ASSIGNMENT OF CONTRACTS, CONTRACTUAL RIGHTS AND OBLIGATIONS: A RE-ENGINEERING TOOL IN INTERNATIONAL BUSINESS TRANSACTIONS

Abstract

The freedom of parties to contract on any lawful term has long been recognized and entrenched in both Anglo-American and Continental legal systems. This freedom is well extended to cover even the right of parties to 're-engineer' their contractual positions, rights, obligations in order to maximize their economic or business interest. In this work, we seek to examine the role of assignment as a vital re-engineering tool in international business transactions. This is done from the standpoint of Anglo-American and Continental legal systems, and private international law instruments. We conclude by holding that international business transactions, particularly those based on the assignment of rights or obligations would achieve tremendous socio-economic impact, if they were approached with a solid understanding of the legal and business culture of all the parties involved.

1. Introduction

Complex business transactions are often times transnational. Not only do they have huge financial and economic implications for parties and countries, they usually involve parties from different cultural background with varied legal sophistications. With the exception of the internationally savvy business party, negotiations are generally approached from the standpoint of familiar or known terrain by the parties. Central to all of this, is that rights, benefits and obligations (tangible or intangible) can and should be freely transferred by parties to every business transaction.

Legal systems across the globe recognize and to a large extend protect the sanctity of contract and the power of a party to transfer or assign rights, obligations and even the contract as a whole. One justification for the recognition of the right of assignment under contract is that in an economy based on money and credit, rights from contracts must be freely transferable. Consequentially, just as an owner can transfer or convey his chattel, so should the creditor be able to transfer, assign or cede his intangible rights with the effect of making the transferee creditor in his place.[1] Such rights include all rights of economic value, claims to anything of money's worth, principally rights to money (debts) but also other rights with economic value, such as the right to have property transferred and the right to have services performed or work done.[2]

Transfer of contractual rights though quite common in everyday business transaction, they are more evident in business transactions such as mergers and acquisitions irrespective of whether such a transaction is national or international.[3] In addition, assignment is also vital in 'receivables financing' transactions i.e. transactions where the debt that is assigned, is money that is originally owed to ('receivable' by) the assignor[4] and also in factoring transactions.[5]

This paper does not attempt to deal with the nuances of assignment in relation to specific business transactions, rather it attempts to present an over-arching theoretical platform from the two main legal systems (common law and civil law) and other regional and international private law harmonization instruments[6] when necessary, upon which these transactions are anchored. Part 1.2 discusses the concept of assignment. Part 2 carries out a distinction between Assignment and other related concepts such as delegation, novation, and contract for benefit of a third party. Part 3 examines the validity of assignment by looking at the requirement of an effective assignment such as agreement and notice. Part 4 evaluates the remedies and protection afforded to the obligor and assignee. Part 5 Concludes.

1.2 The Concept of Assignment

An assignment is a transaction whereby a right is transferred by its owner, called the assignor, to another person, called the assignee, as a result of which the assignee becomes entitled to sue the person liable, called the debtor.[7] Put differently, an assignment of a right is an act of the possessor of that right which operates to extinguish the right of the assignor and to create an exactly similar right in the assignee.[8] A simple illustration will be helpful here, in a transaction between A and B, where A had sold goods of the value of $100 dollars to B with an agreement that B is to pay for the goods later. If A (transferor/assignor) transfers to C (transferee/assignee) his right to receive the $100 from B (obligor/debtor), such a transfer would be categorized as an assignment. The transfer between A and C may be gratuitous or it may be based upon C furnishing a consideration for the transfer by A.

While the right to transfer all rights of economic value has been accorded recognition under Anglo-American and Continental legal systems, it should however be noted, that it is subject to some qualifications and in some instances some special rules as against the general contractual rules that govern the transferability of such rights. An assignment may take place on the basis of different underlying agreements. It may also occur because the assignor and the assignee are parties to a contract under which the assignor has assumed a duty, in consideration of the assignee's promise to pay a price, to transfer a right to the assignee as the buyer of that right. This seems to be the main situation the authors of the Code civil had in mind when they drafted the provisions on assignment.[9]

According to Hugh Beale et al.,[10] special rules apply to the assignment of contractual rights arising out of negotiable instruments, such as bills of exchange, promissory notes, cheques or other documents that have been held, either by statute or trade usage, to be negotiable.[11] Further, it was opined that the essential feature of a negotiable instrument is that it represents the debt owned in physical form and that if the holder of such an instrument endorses it, by writing his name on the back, and delivers it to another party; taking the instrument in good faith and for value obtains a good title. This is despite any defect in the title of the transferor and any defence available to the debtor against the original creditor, nor will it matter whether the debtor knew of the transfer of the instrument.[12]

On the issue of qualifications or restrictions on the assignment of certain rights, there appears to be an agreement between the two broad divisions of legal systems (Anglo-American and Continental) that certain rights of economic value cannot be the subject of an assignment. A typical example of this is a right tied to personal relationship. Under English law, when a contract involves one of the parties relying on the skill, judgment or expertise of the other party, the position of the law is that the party with the skill or expertise cannot assign rights that accrue to it under the contract.[13] In US Contract law, there is also the recognition of the principle that certain rights cannot be assigned due to the unique relationship that exist between the parties.[14] German law,[15] as well as French law[16]recognizes that claims are non-transferable when performance cannot be rendered to anyone other than the original creditor without substantially altering it.[17]

2. Distinction between Assignment of Contractual Rights and other related Concepts - Delegation, Novation, and Contract for Benefit of Third Party.

Assignment and Delegation

The concept of delegation as used in a contractual context involves a situation where a party to a contract gives or transfers to a third party the responsibility of carrying out the obligations arising from the contract. It appears from all indications that there are some similarities between an assignment and a delegation, with the difference being mainly on the nature of what is transferred or assigned. In the case of a delegation, it involves the transfer of duties or obligations that arises from the contract.

