed in the agreement.
Until the agreement is signed by all the parties involved, the assignor will still be obligated for all responsibilities stated in the initial contract. If you are the assignor, you need to ensure that you continue with business as usual until the assignment and assumption agreement has been properly executed.

Unless you're dealing with a complex assignment situation, working with a template often is a good way to begin drafting an assignment and assumption agreement that will meet your needs. Generally speaking, your agreement should include the following information:

Identification of the existing agreement, including details such as the date it was signed and the parties involved, and the parties' rights to assign under this initial agreement
The effective date of the assignment and assumption agreement
Identification of the party making the assignment (the assignor), and a statement of their desire to assign their rights under the initial contract
Identification of the third party accepting the assignment (the assignee), and a statement of their acceptance of the assignment
Identification of the other initial party to the contract, and a statement of their consent to the assignment and assumption agreement
A section stating that the initial contract is continued; meaning, that, other than the change to the parties involved, all terms and conditions in the original contract stay the same

In addition to these sections that are specific to an assignment and assumption agreement, your contract should also include standard contract language, such as clauses about indemnification, future amendments, and governing law.

Sometimes circumstances change, and as a business owner you may find yourself needing to assign your rights and duties under a contract to another party. A properly drafted assignment and assumption agreement can help you make the transfer smoothly while, at the same time, preserving the cordiality of your initial business relationship under the original contract.

Documents you need to buy or sell a business

The documents you need to buy or sell a business depend on the structure (discussed here ) and complexity of the deal as well as its specific terms. However, in virtually all cases, there will be a principal agreement governing the transaction. This will be a merger agreement for a merger, a stock purchase agreement for a stock purchase and, you guessed it, an asset purchase agreement for an asset purchase. These documents may have slightly different names at times. For example, a merger agreement may be called an agreement and plan of merger or a stock purchase agreement may be referred to as a securities purchase agreement or a purchase and sale agreement. Contracts for transactions involving the sale of stock and assets may simply be called purchase agreements. By and large, these slight variances in nomenclature don’t reflect any substantive distinctions.

Below, I’ll describe the purpose of each of these principal transaction agreements. After that, I’ll also very briefly introduce you to several other common mergers and acquisitions (M&A) transaction documents, including:

Confidentiality Agreements

Letters of intent, exclusivity agreements, disclosure schedules, hsr filings, third party consents, legal opinions, stock certificates, bills of sale, assignment and assumption agreements.

Escrow Agreements and
Transition Services Agreements .

There are dozens of other documents I could mention, including various Securities and Exchange Commission (SEC) filings for public deals, other federal and state regulatory filings, board resolutions, proxy statements, closing certificates, non-competition agreements, shareholder representative agreements, financial adviser engagement letters, fairness opinions, exchange agent agreements, employment agreements, compensation plans, real estate documents, lien releases, financing documentation and more, but I’ll save those for later posts. I’ll also spend more time discussing each of the following documents in subsequent posts.

Principal Transaction Agreements

Merger agreements.

Merger agreements provide that one company will merge with and into another company by operation of law, thereby effecting a change in control over one of the companies. They are the primary transaction agreement governing mergers and are frequently employed in public M&A deals . Among other things, these agreements typically:

address the cancellation of the target company’s shares and their conversion into the right to receive the purchase price from the buyer,
include mechanics for the tendering of cancelled shares and the payment of the purchase price to target company shareholders,
require the filing of one or more certificates of merger (or equivalent documents) with the state or states whose law governs the constituent companies,
provide for appraisal (dissenters’) rights,
contain representations and warranties from each party to the other as to its ability to consummate the transaction and, in the case of the target, its businesses,
contain covenants ( i.e. , binding promises) requiring the parties to make any necessary regulatory filings, obtain third party consents, secure permits, solicit shareholder approval and cooperate prior to and (except in public deals) after closing,
allow the parties to terminate the agreement under specified circumstances, such as the occurrence of an event that has a material adverse effect on the target company,
include conditions to closing and
in private M&A deals, provide for the parties to indemnify each other for losses resulting from breaches of the agreement.

