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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
A. Introduction and overview
It is well known that all ancient legal systems were averse to any kind of transfer of rights or obligations to third parties. Although worded in different ways, the rationale was the same: privity of contract in the common law andobligatio in Roman law presupposed a personal bond between the parties. However, such obstacles were put aside, again for identical reasons: markets, and financial institutions in particular, needed to be able to transfer and circulate rights like other goods. All modern legal systems therefore had provisions on the subject. Nevertheless, these provisions did not and could not solve the fundamental problem inherent in any transfer of rights and obligations-the involvement of a new party in a pre-existent relation or, put another way, the difficulties arising from a ménage à trois. Consequently, one finds in all jurisdictions similar concepts to avoid, mitigate or circumvent these difficulties. It comes as no surprise to find that the UNIDROIT Principles of International Commercial Contracts1 were confronted with the same problems when dealing with the subject and, in seeking a synthesis between different systems, arrive at similar results. Readers will therefore recognize patterns and questions with which they are familiar in the following discussion of Chapter 9 of the UNIDROIT Principles
This paper deals primarily with the assignment of rights and some aspects of the assignment of contracts as covered in the first and third sections of Chapter 9 of the UNIDROIT Principles. Section two of Chapter 9, which covers the transfer of obligation and largely mirrors section one, will not be further examined. We will rather focus on the fundamental structure of the provisions and the theoretical issues they raise.
B. Assignment of rights
I. Scope of application and classification of rights
Article 9.1.1-which is inspired2 by the corresponding provision in Article 2(a) of the UNCITRAL draft convention on assignment3 -proposes the following definition: 4
'Assignment of a right' means the transfer by agreement from one person ('the assignor') to another person ('the assignee'), including transfer by way of security, of the assignor's right to payment of a monetary sum or other performance from a third person ('the obligor').[Page28:]
This provision describes, at least in part, the types and methods of transfer to which Chapter 9 of the UNIDROIT Principles applies. As for other matters, especially the possible objects of assignment, these are not explicitly defined in the black letter rules but are to be inferred from the structure of the provisions and the classification of rights therein. Therefore, we shall begin our short analysis with a more in-depth look at the various rights and connected problems of assignability.
The comment on Article 9.1.1 says that the provisions of Chapter 9, Section 1, shall apply not only to rights of a contractual nature but to claims of all kinds, including, for example, those deriving from torts or based on a judgment. This was the wish expressed in several meetings of the Working Group that prepared the 2004 UNIDROIT Principles ('Working Group'),5 although the Working Group was fully aware that this broad approach might in practice be limited by domestic laws.6
Within this broad category of rights, a first and fundamental distinction is made between rights to the payment of a sum of money and rights to other kinds of performance.
a) The fundamental distinction: monetary/non-monetary performance
Whereas the definition initially drafted for Article 9.1.1 was limited to the assignment of a right to payment of money,7 it was later decided to widen the scope to cover the assignment of non-monetary rights (right to non-monetary performance) too.8 The wording used in a draft of the Principles of European Contract Law (PECL)-'rights to payment or other performance'9-was preferred to a shorter phrase because without the word 'performance' other kinds of rights could have been assigned. This was not the intention, however, with respect to property rights, e.g. protection rights contained in the law of property.10 On the other hand, it was decided that rights to performance should not exclude options, which, although not strictly rights to performance, should nonetheless be assignable.11 In view of this breadth of scope, it was necessary to reconsider the use of the term 'debtor', which was finally replaced by 'obligor'. Although, in our opinion, this enlargement of scope is to be welcomed, it gives rise to serious difficulties with regard to rights related to obligations of an essentially personal nature (see part B.III, below), which the UNIDROIT Principles have not fully resolved. But before turning to this question, we shall look at some specific kinds of assignable rights.
b) Specific rights
i) Future rights (Art. 9.1.5)
Future rights were much discussed within the Working Group with regard to the moment an assignment becomes effective.12 However, there was general agreement on explicitly providing for their assignability, as the general tendency is more and more to allow such assignments.13 Hence, and particularly to answer the need of the business community for a workable system of financing receivables, the UNIDROIT Principles follow this trend (Art. 9.1.5). The expression 'future right' has been restricted to those rights for which no legal basis as yet exists, for example claims out of contracts envisaged but not yet made. This restriction is helpful since in some jurisdictions such rights are confused with rights for which the contractual basis already exists but performance is not yet due. That in turn causes confusion with regard to the effect of the assignment. [Page29:]
ii) Conditional rights
Although mentioned in the first draft, conditional rights are no longer to be found either in the black letter rules or the comments of the UNIDROIT Principles. This is because the concept proved to be extremely ambiguous, not only between the common law and civil law, but also within the common law itself.14 The lack of any reference to conditional rights does not, of course, exclude their assignability. As the Working Group pointed out, Article 9.1.5 is in substance the same as Article 12:202(2) of the draft PECL,15 which states that '[a]n assignment of a future claim is dependent upon the assigned claim coming into existence'. The Working Group added that this provision also covers conditional claims.16
iii) Disputed rights
It was also decided that so-called disputed rights should not be given special treatment in the Principles,17 as a number of jurisdictions drew a distinction between disputed and undisputed claims. This is for example the case in France and Italy, where a party can take back a right when it is subject to a dispute, provided the price paid for the right is refunded with interest. Other legal systems even have rules completely prohibiting such assignments. The Working Group did not include any rules invalidating particular assignments, because all special rules in domestic legal systems were already covered by the rule which provides that matters concerning immorality and the invalidity of contracts are not covered by the Principles but should be left to domestic law.18 Nevertheless, it is clear that, so long as there is no infringement of national law, unresolved claims-which, for instance, are prominent in the very common assignment of rights of action to insurance companies-fall within the scope of the Principles too.