In Anglo-American legal systems, there is the generally rule that obligations arising from a contract or the burdens of a contract are not assignable.[18] However, under English law, if the performance is given on behalf of the debtor and with the intention of discharging the debtor, then performance by the third party will discharge the debtor.[19] Specifically in relation to American law, the position is that contractual duties are delegable with the exception of duties that involve the unique skills of the obligor/debtor; nevertheless, the delegation of the obligations does not of itself absolve the obligor of its duty.[20]

In Continental legal systems, the replacement of the original obligor in a contract by a new obligor is generally accepted, but often treated under the heading of novation.[21] Under the German BGB, there are two rules for the assumption of a debt or obligation - § 414 and § 415. However, for the purposes of delegation § 415 is relevant. This deals with the need to obtain the obligee's approval when there is an agreement between the original obligor and a new obligor for the delegation to be valid. Under the French Code civil, Article 1271 (2) provides for situation when a new obligor is substituted for the old or original one who is released by the obligee.[22]

Given the position of the law under the two broad divisions (i.e. Anglo-America vis-a-vis Continental legal systems) it is safe for one to conclude that duties or obligations, just as rights or benefits arising from a contract are delegable or transferable. However, it appears that under the two leading Continental legal systems considered in this paper, where an obligee give his consent to the delegation agreement between the original obligor and the new obligor, the original obligor would be released. This does not appear to be the case under the Anglo-American legal systems, where despite the creditor/obligee's knowledge or consent, the debtor is not released of the duty.

Assignment and Novation

A novation usually involves three parties; the two parties to the contract and a third party. Greg Tolhurst,[23]has pointed that the effect of a novation is that for valuable consideration, the parties to the contract agree to extinguish the contract and one party enters into a replacement contract with the third party. It has been defined to also include the replacement of a contract by a new contract, often between the same parties.[24]It is clear from the above definitions that, while an assignment involves the transfer of rights, a novation involves the replacement contract creating new rights, which hitherto was not in existence nor derived from the original contract.

Under English law, the effect on the original contract may be that of discharge, but unless there is an express provision to the contrary, each novation operates as a release between the original parties to the contract.[25] Under American law, it has been held that whether an agreement is a novation, is a matter of intent and that the essential element of a novation is the discharge of one of the parties to the contract and the acceptance of a new performer by the other party as substitute for the original party.[26]

Continental legal systems recognize that a distinction may exist between an assignment and a novation. However, it seems there is not much of a distinction between novation and delegation. In fact, they are both considered as dealing with the substitution of the current debtor for a new debtor. Under Article 1271(2) of the French Civil Code, it is provided that one of the ways in which novation may operate is when a new debtor is substituted for the old debtor who is discharged by the creditor. It appears that while German law[27] may recognize a third party assuming an obligation under a contract and thereby releasing the original obligor, it does not expressly provide for or have the concept of novation.

Assignment and Contract for Benefit of Third Party

In the case of contract for benefit of third party, this involves a contract where the parties to the contract confers on a stranger to that contract certain rights and benefits. This can be distinguished from an assignment, which involves an existing party transferring its right under the contract to the third party with the third party substituting that party in the original contract.

Traditionally, though the idea of a third party enforcing a contract made for his benefit by another party was rejected by almost all legal systems on the basis that it is only one who has furnished a consideration that should lay claim to any benefit from a contract.[28]Today, the position is quite different, with most legal systems accepting the idea that a contract may be concluded by the parties to create an enforceable right in the third party who is a stranger to the contract.[29]

Under American law, the position is that a third party who is not a party to a contract and who gave no consideration can lay claims to benefit arising from it, if the promised performance will be of pecuniary benefit to him and the contract is so expressed as to give the promisor reasons to know that such benefit is contemplated by the promisee as one of the motivating causes of his making the contract.[30]Further, there is a recognition that a contract made expressly for the benefit of a third person, may be enforced by him at any time before the parties to the contract can rescind it.[31]It follows that it must clearly appear that the parties intend to recognize him as the primary party in interest and as privy to the promise and that one who benefits only incidentally from a contract acquires no rights against the parties to the contract by virtue of the promise.[32]

In Continental legal systems, the general rule under French law in particular, is that one cannot enter into an agreement or make a stipulation in one's own name except for oneself.[33]However, an exception to this rule is that, one may stipulate for the benefit of a third party, where it is the condition of a stipulation, which one makes for oneself, or of a gift, which one makes to another. The maker of the stipulation may no longer revoke it, where the third party declares that he wishes to take advantage of it. According to Hugh Beale et al.,[34] French courts have dismantled the restrictions imposed by Article 1121 by holding that the performance, which the promisee must make to the promisor under Article 1121 need not be a 'gift' in the technical sense; any performance, such as the payment of a premium, will suffice. In the case of German law, a contract may stipulate performance for the benefit of a third party, so that the third party acquires the right directly to demand performance.[35]

It is clear from the above comparison, that while most legal systems recognizes the right of parties to assign rights arising from the contract to a third party, there is quite a hesitation or reluctance on the part of these systems to recognize contracts that confer benefits on third parties.

3. Validity of an Assignment

3.2 Requirement of an Effective Assignment

Among the legal systems under consideration in this paper, there is unanimity that for there to be an effective assignment of contracts or contractual rights, there is a need for an agreement between the assignor and the assignee. However, there is no consensus on the particular form that this assignment should take and whether the debtor should be informed of the assignment. Below, is a consideration of the requirements of an agreement and how the various legal systems treat the issue of notice to the debtor.