In public transactions, merger agreements also contain deal protections (no-shops, break-up fees and other devices intended to make termination of the agreement less likely) and securities law compliance provisions. Want to buy a merger agreement?

Stock Purchase Agreements

Like merger agreements, stock purchase agreements, or SPAs, are the primary transaction documents governing a deal. However, SPAs take the place of merger agreements in stock purchase transactions where ownership of stock changes hands. No merger occurs. Among other things, SPAs typically:

provide for the transfer of stock, including, when applicable, physical delivery of stock certificates to the buyer, in return for payment of the purchase price, and
contain representations and warranties from each party to the other as to its ability to consummate the transaction and, in the case of the sellers, the target company’s businesses and the shares being transferred.

Otherwise, SPAs are very similar to merger agreements. Note, though, that they are almost never used in connection with an acquisition of 100% of a public company’s stock. Want to buy a stock purchase agreement?

Asset Purchase Agreements

Asset purchase agreements, or APAs, are the primary transaction documents governing sales of assets . However, rather than provide for a merger or transfer of shares, they establish the terms and conditions by which assets and liabilities will be conveyed by a seller to a buyer. APAs are very similar to stock purchase agreements, except for:

specific enumeration of the assets and liabilities being transferred,
providing for use of necessary legal instruments to transfer ownership, such as bills of sale (for personal property), assignment and assumption agreements (for contracts and permits), intellectual property assignments, real property transfer documents and so on,
some differences in representations and warranties of the seller, such as a representation that the acquired assets are sufficient to run the acquired business, and
provisions governing the treatment of assets that are used in both the business of the seller and the acquired business (shared assets).

Want to buy an asset purchase agreement?

Documents Signed Before Principal Transaction Agreements

M&A confidentiality agreements are usually entered into at commencement of discussions between the parties to ensure the fact that discussions are occurring, the terms being discussed and information about the parties’ respective businesses will be maintained in confidence. I’ve written a lengthy post about confidentiality agreements in M&A deals here . Want to buy a confidentiality agreement?

Letters of intent, or LOIs, are short, largely non-binding documents signed by the parties to prospective M&A transactions that lay out the general framework for the transaction, including the target, the purchase price (or a purchase price range), transaction structure, contingencies ( e.g. , whether there’s a buyer financing contingency), covenants and the terms of any indemnification.

Although LOIs are intended to be non-binding, they are employed by M&A parties as a tool to simplify the negotiation process by crystallizing the most material issues early in their interaction. By investing a bit of extra effort in hammering out an LOI at the commencement of discussions, parties can reduce the risk that they will needlessly expend even more resources through a full-scale due diligence, negotiation and definitive document drafting process only to discover that there is no deal to be had.

Read more about letters of intent here .

Exclusivity agreements are very short (1-2 page) agreements through which a seller agrees not to begin or continue attempting to sell the target company to a third party for a period of time (typically, 15-60 days). They are generally sought by buyers who do not wish to compete or continue competing with third parties for a deal. As one might expect, sellers agree to exclusivity reluctantly, as doing so may reduce their ability to maximize value from the transaction by inducing competing bids. However, without exclusivity, many buyers will refuse to invest the time and resources in conducting fulsome due diligence and negotiating an LOI or definitive transaction agreements. Want to buy an exclusivity agreement?

Documents Effective Upon Signing Principal Transaction Agreement

Disclosure schedules, sometimes called disclosure letters, aren’t separate agreements or other independently operative instruments. Rather, they are attachments to, and made a part of, the deal’s principal transaction agreement (merger agreement, SPA or APA). Their primary purpose is to provide disclosure about one of the parties to the transaction and to qualify or limit representations and warranties, and they are frequently quite lengthy, sometimes even exceeding 100 pages.

A given deal may have two disclosure schedules, one for the buyer and one for the seller or target. However, a seller or target disclosure schedule is far more common than one for the buyer. Buyer disclosure schedules are usually only needed in deals where the seller requires a significant amount of information about the buyer, such as, for example, when the purchase price is paid with buyer stock.

