“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”).
COMMENT
In many circumstances an obligee entitled to the payment of a monetary sum or to another performance from an obligor may find it useful to assign its right to another person. For instance, an assignment to a bank is a common way to finance the credit granted to a customer. The Articles of the present Section cover the assignment of rights as defined in this Article.
1. Transfer by agreement
Only transfers by agreement are concerned, as opposed to situations in which the applicable law may provide for legal transfers of certain rights (such as, in certain jurisdictions, the transfer of a seller’s rights against an insurer to the purchaser of an insured building, or the automatic transfer of rights in the case of the merger of companies (see Article 9.1.2(b)).
The definition equally does not cover unilateral transfers, which in certain jurisdictions may take place without the assignee’s participation.
2. Right to payment of a monetary sum or to other performance
On the other hand, the definition is not restricted to the assignment of rights to the payment of a monetary sum. It also covers rights to other kinds of performance, such as the rendering of a service. Nor are the assignable rights limited to rights of a contractual nature. Claims deriving from non-contractual claims or based on a judgment, for instance, can be governed by the present Section, subject to Article 1.4. Future rights may also be transferred under the conditions of Article 9.1.5.
3. Notion of “transfer”
The “transfer” of the right means that it leaves the assignor’s assets to become part of those of the assignee. The definition also covers transfers for security purposes.
4. Third party rights
Transfers from the assets of the assignor to those of the assignee remain subject to third party rights. Different third persons can be affected by the assignment of a right between an assignor and an assignee, such as, first and foremost, the obligor, but also the assignor’s creditors and successive assignees. Third party rights are covered in part by other provisions of this Section (see Articles 9.1.10 and 9.1.11 concerning the obligor and successive assignees). They may in some instances be governed by mandatory rules of the otherwise applicable law (e.g. the law of bankruptcy).
This Section does not apply to transfers made under the special rules governing the transfers:
(a) of instruments such as negotiable instruments, documents of title or financial instruments, or
(b) of rights in the course of transferring a business.
COMMENT
Some types of assignment of rights are normally subject to very specific rules under the applicable law, and are therefore not governed by this Section.
1. Transfer of instruments governed by special rules
The transfer of certain types of instrument governed by special rules are outside the scope of this Section. This applies for instance to negotiable instruments, such as bills of exchange, that are usually transferred by endorsement or delivery of the document, and which are subject to further distinct rules, e.g. concerning defences that would have been available to the transferor. This exclusion also applies to documents of title, such as bills of lading or warehouse receipts, and financial instruments such as stocks and bonds. The transfer of such instruments are all normally subject to specific rules.
This does not exclude the possibility that such rights, in certain jurisdictions, could also be transferred by a normal assignment, which would then be subject to this Section.
2. Transfer of a business
Another exclusion is assignment made in the course of transferring a business under special rules governing such transfers, as may happen 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.
Article 9.1.2(b) does not prevent this Section from applying when certain rights pertaining to the transferred business are assigned individually. On the contrary, the mere transfer of shares in a company may fall under Article 9.1.2(a) and therefore not be covered by this Section.
Illustrations
1. Company A is transferred to company B. If the otherwise applicable law provides that all rights pertaining to the former company are automatically transferred to the latter, the Principles do not apply.
2. The initial facts are the same as in Illustration 1, but B is not interested in taking over a specific claim against customer X, and prefers that right to be assigned to company C. This particular transfer is subject to the Principles.
A right to non-monetary performance may be assigned only if the assignment does not render the obligation significantly more burdensome.
COMMENT
The assignment of a right does not in principle affect the obligor’s rights and obligations. However, to a certain extent the fact that performance is now due to another obligee can modify the conditions under which the obligation is to be performed. The place of performance may be different. The change of obligee may in itself render the obligation more burdensome.
Article 9.1.8 entitles the obligor to be compensated by the assignor or the assignee for any additional costs caused by the assignment. That provision should be sufficient to take care of the problem in the case of the assignment of monetary obligations. However, when the assigned right concerns a non-monetary performance, the remedy may not always be sufficient. This Article excludes the possibility of assigning such rights when the transfer would render the obligation significantly more burdensome for the obligor.
Illustrations
1. Company X has undertaken to provide the security service aimed at preventing theft in warehouses used by company A for the storage of wood. The premises are sold to company B, which intends to apply them to the same use. Nothing in this provision prevents A from assigning to B its right to the security services provided by X.
2. The initial facts are the same as in Illustration 1, but B intends to use the warehouses for the storage of electronic equipment. A’s right to the security services provided by X may not be assigned to B: such services would become significantly more burdensome since the security risks are obviously much higher with electronic equipment than with the storage of wood.
(1) A right to the payment of a monetary sum may be assigned partially.
(2) A right to other performance may be assigned partially only if it is divisible, and the assignment does not render the obligation significantly more burdensome.
