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KEEPING IT FAST BY MERGING importance as transfer limitations can have a
AROUND CONSENTS TO ASSIGN significant impact on the overall value of the
By Jolisa Dobbs deal, the speed of the deal, or, in some
Thompson & Knight LLP circumstances, determine if there is even
FAST PACED is the perfect way to going to be a deal. A merger is a common
describe the current oil and gas market. vehicle employed to maneuver around
Properties are trading at a feverish pace consents to assign, thus increasing the speed
fueled by favorable prices and the ever of closing a transaction and, in some
increasing stories of quick riches for circumstances, avoiding requesting a consent
companies acquiring leases in new or hot to assign.
plays such as the Barnett Shale. A few years The consent to assign provision is a
of acquisitions have netted some companies very common obstacle to the transfer of
millions in profits. With such promising properties or agreements. Some state
returns, everyone is trying to strike while it is statutes expressly provide (either in the text of
hot. Companies are quickly acquiring leases, the statute or in the official comments) that a
proving up the properties and subsequently merger is not an assignment. These state
selling large packages. statutes are usually based upon the Model
Under any market conditions, the Business Corporation Act. The Model
structure of the acquisition is usually the first Business Corporation Act contains an “Effect
issue addressed by the parties. The structure of Merger” provision which provides that when
of the transaction is selected for a variety of a merger becomes effective “all property
reasons such as favorable tax considerations, owned by, and every contract right possessed
liability concerns or even the ability to transfer by, each corporation or other entity that
properties or agreements. This paper will merged into the survivor is vested in the
focus on the last of these issues, the
transferability of the assets, which is of utmost
1
survivor without reversion or impairment.”1 This paper also provides an in-depth
The official comment to this model form look at case law addressing mergers and
explains that a merger is not a conveyance, interpreting these statutes. Very few state
transfer or assignment and that a contract courts have interpreted the Model Business
claim does not exist for breach of anti- Corporation Act’s provisions deeming a
assignment clauses, unless the contract merger not to be a transfer. A few courts
specifically provides that it does not survive have addressed whether a merger or other
the merger. reorganization is a transfer requiring consent
This paper provides a state-by-state without reference to a statue.
analysis applying the effect of merger statutes The various state statutes provide
in active oil and gas states to consent to favorable support for mergers in general.
assignment clauses found in private States want to promote business activity and
agreements. These conclusions are based facilitate combinations of entities in a variety
upon a “typical” anti-assignment clause which of ways. The transfer of properties should not
simply prohibits assignment without the be an impediment to any merger and the
consent of the other party. Anti-assignment Model Business Corporation Act embodies
clauses may contain more detailed language, this view. A merger should not create a claim
including additional language prohibiting for breach of a “typical” anti-assignment
assignment by merger or by operation of law. clause. It is as simple as that – or is it?
As a general rule, these more specific anti- The states of Alabama, Alaska,
assignment clauses will be enforced by courts Arkansas, Colorado, Kansas, Louisiana,
and, due to the fact-specific nature of such Mississippi, Montana, New Mexico,
decisions, are beyond the general scope of Oklahoma, Texas, Utah, and Wyoming have
this paper. all created statutes (a) based on the Model
Business Corporation Act in some form,
1
(b) with similar language to such act, or
Model Business Corporation Act § 11.07 (1998/99
Supp.).
2
(c) with more express language than the act. held that the transfer of an oil and gas lease
Such effect of merger statutes support the under a merger was not an assignment, but
argument that in a merger, a transfer has not rather a succession. The court further held
occurred which would require consent to that a merger does not even create an
assignment under a typical anti-assignment assignment by operation of law. In this case,
clause. Courts generally uphold such the oil and gas lease prohibited assignment
interpretation of the statutes unless the without the written consent of the landowners.
contracts involve more personal rights and The anti-assignment clause did expressly
properties such as patents and licenses provide consent for the assignment to a
(which also may be governed by federal law). specific entity. After the oil and gas lease was
However, some personal contracts, namely assigned to the specified entity, the entity
employment contracts, are held by the courts merged several times. The landowners
to not require a consent upon merger. blocked access to the oil and gas wells based
Overall, most courts continue to disfavor the upon the alleged breach to the anti-
forfeiture of real estate whether by a merger assignment provision and the successor
or other non breach reasons, and have corporation sued to enforce the lease. The
consistently held that mergers as to leases or court’s decision that the merger did not create
other interests in real estate are not an an assignment was based upon Pittsburgh
assignment or transfer requiring consent. Terminal Coal Corporation v. Potts3 which
Leases held that after a merger, the successor was
Leases have been addressed in the not in the position of an ordinary assignee,
merger context involving an oil and gas lease instead it “succeeds” to the interests under
containing an anti-assignment provision. In the lease.
Santa Fe Energy Resources, Inc. v.