c) Exclusion of transfers governed by special rules
In contrast to what has been discussed so far, Article 9.1.2-which was mainly inspired by Article 4 of the UNCITRAL draft convention on assignment19-expressly excludes all transfers that are subject to other distinct (domestic) rules. This concerns, for instance, negotiable instruments (such as bills of exchange, which are usually transferred by endorsement or delivery of the document), as well as documents of title (such as bills of lading or warehouse warrants), insurance policies and financial instruments (such as stocks and bonds). However, it is intended that Chapter 9, Section 1, could still apply where such instruments are transferred by way of a normal assignment.20 The same applies when certain rights pertaining to a transferred business are assigned individually. All other instances of transferring a business-which means a change in the ownership or the legal status of the business-fall under Article 9.1.2(b). This second exclusion was adopted as the applicable law often contains provisions causing all rights and obligations, under certain conditions, to be transferred as a whole by operation of law.
a) Transfer by agreement (as opposed to legal and unilateral transfers)
Chapter 9, Section 1, only applies to transfer by agreement, i.e. the consensual transfer of a right (Art. 9.1.1). Hence, all transfers of rights that are not based on the mutual consent of the parties fall outside the scope of the provision. It was agreed within the Working Group that the Principles should not interfere with the specific rules that exist in many countries concerning the legal transfer of some [Page30:] rights under certain circumstances (e.g. pursuant to a judgment or due to succession by law in the case of inheritance).21 There was more discussion, on the other hand, over the possibility of an assignment by a unilateral act of the assignor, without the assignee's acceptance.22 At first, it was admitted that in a commercial setting it may be convenient for a business undertaking to transfer a benefit to its subsidiary by a unilateral act and that this should therefore be a valid assignment even without the express participation or acceptance of the assignee. It was further suggested that one would expect the assignee to agree to the assignment in such a case and that silence could be interpreted as a form of acceptance.23 Nevertheless, at a later stage of discussion, it was decided that the Principles should leave aside the question of the validity of unilateral assignments and the rules governing them.
b) Specific types of assignment
i) Assignment by way of security (Art. 9.1.1)
A majority of the Working Group expressed its strong support for an explicit reference to assignment by way of security in the black letter text of Article 9.1.1. Such reference was inspired by Article 2(a) of the UNCITRAL Draft Convention on Assignment24 and was preferred to a reference in the comments, as transfers by way of security are expressly excluded in legal systems based on the English Judicature Act, which deals only with absolute assignments.25
ii) Partial assignment (Art. 9.1.4)
Likewise, partial assignments are also explicitly permitted. This of course presupposes that the claim is divisible. There were lengthy discussions within the Working Group on whether or not a right may be assigned in part.26 The Working Group was well aware that the division of a right could render the obligation significantly more burdensome for the obligor and therefore had to be invalid under certain conditions. As this is not specific to partial assignment but applies to the assignment of rights in general, we will come back to it later when examining protective measures in favour of the obligor (see part IV, below).
iii) Bundle assignment (Art. 9.1.6)
In Article 9.1.6, a separate provision has been included on bulk assignments-an expression which was later replaced by the less colloquial 'bundle of rights' and 'rights assigned without individual specification'.27 Here, the Principles took their lead from Article 8 of the UNCITRAL Draft Convention on Receivables Financing28 and Article 5 of the UNIDROIT Convention on International Factoring.
The Working Group was convinced that bulk assignments correspond to the needs of the business community and that, to this extent, UNIDROIT should develop an innovative solution rather than just harmonize differences between domestic laws, so as to educate and further law reforms. For this reason, and in view of the resistance of some domestic legal systems to such kinds of assignments, it was considered useful to address this issue in the black letter rules. As an example, even in Switzerland, where banks frequently deal with bundles of rights, it took over a hundred years for the Federal Supreme Court to accept in principle the assignment of rights in bulk.
The question remained in this respect-as well as in respect of future rights-as to what information had to be given in order to allow the assigned rights to be identified. This will be considered in part III.3(b) below.[Page31:]
iv) Sub-assignment
Lastly, the Working Group took the view that the definition in Article 9.1.1 could also apply to sub-assignments, to which the UNIDROIT Principles do not otherwise refer.29
II. Formal requirements
Although some legal systems-e.g. Switzerland in Article 165 of its Code of Obligations-require the assignment to be made in writing, a considerable number do not. The UNIDROIT Principles follow the latter: the right is transferred by mere agreement between the assignor and the assignee, as stated in Article 9.1.1 and repeated and elaborated in Article 9.1.7(1). This is in line with the absence of any formal requirement expressed in Article 1.2 of the Principles and is consistent with the solution adopted in Article 11:104 PECL.30
It is of course important to distinguish between the assignment agreement itself and the agreement underlying the economic operation that has led the parties to assign the right and which of course may be subject to special requirements as to form. Furthermore, this rule does not affect the possible application of mandatory rules of the otherwise applicable law (Art. 1.4). Thus, for security purposes, the effectiveness of an assignment may be conditional on the agreement being made in a particular form.
As a rule, neither notice to the obligor nor the obligor's knowledge and agreement are required for the assignment to be valid and effective.31 Lack of notice has consequences only as far as the discharge of the obligor is concerned, i.e. the effectiveness of the agreement against the obligor (see part III.1(b), below). This solution is of utmost importance in practice for so-called 'silent assignments', where the assignor does not want the obligor to know about the transfer.
When informed that a change of obligee is taking place, the obligor will often not be particularly interested in the person of its partner. However, in certain situations the person of the obligee may matter. For this reason, an exception is introduced in the second paragraph of Article 9.1.7: the consent of the obligor is necessary if its obligation is of an essentially personal character.