COMMENT
1. Economic interest
The partial assignment of a right may serve different economic purposes. A contractor may for instance want to assign part of its right to payment from a customer to a financing institution and keep the rest for itself. Or it may want to assign the other part to a supplier of raw materials.
Permitting partial assignment may however affect the principle that the assignment should not worsen the obligor’s situation. If the right is split, the obligor will have to perform in several parts, which could entail extra costs.
2. Monetary and non-monetary rights
The obligor’s burden of having to make two or several monetary payments instead of one is not in itself deemed to be excessive, and partial assignments of monetary rights are therefore permitted in principle (paragraph (1)).
Another rule prevails for the assignment of non-monetary rights, where the validity of the partial assignment is made dependent on two cumulative conditions: the divisibility of the performance due and the degree of additional burden the partial assignment may place on the obligor. Article 9.1.3 already excludes the possibility to assign non-monetary rights in their entirety if the assignment would render the obligation significantly more burdensome. Paragraph (2) applies the same rule to the partial assignment of such rights.
In any event, additional costs borne by the obligor as a result of having to perform in several parts must be compensated under Article 9.1.8.
Illustrations
1. Buyer X is due to pay a price of USD 1,000,000 to seller A on 31 October. A urgently needs USD 600,000 and assigns a corresponding part of its right to bank B. Notice of the partial assignment is given to X. On 31 October, both A and B claim payment of their respective parts. X must pay A USD 400,000 and B USD 600,000.
2. Metal company X is to deliver 1,000 tons of steel to carmaker A on 31 October. Due to a decrease in sales, A estimates that it will not need that much steel at that time, and assigns the right to delivery of up to 300 tons to carmaker B. Notice of the partial assignment is given to X. On 31 October both A and B claim delivery of their respective quantities. X must deliver 700 tons to A and 300 tons to B.
3. Tax consultant X has promised to spend 30 days in examining the accounts of company A in order to determine the proper policy to be followed in the light of new tax regulations. A subsequently regrets this arrangement, in consideration of the level of the fees to be paid. It proposes to assign 15 of the days to company B. X can argue against such a partial assignment on the grounds that performance of tasks of that nature is not divisible. It can also argue that the accounts of B are of a significantly more complex nature than those of A.
A future right is deemed to be transferred at the time of the agreement, provided the right, when it comes into existence, can be identified as the right to which the assignment relates.
COMMENT
1. Economic interest
For the purposes of this Section, a future right is a right that will or might come into existence in the future (as opposed to a present right to a performance due in the future). Examples of future rights are rights that a bank may have against a customer who might be granted a credit line in the future, or that a company may have against another company on the basis of a contract which might be concluded in the future. The assignment of such future rights can be highly significant economically.
2. Determinability
According to this Article a future right can be assigned on condition that it can be determined as the right to which the assignment relates when it comes into existence. The reason for this is the need to avoid the difficulties that might be caused by a transfer of future rights that are described in vague and too broad general terms.
3. Retroactive effect
This Article also provides that the assignment of future rights is effective with retroactivity between the assignor and the assignee. When the right comes into existence, the transfer is considered to have taken place at the time of the assignment agreement.
As regards third parties, it will be recalled that their rights may in some instances be governed by mandatory rules of the otherwise applicable law (e.g. the law of bankruptcy). However, third party rights are partly covered by other provisions of this Section, including the consequences of notices specified in Articles 9.1.10 and 9.1.11.
Illustration
In order to finance new investments, company A assigns the royalties to be earned from future licences of a certain technology to lending institution B. Six months later, A licenses that technology to company X. The royalties due are considered to have been assigned to B from the date of the assignment agreement, provided the royalties can be related to this agreement.
A number of rights may be assigned without individual specification, provided such rights can be identified as rights to which the assignment relates at the time of the assignment or when they come into existence.
COMMENT
Rights are often assigned as a bundle or in bulk. A company may for instance assign all its receivables to a factoring company. In practice it would be excessively burdensome to require individual specification of each assigned right, but the global identification of the rights assigned as a bundle must be such as to permit the recognition of each right concerned as part of the assignment.
In the case of existing rights, such recognition must be possible at the time of the assignment. If future rights are included in the bundle, in accordance with Article 9.1.5 identification must be possible when the rights come into existence.
Illustration
Retailer A assigns all its receivables to factor B. There are thousands of existing and/or future rights. The assignment does not require the specification of each single claim. Later, B gives notice of the assignment to the obligor of a specific receivable. B must be able to demonstrate the inclusion of that receivable in the bundle either at the time of the assignment, or, in the case of a right which did not exist yet at that time, when the right came into existence.
(1) A right is assigned by mere agreement between the assignor and the assignee, without notice to the obligor.
(2) The consent of the obligor is not required unless the obligation in the circumstances is of an essentially personal character.