Manners2, the Superior Court of Pennsylvania
2
635 A.2d 648 (Pa. Super. Ct. 1993). 3
92 Pa. Super. 1 (Pa. Super. Ct. 1927).
3
In Aiello v. Austrian4, the Appellate merger is by operation of law and was thus
Court of Connecticut faced a commercial not an assignment prohibited by the lease.6
lease for a medical practice. The commercial Ohio law also provides some
lease was to a medical partnership and guidance, in Middendorf v. Fuqua Industries,
contained an anti-assignment clause requiring Inc.7, the Sixth Court of Appeals upheld a
Aiello’s consent. The partnership reorganized district court’s decision that the transfer under
into a corporation and Aiello refused to a merger is by operation of law and not by
consent to the assignment of the lease. The assignment. This appellate case, however,
court held that an assignment does not result focused on liabilities assumed by a
from a change of form from a partnership to a subsequent lessor and did not deal with an
corporation. Although the facts of this case anti-assignment clause directly. The court
are more limited as the ownership of the merely affirmed the district court’s decision on
lessee did not change, this case still lends this point.
support to the argument that consents need Pennsylvania courts have also held
not be obtained for mergers. that a merger is not a transfer of a lease. In
The Supreme Court of Missouri faced Segal v. Greater Valley Terminal Corp.8, the
the transfer of a lease under a merger in Superior Court of New Jersey Appellate
Dodier Realty & Investment Co. v. St. Louis
5
National Baseball Club, Inc.5 In this case, St 238 S.W.2d 321 (Mo. 1951).
6
The Supreme Court went one step further in holding
that a transfer under a merger did not even fit within a
Louis, the lessee under a lease containing an
prohibition of transfer by operation of law in an anti-
assignment clause in Standard Operations, Inc. v.
anti-assignment clause merged into National Montague, 758 S.W.2d 442 (Mo. 1988). However,
in this case the anti-assignment clause also defined a
Sports, Incorporated. The lease prohibited series of involuntary transfers such as bankruptcy so
the court focused on the voluntary nature of a merger
assignment without the consent of Dodier. in holding that a merger was not within the intent of
the parties - especially since they had been so explicit
The court applied the Missouri effect of in the rest of the clause. Although this case could
provide support for ignoring express prohibitions
merger statute in holding that transfer by against assignment by operation of law, the facts are
so specific that such reliance would be risky.
7
623 F.2d 13 (6th Cir. 1980).
4 8
479 A.2d 1234 (Conn. App. Ct. 1984). 199 A.2d 48 (N.J. Super. Ct. App. Div. 1964).
4
Division was faced with the transfer of a 99 principal office location. This lease contained
year lease. The lease contained an anti- an anti-assignment clause requiring the
assignment provision that prohibited permission of the landlord and expressly
assignment without Segal’s consent. Greater included assignments by operation of law in
Valley Terminal Corp. merged with Paragon such prohibition. Century merged into
Oil Co., Inc. and Segal filed suit for breach of Citizens and the landlord sought increased
the lease. The court held that no assignment rent in return for its approval to the
or similar transfer of the lease occurred. The assignment of the lease. Citizens brought this
court further held that even if the merger were action for a declaration that it had not
considered to create an assignment, the breached the anti-assignment clause. The
assignment would not violate the lease since court held that a transfer had occurred based
the effect of merger statute provided that all upon the statutory language and this transfer
rights and every other interest shall “vest” in was by operation of law and thus in violation
the surviving corporation. of the anti-assignment clause. The court
Although these cases provide support interpreted the effect of merger statute which
for not obtaining consents to assign, the holds that the property becomes that of the
express language of the anti-assignment successor corporation “without any deed,
clause is very important. The courts have transfer or other action” meant the transfer
applied the statutes to typical anti-assignment was by operation of law, not that a transfer
clauses but private parties can agree to more had not occurred. The court supported this
stringent terms. The Court of Appeals of conclusion by distinguishing it from cases
Maryland faced a commercial lease in The holding a merger is not a assignment since
Citizens Bank & Trust Company of Maryland this case resulted in a change in ownership as
v. The Barlow Corp.9 In this case, Century well and the fact that this anti-assignment
National Bank held a commercial lease for its clause included transfers by operation of law.
Relying upon the precedence of this case,
9
456 A.2d 1283 (Md. 1983).
5
agreements which include transfers by the heels of each other in developing glass
operation of law as a prohibited assignment fabrication technology. The two companies
are an area of concern. shared this technology with each other by
Based on the statutes and case law entering into agreements, which in part
mentioned above, consents to assign should granted a non-exclusive, non-transferable,
not be needed for leases transferred by royalty-free license to Permaglass for a
merger unless the parties under the original portion of PPG’s patent rights. The
leases had established more stringent agreement contained an anti-assignment
consent triggers - such as a prohibition provision dictating that the agreement is non-
expressly mentioning mergers or transfers by assignable without the written consent of
operation of law. In addition, in this hot oil and PPG. (However, the licenses granted to PPG
gas market and the constant flipping of oil and were assignable to any successor and only
gas leases, one should remember that unlike assignable to others with Permaglass’
most leases, oil and gas leases are generally consent.) In addition, the agreement provided
estates in real estate (except for Louisiana) that in the event a majority of the common
and courts tend to disfavor the forfeiture of stock of Permaglass shall become owned or
such interest. controlled, directly or indirectly, by a
Patents and Licenses automobile or glass manufacturer, then the
Patents and licenses create an area of agreement terminates. Permaglass merged
concern regarding consents for assignment with Guardian and listed patents as property
under a merger. The Sixth Circuit Court of to be vested with Guardian as part of the
Appeals was faced with an assignment of merger. PPG filed this suit to enforce its
patents under federal and Ohio law in PPG rights under the agreement and receive
Industries, Inc. v. Guardian Industries Corp.10 declaration that Guardian had no right to use
In this case, Permaglass and PPG were on the patents or the license rights reserved by