According to the Working Group, the expression 'obligation of an essentially personal character' should be understood as a right that has been granted by the obligor in favour of a specific person.32 Similar examples can be found in textbooks and, not surprisingly, the UNIDROIT comment takes one of these. A famous singer has a contract with agent A who arranges her concerts. A sells his claim to B. The singer's consent is necessary. So far so good, but then the comment adds: 'if circumstances reveal that she was willing to sing only for A'. In this connection the Working Group decided that in such a case a 'right may well be assigned' to a third person without the obligor's consent 'unless the parties in their contract make it clear by circumstantial evidence' that the obligor will not perform for another obligee.33[Page32:]
Despite this attempt at clarification, we consider this additional element as not very helpful. The language of the comment seems to suggest that the singer has to prove the 'essentially personal' character of the obligation. How should this be done and what is the result if the proof fails? In our opinion, consent should be required for the assignment of any obligation that involves a commitment of a personal nature by the obligor. We will return to this in part III below, after dealing with effectiveness and restrictions.
The words 'mere agreement' in Article 9.1.7 mean two things. Firstly, no form is required for the agreement and, secondly, in particular, no notice to the obligor is required for the assignment to be effective. Although at first glance these two aspects seem different, they are in fact interlinked. Form and notice fulfil the dual purposes of evidence and validity. Let us take Swiss law as an example. In the Code of Obligations as in force until 1912, which was influenced by the French Civil Code, assignment was only effective if the obligor was validly notified. This provision caused a lot of trouble and was therefore removed in the 1911 revision, but a formal requirement was put in its place. Now the assignment is only valid if it is made in writing. This requirement as a pre-condition of validity causes other difficulties. We therefore consider it appropriate to abstain from both, as is the case in the UNIDROIT Principles, and to leave it to the parties to decide whether they wish to agree on formal requirements for evidentiary purposes.
III. Effectiveness and restrictions
a) Between assignor and assignee
The standard assignment is the transfer of an existing right to payment. If it is valid, it has immediate effect: the claim leaves the assets of the assignor/obligee and becomes part of the assets of the assignee/new obligee without any other formal requirement.
b) Between assignee and obligor
Whereas in most legal systems the validity of the assignment concerns above all the relationship between the assignor and the assignee, the effectiveness often affects the debtor too and therefore usually depends on additional conditions. Thus, while the assignment becomes effective between the contracting parties at the moment of their consent, it takes effect with respect to the obligor only when the obligor is given notice thereof.34 The requirement to give notice is common to many legal systems, subject to certain variations.35
Article 9.1.10(1) deals with the question-important in practice-of determining who should serve such notice-assignor or assignee? As in Article 15 of the UNCITRAL Draft Convention on Assignment,36 which inspired this provision, it has been left open to either party or to both to serve the notice, unless otherwise agreed.
As the assignment transfers the assignor's right as it is and does not change the obligor's legal situation, this implies that the assignee, as a rule, receives the [Page33:] benefit of all accessory rights, i.e. all the assignor's rights to payment or other performance under the contract in respect of the claims assigned, and all rights securing such performance. This 'automatic' transfer of rights related to the assigned right is found in numerous legal systems.37
Notwithstanding the examples provided by these different legal systems, the Working Group had difficulty defining 'accessory rights', for instance in relation to interest and, in particular, securities. Civil lawyers suggested that the expression should be understood broadly to include interest and securities. In the end, however, it was agreed to avoid using a concept with which common lawyers were not familiar. The question was also raised as to whether the right to terminate the contract was to be considered an accessory right and would therefore be transferred to the assignee together with the right to performance in kind. The Working Group finally had to leave this question open too and decided that the identification of the exact borderline between accessory rights and non-accessory rights should be left to scholarly writings and the courts.38
There was a brief discussion within the Working Group on the effects of partial assignment on accessory rights and securities. As now stated in the comment, separable securities should be split up in relation to the partial assignment, whereas the parties should decide whether inseparable securities are to remain with the assignor or to be transferred to the assignee. If there is no agreement between the parties on this, the court will have to interpret the contract.
The Working Group refrained from mentioning in the black letter rules the assignor's duty to take all necessary steps to allow the assignee to enjoy the benefit of accessory rights and securities, such as delivering evidential documents or fulfilling any requirement upon which such transfers may be conditional. As this duty is already expressed in Article 5.1.3 of the Principles, it has instead been mentioned in the comment.
Whereas a standard assignment has an immediate effect, this is not the case with the assignment of a bundle of rights and, in particular, future rights. In most jurisdictions, the assignability or effectiveness of such assignments-or both-have been much discussed. The Principles address the assignment of future rights and bundles of rights in Articles 9.1.5 and 9.1.6. The transfer of a future right is said to be effective only when it comes into existence and at that moment can be identified as the right to which the assignment relates. In that case, the transfer has a retroactive effect: 'the transfer is considered to have taken place at the time of the assignment agreement'. Before analysing this retroactivity, we shall look at an equally controversial issue expressed through similar wording in both articles, namely the determinability of the transferred rights.
a) Determinability
The stated requirement is that identification of the assigned rights must be possible 'at the time of the assignment or when they come into existence'. This sounds good and pragmatic, but the crucial question remains as to what exactly is meant by 'can be identified', even though the following phrase-'as the right to which the assignment relates'-makes the term 'identified' clearer. In a comparable situation, the German Federal Supreme Court has required that a 'person that knows the contract can easily find out whether the right has been [Page34:] transferred'.39 It is therefore a question of degree. Unfortunately, and contrary to the suggestion of a member of the Working Group, the degree of information required was not further addressed in the comment.40
The wording also reveals another crucial point: whereas existing rights must be determinable at the time of assignment, future rights need to be identifiable when they come into existence. This point was much discussed in Switzerland, since an assignment as security might block all assets of a debtor in favour of one creditor and to the disadvantage of all other creditors if the assignment agreement describes the assigned future rights in too broad and general terms.