COMMENT
In the definition of Article 9.1.1 the assignment of a right is described as a “transfer by agreement”. Articles 9.1.7 to 9.1.15 govern the respective legal positions of assignor, assignee and obligor.
1. Mere agreement between assignor and assignee
According to paragraph (1) of this Article, the assignment of a right is effective, i.e. the right is transferred from the assignor’s assets to the assignee’s assets, by mere agreement between these two parties. The provision is an application to the assignment of a right of the general principle laid down in Article 1.2 according to which nothing in the Principles requires a contract to be concluded in a particular form. Yet it does not affect the possible application of mandatory rules of the otherwise applicable law according to Article 1.4: thus, for instance, an assignment for security purposes may be subject to special requirements as to form.
As already stated in Comment 4 on Article 9.1.1, the rule laid down in paragraph (1) remains subject to third party rights, which are partly covered by other provisions of this Section (see Articles 9.1.10 and 9.1.11 concerning the obligor and successive assignees), and may in some instances be governed by mandatory rules of the otherwise applicable law (e.g. the law of bankruptcy) according to Article 1.4. However, it should be stressed that notice to the obligor as provided for by Article 9.1.10 is not a condition for the effectiveness of the transfer of the right(s) between the assignor and the assignee.
2. Consent of the obligor in principle not required
Paragraph (2) states explicitly what is already implied in paragraph (1), i.e. that the obligor’s consent is not required for the assignment to be effective between the assignor and the assignee.
3. Exception: obligation of an essentially personal character
An exception is made for the case in which the right to be assigned relates to an obligation of an essentially personal character, i.e. a right that has been granted by the obligor specifically to the person of the obligee. This characteristic prevents the right from being assigned without the consent of the obligor, since it would be inappropriate to oblige the obligor to perform in favour of another person.
Illustrations
1. Company X promises to sponsor activities organised by organisation A, engaged in the defence of human rights. A wishes to assign the right to organisation B, active in the protection of the environment. The assignment can only take place with X’s agreement.
2. A famous soprano has made a contract with agent A to sing in concerts organised by A. A sells its claims against the soprano to agent B. This transfer will require the soprano’s consent, if the circumstances reveal that she was willing to sing only for A.
4. Effect of other provisions
The possibility to assign a right without the obligor’s consent may be affected by the presence of a non-assignment clause in the contract between the assignor and the obligor (see Article 9.1.9), although such a clause does not in itself necessarily imply the essentially personal character of the obligation.
This Article does not address the issue of the necessity to give notice of the assignment to the obligor in order to avoid that the obligor pay the assignor after the assignment has taken place. On these issues, see Articles 9.1.10 and 9.1.11.
The obligor has a right to be compensated by the assignor or the assignee for any additional costs caused by the assignment.
COMMENT
1. Compensation for additional costs
The assignment of a right does not necessarily affect the obligor’s rights and obligations. However, should the obligor bear additional costs due to the fact that performance has to be rendered to the assignee instead of the original obligee, this Article entitles the obligor to require due compensation.
Illustration
1. Company X is obliged to reimburse a loan of EUR 1,000,000 to company A. Both companies are located in country M. A assigns its right to company B, located in country N. X has a right to be compensated for the additional costs involved in what has now become an international transfer.
The rule laid down in this Article is in conformity with Article 6.1.6, which provides a similar solution if a party to the contract changes its place of business after the conclusion of the contract.
2. Compensation by the assignor or the assignee
The obligor may claim compensation for additional costs either from the assignor or from the assignee. In the case of a monetary obligation, the obligor will often be in a position to set off its right to compensation against the obligation it owes to the assignee.
3. Partial assignment
Additional costs may arise in particular in the case of partial assignment (see Article 9.1.4). This Article applies accordingly.
Illustration
2. In Illustration 2 to Article 9.1.4, A has assigned to B part of its right to receive a delivery of steel from X. Instead of having to deliver 1,000 tons to A, X became obliged to deliver 700 tons to A and 300 tons to B. X is entitled to be compensated for the additional costs resulting from having to deliver in two parts.
4. Obligation becoming significantly more burdensome
In two cases compensation for additional costs is not considered to be a sufficient remedy. Firstly, under Article 9.1.3 the assignment of a right to a non-monetary performance is not allowed when it would render the obligation significantly more burdensome. Secondly, under Article 9.1.4 the partial assignment of a right to a non-monetary performance is also not allowed in similar circumstances.
(1) 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 contract.
(2) 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.
COMMENT
1. Balance of interests
According to Article 9.1.7(2) the consent of the obligor is not required for the assignment to be effective between the assignor and the assignee unless the obligation is of an essentially personal character. However, in practice it is frequent for the contract between the original obligee/assignor and the obligor to contain a clause limiting or prohibiting the assignment of the original obligee/assignor’s rights as the obligor may not wish to change obligee. Should the original obligee/assignor subsequently assign such rights in spite of the non-assignment clause, the conflicting interests of the obligor and of the assignee must be weighed. The obligor suffers a violation of its contractual rights, but the assignee must equally be protected. At a more general level, it is also important to favour the assignment of rights as an efficient means of financing.