Permaglass as such license rights were
10
597 F.2d 1090 (6th Cir. 1979).
6
personal and thus non-assignable and non- Middendorf v. Fuqua Industries, Inc.13
transferable. The court held that the regarding leases and described above.
assignability of a patent license is controlled The United States District Court for the
by federal law (which holds a patent license to Northern District of California followed the
be nonassignable), and also looked to the PPG decision in SQL Solutions, Inc. v. Oracle
language of the Ohio merger statutes. The Corporation.14 In this case the rights under a
court interpreted the merger statute, software licensing agreement were in dispute.
specifically “deemed to be transferred to and Oracle entered into this software licensing
vested in... without further act or deed”, to be and services agreement with D&N Systems,
a transfer by operation of law, not an absence Inc. This agreement granted D&N a
of transfer at all. Further, in applying the perpetual, nonexclusive license to software
language of the agreement, the court held and some related documentation. The
that if the parties had intended for an transfer agreement dictated that the rights under the
exception for merger, they would have agreement were not to be assigned or
expressly provided for such an exception. As transferred to a third party without the consent
a result, the merger did constitute a transfer in of Oracle. D&N merged with SybaseSub, Inc.
violation of the agreement and federal law.11 and the surviving corporation took the name
There are conflicting decisions within the Ohio of SQL Solutions, Inc. Oracle sought to
court system: (1) Standard Register Company terminate the agreement but SQL sought
v. Cleaver12 regarding noncompete protection under the merger. The court
agreements described below, and (2) followed California precedent that an
assignment or transfer of rights does occur
through the change in legal form of ownership
11
But see Syenergy Methods, Inc. v. Kelly Energy - the merger with SybaseSub, a subsidiary of
Systems, Inc., 695 F.Supp. 1362 (D.C. R.I.
1988)(holding that the nonassignability of patents by
the operation of law is not absolute and should be
13
disregarded when such transfer or merger is for a 623 F.2d 13 (6th Cir. 1980).
14
change in form only). 1991 U.S. Dist. LEXIS 21097, at *1, 1991
12
30 F. Supp.2d 1084 (N.D. Ind. 1998). WL626458 (N.D. Cal. Dec. 18, 1991)
7
Sybase, Inc. However, a mere change in Marathon. The geophysical company
name will not result in a transfer or demanded that Marathon pay for the
assignment. In addition, the court recognized information and filed this suit to enforce the
the precedent of lease cases as an exception claim. The court held, in this case of first
to this rule due to the disfavor on restraints on impression, that the merger was not an
alienation. assignment or transfer that would violate the
SQL presents unfavorable contracts in the case. The court looked to the
precedence, but any rights relating to real intent of the writers of the Texas statute. The
estate can be distinguished under the Texas statute was based upon the Model
exception that this court recognized. Just as Business Code, the comments to which
above, this case addresses a license to use provide that a merger is not a conveyance or
privileged information - copyrighted transfer. The court also distinguished from
information - and can be distinguished on this cases holding that a merger is a transfer by
set of facts if the issue faced is dissimilar. relying on the fact that this merger was with a
However, PPG is not the only view. In related company. Although the additional
TXO Production Co. v. M.D. Mark, Inc.,15 the basis for the decision was on the relation
Texas Court of Appeals faced the assignment between the companies, the comment to the
of geophysical information to a successor by statute does not provide such limitations.
merger. In this case, a geophysical firm This unusual decision is too fact specific to
conducted seismic surveys and entered into provide general guidance.
contracts with TXO which allowed TXO to use Partnerships and Distributorships
a portion of this data. However, each There are some contracts that create
agreement contained a confidentiality more of a personal relationship between the
provision. Marathon merged with TXO and parties thereto - one based on faith and trust.
TXO automatically transferred the data to The existence of the special relationship has
led to varying interpretations by the courts
15
999 S.W.2d 137 (Tex. App. - Houston, 1999).
8
concerning the need for consents in the event in the assignment and as a result, could have
of a merger. One special relationship is a provided an exception for the transfer by
partnership. The United States District Court operation of law, just as the PPG court had
for the District of Columbia followed the PPG held. The court reasoned against following
decision in Nicolas M. Salgo Associates v. the other line of cases by holding that most of
Continental Illinois Properties.16 In this case, these cases focused on interest in real
Continental was a general partner in a limited property and the public policy against restraint
partnership governed by an agreement on the alienability of land was the basis of
containing an anti-assignment clause. This those decision and not applicable to this
clause prohibited a partner from assigning its contract.