b) Time of effectiveness
Another question raised within the Working Group was when the transfer of a future right becomes effective, i.e. should it be retroactively at the moment of the assignment-as is the case in the Article 11:202(2) PECL-or when the right comes into existence-as provided in an initial draft of the UNIDROIT Principles. This in fact turned out to be the most controversial issue.41
A non-retroactive solution was felt to be more logical. Concern was voiced that even if a retroactive rule was adopted, domestic insolvency law would still apply and that it would be going too far to try to interfere with domestic rules. On the other hand, it was pointed out that bankruptcy laws normally refer to the law of assignment for the purpose of determining when an assignment becomes effective. In the end, it was decided that the assignment of a future right should have a retroactive effect-mainly to prevent assigned rights from falling within the scope of insolvency rules if the assignor were to become insolvent between the assignment and the moment at which the transfer becomes effective.42 The Working Group expressed its hope that such a provision would increase the value of future rights and so help towards financing them.
It is our understanding that by this fiction the right is considered as having left the assets of the assignor at the very moment of the agreement. It is not difficult to understand that from a financing point of view such a solution appears strongly preferable. But there is little reason why a bank financing a company, notably in return for interest, should be privileged compared to other creditors, such as suppliers who have sold on credit. This explains why the Swiss Federal Supreme Court continues to reject any fiction (such as the immediacy theory-Unmittelbarkeitstheorie) that bars a right from ever becoming the property of the assignor.43
Whereas the assignability of future rights and bundles of rights opens the door wide to assignments, Article 9.1.3 introduces a restriction that, in our view, is influenced by Italian law: the assignability of non-monetary rights is excluded if performance becomes too burdensome.44 The purpose here is clearly to protect the obligor from a deterioration in its position. However, it is doubtful that this protection is really practicable, for the obligor that contests the effectiveness of the assignment must prove that its obligation has become 'significantly more burdensome'. How can this be proved and what is the benchmark?
The example in the comment demonstrates the difficulties: Company X provides security services for the warehouse used by A to store wood. The premises are sold to Company B, which intends to use the warehouse for the storage of [Page35:] electronic equipment. A cannot assign its right to B since the obligation would become significantly more burdensome for X.
The situation is comparable to the 'essentially personal' obligations, where the consent of the obligor is required. A similar approach should be taken here, for the Principles set out to offer clear and functional standards for the transfer of rights and should therefore avoid complications wherever possible. The consent of the obligor to the assignment of a non-monetary right is a simple and adequate requirement that renders clear and reliable results. Therefore, no exceptions or qualifications should be introduced (as here with the formula 'significantly more burdensome' or the 'essentially personal character' of the obligation). Moreover, it has no disadvantages, for time is not of the essence here, as in the transfer of rights to payment. The requirement of the obligor's consent will in many cases result in a transfer of the contract under Section 3 of Chapter 9, which might in any case be the better way of transferring non-monetary rights.
IV. Protection of the obligor
There is always a risk that an assignment may render the obligation more burdensome to the obligor since it has to perform for another obligee. Hence, almost all jurisdictions try to protect the obligor from such inconvenience.
Compensation for additional expenses, as when the obligor has to pay a new creditor in a distant country, is a relatively new device. It was initially developed for partial assignments, where the assignor was required to compensate the obligor for any increase in the expenses consequent upon performing in several parts. Later, it was extended to every kind of assignment.45 During the Working Group's discussions it was considered that the obligor had a right to choose which person-assignor or assignee-should be required to pay the compensation.46
Where the assignment concerns non-monetary rights, if it would not simply involve an increase in costs for the obligor, but make the obligor's situation substantially more burdensome, then the remedy should lie not in compensation for the additional cost but in the prohibition of the assignment altogether. In this regard, we would reiterate the reserves expressed above in III.4.
The traditional way of protecting the obligor from an unexpected change of obligee is through a non-assignment clause, which is the subject of Article 9.1.9. While in some jurisdictions non-assignment clauses are effective without further conditions, in others, such as Switzerland,47 the assignee has to be aware of the agreement prohibiting assignment or must have consented to it for it to be effective. As we will see, the Principles take the latter approach with regard to non-monetary rights, whereas non-assignment clauses are ineffective for assignments of monetary rights.48
Initially, no distinction was made between monetary and non-monetary rights. However, given that it was important to promote the financing of monetary rights, whereas there was no such need for non-monetary rights, it was decided to lay down different rules to achieve a balance between the conflicting interests of the three parties concerned.49[Page36:]
a) Ineffectiveness of the assignment of rights to non-monetary performance, unless the assignee acts in good faith (Art. 9.1.9(2))
If the assignor and the obligor agree on a non-assignment clause with regard to a non-monetary right, an assignment contrary to that clause is ineffective under Article 9.1.9(2). This is in line with the reasoning given above regarding non-monetary claims: it is for the obligor to decide whether it is willing to perform non-monetary claims for a person other than the person to whom it was originally promised. However, the Working Group then decided to limit this exception by referring to good faith, i.e. an 'escape clause' in favour of a bona fide assignee. The second sentence of paragraph 2 thus reads: 'Nevertheless, the assignment is effective if the assignee, at the time of the assignment, neither knew nor ought to have known of the agreement.'
Again, a clear and adequate solution is modified in a way that causes more trouble than necessary. Who has the burden of proof and are there respective presumptions? And from a practical point of view, does it make sense to force someone to render a non-monetary performance for a new obligee although he had explicitly excluded this by contract? For these reasons, we would have preferred there to be no exceptions to the principal rule for non-monetary rights.