In this respect this Article makes a distinction between the assignment of monetary rights and the assignment of rights to other performances.
2. Monetary rights
In the case of the assignment of monetary rights, paragraph (1) gives preference to the needs of credit. The assignee of a monetary right is protected against non-assignment clauses and the assignment is fully effective. However, as the assignor acts contrary to its contractual duties, it is liable in damages to the obligor for non-performance of the contract under Chapter 7, Section 4.
Illustrations
1. Contractor A is entitled to the payment of USD 100,000 from its customer X after a certain stage of construction work has been completed. The contract contains a clause prohibiting A from assigning the right. A nevertheless assigns the right to bank B. B can rely on the assignment despite the clause, and can claim payment when it is due. X is however entitled to sue A for acting in breach of the clause. X could for instance claim damages if it demonstrates that it has suffered some prejudice.
2. Company X is to reimburse EUR 500,000 to company A at a date when it can set off this obligation partially with a claim of EUR 200,000 it has against A. The contract between X and A contains a non-assignment clause. Disregarding that clause, A assigns its right to reimbursement to company B. X may claim damages against A for the costs it incurs in having to engage in a separate procedure to recover the sum of EUR 200,000.
3. Non-monetary rights
The assignment of rights to non-monetary performances does not have the same relationship to credit, thus justifying another solution which is to be found in paragraph (2). In order to achieve a fair balance between the conflicting interests of the three parties concerned, the rule is that non-assignment clauses are given effect vis-à-vis the assignee with the result that the assignment is ineffective. The solution is however reversed if it can be established that, at the time of the assignment, the assignee did not know and ought not to have known of the non-assignment clause. In such a case, the assignment is effective, but the assignor may be liable in damages to the obligor for non-performance of the contract under Chapter 7, Section 4.
Illustration
3. Company X has agreed to communicate to company A all improvements it will develop to a technical process over a period of time. Their contract stipulates that A’s rights towards X may not be assigned. A does not need the technology for itself any longer and attempts to assign its rights to company B. Such an assignment is ineffective. X does not become B’s obligor. In such a case, B has a claim against A under Article 9.1.15(b).
(1) Until 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.
COMMENT
1. Effect of notice on the obligor
Whereas the assignment is effective between the assignor and the assignee as a result of their agreement (see Article 9.1.7), the obligor will be discharged by paying the assignor until it receives notice of the assignment. If the obligor pays the assignor, the assignee can recover that payment from the assignor (see Article 9.1.15(f)). Only after the obligor receives a notice of assignment does the assignment become effective towards the obligor. The obligor can then be discharged only by paying the assignee.
Illustrations
1. Seller A assigns its right to payment from buyer X to bank B. Neither A nor B gives notice to X. When payment is due, X pays A. This payment is fully valid and X is discharged. It will be up to B to recover it from A under Article 9.1.15(f).
2. Seller A assigns to bank B its right to payment from buyer X. B immediately gives notice of the assignment to X. When payment is due, X still pays A. X is not discharged and B is entitled to oblige X to pay a second time.
Before the obligor receives a notice of the assignment, it is discharged when it pays the assignor irrespective of whether it knew, or ought to have known, of the assignment. The purpose is to place the burden of informing the obligor of the assignment on the parties to the assignment agreement, i.e. the assignor and the assignee. This solution is considered to be justified in the context of international commercial contracts. However, it does not necessarily exclude that in certain circumstances the obligor will be liable for damages if it acted in bad faith when it paid the assignor.
Parties sometimes resort to so-called “silent assignments”, where the assignor and the assignee agree not to inform the obligor of the assignment. This arrangement is valid between parties, but since the obligor receives no notice, it will be discharged by paying the assignor, as provided in Article 9.1.10(1).
2. Meaning of “notice”
“Notice” is to be understood in the broad sense of Article 1.10. Although this Article does not specify the content of the notice, the latter should indicate not only the fact of the assignment, but also the identity of the assignee, the specifications of the right transferred (subject to Article 9.1.6) and, in the case of partial assignment, the extent of the assignment.
3. Who should give notice
Article 9.1.10(1) leaves the question of who should give notice open, i.e. whether it should be the assignor or the assignee. In practice, it is probable that in most cases the assignee will take the initiative, as it has a major interest in avoiding that the obligor will perform in favour of the assignor notwithstanding the assignment. But notice given by the assignor has the same effect. When notice is given by the assignee, the obligor may request adequate proof of the assignment (see Article 9.1.12).
4. When must notice be given
This Article does not explicitly require notice to be given only after the assignment agreement has been concluded. In some cases the contract between a future assignor and the obligor will provide that the rights arising from it will be assigned to a financial institution. Whether this can be considered to be adequate notice having the consequences provided for in this Article is a matter of interpretation, and may possibly depend on the definiteness of the clause regarding the identity of the future assignee.
