French law allows contract transfer with counterparty's consent

Under French law, a company can transfer a contract to another party, including all its rights and obligations, provided the other party agrees. This is outlined in Article 1216 of the Civil Code, which allows the full transfer of a contract with the counterparty's approval.

Assignor remains liable unless explicitly released

However, under French law, the original party to the contract (the assignor) is not automatically released from liability. For the assignor to be fully released, the counterparty must explicitly agree to this, as stated in Article 1216-1 of the Civil Code.

English law separates rights and obligations in contract transfers

In contrast, English law distinguishes between the transfer of rights and the retention of obligations. When a contract is assigned, the assignor (original party) keeps their obligations, even if they delegate the performance of the contract to a third party. The counterparty does not automatically have a claim against the assignee.

Novation required to fully transfer a contract under English law

To fully transfer a contract under English law, a novation is necessary. This involves creating a new contract between the counterparty and the new party (assignee), which releases the original assignor from their obligations. The counterparty must explicitly agree to the novation, and a simple agreement to the assignment is usually not enough.

Proper notification and drafting are essential for assignment

It is important to notify the counterparty in writing of the assignment. Until the counterparty is informed, they may still pay the original assignor, which could release them from liability. To ensure the assignor is released, the novation must be clearly addressed from the start, including specific clauses in the contract.

Careful drafting of consent clauses is necessary

Consent clauses in contracts should be carefully worded to ensure they are not unreasonably withheld or delayed. They may also include provisions that consider silence as consent. However, an agreement to the assignment does not typically equate to an agreement to the novation, unless specifically stated.

Exceptions and specific clauses must be considered

Certain exceptions, such as allowing the assignment to an affiliate or a purchaser of the entire business, may be included in the contract. A change of control clause may also be necessary to prevent the counterparty from terminating the contract if the assignor undergoes a change in ownership or control.

Comprehensive clauses protect against contract breaches

To prevent loopholes, contracts should clearly outline which operations require agreement, such as assignment, novation, and subcontracting. A clause stating that any breach of these terms is void may not fully protect the parties, so consequences like termination or compensation should be clearly defined.

Practical steps during a business transfer

During a business transfer, it is essential to inventory all contracts governed by English law, review their assignment and change of control clauses, and determine which contracts can be assigned and which require a novation. Written notification of each assignment should be sent to the counterparty, and novations should be obtained for key contracts. The assignee should also agree to perform the contract and provide guarantees to the assignor.