One might ask whether the second sentence of Article 9.1.9(2) does not infringe public policy (ordre public) in certain countries. The obligor is by nature a third party distinct from the parties to an assignment contract. To the extent that his obligation does not derive from a contract to which the parties have agreed that the Principles should apply, there is no reason why he should suffer such a violation of his contractual rights.
b) Ineffectiveness of non-assignment clauses relating to rights to payment (Art. 9.1.9(1))
The situation is totally different when it comes to rights to payment. Here, there is no need to protect the obligor against a change of obligee. Consequently, Article 9.1.9 (1) states that non-assignment clauses have no effect on the assignment of a right to payment. Experience shows that any other solution leads to confusion and prevents the free circulation of rights to the payment of money. This point is well illustrated by the following two examples from Germany. (1) The automobile industry, among others, used to include a non-assignment clause in contracts with suppliers, which were thereby deprived of a means of refinancing. The legislator put an end to this with a rule similar to Article 9.1.9(1) of the Principles, albeit unfortunately with a counterproductive exemption. (2) More recently, the Higher Regional Court in Frankfurt, Germany's financial centre, held that relations between a bank and its customers are inherently confidential50 and that, therefore, any contract relating to a bank account contains an implied agreement of non-assignment. Not surprisingly, the bank industry reacted strongly and, it would seem, with some success. It must after all be emphasized that only the solution in paragraph 1 is adequate and feasible with regard to monetary claims.
Clearly, some protection needs to be given to the obligor when the assignment has taken effect. This is provided by Articles 9.1.10 and 9.1.11, which affirms that the obligor is discharged by paying the assignor before receiving notice of the assignment, and by paying the assignee that first gave notice of the assignment in the case of successive assignments. Although this solution is largely in line with [Page37:] tradition, it deviates from the traditional pattern by referring to neither the time of the assignment nor the knowledge of the obligor-the notice being the only relevant factor as far as monetary rights are concerned. Despite describing it as an 'admittedly unorthodox rule',51 the Working Group fortunately refrained from diluting this provision, which, in our view, is the right approach, for it excludes any uncertainty and avoids complicated but not very helpful evidence procedures.
c)Compensation for damages
In both cases-the assignment of monetary rights and rights of other kinds-the obligor is entitled to claim damages for any loss suffered as a result of the non-performance of a non-assignment clause. Although this remedy is provided in Chapter 7 on non-performance in general, it was felt worth repeating it in Article 9.1.9 for pedagogical reasons. The obligor cannot choose which person is required to pay but must address his claim to the assignor, although it is possible for him to assert set-off against the assignee, as the claim already existed at the time notice of assignment was received. However, this will normally only be relevant when monetary rights are concerned, as obligations must be of the same kind in order to be set off against each other (see Article 8.1 of the Principles).
a)Payment to the assignor before receipt of notice of the assignment (Art. 9.1.10)
Article 9.1.10 is inspired by the provisions of the UNCITRAL Draft Convention on Assignment.52 Until the obligor receives notice of the assignment, it is discharged by paying the assignor; after receiving notice, it has to pay the assignee.53 Initially, it was planned to follow Italian and German law, making payment to the assignor before receipt of notice ineffective if the assignee could prove that the obligor had been aware of the assignment. Fortunately, the Working Group decided not to adopt what would have been another complication causing unnecessary evidentiary problems.54 It also means, however, that the obligor is not discharged by paying the assignee on the basis of its awareness of the assignment, but without having received notice thereof.55
b)Payment to the first assignee in successive assignments (Art. 9.1.11)
The problem of successive assignments is dealt with sometimes by referring to the chronological order of the notices given, and sometimes by taking into consideration the obligor's awareness (or acceptance) of the different assignments.56 In keeping with Article 9.1.10, the Principles do not take account of the obligor's actual or constructive knowledge, but adopt the solution of the order in which notices were given. Thus, the obligor will be discharged by paying the first assignee to have given notice.
To protect the obligor against the risk of receiving a fraudulent notice from a false 'assignee', Article 9.1.12 requires adequate proof of the assignment within a reasonable time. It was initially thought that without such proof the obligor would be discharged by paying the assignor. However, in order to cover the case of successive assignments, too, it was later decided that pending adequate proof, the notice is not effective and the obligor may withhold payment. The comment makes it clear that if adequate proof is provided, notice is effective from the date on which such proof is provided.57[Page38:]
This familiar rule has been taken up in the Principles in Article 9.1.13: the obligor retains against the assignee any defences it had against the assignor and may exercise against the assignee any right of set-off available to it in respect of claims against the assignor before notice of the assignment was received.
a)Preservation of the obligor's defences (Art. 9.1.13(1))
In some jurisdictions a defence can be raised against the assignee only if it was available at the time the assignment became effective towards the obligor, i.e. prior to notification.58 Although this was the line taken by the Principles in an initial draft, in the end no such limitation was provided, due to the fact that an assignment should modify the obligor's legal situation as little as possible.59 Hence, the obligor can assert all defences of which it could avail itself if the claim were made by the assignor. Although the black-letter text initially mentioned procedural and substantive defences, these words were in the end deleted so as to avoid the risk that in practice doubts might arise as to whether there were other defences outside these two categories.60
b) Right of set-off (Art. 9.1.13(2))
The Principles are equally favourable towards the obligor when it comes to set-off. However, a distinction has been drawn between set-off before notice of assignment and (attempted) set-off after such notice: 'The obligor may exercise against the assignee any right of set-off available to the obligor against the assignor up to the time notice of assignment was received.'61 According to this rule, set-off is allowed at any time, even after notice of assignment, if the right of set-off pre-existed the assignment, but not if the right of set-off was only acquired later.
V. Relations between the assignor and the assignee (Art. 9.1.15)
Several legal systems distinguish between the assignment agreement itself and the underlying agreement reflecting the economic operation that has led the parties to assign the right, e.g. a sales contract pursuant to which the purchaser has agreed to assign a right instead of paying the price.