5. Revocation of notice
Notice given to the obligor can be revoked in certain circumstances, e.g. if the assignment agreement itself becomes invalid, or if an assignment made for security purposes is no longer necessary. This will not affect payments made before the revocation to the person who was the assignee at the time, but if the obligor pays that person after the revocation it would no longer be discharged.
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 notices were received.
COMMENT
1. Priority of first notice
This Article deals with the case where the same assignor assigns the same right to different assignees. Normally this should not happen, although in practice it may occur, whether the assignor does so consciously or inadvertently. Preference is then given to the assignee who was the first to give notice. The other assignees can only claim against the assignor under Article 9.1.15(c) below.
Illustration
On 5 February seller A assigns its right to payment from buyer X to bank B, and then on 20 February to bank C. C notifies the assignment on 21 February, and B does so only on 25 February. X is discharged by paying C, even though the right was assigned to C after it had been assigned to B.
Unlike the solution prevailing under certain jurisdictions, this Article does not take into consideration the actual or constructive knowledge the obligor may have of the assignment(s) in the absence of notice. This approach is motivated by the wish to encourage the giving of notice, thus ensuring a degree of certainty that is especially advisable in the context of international contracts.
2. No notice given
If no notice is given by any of the successive assignees the obligor will be discharged by paying the assignor (see Article 9.1.10(1)).
3. Notice without adequate proof
Notice by an assignee without there being adequate proof that the assignment has been made, may be ineffective under Article 9.1.12.
(1) If notice of the assignment is given by the assignee, the obligor may request the assignee to provide within a reasonable time adequate proof that the assignment has been made.
(2) Until adequate proof is provided, the obligor may withhold payment.
(3) Unless adequate proof is provided, notice is not effective.
(4) Adequate proof includes, but is not limited to, any writing emanating from the assignor and indicating that the assignment has taken place.
COMMENT
Since receiving the notice of assignment has the important effects provided for in Articles 9.1.10 and 9.1.11, this Article intends to protect the obligor against the risk of receiving a fraudulent notice from a fake “assignee” by requiring adequate proof that the assignment has actually been made. Until adequate proof is provided, the obligor may withhold payment to the alleged assignee. If adequate proof is provided, notice is effective from the date it was provided.
Illustration
On 1 December purchaser X has to pay USD 200,000 to contractor A as an instalment of the sum due for the construction of a plant. In October A assigns the right to bank B. Either A or B may give notice of the assignment to X. If B takes the initiative and writes to X that it has become the assignee of the sum, X may require B to provide adequate proof. Without prejudice to other types of evidence, B will probably produce the assignment agreement or any other writing from A confirming that the right has been assigned. Until such adequate proof is provided, X may withhold payment.
(1) The obligor may assert against the assignee all defences that the obligor could assert against the assignor.
(2) 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.
COMMENT
1. Assertion of defences
A right can in principle be assigned without the obligor’s consent (see Article 9.1.7(2)). This solution rests on the assumption that the assignment will not adversely affect the obligor’s legal situation.
It can happen that the obligor would have been able to withhold or refuse payment to the original obligee on the basis of a defence such as the defective performance of that obligee’s obligations vis-à-vis the obligor. To determine whether such defences can be asserted also against the assignee, the respective interests of the parties have to be weighed: the obligor’s situation should not deteriorate as a result of the assignment, while the assignee has an interest in the integrity of the right it has acquired.
According to paragraph (1) of this Article, the obligor may assert against the assignee all the defences that it would have been able to assert if the claim had been made by the assignor. In this case, however, the assignee will have a claim against the assignor under Article 9.1.15(d).
Illustration
1. Software company A promises customer X to install a new accounting application before the end of the year. The main payment is to take place one month after completion. A immediately assigns the right to bank B. When the payment is due, B wants to claim it from X, but the latter explains that the new software is not working properly and that the accounting department is in chaos. X refuses to pay until this catastrophic situation has been remedied. X is justified in asserting this defence against B, which can then claim against A under Article 9.1.15(d).
The same solution applies to defences of a procedural nature.
Illustration
2. Company X sells a gas turbine to contractor A, to be incorporated into a plant built for customer B. When the work has been completed, A assigns the guarantee of satisfactory performance to B. When the turbine does not work properly, B sues X before a court at its place of business. X will successfully invoke the arbitration clause included in its contract with A.
2. Set-off
According to paragraph (2), the obligor may exercise against the assignee any right of set-off provided that the right of set-off was available to the obligor under Article 8.1 before the notice of the assignment was given.
This solution is in accord with the principle that the obligor’s situation should not deteriorate as a result of the assignment. The assignee’s interests are protected by the claim it may then have against the assignor under Article 9.1.15(e).