interest in the partnership without consent of As is typical with oil and gas
the other general partners. Bouverie properties, joint operating agreements are
Properties, Inc. gained control of Continental common agreements affecting the properties
through a tender offer and then merged and are transferred along with the oil and gas
Continental into Bouverie. Nicolas brought leases. A partnership agreement could be
this suit to enforce the terms of the held to be similar to a joint operating
partnership agreement. The court recognized agreement - creating concern if in the rare
two lines of cases for the effects of mergers case the joint operating agreement contained
on anti-assignment clauses. One line an anti-assignment clause - but this analogy is
followed PPG holding that a merger violated mitigated and such agreements can be
the anti-assignment clause. The other line distinguished when they contain typical
was a group of state cases holding that a disclaimers that the joint operating agreement
merger does not violate the anti-assignment does not create a partnership or joint venture.
clause. This court chose to follow PPG Another consideration is that the court
because the parties did provide for exceptions also reached this decision in part because of
the detailed exceptions the parties had
16
532 F.Supp. 279 (D.D.C. 1981).
9
included in the contract. The court held that if the anti-assignment provision was not violated
the parties provided detailed exceptions to the and approval was not required. The court
consent to assignment provision, then the looked to the official comment to the Georgia
parties should have considered (and ruled effect of merger statute which explains that a
out) a transfer by operation of law as an merger is not a conveyance or transfer. This
exception. combined with the general meaning of the
However, the precedence of the Salgo term “transfer” led the court to the conclusion
case is countered by decisions leaning that a merger is not a transfer. The court also
towards the other side of the partnership stated that if the parties wanted to include
table. The Court of Chancery of Delaware merger within the term transfer, they would
faced a general partnership assignment have included transfers by the operation of
transferred by a merger in Star Cellular law expressly in the anti-assignment
Telephone Company, Inc. v. Baton Rouge provision.
CGSA, Inc.17 In this case, Baton Rouge was This case may provide support for first
the general partner of a partnership whose impression cases on the right to operate
governing agreement contained an anti- properties under a joint operating agreement,
assignment provision. This provision required or similar status’ arising under contracts.
unanimous approval from the other partners However, the particular assignment
for a transfer or assignment. Baton Rouge restrictions in each contract in any transaction
merged with a sister corporation (both must be reviewed for express limitations such
corporations were owned by BellSouth as prohibiting assignment by operation of law
Mobility, Inc.) and the other partners refused as well.
to recognize the surviving corporation as the Similar to partnerships, appointments
general partner. The court held that a merger under contracts have also been held not to
is neither a transfer or assignment and thus, require consent. In All Brand Importers, Inc.
17
1993 Del. Ch. LEXIS 158, at *1 (Del. Ch. July 30,
10
v. Department of Liquor Control18, the because the merger statute vested Star with
Supreme Court of Connecticut addressed the these rights automatically.
issue of distributorships transferred by Although there is conflicting case law,
merger. In this case, Gallo was a designated there are opportunities to distinguish against
distributor in Fairfield county for All Brand. the Nicolas decision - such as for interests in
Gallo merged with Star Distributors and All land and for general contracts. In addition,
Brand refused to recognize Star as a the majority of decisions hold that a merger is
distributor. Gallo claimed that the not an assignment and may present greater
distributorship was personal and not weight in a jurisdiction of first impression.
assignable, which the court declared Employment Contracts
irrelevant upon deciding that the no Protections under noncompete
assignment occurred in this merger. The agreements were addressed in Standard
court noted that the Connecticut effect of Register Co. v. Cleaver20, where the United
merger statutes which were based upon the States District Court for the Northern District
Model Business Corporation Act, should be of Indiana applied both Indiana and Ohio law.
construed broadly. These statutes vested Star In this case, Cleaver accepted employment
with the distributorship by operation of law with Uarco and signed a noncompete
given the statutory language that “all agreement with the company. Uarco merged
property … shall be taken and transferred to with Standard Register and Cleaver left the
and vested in such single corporation without company and began competing with the
further act or deed.”19 The court held that no business. Standard Register filed suit to
authority (i.e. consent) was needed from All enforce the noncompete agreement and
Brand for Star to serve as a distributor Cleaver defended that the agreement was not
enforceable by Standard Register because it
was a personal contract and was not
1993).
18
567 A.2d 1156 (Conn. 1989).
19
Conn. Gen. Stat. ' 33-820 (West, Westlaw through
20
2006 legislation). 30 F. Supp.2d 1084 (N.D. Ind. 1998).