As any warranties given by the assignor relate to the underlying contract, it should not have been necessary to deal with this matter in the chapter on assignment.62 Even though the Working Group agreed on that, at least from a civil law perspective, it was nevertheless decided that the matter should be addressed 'where a reasonable man expects it to be dealt with'.63 Later, the term 'warranties' was replaced by 'undertakings'.
Article 9.1.15(a) states that the assignor undertakes towards the assignee that the assigned right exists at the time of the assignment, unless the right is a future right. The comment makes it clear that if a future right does not come into existence, the assignee has no claim against the assignor.
This solution is very surprising and-as the summary records indicate-it can only be due to a misunderstanding within the Working Group. Some members of the Working Group considered an undertaking concerning future rights 'as [Page39:] indispensable'.64 Later, it was explained that 'it should also be stated that for warranties concerning future rights, the time the right comes into existence is relevant to the warranty'. Even though it may have been admitted that the time a right comes into existence might be uncertain, none of these statements was challenged, and on that basis the above-mentioned provision was drafted. At the following session of the Working Group it was simply recorded that 'no substantial changes had been made and that the provision reflected the decision already taken by the Group in Cairo'.65 This shows that the escape clause 'unless the right is a future right' was not meant to exclude the undertaking in case of future rights but to indicate that the moment at which the right comes into existence is decisive in this case, not the moment of assignment.
In addition, unless the assignor and the assignee have agreed otherwise, the assignor undertakes that it is entitled to assign the right, that the right has not been previously assigned to another assignee and is free from any right or claim from a third party, that the obligor does not have any defences, that neither the obligor nor the assignor has given notice of set-off concerning the assigned right and will not give any such notice, and finally that the assignor will reimburse the assignee for any payment received from the obligor before notice of the assignment was given. If the assignor guarantees the obligor's solvency, an explicit agreement to this effect is necessary.
The Working Group discussed what would be considered an appropriate remedy in the event of a breach of an undertaking and whether, in addition to damages, other sanctions should be provided for. It was decided that the assignee is entitled to claim damages in such an event and that the assignor must reimburse the assignee if, in accordance with Article 9.1.10 or Article 9.1.11, the obligor pays the assignor to discharge its debt. The question was raised as to whether the additional remedy of termination for non-performance should be available. This would make the remedies provided for in the Principles for breach of contract also applicable to a breach of the undertakings made by the assignor in an assignment agreement.66 The question was left to later discussions which unfortunately never took place.
C. Assignment of contracts (Arts. 9.3.1-9.3.7)
I. Scope of application
Whereas the transfer of contracts has been recognized for a long time in some jurisdictions (e.g. Italy),67 it is still not accepted in the statutory law of Germany and Switzerland. The fact that the Principles now provide a legal framework for such transactions is therefore very helpful. It was appreciated that the draft did not follow the rule of the Italian Civil Code-strongly criticized in legal writings and case law-according to which contracts can be assigned only if they have not been performed. This would have made it impossible to transfer a contract that has already been partly performed.
The assignment of a contract is understood to mean the transfer to the assignee of the assignor's rights and obligations arising out of a contract with another [Page40:] party (Art. 9.3.1). The Principles see this as a contract between the assignor and the assignee with the necessary consent of the other party (Art. 9.3.3).68 Thus, all three parties must participate. This Section does not, however, apply to the assignment of contracts made under the special rules governing transfers of contracts in the course of transferring a business (Art. 9.3.2). The assignment of a contract implies the transfer of both rights and obligations. It is for this reason that, although the rules on the assignment of rights and transfer of obligations individually may apply to certain aspects of the assignment of contracts, the Principles also contain a section devoted to the assignment of contracts containing special rules, of which Article 9.3.3-the requirement of the consent of the other party-is clearly the most important.
II. Consent of the other party
The first requirement for the assignment of a contract is that assignor and assignee agree on the operation. However, such agreement is not in itself sufficient; the other party must also give its consent, as the assignment of a contract involves the transfer of obligations, which, according to Article 9.2.3, cannot be effective without the obligee's consent.
In accordance with Article 9.2.4 in the Section on the transfer of obligations, the other party's consent may be given in advance.69 This begs the question of when the contract will become effective. Article 9.3.4(2) provides that the assignment of a contract becomes effective when a notice of the assignment is given to the other party or when the other party acknowledges it. According to the comment, this means that notification is not needed if it appears that the other party has given 'an overt sign of having become aware of the transfer'. This solution may be criticized on two grounds: (i) it differs from the approach taken in Articles 9.1.10 and 9.1.11, where notice is the only precondition; and (ii) an alternative requirement is introduced-the awareness of the other party-that is too vague to be a helpful criterion in international business relations.
III. Discharge of the assignor (Art. 9.3.5)
Although by consenting to the assignment the assignee is bound by the assignor's obligations, the assignor is not automatically discharged. Article 9.3.5-which is inspired by Article 1407(1) of the Italian Civil Code and Article 424 of the Portuguese Civil Code-offers three possibilities with regard to discharge of the assignor. First, the assignor-i.e. the former obligee-can be totally discharged. Second, the assignor can be retained as a subsidiary obligor in case the assignee does not perform. Third, if neither of the previous two possibilities is chosen, the assignor and the assignee will by default be jointly and severally liable. This means that when performance is due, the other party can assert its claim against either the assignor or the assignee. Should the other party obtain performance from the assignor, the latter would then have a claim against the assignee. [Page41:]
D. Summary and conclusions
On the whole, Chapter 9 is well drafted and its approach convincing. This is at least true for the assignment of rights to payment, and for the transfer of contracts. As far as the assignment of rights to non-monetary performance is concerned, some of the provisions are too complex, due to qualifications that, in our view, are neither necessary nor helpful. In any event, the Chapter will further the free and reliable circulation of receivables.