Illustration
3. Company A assigns to company B the right to the payment of EUR 100,000 that it has against company X. X however has a claim of EUR 60,000 against A. The two claims have not yet been set off by notice given under Article 8.3 of the Principles, but the required conditions for set-off were satisfied before the assignment was notified. X may still exercise its right of set-off by giving notice to the assignee. B can then only claim EUR 40,000 from X. B can recover the difference from A which had undertaken under Article 9.1.15(e) that the obligor would not give notice of set-off as regards the assigned right.
The assignment of a right transfers to the assignee:
(a) all the assignor’s rights to payment or other performance under the contract in respect of the right assigned, and
(b) all rights securing performance of the right assigned.
COMMENT
1. Scope of the assignment
This provision is inspired by the same principle as Article 9.1.13. The assignment transfers the assignor’s right as it is, not only with the defences the obligor may be able to assert, but also with all the rights to payment or to other performances under the contract in respect of the right assigned, and all rights securing performance of the right assigned.
Illustrations
1. Bank A is entitled to receive reimbursement of a loan of EUR 1,000,000 made to customer X, bearing interest at a rate of 3%. A assigns its right to reimbursement of the principal to bank B. The assignment also operates as a transfer of the right to interest and of the underlying security.
2. The initial facts are the same as in Illustration 1, but the loan contract entitles A to claim early repayment if X fails to pay the interest due. This right is also transferred to B.
3. The initial facts are the same as in Illustration 1, but X has deposited some shares as security to the benefit of A. This benefit is transferred to B, subject to the possible application of mandatory requirements of the otherwise applicable law under Article 1.4.
2. Partial assignment
When a right is partially assigned, if the rights covered by Article 9.1.14 are divisible they will be transferred in proportion. If they are not, parties should decide whether they are transferred to the assignee or whether they will remain with the assignor.
3. Contractual deviations
The rule laid down in paragraph (1) may however be modified by an agreement between the assignor and the assignee, who may stipulate, for instance, a separate assignment of interest.
4. Assignor’s co-operation
It follows from the general duty to co-operate laid down in Article 5.1.3 that the assignor is obliged to take all the steps necessary to permit the assignee to enjoy the benefit of accessory rights and securities.
The assignor undertakes towards the assignee, except as otherwise disclosed to the assignee, that:
(a) the assigned right exists at the time of the assignment, unless the right is a future right;
(b) the assignor is entitled to assign the right;
(c) the right has not been previously assigned to another assignee, and it is free from any right or claim from a third party;
(d) the obligor does not have any defences;
(e) neither the obligor nor the assignor has given notice of set-off concerning the assigned right and will not give any such notice;
(f) the assignor will reimburse the assignee for any payment received from the obligor before notice of the assignment was given.
COMMENT
When assigning a right by agreement to the assignee, the assignor assumes several undertakings.
1. Existence of the right
The assigned right should exist at the time of the assignment. This would, for instance, not be the case if the payment had already been made or if the right to a payment had previously been avoided.
Illustration
1. Company A assigns a bundle of rights to factor B. When required to pay by B, customer X demonstrates that the amount due had been paid to A before the assignment. B has a claim against A, since at the time of the assignment the right no longer existed.
If, as permitted by Article 9.1.5, a future right is assigned, no such undertaking exists.
Illustration
2. Company A assigns to bank B the royalties from a technology licence that is to be granted in the near future to company X. The licence never materialises. B has no claim against A.
2. Assignor entitled to assign the right
The assignor is entitled to assign the right. This is, for instance, not the case if there is a legal or contractual prohibition to assign the right.
Illustration
3. Company X has agreed to communicate to company A all the improvements to a technical process that it will develop over a period of time. Their contract stipulates that A’s rights towards X cannot be assigned. A no longer needs the technology itself, and attempts to assign its rights to company B. This illustration was already given above, under Article 9.1.9, to give an example of an ineffective assignment. In this case, B has a claim against A under Article 9.1.15(b). It will be recalled that the solution would be reversed, should B demonstrate that it neither knew nor ought to have known of the non-assignment clause.
3. No previous assignment, no third party rights or claims
If the assignor has already assigned a right to another assignee, it is generally not entitled to make a second assignment of that same right and this prohibition could be considered as already covered by the undertaking under sub-paragraph (b). The practical importance of this hypothesis is such that a separate and explicit provision is justified. It will however be recalled that under Article 9.1.11 the second assignee may prevail over the first one if it gives earlier notice to the obligee.
However, a previous assignment may have been made merely for security purposes. In this case, the right is still assignable, with proper disclosure to the second assignee.
4. No defence from the obligor
According to Article 9.1.13(1), the obligor may assert against the assignee all the defences that the obligor would have been able to assert against the assignor. In such a case, the assignee has a claim against the assignor on the basis of this undertaking.