3.1.A The Agreement

Generally when carrying out the assignment of contractual right, the assignment does not necessarily have to be in writing. Article 9.1.7 of the PILC provides that, "(1) A right is assigned by mere agreement between the assignor and the assignee, without notice to the obligor..."[36] As pointed out by Hugh Beale et al, the minimum requirement of a valid assignment is that there must be an agreement between the assignor and the assignee on the transfer of the right.[37]In addition, the assignment agreement must show intent to transfer rights. The intention required for an assignment is the intention to transfer the ownership of the rights; that is, the assignor must intend to part with dominion over the right.[38]

It has been suggested by Hein Kotz, that while a written agreement is not mandatory, an assignee is not likely to be satisfied with a purely oral assignment.[39] This he attributes to the fact that the assignee will have to prove the assignment before the debtor will pay him. To overcome this potential evidential concern, it is imperative that the assignee insists not only on receiving the documents evidencing the debt, but also a written statement of the assignment itself.[40] It is important to point out that in Anglo-American legal systems, there are certain types of assignment that are governed by statute and there is a mandatory requirement of it being in writing. Examples of these types of assignment are legal assignments of any interest in real property, assignment of choses in action, assignment as collateral for loan or debt.

Under American law, Article 9 of the UCC which deals with secured transactions provides that an assignment is not enforceable, even against the assignor, unless it is documented; with the documentation describing the subject of the assignment as well as creating or providing for an interest in the assignee. In the case of English law, where there is a dichotomy between statutory and equitable assignment, it is provided that in the case of a statutory assignment, in addition to other requirements, there is a requirement that the assignment must be in writing, if it is to be enforced.[41]

In Continental legal systems, most of the civil codes accept that it is by virtue of a 'contract' between the creditor and another party that the creditor's claim may be transferred to that party.[42] The Continental legal systems are not alone in requiring that an assignment be carried out by contract. Under American law, it is a standard commercial practice that the recipient always gives value, i.e. something purchasing the right assigned. A promise to the assignor would fulfil this requirement.[43] It is therefore not surprising that the Uniform Commercial Code has nothing to say about gift assignments.[44] However, this should not in anyway suggest that gratuitous assignments are totally unrecognised under American law.[45]

Under English common law, an assignment is not necessarily considered as a new 'contract'; accordingly, there is no emphasis on a consideration being given or promised by the assignee. Greg Tolhurst, opines that an equitable assignment may be made for value, or may be voluntary and the requirement for such as assignment is simply that, there should be an intention to assign which take the form of a mere direction or authority to the trustee or assignee, and for the subject matter to be identifiable and identified.[46]

2.1.B Notice

As pointed out earlier, under English common law there is a distinction between the statutory and equitable assignments. In the case of a statutory assignment, written notice to the debtor or others from whom the right assigned is due is necessary to complete the title of one who claims to be a statutory assignee under the Law of Property Act.[47]Section 136 of the Law of Property Act 1925 which deals with legal assignment of things in action provides that "[a]ny absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal thing in action of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to claim such debt or thing in action, is effectual in law (subject to equities having priority over the right of the assignee) to pass and transfer from the date of such notice..."

From this provision, it can be garnered that the written notice is an essential part of the statutory transfer of the title to the debtor and it is ineffective unless strictly accurate; for instance as regards the date of the assignment and as regards the amount due from the debtor.[48] In the case of an equitable assignment, notice is not necessary for its perfection.[49] This is due to the fact that even without notice to the debtor the title of the assignee is complete, not only against the assignor personally but also against person who stand in the same position as the assignor, for instance his trustee in bankruptcy, a judgment creditor or person claiming under a later assignment made without consideration.[50]However, Greg Tolhurst[51] has identified four purposes that notice may serve in a transaction involving the assignment of contractual rights. According to him, first it maintains the assignee's priority.[52] Secondly, it prevents certain equities arising as between assignor and obligor to which the assignee would be subject. Thirdly, it will generally prevent the obligor from obtaining a discharge from the assignor. Fourthly, it binds the conscience of the obligor.

Under US law, § 9 - 404 (2) of the UCC provides that "[t]he right of an assignee are subject to any other defence or claim of the account debtor against the assignor which accrues before the account debtor receives a notification of the assignment authenticated by the assignor or the assignee." The foregoing is referred to as the notification principle.[53]The effect of this provision is that while the assignee of a contractual right succeeds to all the rights of the assignor, a debtor is not affected by the assignment until he has notice of it. If he pays his indebtedness to the assignor in ignorance of the assignment, he is relieved from all liability to the assignee.[54]

After the notice of the transfer, however, the debtor is put on his guard, and if he pays the assignor any money, which under the assignment belongs to the assignee, or if he does anything prejudicial to the rights of the latter, he is liable for the resulting damage.[55] No particular form of notice is required. It is sufficient if such information given to the debtor will fully inform him that the alleged assignee is the owner of the right, or as will serve to put him on inquiry.[56]

Based on the foregoing, it is clear that in Anglo-American legal systems, notice to the debtor is required for the assignment to be effective. However, the legal effect of failing to give such a notice differs. The distinction lies in the fact that under English law, statute makes the notice mandatory and requires it to be in writing in the case of a statutory or legal assignment, failure to comply with this requirement may lead to the unenforceability of the assignment. Such a strict rule is not applicable to an equitable assignment or even to an assignment under American law. However, it is general required that for the assignee to have a right against the obligor or debtor, some form of notice is require.

In Continental legal systems, German and French laws seem to have a different approach on the issue of notice. Under German Law, there is no requirement for notice to be given; an assignment is fully effective without the debtor's consent and even where the debtor knows nothing about it. § 398 of the BGB provides that "[a] claim or debt may, by agreement between the creditor and another, be transferred by the former to the latter. Upon the conclusion of such an agreement, the new creditor takes the place of the former creditor." Therefore, once the agreement referred to in this section has been made, the right no longer forms part of the assignor's assets. It can no longer be seized by the assignor's creditors nor does it fall in the estate of a bankrupt assignor, provided that the agreement referred to in the section was made before the attachment order or the opening of the bankruptcy proceedings.[57]

In the case of French law, Article 1690 of the Code Civil provides that "[a]n assignee is vested with regard to third parties only by notice of the assignment served upon the debtor. Nevertheless, the assignee may likewise be vested by acceptance of the assignment given by the debtor in an authentic act." This is due to the fact that underArticle 1689 of the Code Civil, the agreement between the assignor and the assignee results in a transfer of the right only as between both parties. As against third parties, the assignment is to be treated as complete only when the requirement of Article 1690 is complied with.[58]