The disclosure provided by disclosure schedules is usually tied to specific representations and warranties contained in the principal transaction agreement. For example, a representation relating to material contracts of the target company may include a reference to a list of such contracts in the seller disclosure schedule. Alternatively, the information contained in the disclosure schedule may qualify or limit the scope of corresponding representations and warranties. For example, a representation may provide that there are no existing legal proceedings involving the target, except as set forth in the seller disclosure schedule .

Documents Needed Between Signing and Closing

The Hart-Scott-Rodino Antitrust Improvements Act of 1976 requires parties to M&A transactions that meet certain criteria to file a Premerger Notification and Report Form, commonly called an HSR filing, with the Federal Trade Commission (FTC) before they may consummate the transaction. These filings are designed to provide information to the FTC and U.S. Department of Justice (DOJ) for the purpose of determining whether the proposed transaction may have an anti-competitive effect on any relevant markets. If the FTC and DOJ have no concerns, then the parties may close the transaction 30 days after making the HSR filing (or earlier of the authorities grant early termination of the waiting period).

Many target companies are subject to agreements with third parties that restrict their ability to consummate a deal. These may include leases, loan agreements, customer contracts and more. Whether they may impede the transaction depends on the specific terms of the agreement, the law governing the agreement and the structure of the transaction. For example, while a direct assignment of a contract may be prohibited, which would interfere with an asset sale transaction, a merger or change in control ( i.e. , a sale of stock) of the target may not be so restricted.

When contractual restrictions cannot be avoided through creative deal structuring, M&A parties must obtain written consents from third parties who have rights that would be triggered by a deal. These consents are simple instruments that must be tailored to the specific terms of the subject agreement, and they are rarely controversial in form. However, securing the required consents may at times prove difficult and time-consuming, as some counterparties may use their leverage to extract value from the requesting party.

Documents Delivered At or Effective After Closing

Occasionally, a seller’s attorneys may be called upon to render a written legal opinion for the buyer to be delivered at closing. These opinions are intended to provide additional assurance to the buyer that certain legal matters are as they have been described by the seller in its representations and warranties. A typical opinion might cover the following matters:

the target was duly formed,
the target is in good standing in relevant states,
the target’s capital structure ( i.e. , shares outstanding),
the transaction and transaction agreements will not violate the target’s charter and other organizational documents or material contracts,
there is no litigation pending or threatened against the target and
any issuance of stock or other securities in the transaction complies with federal and state securities laws.

While commonplace in the past, buyers only rarely request seller legal opinions today on account of the legal fees that must be incurred to obtain them as well as the buyer’s ability to confirm independently many or all of the matters that would be addressed by the opinion.

Stock certificates are the physical embodiment of an ownership interest in a corporation. If the target is a limited liability company or partnership, equivalent membership, unit or partnership certificates may exist. These must be signed by the seller or sellers and delivered to the buyer at closing of a stock purchase transaction. In merger transactions, they are deemed cancelled and converted into the right to receive the merger consideration upon delivery to the buyer or paying agent.

Bills of sale are short instruments that actually transfer ownership of personal property from the seller to the buyer. They are only used in asset purchase transactions because personal property transfers to the buyer automatically in a stock purchase or merger. They are typically attached as exhibits to APAs, and the seller agrees to deliver a duly executed bill of sale to the buyer at closing.

In very simple asset sales, parties may forego an APA and instead prepare a long-form bill of sale that includes basic representations and warranties and, possibly, covenants. Want to buy a bill of sale?

Assignment and assumption agreements are analogous to bills of sale, except they effect the transfer of contracts, permits and similar assets by the seller to the buyer in an asset purchase transaction. It’s important to note that the word “assumption” in the title of these instruments refers to the buyer’s assumption of liabilities associated with the assigned assets.

As with bills of sale, it is possible, though uncommon, for parties to simple M&A transactions to rely solely on a long-form assignment and assumption agreement containing representations and warranties rather than a full APA. Want to buy an assignment and assumption agreement?