Illustration
4. Bank B is the assignee of contractor A’s right to payment of a certain sum from customer X. When payment is due, X refuses to pay arguing that A did not perform its obligations properly. Such defence can be successfully set up against B under Article 9.1.13(1). B would then have a claim against A.
5. No notice of set-off
The right of set-off may be exercised by the obligor against the assignee if it was available to the obligor before the notice of assign¬ment was received (see Article 9.1.13(2)). The assignor undertakes vis-à-vis the assignee that neither the assignor nor the obligor has already given notice of set-off affecting the assigned right. The assignor also undertakes that such notice will not be given in the future. If, for instance, the obligor were to give such a notice to the assignee after the assignment, as permitted by Article 9.1.13(2), the assignee would have a claim against the assignor under Article 9.1.15(e).
6. Reimbursement of payment by the obligor
Article 9.1.10(1) provides that until it receives the notice of assignment the obligor is discharged by paying the assignor. This is the correct solution to protect the obligor, but the assignor and the assignee have agreed between themselves on the transfer of the right. The assignor therefore undertakes that it will reimburse the assignee for any payment it received from the obligor before the notice of assignment was given.
Illustration
5. Seller A assigns to bank B its right to payment from buyer X. Neither A nor B gives notice to X. When payment is due, X pays A. As already explained in the Comment on Article 9.1.10, this payment is fully valid and B is discharged. However, Article 9.1.15(f) enables B to recover the sum paid from A.
7. No undertaking concerning the obligor’s performance or solvency
Parties to the assignment may certainly provide for an undertaking by the assignor concerning the obligor’s present or future solvency, or, more generally, the obligor’s performance of its obligations. However, without such an agreement, there is no such undertaking under this Article.
Illustration
6. Company B is the assignee of company A’s right to payment of a certain sum from customer X. When payment is due, B finds out that X has become insolvent. B has to bear the consequences. The solution would be the same if B discovered that X was already insolvent at the time of the assignment.
In case of breach of one of the assignor’s undertakings, the remedies provided for in Chapter 7 become available. The assignee may for instance claim damages from the assignor or terminate the agreement if the conditions of Article 7.3.1 et seq. are fulfilled.
8. Effect of disclosure on undertaking
Some of the assignor’s undertakings may be affected by disclosures made at the time of the transfer. The assignor may for instance advise the assignee of the existence of a claim by a third party, in which case the assignee may accept the transfer of the right at its own risk, with no undertaking on that matter on the part of the assignor.
Professor Iacopo Donati is the UNIDROIT/Bank of Italy Chair Holder and is mainly responsible for assisting in the Bank Insolvency project. He is Professor of Corporate and Insolvency Law at the University of Siena, and coordinates the research project ‘Pro.Re.Ba.’ (Proportionating rules on bank crisis prevention and management to the case of retail banks), which has received funding from the Italian Ministry of University. He has previously taught corporate law at the University of Venice ‘Ca’ Foscari’, at the University of Florence and at the University of Rome ‘Tor Vergata’.
Professor Donati is the author of several publications on corporate law, restructuring, insolvency law, and bank crisis management. On the same topics, he has been invited as a speaker to various international and national conferences and participated in some high-impact international, European, and national research projects. Professor Donati’s education includes a Ph.D. in Corporate Law (University of Rome ‘La Sapienza’), an LLM in Corporate Governance (Stanford Law School), and a Law Degree with honors (University of Florence). He is qualified as an attorney in Italy and in the State of New York (USA).
Ms Olga Fonotova is an Associate Professor of the Faculty of Law (Department of Legal Regulation of Business) at the Russian National Research University “Higher School of Economics” in Moscow. She holds a PhD degree cum laude in private law / private international law from the Lomonosov Moscow State University (2006). Her academic and teaching interests cover private international law, international and national commercial law, with a focus on unified and non-state legal regulation of cross-border commerce.
Olga is a Russian law qualified practicing lawyer in the sphere of national and international commercial and corporate law with 20+ years’ experience in leading law firms. As part of her legal practice, she has advised multinational corporations on the setting up of multi-jurisdictional commercial relations, on the formation / termination of international joint ventures, restructuring of assets, and financing / refinancing of projects. For her work on commercial and corporate legal matters she was included in the international rating of leading lawyers “The Best Lawyers® in Russia” (2018 – 2022).
She is a UNIDROIT alumna (2011) and a Correspondent of UNIDROIT in Russia (2023 – 2025). From 2016 to 2021 Olga was a member of the ICC Commission on Commercial Law and Practice (ICC CLP) and a member of the Association of European Business (AEB) in Moscow.
Allan M. Mukuki, PhD Candidate (Navarra, Spain), LLM (Groningen, Netherlands), PGDip (KSL), LLB (Hons) (UoN), ACIArb (London), Advocate of the High Court of Kenya.