The formalities as prescribed by Article 1690 Code Civil have been mitigated by a number of legislative acts and the courts. For instance under the Loi Dailly [Law no. 81-2 of 2 January 1981][59] which was passed to facilitate the granting of credit to business', a firm which wishes to transfer debts for cash or a security to a bank may list these debts in a bordereau, date it, and transfer it over to the bank, with the effect that the bank thereupon become owner erga omnes of the debts so listed, without any need to inform the debtors.[60] Further, the court has held that a statement of claim served on the debtor in an action by the assignor, if it gives sufficient detail to show that there has been an assignment, is sufficient to amount to a signification to the debtor perfecting the assignment.[61]

Further, on the issue of notice, Article 9.1.10 of the PILC provides that, "(1) [U]ntil the obligor receives a notice of the assignment from either the assignor or the assignee, it is discharged by paying the assignor. (2) After the obligor receives such a notice it is discharged only by paying the assignee."

Given the position maintained by most national legal systems and even private international law instruments on the issue of notice, it appears that the requirement that notice be given, is put in place for the protection of the assignee. This is due to the fact that, a debtor who is not privy to the assignment agreement may innocently discharge the obligation owed to the assignor and this may be detrimental to the interest of the assignee who will then be required to bring an action against the assignor on the basis of the assignment agreement. However, in the case of Germany and lately France, there seems to be a preference or bias for commercial expediency rather than the protection of the assignee.

3.3 Successive Assignments and Non Assignment Clauses

Typically, this arises when the assignor after assigning his right to an assignee, subsequently assigns the same right to another assignee. The potential conflict such an act could create cannot be easily explained away and the courts often have to deal with dispute over which of the competing interests should have priority over the other.

Under English law, although an equitable assignment may be valid without notice to the debtor, the essence of giving notice arises when there is a successive assignment. The rule in Dearle v. Hall[62] gives priority to the assignee who in ignorance of any prior assignment; first gives notice to the debtor. The fact that he has discovered the existence of the prior assignment at the time when he gives notice is immaterial, provided that he had no actual or constructive knowledge of it when his own assignment was completed.[63]

In the United States, most of the jurisdictions refused to follow the rule under English common law.[64] Instead, they hold that the right is vested in the first assignee except in two classes of cases:[65](i) the right belongs to the second assignee if the prior assignment was itself inoperative for any reason and no such reason as to the second.[66](ii) the prior assignee's right will be extinguished and the duty of the obligor will be to the subsequent assignee in case the latter pays values without knowledge of the prior assignment and in reasonable reliance on a document evidencing the existence of the right in the assignor and negligently left in the assignor's possession by the prior assignee.[67]

The justification for this position maintained by American courts is that an innocent assignee for value should be protected against a prior assignee that made it possible for the assignor to perpetuate a fraud. Arthur Corbin has opined that for the second assignment to be preferred there must be an element of "estoppel" in the broad general use of the word and that merely obtaining possession of such a document with actual knowledge of an earlier assignment or without paying value in reliance on it will not make the second assignment superior to the first.[68]

Under French law, there are two rules governing the issue of priority. Nevertheless, the critical thing is to first determine the moment when all the prerequisites of a valid transfer are satisfied, including any formalities, which may be required.[69] In cases involving assignment between individuals, the rules of the Code civil are applicable to the successive assignments; the result of this is that it is the first to give notice to the debtor in the form required by Article 1690 that will prevail. However, if it is a case where the validity of the assignment depends on an entry in the register or a mark in the assignor's books then the date of the registration or mark is the determinative factor and when the same debt is transferred to two banks by bordereau under the Loi Dailly,[70]the bank whose bordereau bears the earlier date wins, and may claim the proceeds from the other bank if the debtor has paid it.[71]

In the case of German law, which requires no more for a valid assignment than the contractual agreement of the assignor and the assignee, any question of priority is resolved by reference to the date of the agreements, with the first in time wining. In the event the debtor pays an assignee that he erroneously took to be entitled to payment, he is certainly released from liability, but the recipient must hand the money over to the prior assignee with the better title.[72] According to Hein Kotz,[73]the basis for this claim is unjustified enrichment, in receiving from the good faith debtor a payment, which extinguished the entitlement of the first assignee, the second assignee, has obtained something at the latter's expense which he may not retain.

In the area of lex mercatoria, Article 9.1.11 of the PILC provides that if the same right has been assigned by the same assignor to two or more successive assignees, the obligor is discharged by paying according to the order in which the notice were received. Further, on the issue of successive priorities, Article 11:401 provides that he assignee's interest in the assigned claim has priority over the interest of a creditor of the assignor who attaches that claim, whether by judicial process or otherwise, after the time the assignment has taken effect under Article 11:202. In the event of the assignor's bankruptcy, the assignee's interest in the assigned claim has priority over the interest of the assignor's insolvency administrator and creditor, subject to any rule of the law applicable to the bankruptcy relating to creditors, subject to any rules of the law applicable to the bankruptcy relating to:

(a) Publicity required as a condition of such priority

(b)The ranking of claims; or

(c) The avoidance or ineffectiveness of transactions in the bankruptcy proceedings.

An examination of the various jurisdictions under the Anglo-American and the Continental legal systems, shows that save for Germany, the others accord recognition to the requirement of notice to the debtor and in the event there is a valid notice, it will have the effect of overriding any prior or later assignment. German law on its part does not necessarily require notice to a debtor for the assignment to be valid; in the case of successive assignments, it accords priority to the first assignee. However, a strong case can be made against the reliance on the date on the assignment agreement on the ground that it gives or creates room for a collusive antedating. In addition, this will effectively deprive the prior assignee the right of making or laying claims to the assigned contract.