11
assignable. The court rejected this argument allowed such mergers would be seriously
with the application of Ohio law which holds disrupted”.22 The court held that the merger
that the agreement was transferred to should not prohibit assignment based upon
Standard Register by operation of law and not principle and because a merger is similar to a
by assignment. The court also noted that stock purchase which would not have
Indiana law is not inapposite. This case is in triggered the assignment. However, the court
conflict with and more recent than the PPG did not specifically hold that a merger was not
case above and will provide support to an assignment but rather reached the result
distinguish and argue against PPG’s based upon the foregoing principles.
application. These noncompete cases could
Along the same line is Alexander & provide useful support for personal contracts
Alexander, Inc. v. Koelz.21 In this case, a to be transferred by merger. They also
corporation entered into employment provide support for the general principles of
contracts with employees which contained contract assignability by merger as well.
restrictive covenants, specifically noncompete Insurance
agreements. The corporation merged and the Insurance cases are another hot topic.
successor corporation sought to enforce the The United States District Court for the
noncompete agreements. The employees Eastern Court of Pennsylvania was faced with
argued that the agreements were not the coverage to a merged corporation under a
assignable since they were personal service policy containing a clause prohibiting
contracts. The court held that this was assignment without an insurer’s consent, in
unquestionably a statutory merger and if all Brunswick Corp. v. St. Paul Fire and Marine
rights did not pass to the surviving Insurance Co.23 In this case, Brunswick
corporation, the “statutory scheme which acquired all of the stock in Filterite, the owner
21 22
722 S.W.2d 311 (Mo. Ct. App. 1986), but see Pro- Id. at 313 (following Segal v. Greater Valley
Edge, L.P. v. Gue, 419 F. Supp.2d 1064 (N.D. Iowa Terminal Corp., 199 A.2d 48 (N.J. Super. Ct. App.
2006). Div. 1964).
12
of the policy, and later merged into this wholly prohibiting assignment by operation of law or
owned subsidiary. St. Paul refused to cover merger would prevail.
personal injury claims for Brunswick which Statutory Analysis
had been asserted against both Filterite (now This paper is not intended to cover
merged with Brunswick) and Brunswick. St. every jurisdiction in the United States and is
Paul based the refusal on a clause in the limited to active oil and gas states. These
insurance policy which required its approval to state statutes can be categorized into the
any assignment of the policy. The court held following categories:
that a merger does not violate the consent to (1) Statutes similar to the current
assignment clause unless there is explicit Model Business Corporation Act;
language prohibiting assignment through (2) Statutes similar to the 1969 version
merger. The court explained that such an of the Model Business Corporation Act;
involuntary assignment does not increase the (3) Statutes with express language
risk to the insurer and the insured should that a merger does not require consent, or is
obtain its benefit of the bargain, even if it is not considered an assignment or transfer;
merged.24 (4) Statutes with key terms to base a
Insurance agreements may come into no transfer or assignment argument upon
play in the acquisition of oil and gas properties (such as shall succeed, without transfer); and
and such case law also provides support for (5) Statutes with miscellaneous
the transfer of contracts in general. However, variations.
an express provision in the contract All state statutes are provided in abridged
form at the end of this paper (in alphabetical
order) but a categorical analysis will be
23
509 F. Supp. 750 (E.D.Pa. 1981). provided first.
24
See also, Federal Insurance Co. v. Purex
Industries, Inc., 972 F.Supp. 872 (D.C.N.J.
1997)(recognizing Brunswick and holding that, as a
matter of law, the insurance policy is transferred to
the successor corporation in a merger absent a
specific provision in the policy to the contrary).
13
Arkansas, Mississippi, Montana, and Official Comment of the Model Business
Wyoming25 all have statutes following the Corporation Act, a consent to assign clause
current Model Business Corporation Act will not be triggered by a merger. No
described at the beginning of this memo. consents to assign should be necessary for
Mississippi is the only state whose statute the properties transferred by merger, unless
matches the model act exactly. The other the anti-assignment provisions expressly
states’ statutes contain a different property prohibit transfer by merger or by operation of
description but all of these states’ statutes still law.
contain the same vesting language - i.e. Of all of the states following the
“[property] is vested in the surviving current Model Business Corporation Act, only
[corporation, entity or other descriptions] one state’s court has interpreted this statute.
without reversion or impairment”. The Official In Standard Register Company v. Cleaver 27,
Comment to the Model Business Corporation the United States District Court for the
Act explains that “A merger is not a Northern District of Indiana held that, under
conveyance, transfer, or assignment. It does Ohio and Indiana law, a merger is not an
not give rise to claims of reverter or assignment. This case is described in more
impairment of title based on a prohibited detail above. Indiana’s statute is similar to the
conveyance or transfer. It does not give rise model act. With the courts in the other states
to a claim that a contract with a party to the listed above having no precedent to follow in
merger is no longer in effect on the ground of their own jurisdiction, it can be strongly
nonassignability, unless the contract argued that these courts should follow the
specifically provides that it does not survive a Standard decision when facing this issue of
merger.”26 Based upon the statutory first impression. This will only strengthen the
language in these states, as explained by the argument that consents to assign will not be
26
Official Comment to Model Business Corporation
25
See also, Florida, Idaho, Indiana, Kentucky, Act ' 11.07(a) (1998/99 Supp.).
27
Michigan, Nebraska and Oregon statutes. 30 F. Supp.2d 1084 (N.D. Ind. 1998).