1 See M.J. Bonell, 'UNIDROIT Principles 2004 - The New Edition of the Principles of International Commercial Contracts adopted by the International Institute for the Unification of Private Law' Unif. L. Rev. 2004-1, 5.
2 UNIDROIT Working Group for the Preparation of Principles of International Commercial Contracts, 'Assignment of Rights, Transfer of Duties and Assignment of Contracts, Draft & Explanatory Notes prepared by M. Fontaine (UNIDROIT 1999 - Study L - Doc. 65) (Rome: December 1999), <www.unidroit.org/english/publications/proceedings/1999/study/50/s-50-65-e.pdf> [hereinafter Draft 1999] at 3.
3 UNCITRAL Draft Convention on Assignment in Receivables Financing (October 1999 version); became United Nations Convention on the Assignment of Receivables in International Trade, adopted in December 2001, published in June 2004, <www.uncitral.org/english/texts/payments/ctc-assignment-convention-e.pdf>.
4 To help overcome differences of approach and terminology, each section of the chapter starts with a definition. It was decided to use the expression 'assignment of rights', which is internationally accepted.
5 UNIDROIT Working Group for the Preparation of Principles of International Commercial Contracts, Summary Records of the Meeting held in Bolzano/Bozen, 22-26 February 1999, prepared by the Secretariat of UNIDROIT (UNIDROIT 1999 - Study L - Misc. 21) (Rome, June 1999), <www.unidroit.org/english/publications/proceedings/1999/study/50/s-50-misc21-e.pdf> [hereinafter Records 1999] at para. 391; UNIDROIT Working Group for the Preparation of Principles of International Commercial Contracts, Summary Records of the Meeting held in Cairo, 24-27 January 2000 (UNIDROIT 2000 - Study L - Misc. 22) (Rome, August 2000), <www.unidroit.org/english/publications/proceedings/2000/study/50/s-50-misc22-e.pdf> [hereinafter Records 2000) at paras. 355-59.
6 Records 1999, supra note 5 at para. 391. For example, English courts and a number of mandatory rules in some US states might or would not permit the assignment of a tort claim.
7 Draft 1999, supra note 2 at 3.
8 Records 2000, supra note 5 at para. 374.
9 According to a position paper on assignment of rights prepared by Roy Goode for the European Commission concerning PECL Draft Chapter 11. Part III was finally published on 25 May 2002 and Article 11:101(1) PECL now contains the even shorter expression 'right to performance ("claim")'. Available at <frontpage.cbs.dk/law/commission_on_european_contract_law/PECL%20engelsk/engelsk_part_lll.doc>.
10 Records 2000, supra note 5 at para. 367.
11 Ibid. at para. 371.
12 See part B.III.3.b, below.
13 Draft 1999, supra note 3 at 5, with numerous references to legal systems which do so.
14 Records 2000, supra note 5 at paras. 550-54.
15 Now Article 11:202(2) PECL.
16 UNIDROIT Working Group for the Preparation of Principles of International Commercial Contracts, Summary Records of the Meeting held in Rome, 4-7 June 2001, prepared by the Secretariat of UNIDROIT (UNIDROIT 2001 - Study L - Misc. 23) (Rome, July 2001), <www.unidroit.org/english/publications/proceedings/2001/study/50/s-50-misc23-e.pdf> [hereinafter Records 2001] at paras. 236 and 237.
17 Records 1999, supra note 5 at para. 400.
18 UNIDROIT Working Group for the Preparation of Principles of International Commercial Contracts, Summary Records of the Meeting held in Rome, 16-19 March 1998, prepared by the Secretariat of UNIDROIT (UNIDROIT 1998 - Study L - Misc. 20) (Rome, June 1998), <www.unidroit.org/english/publications/proceedings/1998/study/50/s-50-misc20.pdf> [hereinafter Records 1998] at paras. 244, 248, 249, 251.
19 Still Article 4 in the final version.
20 Records 2001, supra note 16 at paras. 204, 218, 219. See also Records 2000, supra note 5 at paras. 381-82, 390-93; UNIDROIT Working Group for the Preparation of Principles of International Commercial Contracts, Summary Records of the Meeting held in Rome, 3-7 June 2002, prepared by the Secretariat of UNIDROIT (UNIDROIT 2002 - Study L - Misc. 24) (Rome, September 2002), <www.unidroit.org/english/publications/proceedings/2002/study/50/s-50-misc24-e.pdf> [hereinafter Records 2002] at paras. 147, 148.
21 Records 1999, supra note 5 at para. 392.
22 Records 1998, supra note 18 at paras. 170-72, 174, 177, 179-81, 185-88, 191 and 207; Records 1999, supra note 5 at paras. 411, 415; Records 2000, supra note 5 at paras. 646-50, 658-59.
23 Records 1999, supra note 5 at para. 415.
24 Still Article 2(a) in the final version.
25 See Records 1999, supra note 5 at paras. 385, 405; Records 2000, supra note 5 at paras. 599, 600; Records 2001, supra note 16 at paras. 200, 202; Records 2002, supra note 20 at para. 138.
26 See Records 2000, supra note 5 at paras. 394-490. See also e.g. ibid. at paras. 470, 471, 484-89; Records 2001, supra note 16 at paras. 223-27, 233.
27 See Records 1999, supra note 5 at paras. 401, 405; Records 2000, supra note 5 at paras. 570-86; Records 2001, supra note 16 at paras. 239-40; Records 2002, supra note 20 n° 162.
28 Still Article 8 in the final version.
29 Draft 1999, supra note 2 at 2.
30 Compare Records 1998, supra note 18 at paras. 197, 216, 218; Records 1999, supra note 5 at paras. 404, 407. However, a member of the Working Group pointed out that in the common law an important distinction was made between a commitment to assign in the future and a present assignment and cautioned against blurring this distinction by dispensing with formal requirements (Records 1999, supra note 5 at para. 407).