Common to both Anglo-American and Continental legal systems is the recognition of non-assignment clauses subject to some limitations. For instance, the assignment of a right to the payment of a monetary sum is effective notwithstanding an agreement between the assignor and the obligor limiting or prohibiting such an assignment. However, the assignor may be liable to the obligor for breach of contact.[74] The assignment of a right to other performance is ineffective if it is contrary to an agreement between the assignor and the obligor limiting or prohibiting the assignment. Nevertheless, the assignment is effective if the assignee, at the time of the assignment, neither knew nor ought to have known of the agreement. The assignor may then be liable to the obligor for breach of contract.[75]

4. Remedies and Protection

4.2 The Obligor

While assignor's right to transfer any right or benefit that accrues to him is recognised by all legal systems, there is also the recognition of the need to accord some form of protection to the obligor and to ensure that he is not worse off by virtue of an assignment. The general principle in the two main legal systems is that, while the assignee of a contractual right succeeds to all rights of the assignor, an obligor is not affected by the assignment unless he has notice of it.[76] However, even in cases where notice is given, his consent is not required.[77] The obvious implication of this is that a new creditor can be forced upon the debtor without his consent and even against his will.[78] In the light of the foregoing, there must therefore be rules to provide protection and remedies to the obligor, so as to prevent his being prejudiced by such a change of creditor.

(1) Payment to the original creditor

The general rule under both the Anglo-American and Continental legal systems is that if the obligor discharges his obligation to the original creditor before he learns of the assignment, the assignee will be bound and consequently shall be deprived of any rights or claims against the obligor.

Under English law, in addition to the requirement that for the obligor to be bound, there is need for notice, the court has provided for a stricter definition of what constitutes notification by requiring the notification to be recorded clearly and definitely the fact of assignment and to indicate that payment must be made to the assignee. It is pertinent to point out that this principle is particularly relevant in the area of equitable assignment, given that a statutory assignment cannot be in existence unless the notice requirement has been complied with or fulfilled.[79] In the case of James Talcott Ltd v. John Lewis & co. Ltd and North America Dress Co.Ltd[80] the English Court of Appeal in dismissing the case, held that a debtor who receives what was intended as a notice of assignment, but which does not make it clear that the right to the debt has been transferred to the assignor, but rather, that he may pay that party, cannot be made to pay a second time if he pays the assignor.

Under American law, the UCC[81] and case laws recognize that until the debtor or obligor is put on notice of the assignment, the payment of the debt or performance of the obligation to the prior creditor shall discharge him of any obligation imposed on him by the prior contract. In the case of Continental Purchasing Co. v. Van Raalte Co.[82] the Appellate Division of the Supreme Court of New York, found for the Plaintiff in an action against the Defendant, who despite a formal notification of the assignment, proceeded to pay the original creditor. The Court noted that the Plaintiff who was an assignee of the assignor's wages had given several notices of the assignment contract that existed between it and the assignor to the Defendant. Despite these notices, the Defendant chose to pay the assignor and in doing so, he has acted at its own peril, and he was therefore liable to the Plaintiff.

The German BGB under § 407 deals with legal acts in relation to the previous obligee. Subsection (1) provides that the new obligee must allow performance that the obligor renders to the previous obligee after the assignment, as well as any legal transaction undertaken after assignment between the obligor and the previous obligee in respect of the claim, to be asserted against him, unless the obligor is aware of the assignment upon performance or upon undertaking the legal transaction. It effectively absolves an obligor of any claims that can be made by the new obligee. It follows that in the case of a successive assignment, the obligor who pays a subsequent assignee will be released from liability if he was unaware of the assignee with priority.[83]

Under French law, the provision of Article 5 of the Loi Dailly will not apply to the obligor once he can establish that he was not notified of the assignment by the assignee bank, effectively he would be discharged even when he makes payment to the prior debtor. This rule as it relates to good faith and absence of notice dealings between the obligor and the prior obligee, seeks to create a balance in the conflicting interests, however emphasis is placed on the need to protect a debtor who acts prudently and innocently.

2. Defence available to the Debtor

A cause of action for breach on the part of the debtor lies with the assignee that will be entitled to commence an action for any failure to perform or defective performance. However, there is the recognition of the right of the debtor to raise against the assignee any defence he would have raised against the assignor.

Under English law, the common law rule is that "the assignee stands in the shoes of the assignor" or that the assignee 'takes subject to equities' the rule that the assignee takes subject to equities has always applied to equitable assignment and is preserved by statute in the case of legal assignments of debts and other choses in action.[84]Equity generally does not step in to prevent the raising of defences that accrued prior to notice; on the basis that at that stage the equities were equal.[85] Professor Goode has suggested that this rule was developed by equity to protect the obligor from the injustice that might arise from assignment[86]

The position under American law is the same with that of England, there is a recognition of the rule that '[T]he assignee stands in the shoes of an assignor'. However, it has been identified that this proposition is subject to some important limitations,[87] one of such limitation has to do with what may be called, loosely, late-arising defences. In the case of John Ludwick, Assignee of Jacob Bollinger v. Michael Croll [88]where the Defendant and four others had in a conveyance transaction, innocently furnished the consideration of 200l in goods and two bonds conditioned for the payment of 275l to one Bollinger who laid clamed to 1, 152, 000 acres of land in Powel's valley in the State of Kentucky under a forged survey. One of these bonds had been subsequently assigned to one Eckenwelder, while the other, which formed the subject of the controversy, had been assigned to the Plaintiff by Bollinger. The Defendant having heard that the Plaintiff had one of the bonds by assignment, acknowledged in the presence of witnesses, that he would pay it off; this he did under the mistaken belief that he had good title to the enormous quantity of 230, 4400 acres land. On this circumstance the Plaintiff's counsel submitted the matter to court with argument. The Supreme Court of Pennsylvania in finding for the Defendant, dismissed the Plaintiff's case on the ground that the Plaintiff as the assignee of the bond takes it at his own peril subject to every defence which might be set up against the prior oblige by the Defendant.