14
required in the above states. Also, in general, such merger or consolidation..”29 Alaska is
the case law described above supports this the only state that did not contain the
conclusion. “deemed to be transferred” language for all
Alabama, Alaska, and New Mexico28 property. However, all of the states
all have statues following the 1969 Model mentioned above included the limitation on
Business Corporation Act. This earlier reverter and impairment for real estate and
version contained a more lengthy description interests therein.
of the effect of the merger which provided that The Comment to the Model Business
“such surviving or new corporation shall Corporation Act fails to shed any light upon
thereupon and thereafter possess all the the terminology and intent of the language. In
rights, privileges, immunities, and franchises, addition, the language was revised in the next
of a public as well as of a private nature, of version - the 1983 Model Business
each of the merging or consolidating Corporation Act - to vesting language similar
corporations; and all property, real, personal to the current model act. The 1983 model act
and mixed, and all debts due on whatever contains an Official Comment that “A merger
account, including subscriptions to shares, is not a conveyance or transfer, and does not
and all other choses in action, and all and give rise to claims of reverter or impairment of
every other interest of or belonging to or due title based on a prohibited conveyance.”30
to each of the corporations so merged or This comment did not expressly discuss
consolidated, shall be taken and deemed to claims of assignment like the current model
be transferred to and vested in such single act’s comment discusses and it did not
corporation without further act or deed; and express a change in the intent of the drafters
title to any real estate, or any interest therein, from the 1969 model act. As a result, the
vested in any of such corporations shall not
revert or be in any way impaired by reason of statutes.
29
1969 Model Business Corporation Act ' 76
(1971).
30
Official Comment to Model Business Corporation
28
See also, Illinois, Pennsylvania and West Virginia Act ' 11.06 (1983).
15
intent for no transfer or assignment may only that even if a merger was considered as an
have been clarified in later versions and assignment, then the anti-assignment clause
comments and the consistent language of should contain explicit language to that effect.
deemed transfer (except for Alaska) and “not Along the same lines, the Court of Civil
revert or be in any way impaired” for real Appeals in Alabama interpreted the Alabama
estate and interests therein is arguably statutes and relied upon previous case law to
intended to prevent the application of anti- hold that a merger is not an assignment or
assignment clauses - just as more clearly transfer in the case of International Paper Co.
described in the later model acts. v. Broadhead.32 The court also held that the
However, the assumptions on the term “otherwise transfer” does not include a
statutes intent is not strong enough to base a merger or transfer by operation of law. The
decision of whether consents to assign will be issue of oil and gas lease assignability under
required. Without guidance on the statutory Pennsylvania merger law (which is modeled
intent, court decisions must be relied upon. after the 1969 Model Business Corporation
There are 3 cases which will provide Act) was addressed in Santa Fe Energy
guidance. In Brunswick Corp. v. St. Paul Fire Resources, Inc. v. Manners.33 In this case the
and Marine Insurance Co.31, the United States court held that the anti-assignment clause in
District Court for the Eastern District of an oil and gas lease was not breached by a
Pennsylvania interpreted the effect of merger merger because the successor succeeds to
statutes for Delaware, Maryland and the lease and is not assigned the lease. All of
Pennsylvania. The court held that the these cases are described in more detail
property is vested in the surviving corporation above. All provide guidance and support for
by operation of the merger statutes (i.e. interpreting the state statutes modeled after
operation of law) and the anti-assignment the 1969 Model Business Corporation Act.
clauses do not apply. The court explained Just as above, all will provide guidance for the
31 32
509 F. Supp. 750 (N.D. Pa. 1981). 662 So.2d 277 (Ala. Civ. App. 1995).
16
jurisdictions with similar statutes who may be that the a search for case law from Colorado
facing this issue as a first impression. Based interpreting this statute or holding that a
upon the statutes and case law in these merger is not an assignment requiring
jurisdictions, mergers should not trigger consent has not been found. The language of
consents to assign unless there is a this statute is clear and straightforward. The
prohibition for assignment by merger or by transfers of property in this state by merger
operation of law. The case law mentioned will not require consent under anti-assignment
above also supports this conclusion. provisions, unless the provision expressly
Colorado, Texas and Utah provide prohibits transfer be merger or by operation of
express language that a merger will not law.
require consent to assign or that a merger is The Utah Code almost mirrors the
not an assignment. The Colorado Statutes Colorado provision. It provides that “The
provide that for title to real estate and other transfer to and vesting in the surviving
property “such transfer to and vesting in the corporation occurs by operation of law. No
surviving corporation shall be deemed to Consent or approval of any other person is
occur by operation of law, and no consent or required in connection with the transfer or
approval of any other person shall be required vesting unless consent or approval is
in connection with any such transfer or vesting specifically required in the event of merger by
unless such consent or approval is specifically law or by express provision in any contract,
required in the event of merger by law or by agreement, decree, order, or other instrument
express provision in any contract, agreement, to which any of the corporations so merged is
decree, order, or other instrument to which a party or by which it is bound.”35 Again, it is
any of the corporations so mergers is a party not a surprise that the search for case law
or by which it is bound.”34 It is not a surprise from Utah interpreting this statute or holding
that a merger is not an assignment requiring
33
635 A.2d 648 (Pa. Super. Ct. 1993).
34
Colo. Rev. Stat. ' 7-111-106 (West, Westlaw
through 2006 legislation).