Escrow Agreements

In private M&A transactions, sellers usually agree to indemnify ( i.e. , hold harmless and protect) buyers and their affiliates and representatives from any losses they incur as a result of breaches of the seller’s representations, warranties and covenants contained in the principal transaction agreement. Should such an indemnification obligation arise post-closing, the buyer or other indemnified party would become an unsecured creditor of the seller or sellers, and it may be difficult for the indemnified party to collect on this debt.

To mitigate this risk, buyers frequently demand, and sellers usually agree, that a portion of the purchase price will be deposited with a trustworthy third party agent to hold for a period of time after closing for the purpose of remitting funds to indemnified parties if they become entitled to recover damages from the seller or sellers. These escrow arrangements are governed by escrow agreements signed by the parties to the M&A transaction as well as the third party escrow agent. Aside from establishing the mechanics for distributing the funds, escrow agreements also set forth the terms of the escrow agent’s engagement, including its rights, obligations and fees. Want to buy an escrow agreement?

Transition Services Agreements

Many M&A transactions involve the sale of only part of the operations of a larger enterprise. Thus, the extraction of the target business may be disruptive to that business, as it loses enterprise-wide services and support it had previously enjoyed. This may include, among other things, the loss of IT and telecommunications services, finance and accounting services, participation in employee benefits plans, legal and compliance support, equipment maintenance, logistics support, supply chain management and access to favorable vendor pricing and other terms.

To ameliorate the challenges of transitioning an acquired business to new ownership, necessary support may be provided by the seller to the target company and buyer for an agreed-upon period of time post-closing. Such arrangements are commonly reflected in a transition services agreement, which identifies the subject services, allows for adding or modifying services at the request of the target or buyer, establishes a standard for performance by the seller, sets fees for the services (which are usually, but not always, at below-market rates), allocates potential liability arising from the provision of services and provides for a term for each service to be provided. Want to buy a transition services agreement?

* * *

Erik Lopez is the M&A lawyer responsible for this blog. Feel free to contact Erik at [email protected] or +1-214-601-1887 .

Partner at Jasso Lopez PLLC

Erik is an M&A lawyer with over 23 years of domestic and cross-border, public and private M&A experience. He has successfully closed hundreds of deals totaling tens of billions of dollars in value for a global client-base. He is a graduate of the University of Chicago and New York University School of Law. You can reach Erik at [email protected].

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Bill Of Sale Agreement: Definition & Sample

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ContractsCounsel has assisted 127 clients with bill of sale agreements and maintains a network of 72 business lawyers available daily. Customers rate lawyers for bill of sale agreement matters 5.0.

What is a Bill Of Sale Agreement?

A bill of sale agreement is a legal document that records the transfer of ownership of an asset to a second party in exchange for money. A bill of sale agreement can be used to record the sale of aircraft, automobiles, motorcycles, and watercraft. It also can be used to record the sale of personal property, such as equipment, musical instruments, or furniture.

Generally, a bill of sale agreement is drafted by the seller and includes the details of the transaction. It protects both the buyer and the seller, should disagreements arise in the future.

Common Sections in Bill Of Sale Agreements

Below is a list of common sections included in Bill Of Sale Agreements. These sections are linked to the below sample agreement for you to explore.

Bill Of Sale Agreement Sample

Reference : Security Exchange Commission - Edgar Database, EX-99.2 5 g93524exv99w2.htm EX-99.2 FORM OF BILL OF SALE , Viewed October 21, 2021, View Source on SEC .

Who Helps With Bill Of Sale Agreements?

Lawyers with backgrounds working on bill of sale agreements work with clients to help. Do you need help with a bill of sale agreement?

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

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The definition of assignment & assumption agreement.

By Rebecca K. McDowell, J.D.

October 19, 2019

Reviewed by Legal Expert

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Land Contract Law in Florida

Assignments and assumptions are part of contract law and refer to the transfer of someone's duties and benefits in a contract to another. Assignments and assumptions are common with respect to contracts for loans or leases. A lender or lessor may assign its rights to another lender or lessor, and a borrower or lessee may find someone to assume the loan or lease and make the payments.