In Civil law based legal systems, the rule is sometimes explained as being based on the principle that nemo plus iuris transferre potest quam ipse habet.[89] It follows that in action brought by an assignee to enforce the claim, the obligor can mount an effective defence on any ground that would have been available if there had been no assignment, and the obligee had been the initial holder of the claim.[90]In the case of German Law, § 404 of the BGB confers the obligor with the right to raise against the new obligee the objection that he was entitled to raise against the previous obligee at the time of the assignment. In the decision of the Reichgericht, 11 November 1913,[91]in dismissing the case of the Plaintiff, it was held that if after the assignment of money, which should become payable under a contract, compensation becomes due to the debtor because of the assignor's failure to perform, the debtor may raise this as a defence against the assignee. Further, it has been held by the Court that where a debtor has completed a form drafted by an assignee and confirmed that he has no claim against the assignor; any ambiguity in the form should be construed against the party who drafted it, i.e. the assignee.[92]

Under French law, the same protection of being able to raise against the assignee any defence that he would have raised against the assignor is accorded to the debtor, however in a case where the debtor notifies the assignee that it accepts the debt, under Article 6 of the Loi Dailly, it cannot then raise against the assignee any defence based on its relationship with the assignor.[93]

Under general principles of law (lex mercatoria), Article 11:307 of the PECL provides that the debtor may set up against the assignee all substantive and procedural defences to the assigned claims, which the debtor could have used against the assignor. It further provides that the debtor may also assert against the assignee all rights of set-off, which would have been available against the assignor. In the case of the PILC, Article 9.3.6 provides that to the extent that the assignment of a contract involves an assignment of rights, Article 9.1.13 applies accordingly. It also provides that to the extent that the assignment of a contract involves a transfer of obligations, Article 9.2.7 applies accordingly. Illustrations of the foregoing provisions of the PILC are thus: (1) Company X has out-sourced its risk management department to consultant A. With X's consent, the contract is assigned to consultant B. Due to A's incompetence, X was not properly insured for a loss it subsequently suffered. Pending indemnification, X may suspend paying B the agreed fees. (2) Airline A has a contract with catering company X. A transfers the operation of its flights to certain destinations to airline B. With X's consent, the catering contract is assigned by A to B. Litigation later arises, and X sues B before a court at its place of business. As a procedural defence B may successfully invoke that the assigned contract includes an arbitration clause.

4.3 The Assignee

Generally the law seek to protect the obligor who had no notice of the assignment and has in good faith discharged his obligation to the original obligee and even affords such a debtor the opportunity of raising against the assignee any defence he could have been entitled to raise against the assignor. It also seeks to protect the assignee who might have genuine commercial or business interest in his dealings with the assignor. There is therefore the need to carrying out a balance of interest between the assignee vis-a-vis the assignor and the debtor so as to ascertain which of the conflicting interests the court should accord protection.

In English law, the position is that the assignor is bound by the assignment and subject to the terms of the assignment will hold any fruit of the assignment for the benefit of the assignee.[94]It follows that where there is a contract of assignment, the relationship between the assignor and assignee is governed by the express and implied terms of the contract and non-performance brings into operation the normal remedies rules. In relation to the obligor, the rule is that once notice has been given to the obligor, his conscience is bound to the assignment, that in the event he proceeds to discharge the obligation to the assignor, the assignee can maintain an action against him to enforce the same obligation.[95]

Under American common law, by the recognition of the principle that the assignee steps into the shoes of the assignor, the courts have held that after receiving notice a debtor who goes ahead to pay the amount assigned to the assignor shall be liable to the assignee, who may choose to enforce his right against the obligor directly. In the case of Herzog v. Irace[96] the assignor (a motorcycle accident victim) had assigned payment from his settlement claim to the assignee (a doctor) as a consideration for treatment of a shoulder injury which had occurred at a different time. Despite the assignee's notification to the defendants (counsel to the assignor), they refused to pay him after collecting the settlement claim on the grounds that the assignor had instructed them not to pay. The Supreme Judicial Court of Maine in finding for the assignee held that after receiving notice of the assignment, the obligor cannot lawfully pay the amount assigned either to the assignor or to his other creditors and if the obligor does make such a payment, he does so at his peril because the assignee may enforce his rights against the obligor directly.

In Continental legal systems, German law confers the assignee with the right to demand from the assignor all documents evidencing the debt assigned and any information needed to claim the debt.[97]In addition, when an assignor has guaranteed the solvency of the debtor, he is presumed to guarantee the debtor's solvency only at the time of the assignment. Thus he shall be liable to the assignee up to the amount he received for the assignment if the debtor turns out not to be solvent.[98]

Under French law, the assignor is the said to be always garant de son fait personnel, liable per il fatto proprio.[99]This means that even if the seller has excluded or limited his liability should the debt not exist or not be collectible, he will nevertheless be liable in damages if he subsequently accepts payment from the debtor or release him from the debt or gives him time to pay, for that would constitute a breach of the obligation flowing from the assignment contract, which is that he will not do anything that might prejudice the assignee's ability to realise the debt assigned to him.

5. Conclusion

A cases by case evaluation of Anglo-American and Continental legal systems, clearly shows that each system of law has its own unique approach to issues of contractual relationships and assignment in particular. This is despite the broad convergence of these systems on some principles. Further, the various harmonization attempts of private law at the international and regional levels have been aimed towards facilitating trade and investment between countries irrespective of socio-economic cum legal systems.

This work is largely an attempt to synthesize already existing legal and scholarly materials from national, regional and international level on the issue of assignment of contractual rights and contracts. From 2010 - 2014, the emergence of 10 leading Fortune 500 companies has been by way of merger and acquisition anchored on the assignment of contracts, rights and obligations.[100] As the match towards achieving greater economic and financial prosperity for investors, shareholders, corporations and ultimately the country of investment continues, stakeholders across board should also acquire the requisite legal expertise and cultural sensitivity needed to actualize the objectives.

