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What happens with a contract when there is not an "assignment" clause?

Let's say there is a contract between Hotel A and Person B for lodging and food/beverage services. Hotel C comes in and purchases Hotel A - new name, new owners, new employees. Person B was not made aware that a new company would be taking over, and there is not an "Assignment" clause. Hotel C has drastically changed pricing on things, and Person B is overall not happy with the new ownership services and communication. It appears that information was withheld/ misrepresented. Would this be considered a material change? What does it mean for Person B if there is not an "assignment" clause and contract is with original Hotel A?

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    The exact structure of the purchase matters. A purchase of the stock of Hotel A leads to one analysis. A purchase of substantially all of the assets of Hotel A leads to another analysis. Both approaches are widely used. It isn't clear if either of these are involved here, or if it was just a purchase of the Hotel A real estate.
    – ohwilleke
    Commented Nov 20 at 21:47
  • Is C actually continuing to fulfill the obligations of the contract? For instance, in "Hotel C has drastically changed pricing on things", are those things for which prices were specified in the original contract, or other things? Are you saying that C is actually in breach of the contract, or that they are still fulfilling it but that B just doesn't like them as well?
    – Nate Eldredge
    Commented Nov 21 at 12:56
  • @NateEldredge In this situation Hotel C is fulfilling hotel block obligations. As far as catering prices, those items are what have changed. Hotel C has changed pricing by over 100%.
    – Seabee
    Commented Nov 21 at 13:24
  • And prices for catering were not specified in the original contract? Sounds shortsighted of B, if that was important to them. The original owners A could just as easily have decided to jack up their prices without any takeover at all.
    – Nate Eldredge
    Commented Nov 21 at 13:26
  • @NateEldredge Specific pricing was not a part of the contract, but discussed through email. Would Person B have any grounds to stand on? Let's say pricing was not discussed at all, does Person B have to deal with new ownership and upcharge pricing?
    – Seabee
    Commented Nov 21 at 13:36

2 Answers 2

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If Hotel C buys the ownership interests in Hotel A's company, then Hotel A is still Hotel A, just owned by new people, and the Hotel A subsidiary of Hotel C is bound by the contract with person B in the same way that it would be if there was no change of ownership.

If Hotel C buys substantially all assets of Hotel A, rather than the equity interests in the Hotel A company, or for that matter just the Hotel A real estate and not all of its other assets, then Hotel A remains obligated on its contract with person B and can use money from the proceeds to pay for the damages caused by its breached contractual obligations to person B.

Both approaches are common and the choice of how to structure it is often based on a mix of considerations (not just liability, but also tax, anti-trust, securities laws, loan covenants of party, financing requirements, etc.), many of which are completely unrelated to the issues in the question.

The question isn't clear about how the transfer was done, so it is hard to know which analysis applies, which matters, because it impacts who person B would sue if there was a dispute.

As a practical matter, the refund and cancellation provisions of the contract between person B and Hotel A could also matter. What was really promised? What changes was Hotel A allowed to make? What remedies were provided by contract to person B?

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  • Instead of using the proceeds to pay damages, presumably A could instead use those proceeds to fulfill the contract - e.g. by contracting with C to provide B with the originally promised services?
    – Nate Eldredge
    Commented Nov 22 at 1:13
  • @NateEldredge Of course. Almost anything can be done if the parties cooperate.
    – ohwilleke
    Commented Nov 22 at 3:35
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Contracts are transferable by default

Contracts contain legal rights. Legal rights are personal property. Personal property is transferable.

However, obligations under are contract can only be transferred with permission. But, that doesn’t mean that you can’t hire someone else to perform your obligations- it’s just that you remain responsible if that someone else doesn’t fulfill your obligations.

To change this, the contract needs to explicitly limit assignment. Or, it can explicitly allow assignment of obligations as well as rights. An exception is where the contract is one of personal service such as an employment contract.

So, notwithstanding that a transfer of business can happen in a number of ways, not all of which involve the assignment of rights to a new party, where there is an assignment, the original party is still obligated to ensure you got what you paid for - unless the original contract says it isn’t or the other party agrees to release it.

Now, regardless of assignment, the contract can’t be changed unilaterally. Unless it says it can. So, new pricing for things in the contract is not allowed, but changing the price of things that are not in the contract, like drinks or meals, is fine.

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