The Elements of a Contract

A contract is legally formed when two or more parties enter into an agreement with certain elements, which include:

An offer. For instance, in a mortgage transaction, the lender offers to loan money to the borrower.
Acceptance of the offer. The mortgage borrower agrees to borrow the money.
Consideration. Consideration in a contractual relationship means the things the two parties give to each other in exchange for entering the contract. A mortgage lender loans money to the borrower, and in exchange, the borrower agrees to repay the money and give the lender a lien on the house. The loan, the repayment with interest and the mortgage lien are consideration for the contract.
Mutuality. The parties must have come together and agreed upon the terms of the contract Read More: How Does a Contract Work?

Burdens and Benefits of a Contract

The contract sets forth what the parties are required to do during the contractual relationship. With a mortgage, the lender is required to loan the money and apply the payments correctly in accordance with the agreement, and then release the lien when the loan is paid. The borrower is required to pay the loan back with interest, pay the property taxes and make sure the property has insurance.

These contractual obligations create both burdens and benefits on both sides. The lender has the burden of making the loan and applying the payments correctly, but it has the benefit of receiving interest on the loan. The borrower has the burdens of making payments and insuring the property but has the benefit of owning the home.

Assigning a Contract

An assignment occurs when one party to a contract transfers, or assigns, its rights and obligations under the contract to another party. This happens frequently with mortgage loans, as lenders sell loans to other lenders. The lender will enter into an assignment agreement and assign the note and the mortgage to another party. The borrower then must make the payments to the assignee. The assignee's right and obligations under an assignment are the same as the assignor's rights and obligations and cannot be changed without a new contract.

Assuming a Contract

An assumption is the other side of the coin, in a sense. Assumptions are common with respect to leases and mortgages and typically occur when the borrower or lessee wants to transfer the property to someone else without paying off the loan or lease. Assumption means someone is taking over the side of the contract that requires payment.

If the contract allows it, another person can agree to assume the original party's obligations under the contract – the obligations to make monthly payments, etc. – in exchange for taking over the ownership or the lease.

Not every contract can be assumed. The language of the contract will state whether the borrower or lessee is allowed to transfer the property or lease by assumption.

Assignment and Assumption Agreements

Assignments and assumptions are both conducted by written agreement. Sometimes an assignment and an assumption will occur in the same transaction, and one agreement will cover both; the parties are assigning the benefits and assuming the burdens.

Assignments and assumptions are both transfers of contractual benefits and burdens from one party to another. They differ from each other based on the original position of the transferring party and the duties and benefits being transferred.

Bankrate: Assumable Mortgage: Take Over Seller's Loan
The Law Dictionary: What is Assumption?
Nolo: What Is an Assignment of Contract?
U.S. Legal: Elements of a Contract

Rebecca K. McDowell is a creditors' rights attorney with a special focus on bankruptcy and insolvency. She has a B.A. in English from Albion College and a J.D. from Wayne State University Law School. She has written legal articles for Nolo and the Bankruptcy Site.

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Assignment and Assumption of Contracts, Warranties, Permits, and Licenses (Commercial Real Estate Purchase and Sale) (CA) | Practical Law

Assignment and Assumption of Contracts, Warranties, Permits, and Licenses (Commercial Real Estate Purchase and Sale) (CA)

Practical law standard document w-003-5068 (approx. 14 pages).

Maintained • California

Assignment and Assumption (Purchase Agreement)

This precedent is a simplified assignment and assumption of an Agreement of Purchase and Sale (the "APS") where the assignor and assignee are related parties or the APS allows for this type of assignment prior to closing. This agreement assigns the original purchaser's interest over to a new purchaser. The vendor has to consent to this assignment either via the APS or within a different type of assignment agreement with Vendor's consent. This precedent contains practical guidance and drafting notes. When a purchaser and vendor enter into an Agreement of Purchase and Sale (the "APS"), it is usually anticipated that the same vendor and purchaser will complete the transaction. Often, a potential buyer might sign the agreement "in Trust for a Corporation to be Named Later". It could be that the individual signing the agreement intends to incorporate a company to take title and beneficial ownership. In that case, the APS would have a provision drafted into it clearly allowing the individual...

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