AUTHOR - MR. IKEMEFUNA STEPHEN NWOYE

                    PRINCIPAL CHIEF COUNSEL - NWOYE (Barrister & Solicitor)

*DISCLAIMER - This article does no constitute an opinion or an attempt to advice on the laws of the common and civil law jurisdictions mentioned herein. The views expressed in this article are personal and they do not necessarily reflect the views of any other person or entity that I am or might have been affiliated or connected to

[1]Hein Kotz, European Contract Law: Volume One (Clarendon Press. Oxford 1997) at 263.

[2] Id.

[3] See Kevin Criddle and Anthony Kappus, "Assigning Contracts in the Context of M&A Transactions" available at:<https://www.theventurealley.com/assigning-contracts-in-the-context-of-ma-transactions/> for a brief discussion of assignment within the context of M&A Transactions.

[4] Typically, receivables financing may take one of two forms. One possibility is that assignment is made by way of security, i.e. for the purposes of securing an obligation owed by the assignor to the assignee, for example, when a bank lending money to a customer accepts as security for repayment of the loan an assignment of the claims, which the customer has against third parties. The other form of receivables financing is where the assignee takes an outright assignment by way of sale and pays the assignee cash (or make credit available to the assignor) immediately, later reimbursing itself by collecting the receivables) See Hugh Beale et al, Ius Communne Casebook for the Common Law of Europe: Cases, Materials and Text on Contract Law (Hart Publishing 2012) at p. 1294.

[5] In factoring transactions, an assignment usually arises when the manufacturer or dealer whose customer have yet to settle their accounts need cash in hand, whole packages of claims are sold or transferred as security by a single transaction; credit institutions often take a bulk assignment of hundreds of claims at a time as security from those who borrow from them. See Hugh Beale et al, supra note 4 at 1294.

[6] For instance, see Principles of European Contract Law, OHADA Uniform Act on Contract Law (modelled after the PILC) and International Institute for the Unification of Private Law UNIDROIT PRINCIPLES OF INTERNATIONAL COMMERCIAL CONTRACTS (PILC). The PILC is non-binding on signatory or member states that apply under the following conditions (i) when the parties have agreed that their contract be governed by them (ii) when the parties have agreed that their contract be governed by general principles of law, the lex mercatoria or the like (iii) when the parties have not chosen any law to govern their contract. (iv) They may be used to interpret or supplement domestic law (v) They may serve as a model for national and international legislators.

[7]Hugh Beale et al, Ius Communne Casebook for the Common Law of Europe: Cases, Materials and Text on Contract Law (Hart Publishing 2012) at p 1293.

[8]Arthur Corbin, Assignment of Contract Rights 74 U.Pa.L.Rev. 208 1925 -1926 at 209.

[9] Hugh Beale et al, supra note 4 at 1294.

[10] Hugh Beale et al, supra note 4 at 1293.

[11] See Article 9.1.2 of the PILC that excludes its application to transactions made under special rules governing the transfers of instruments such as negotiable instruments, documents of title or financial instruments or rights in the course of transferring a business. It should be noted that in the case of the merger of companies. The applicable law often provides for mechanisms that cause all rights and obligations, under certain conditions, to be transferred in their entirety by operation of law. Nevertheless, the Article may still apply when certain rights pertaining to the transferred business are assigned individually e.g. transfer of equity or securities.

[12]Id.

[13]See the English case of Griffith v. Tower Publishing Co Ltd and Moncrieff [1897] 1. Ch 21 the court held that a publishing contract might not be assigned by the publisher even where the publisher is a company, because of the nature of the relationship between publisher and author.

[14]See §317 (2)(a) of the Restatement(Second) of Contracts and § 2-210 of the Uniform Commercial Code (UCC).

[15] §399 BGB; see also Hein Kotz, supra note 1 at 269.

[16] See Hugh Beale et.al supra note 4 at 1303, where it was stated that under French law, the right to payment of salaries and pensions up to a certain amount, as well as entitlements to public benefits, are not assignable.

[17]See Article 9.1.3 of the PILC, which provides that a right to non-monetary performance may be assigned only if the assignment does not render the obligation significantly more burdensome.

[18] See Greg Tulhurst, The Assignment of Contractual Rights (Hart Publishing 2006) 35; see also Arthur Corbin supra note 8 at 216, where it was clearly pointed that even though a party may attempt to assign a duty, such a duty cannot be effectively assigned given that despite the assignment the debtor's duty remain absolutely unchanged.

[19]See John Rigby (Haulage) Ltd v. Reliance Marine Insurance Co. Ltd [1956] 2 QB 468 at 482

[20] See §318(3) of the Restatement (second) and §2-210 of the UCC.

[21]See Principles of European Contract Law III Edited by Ole lando et al (Kluwer law International 2003) at 128.

[22] Id.

[23]Greg Tolhurst, supra note 18 at 33.

[24] §318(3) of the Restatement (second).

[25]Commercial Bank of Tasmania v. Jones [1893] AC 313.

[26]See the case of Kennedy v. Griffith, 98 Utah 183, 187, 95 2d 752; see also John D. Calamari et al, cases and Problems on Contracts (West Publishing Co 1989) at 913.

[27] §414-418 of the BGB.

[28] For instance see the House of Lord decisions in the English case of Dunlop Pneumatic Tyre Co. Ltd v. Selfridge & Co Ltd [1915] AC 847, it was held that a person who is not a party to a contract cannot enforce it or any of its terms, even if the person can show that one of the parties to the contract was acting as his agent, he will still be unable to enforce it if he has not provided consideration. It should be noted that this rigid rule was followed by the English courts way into the 20th century. Statutes have however granted some recognition to a third party's right to claim benefit. See Married Women's Property Act 1882, See §. 4 Defective Promise Act 1972; § 1- 2 Fatal Accident Act, 1976; Contract (Rights of Third Parties) 1999.

[29] Hugh Beale et al., supra note 4 at 1173.

[30] See § 302 of the Restatement (Second) of Contract.

