Who knew normal people could get excited about the ins and outs of contracts?
Getting shafted or knowing someone who got shafted will tend to make even the most obscure fields of knowledge relating to shafts interesting.
Before we get into Assignments, some people would like to have laws governing different types of contracts, laws that protect them from predatory contractual partners. Passive Guy thinks these are fine for what he’ll call mass contracts – the 50 million contracts Visa has with cardholders, for example, or the 25 million contracts Blue Cross has with policyholders.
However, for most contracts, PG likes the standard rule: Two adults have almost complete freedom to craft a business agreement in the way they think is best for them. While one party may take advantage of the other on some occasions, the flexibility to structure business relationships, terms and prices in a way that maximizes benefits for both parties has created a great deal of wealth wherever it has been permitted. In order to work, contractual freedom must occur in a society that also has a fair and relatively inexpensive way of enforcing contracts when one party defaults.
Another preliminary matter before Assignments take the stage. One of the comments to PG’s prior Assignments post raised an important point: PG’s theoretical meanderings are generally applicable across most states in the U.S., but other nations have different rules. The comment I refer to informed me that in the UK, rights under a contract may generally be freely assigned, but, unlike the usual rule in the US, obligations may generally not be assigned without consent of the other party to the contract.
Let’s assume you have a publishing contract that includes a clause saying neither party will assign rights or obligations without the written consent of the other. Are you always going to be dealing with the publisher whose name is on the contract you signed?
Maybe, maybe not.
It is very common for business loans to be secured by property owned by the business. If I own a ball bearing factory, my bank loan may be secured by my factory, equipment, inventory of ball bearings and/or receivables – the amount of money by customers owe me for ball bearings they’ve purchased but not paid for. If I don’t make my loan payments, the bank exercises its rights as a secured creditor to take possession of its collateral and, voila, the bank is in the ball bearing business and I’m not. Since banks don’t particularly like being in any business except banking, the bank will probably sell my business to one or more purchasers and apply the proceeds to my outstanding loan balance.
Publishers have more in common with ball bearing manufacturers than you might think. A publisher can borrow money and pledge its publishing contracts and receipts therefrom to secure payment of the loan. If publisher defaults on the loan, voila, the authors have contracts with the bank or whoever buys their contract from the bank. While it is reasonable to assume a creditor would sell all publishing contracts as a group, it is probably not required to do so. Your crazy ex-husband might bid to acquire your publishing contract for How to Have a Happy Marriage and start demanding revisions to your manuscript.
This potential problem in business contracts is usually resolved by putting language in the Assignment clause prohibiting each party from pledging the contract as security for a debt or similar actions.
OK, so you have your Assignment clause tightened further to cover the creditor issue. Are you out of the woods? It depends on who’s on the other side of your contract.
If you have a contract with Venerable Olde Publishing, Incorporated, your contract is not with T.W. “Tightwad” Venerable III, whose picture hangs in the lobby, it’s with . . . I know you’re close to the answer . . . think hard . . . Tightwad’s corporation.
A corporation is owned and ultimately controlled by its shareholders. If Tightwad owns the shares, Tightwad controls Venerable Olde Publishing. If Tightwad sells his shares to Donald Trump or Glenn Beck or The Somali Pirates Pension Fund, Venerable Olde Publishing may seem like a different place than it was before. There is no assignment or pledge because the corporation still owns your contract.
So, what do you do? One thing you could do is to create a corporation of your own, Jane’s Novel Writing and Diesel Repair, Incorporated. When you received a great contract with a giant advance from your publisher, you would cross out Jane Austen and write in Jane’s Novel Writing and Diesel Repair, Incorporated, sign the contract as Jane Austen, President, and off you’d go, never worrying again whether a single man was in possession of a good fortune or not.
That would be really cool if you could pull it off. PG would give you a Champion Negotiator plaque to hang in your repair shop.
In the absence of such luck, what is not possible and what might be possible?
In the real world, stock being sold and related issues are dealt with via a change of control clause. If one of the parties has a new owner, the other one can terminate the contract.
In the unreal publishing world, unless your name is something like James Patterson, you’re unlikely to persuade Random House to place any restraints on its right to assign your contract or to allow you to terminate if they’re sold to a different German conglomerate.
I mentioned the lack of any clause prohibiting assignment of a publishing contract by an author in my first post on Assignments. One possible smartypants response to an assignment of your publishing contract to a publisher you don’t like might be for you to respond by assigning your contract to someone else as well. PG has done a little more checking on this lack of prohibition on assignment in publishing contracts and hasn’t found much written on the topic. In one Google search, PG’s initial article on the topic about three days ago showed up in the #2 spot on Google, which indicates an unexplored nook in the world of contracts.
Passive Guy admits, if he were still in practice, he would take a run at the no assignment clause issue at no fee or for a low fee just for the fun of it. He even has a judge in mind who would have loved to try a case like that, particularly if PG could have lured some New York lawyers into the courtroom.
Is this the end, then?
Of course not. If you can’t get the whole salami – an option to terminate your publishing contract on any type of assignment, pledge or change of control – you might be able to get some salami slices that could do you some good.
Following are a few examples of salami slices that might be doable. Once you get in the spirit of this sort of thing, I’m sure you could come up with more:
- If you write about Christian topics and have a Christian publisher, you might be able to negotiate the right to terminate if your contract is assigned to a non-Christian publisher. You would want to define what a Christian publisher is very carefully. You might run a similar play with a romance publisher, fantasy, etc.
- If you have a minimum wage for authors clause, the minimum payment might increase if the contract was assigned.
- An option to exit the contract might arise five or ten years after assignment.
- An assignment might mean the new publisher no longer has an option on future books with the same characters, setting, etc.
- You might agree to one assignment, but have the option to terminate if your contract was assigned a second time.
- If the contract is assigned, the retail list price of your books (the one on which your royalty depends) will not change for three years.
You need to be careful when you have multiple moving pieces, however. The assignment’s impact on minimum wage for authors is an example of multiple moving pieces. It is very easy to become focused on the most likely or most advantageous combination of the moving pieces. You need to meticulously consider all the possible combinations, not just the ones you’re excited about.
On more than one occasion, Passive Guy has had an “Oh, Shucks!” moment a couple of years after a complex contract was signed when an unanticipated combination of factors caused a contract to do strange things. If neither party wants the strange things, it’s not difficult to negotiate a little addendum to fix the problem. However, if one party loves the strangeness, you’re in a fix.
Isn’t life wonderful? A week ago you didn’t know what an Assignment Clause was and now you want to think about Assignments all the time.