17
consent has not been found. The transfers of occurred.”37 In addition, Texas courts have
property in this state will not require consent faced the issue of whether a merger is an
under anti-assignment provisions, unless the assignment of the property. In TXO
provision expressly prohibits transfer by Production Co. v. M.D. Mark, Inc., the Court of
merger or by operation of law. Appeals of Texas faced the issue of whether
The Texas Statutes provide that “all a merger and the transfer of geological
rights, title and interest to all real estate and information breached a restriction under an
other property...shall vest...without reversion agreement containing an anti-assignment
or impairment, without further act or deed, and clause. The court looked to case law, and the
without any transfer or assignment having comments to the model act to hold that a
occurred...”.36 This clear and straightforward merger is not an assignment, conveyance or
language is the result of a recent amendment transfer. This case is described in more detail
to the Texas Statutes. The previous Texas above. Thus a merger will not require
Statute was fashioned after the 1969 Model consent to assign unless the provision
Business Corporation Act described above. expressly prohibits transfer by merger or by
The Comment of Bar Committee dated 1996 operation of law.
provides that, “In 1987, Article 5.06 was Other states’ statutes of concern
amended to make clear that while a merger contain miscellaneous clauses. All of these
vests the rights, privileges, immunities and statutes appear to be a personalized variation
franchises of the merged corporation in the of the 1969 Model Business Corporation Act
surviving corporation, this is accomplished described above. Kansas and Oklahoma
without a transfer or assignment having have left “deemed transfer” out of the statute
so that the term “vested” is the only
conveyance language remaining. Also, the
35
“without further act or deed” describing the
Utah Code Ann. ' 16-10a-1106 (West, Westlaw
through 2006 legislation).
36
Tex. Bus. Corp. Act. Ann. art. 5.06 (Vernon 2003
& Supp. 2006-2007).
18
vesting has been omitted. Louisiana’s Statute followed the statutes. Courts have deviated
follows the 1969 Model Business Corporation from the statute when faced with personal
Act except it does not contain the provision contracts such as patent licenses or faced
prohibiting reverter or impairment of real with laundry list exceptions in the consent to
estate and other interests. The revisions assignment provisions (leading the court to
made by these three states, coupled with the believe that the parties intended the transfer
lack of case law in these states regarding the by operation of law not to be an exception).
merger exception for consents to assign, Further, in every sale, one must carefully
leave these states open for question. review the express terms of the relevant
Although the case law described above may agreements as such express agreement will
provide some support for a merger not prevail.
creating an assignment, the state statutes However, the merger can serve as the
under the case law above may be perfect vehicle, in some instances, in avoiding
distinguished from the statutes supporting consent to assign delays or obstacles. The
those decisions and general principles will be parties can KEEP IT FAST BY MERGING
the only thing remaining to base an argument AROUND CONSENTS TO ASSIGN.
upon. Not obtaining consents to assign in
these states present a significantly higher
business risk than in other states.
Conclusion
Despite the belief of most states that a
merger should not be deemed a transfer and
that the transfer of property should happen
automatically, one cannot rely upon the
statutes entirely. Courts have not consistently
37
Comment of Bar Committee - 1996 to Tex Bus. Corp. Act. Ann. art. 5.06 (Vernon 2003).
19
Abridged State Statutes Alphabetically revert or be in any way impaired by reason of
Alabama a merger or consolidation...”.39
The Alabama Code provides that Arkansas
when a merger takes effect, “the surviving The Arkansas Code of 1987
corporation thereupon and thereafter Annotated provides that when a merger takes
possesses all the rights ... of a public as well effect, “the title to all real estate and other
as of a private nature, of every corporation property owned by each corporation party to
party to the merger; and all property, real, the merger is vested in the surviving
personal and mixed ... are taken and deemed corporation without reversion or
transferred and vested in the surviving impairment...”.40
corporation without further act or deed; and Colorado
title to any real estate, or an interest therein, The Colorado Revised Statutes provide that
vested in any such corporation shall not revert when a merger takes effect, “the title to all real
not in any way be impaired by reason of such estate and other property owned by each
merger...”.38 other corporation party to the merger is
Alaska transferred to and vested in the surviving
The Alaska Statutes provide that when corporation without reversion or impairment;
a merger or consolidation becomes effective and such transfer to and vesting in the
“the surviving or new corporation possesses surviving corporation shall be deemed to
all the public and private rights...all property, occur by operation of law, and no consent or
real, personal, and mixed...shall be approval of any other person shall be required
transferred to and vested in the surviving or in connection with any such transfer or vesting
new corporation without further act; and the unless such consent or approval is specifically
title to real estate, or an interest in real estate,
vested in any of the corporations may not through 2006 legislation).
39
Alaska Stat. ' 10.06.560 (West, Westlaw through
2005 legislation).
40
Ark. Code Ann. ' 4-27-1106 (West. Westlaw
38
See Ala. Code ' 10-2B-11.06 (West, Westlaw through 2006 legislation).