[31] See § 1559 of Cal.Civ.Code

[32] See Marlboro Shirt Co., Inc. V. American District Telegraph Co. 77 A. 2d 776 (Md., 1951)

[33] See Article 1119 of the Code civil.

[34] Hugh Beale et.al supra note 4 at 1174.

[35] See § 328 of the BGB.

[36] Article 11: 104 of the Principles of European Contract Law also provides that an assignment need not be in writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses.

[37]Hugh Beale et al, supra note 4 at 1295.

[38] Greg Tolhurst, supra note 18 at 314.

[39]Hein Kotz, supra note 1 at 275.

[40] Id; see also §402 - 403 BGB

[41]Section 136 (1) of the law of Property Act 1925.

[42]Hugh Beale et al supra note at 4 at 1295.

[43]Allen Farnsworth et al, Contract Cases and Materials (Foundation Press 2001) at 909.

[44]Id.

[45]See the Restatement (Second) of Contract §332, which provides for the irrevocability of gratuitous assignment.

[46]Greg Tulhurst supra note 18 at 352.

[47] Cheshire, Fifoot and Furmston's law of Contract (15th Edition Oxford University Press 2007) at 653.

[48] See the W F Harrison & Co Ltd v. Burke [1956] 2 All ER 169.

[49]Cheshire et al, supra note 47 at 653.

[50]Id.

[51] Supra note 18 at 82.

[52] See elaborate discussion of priority under Successive Assignment infra at 19.

[53] See Allen Farnsworth et. al supra note 43 at 923; see also the Case of Callan v. Edwards, 32 N.Y 483, 486.

[54] See John D. Calamari et al, supra note 18 at 749.

[55] Id.

[56]See Country v. Boyer, 3 How.Pr. 386, 388; Johnson v. Bloodgood, I John.Cas 51, 52; Anderson v. Van Alen, 12 Johns 343, 345.

[57]Hugh Beale et al. supra note 4 at 1296.

[58]Id.

[59]Now Article L313-29 of the Code monetaire et financier.

[60] Hein Kotz, supra note 1 at 227.

[61]See Cass com, 18 February 1969 Bull civ IV no 65, where a company Hercules assigned to another company, Epirotiki Lines, a debt owed to it by Rouquie. Epirotiki Lines did not give a formal notice to Rouquie but simply commenced a process to recover the debt from Rouquie. An appeal by Rouquie on the grounds that Article 1690 was not complied with was dismissed by the court.

[62](1828) 38 ER 475, 492.

[63] See the case of Mutual Life Assurance Society v. Langley (1886) 32 ChD 460; see also Cheshire et al. Supra note 47 at 654.

[64]See Salem Trust Co. V. Mfrs. Finance Co., 264 U.S 182 (1924, discussed in 33 Yale L.J 767 (1924); Muir v. Schenck, 3 Hill, (N.Y. 1842).

[65]Arthur Corbin, supra note 8 at 23.

[66] As pointed out by Arthur Corbin, a typical example of this will be a case where the first assignment was a mere oral expression of gift and the second was for value.

[67] Herman v. Conn. Mut. L. Ins. Co., 218 Mass. 181, 105 N.E. 450 (1914); see also Bridge v. Same, 152 Mass 343, 25 N.E 612 (1890)

[68]Arthur Corbin, supra note 8 at 232.

[69] Hein Kotz, supra note 1 at 279.

[70]See page 18 supra for the purpose of the Loi Dailly under French legal system.

[71]See Com. 20 June 1989, D 1989, 431 n. Perochon: where the buyer of goods subject to a reservation of title resold them, the original seller was subrogated to his claims for the price, and consequently had priority over the bank to which the buyer pursuant to the Loi Dailly transferred them. See also Hein Kotz, supra note 3 at 279.

[72] See §816 (2) BGB.

[73]Supra note 1 at 279 footnote 68.

[74] See Article 9.1.9 of the PILC.

[75] Id.

[76]Hugh Beale et al supra note 4 at 1316.

[77] Save in cases where the first contract make it mandatory that obligor's consent must be first sought and obtained before any assignment should be carried out.

[78]Hein Kotz supra note 1 at 281.

[79] Greg Tolhurst, supra note 18 at 386.

[80] [1940] 2 All ER 592.

[81] § 9 - 404.

[82] (1937) 251 Ap Div. 151, 295 N.Y.S 867.

[83]§ 408 of the BGB; see also Hein Kotz supra note 3 at 282.

[84]See for example the provisions of Section 38(2) Bills of Exchange Act 1882 (UK).

[85] See the case of Wilson v. Gabriel (1863) 4 B & S 243 at 248, 122 450 at 452.

[86]See R Goode, Legal Problem of Credit and Security (3rd Edn, Sweet & Maxwell, 2003) para 7.65 referenced by Greg Tolhurst, supra note 18 at 427.

[87]See § 336 (2) Restatement (Second) of Contracts; see also Farnsworth et al supra note 43 at 921.

[88]1799 2 Yeates 464.

[89] Hugh Beale et al supra note 1 at 1319.

[90] Id.

[91]RGZ 83, 279

[92] BGH, 18 October 1972 NJW 1973, 39.

[93]See Cass com, 3 December 1991 Bull civ IV no 370, where the appeal court held that the debtor could not rely on the prior obligee non-performance against the Bank (new oblige)

[94]See the case of GE Cranes Sales Pty Ltd v. Commissioner of Taxation (1971) 126 CLR 177, the decision High Court of Australia per Menzies J.

[95]Jeffs v. Day (1866) LR 1 QB 372, see also Greg Tolhurst, supra note 18 at 387.

[96] 1991 594 A.2d 1106

[97]§401 BGB

[98]Hein Kotz, supra note 1 at 281.

[99]Id.

[100] See Joel Stonington "The Biggest M&A Deals of 2011 - A running tally - Businessweek" available at https://www.bloomberg.com/bw/slideshows/20110411/the-biggest-m-amp-a-deals-of-2011#slide1.