31 Compare Records 1998, supra note 18 at paras. 181, 182, 191, 195, 197; Records 1999, supra note 5 at paras. 412-14; Records 2000, supra note 5 at paras. 602, 603, 607-619, 623-625, 661, 665.
32 Records 2002, supra note 20 at paras. 163-170.
33 Ibid. at para. 167.
34 Compare Records 2001, supra note 16 at paras. 243-245.
35 Compare Draft 1999, supra note 2 at 6, with references to numerous jurisdictions.
36 Now Article 16 in the final version.
37 Compare Draft 1999, supra note 2 at 10. Of course, Article 9.1.14 (which was inspired by Article 11(1) of the UNCITRAL Draft Convention on Assignment) reserves the inevitable application of mandatory rules of the applicable law too.
38 Compare Records 1998, supra note 18 at para. 175; Records 1999, supra note 5 at para. 417; Records 2000, supra note 5 at paras. 822, 823, 829, 830; Records 2001, supra note 16 at paras. 290-292, 310-311.
39 BGH, 13 January 1992 (ref. no II ZR 11/91), confirmed 3 July 2000 (ref. no. II ZR 314/98 (II.1)), <www.bundesgerichtshof.de>.
40 Records 2000, supra note 5 at para. 572.
41 Compare Records 2000, supra note 5 at paras. 551, 556, 559-565; Records 2001, supra note 16 at paras. 236-238; Records 2002, supra note 20 at paras.145-146, 161.
42 However, see also M.J. Bonell, supra note 1 at 25.
43 See e.g. the decision of the Swiss Federal Supreme Court of 29 January 2004, 4C.275/2003, <www.bger.ch>, ATF 130 III 248.
44 Compare Records 2001, supra note 16 at paras. 221-222; Records 2002, supra note 20 at paras. 151-155. If, in cases of assignment of monetary rights, an obligation becomes more burdensome, the obligor will be compensated for additional costs (Article 9.1.8). This approach differs from that of Article 15 of the UNICTRAL Convention on Assignment of Receivables in International Trade, which states that the debtor/obligor is not bound by the burden of having to pay in a different currency or having to pay in a different place (Records 2002, supra note 20 at para. 154).
45 Compare Records 2000, supra note 5 at paras. 447, 470, 471, 484-490; Records 2001, supra note 16 at paras. 223-227; Records 2002, supra note 20 at paras. 162, 172.
46 Records 2002, supra note 20 at para. 172.
47 See Article 164(2) of the Swiss Code of Obligation. However, in Switzerland, such a clause normally results not in a duty not to assign, but in an incapacity to assign, thus making an assignment ineffective even with respect to bona fide assignees (Art. 164(1)). The opposite is the case only with regard to a borrower's note (Art. 164(2)).
48 As regards monetary rights, this solution is consistent with what had been provided in Article 6 of the 1988 UNIDROIT Convention on International Factoring.
49 Compare Records 2000, supra note 5 at paras. 526-530; Records 2001, supra note 16 at paras. 246-261; Records 2002, supra note 20 at paras. 179-181. A different view of the interests involved is found in Article 9 of the UNCITRAL Convention on the Assignment of Receivables in International Trade. Anti-assignment and similar clauses do not apply to assignments of receivables other than trade receivables, such as receivables arising from financial services, construction contracts and contracts for the sale or lease of real property, or insurance receivables.
50 Oberlandesgericht Frankfurt-am-Main, decision of 25 May 2004 (ref. no. 8U 84/04).
51 Records 2002, supra note 20 at para. 180.
52 Now Article 17 in the final version.
53 Compare Records 1999, supra note 5 at paras. 413-414; Records 2000, supra note 5 at paras. 843-844, 711-716, 720, 775-783; Records 2001, supra note 16 at paras. 262-266, 269.
54 Compare Records 2000, supra note 5 at paras. 724, 727, 730, 742.
55 Records 2001, supra note 16 at para. 265.
56 Draft 1999, supra note 2 at 8, with numerous references to national laws where this is the case.
57 Records 2002, supra note 20 at paras. 268, 274, 275.
58 Records 1999, supra note 5 at para. 416.
59 Records 2000, supra note 5 at paras. 784-820; Records 2001, supra note 16 at paras. 285-288. This solution is in line with the UNCITRAL Convention on the Assignment of Receivables in International Trade and the UNIDROIT Convention on International Factoring.
60 Records 2001, supra note 16 at para. 286.
61 Compare Records 2002, supra note 20 at paras. 190-210.
62 Compare Records 1999, supra note 5 at para. 409; Records 2000, supra note 5 at paras. 666-669, 672-674, 682-685, 702, 743-756; Records 2001, supra note 16 at paras. 312-313.
63 Draft 1999, supra note 2 at 6; see also Records 1999, supra note 5 at paras. 409-410.
64 Records 2000, supra note 5 at para. 669.
65 Records 2001, supra note 16 at para. 312.
66 Records 2000, supra note 5 at paras. 696, 703-707, particularly 706-706.
67 UNIDROIT Working Group for the Preparation of Principles of International Commercial Contracts, Revised draft prepared by Professor M. Fontaine in the light of the discussions of the Working Group at its 3rd session held in Cairo, 24-27 January 2000 (UNIDROIT 2001 - Study L - Doc. 69) (Rome, May 2001), <www.unidroit.org/english/publications/proceedings/2001/study/50/s-50-69-e.pdf> at 25, with numerous references to noteworthy examples of such jurisdictions.
68 Compare Records 2000, supra note 5 at para. 669; Records 2001, supra note 16 at paras. 369-386.
69 Records 2001, supra note 16 at paras. 375-380, with further indications of national legal provisions concerning advance consent.