20
required in the event of merger by law...”41 revert or be in any way impaired by reason of
and “all of the rights...[and] all real, personal this act...”.43
and mixed property...shall vest as a matter of Louisiana
law in the surviving entity.... Title to any The Louisiana Statutes provide that
property vested...shall not revert or be in any upon the effectiveness of the merger, “all of
way impaired by reason of the merger…. A the property and assets of whatsoever kind or
merger does not constitute a conveyance, description...shall be taken and be deemed to
transfer, or assignment...”.42 be transferred to, and vested in, the surviving
Kansas or new business, nonprofit or foreign
The Kansas Statutes provide that corporation without further act or deed...”.44
when a merger is effective, “the new Mississippi
corporation [shall possess] all the rights...of a The Mississippi Code provides that
public [and] private nature...and all property, when a merger becomes effective, “all
real, personal and mixed...shall be vested in property owned by, and every contract right
the corporation surviving or resulting from possessed by, each corporation or other entity
such merger or consolidation; and all that merges into the survivor is vested in the
property, rights, privileges, powers and survivor without reversion or impairment...”.45
franchises, and all and every other interest Montana
shall be thereafter as effectually the property The Montana Code provides that
of the surviving or resulting corporation...and when a merger takes effect, “the title to all real
the title to any real estate vested by deed or estate and other property owned by each
otherwise, under the laws of this state, in any corporation party to the merger is vested in
of such constituent corporations, shall not
43
Kan. Stat. Ann. ' 17-6709 (West, Westlaw
through 2005 legislation).
41 44
Colo. Rev. Stat. ' 7-111-106 (West, Westlaw La.. Rev. Stat. Ann. ' 115 (West, Westlaw through
through 2006 legislation)(emphasis added). 2006 legislation).
42 45
Colo. Rev. Stat. ' 7-90-204 (West, Westlaw Miss. Code Ann. ' 79-4-11.07 (West, Westlaw
through 2006 legislation)(emphasis added). through 2006 legislation).
21
the surviving corporation without reversion or corporation shall posses “all the rights...of [a]
impairment...”.46 public [and] private nature...and all
New Mexico property...shall be vested in the corporation
The New Mexico Statutes provide that surviving or resulting from such merger or
when a merger becomes effective, “the consolidation...and the title to any real estate
surviving or new corporation shall thereupon vested by deed or otherwise, under the laws
possess all the rights...and all property, real, of this state, in any of such constituent
personal and mixed...and every other corporations, shall not revert or be in any way
interest...shall be taken and deemed to be impaired by reason of the provisions of the
transferred to and vested in such single Oklahoma General Corporation Act...”.49 In
corporation without further act or deed, and addition, the Oklahoma Statutes relating to
the title to any real estate, or any interest partnerships define the term “transfer” to
therein, vested in any of such corporations include an assignment, conveyance, lease,
shall not revert or be n any way impaired by mortgage, deed, and encumbrance.”50
reason of the merger or consolidation...”.47 Texas
The compilers Note to the statute explains The Texas Codes provide that when a
that this section was derived from the ABA merger takes effect, “all rights, title and
Model Business Corporation Act.48 interest to all real estate and other
Oklahoma property...shall be allocated to and vested in
The Oklahoma Statutes provide that one or more of the surviving or new domestic
when a merger becomes effective, the new or foreign corporations and other entities as
provided in the plan of merger without
46
Mont. Code Ann. ' 35-1-817 (West, Westlaw
through 2006 legislation). reversion or impairment, without further act or
47
N.M. Stat. Ann. ' 53-14-6 (West, Westlaw through
2006 legislation).
48
Compilers Notes to N.M. Stat. Ann.' 53-14-6
(West, Westlaw through 2006 legislation). This History (1998/99 Supp.).
49
section is derived from Section 76 of the ABA Model Okla. Stat. tit. 18 ' 1088 (West, Westlaw through
Business Corporation Act. Section 76 was 2006 legislation).
50
renumbered and amended to Section 11.07 under the Okla. Stat. tit. 54 § 1-101 (West, Westlaw
1984 Act. Model Business Corporation Act ' 11.07 through 2006 legislation).
22
deed, and without any transfer or assignment the surviving corporation without reversion or
having occurred...”.51 impairment...”.53
Utah
The Utah Code provides that when a
merger take effect, “the title to all real estate
and other property owned by each corporation
party to the merger is transferred to and
vested in the surviving corporation without
reversion or impairment. The transfer to and
vesting in the surviving corporation occurs by
operation of law. No consent or approval of
any other person is required in connection
with the transfer or vesting unless consent or
approval is specifically required in the event of
merger by law or by express provision in any
contract, agreement, decree, order, or other
instrument to which any of the corporations so
merged is a party or by which it is bound...”.52
Wyoming
The Wyoming Statutes provides that
when a merger takes effect, “the title to all real
estate and other property owned by each
corporation party to the merger is vested in
51
Tex. Bus. Corp. Act. Ann. art. 5.06 (Vernon
2003 & Supp. 2006-2007) (emphasis added).
52 53
Utah Code Ann. ' 16-10a-1106 (West, Westlaw Wyo. Stat. Ann. ' 17-16-1106 (West, Westlaw
through 2006 legislation) (emphasis added). through 2006 legislation).
23
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