Allan Mukuki is an Advocate of the High Court of Kenya as well as a Commissioner for Oaths. He is presently a PhD Candidate at the University of Navarra in Spain. He is also a holder of an LL.M in International Law and the Law of International Organizations, from the University of Groningen in the Netherlands. He has an LL. B (Hons) from the University of Nairobi, he is a Member of the Cha
rtered Institute of Arbitrators (London). He further holds a post-graduate diploma in law from the Kenya School of Law. Allan is also a scholar from the Hague Academy of International Law.
Some of his many roles in the legal profession include Director of International Partnerships; a Doctoral Fellow; member of the Management Committee and moot court coordinator, all for Strathmore Law School; Research Fellow for the African Region (Kenya), for the European Research Council Grant Project on the interpretation of customary international law; and Acting Director for the Strathmore Institute of Advanced Studies in International Criminal Justice (SIASIC)
Allan has previously worked at A.F Gross Advocate; in various legal institutes; in governmental agencies and in the Judiciary of Kenya. He was also a Legal researcher in the Office of the Solicitor General, Kenya, for the Maritime Delimitation in the Indian Ocean (Somalia v. Kenya), a case that was before the International Court of Justice. His main areas of specialization include Public International Law, The Law of International Organizations, International Humanitarian Law, International and Regional (EAC) Refugee Law and Legal Policy Development.
Further, Allan has been involved in various national and international legal consultancies and projects; he has published several peer reviewed legal articles, a legal monograph and presented several legal papers in international conferences around the world. He has also developed several policy documents for Strathmore University as well as (currently operational) manuals and laws for the operation of the Judiciary as well as governmental agencies and regional agencies such as IGAD.
ANDREA SANTACOLOMA
Director
PROFESSIONAL PRACTICE
Andrea Santacoloma is a Panamanian lawyer that focuses her practice on international commercial arbitration.
Prior to joining Adell & Merizalde, Andrea was the Deputy Director for Latin America of the ICC International Court of Arbitration for 5 years. In this role, she gained vast experience in the internal functioning of the ICC’s Secretariat and Court and saw first-hand the work of hundreds of arbitrators and ICC Court Members in the region. Andrea was also in charge of identifying new opportunities and potential users of the ICC Dispute Resolution Services (ICC DRS) in Latin America, in liaison with the ICC National Committees and other institutions in the region. She also worked as a lawyer advising local and international clients on business and corporate law and M&A in 3 Panamanian law firms.
She is currently the Executive Director of the Latin American Arbitration Association (ALARB), one of Latin America’s leading associations gathering practitioners and arbitrators, which seeks to encourage the use of arbitration and foster initiatives for the development of international arbitration in the region.
In July 2022, the G
overning Council of the International Institute for the Unification of Private Law (UNIDROIT) appointed Andrea as a Correspondent for Latin America. Namely, Andrea was appointed as a Correspondent for the Republic of Panama for the period 2022-2025.
EDUCATION
• American University Washington College of Law, LL.M. in International Arbitration and Business Law
• International Training Centre of the International Labor Organization (ILO) jointly with the United Nations Commission on International Trade Law (UNCITRAL), Università degli Studi di Torino, and University Institute of European Studies (IUSE), LL.M. in International Trade Law & Dispute Resolution
• Universidad Católica Santa María La Antigua, LL.M. in Corporate Law
• Universidad Católica Santa María La Antigua, Degree in Law and Political Science
• Centro de Estudios Regionales de Panamá, Diploma in Entrepreneurship and Management of Small and Medium Enterprises
Bar admissions
Republic of Panama
Languages
Spanish, English, Italian (intermediate)
asantacoloma@adellmerizalde.com
+507 370 4155
NAME: PROF. DR. HERNANY VEYTIA (LL.M. YALE)
AFFILIATION DIRECTOR BNM-CAMBRIDGE STUDY CENTRE ON SUSTAINABLE INVESTMENTS
PRESENTATION
Professor of law, international strategic consultant, arbitrator, and entrepreneur. Hernany Veytia is very comfortable with complex, high-profile and confidential transactions. Her consulting experience as partner of BNM and Deloitte enables her to focus on and add value to the sustainable and commercial aspects of each deal. Frequently she leads transdisciplinary teams to deliver fact findings and legal opinions, feasibility studies and turn-key projects for banks, governments, international organisations, and corporations willing to expand or withdraw operations in other jurisdictions.
In Prof Veytia’s experience UNIDROIT works have been very useful to understand not only the foreign law, but also to recognise the cultural, political, and economic factors at play, and the way national and international regulators operate-and cooperate. In her opinion, UNIDROIT instruments have been of utmost importance for the legal strategies she designed for:
• DANPREIT (Dispute Analytics Platform for Real Estate Investment Trusts in the Agriculture, Construction and Mining industries).
• TELEKAIROS, innovative methodology that incorporates the use of space assets.
• Corporate art collections, restitutions, including donations, sponsorships, and loans to museums.
• Contracts used by a German waterworks company willing to grow in all the Caribbean and Central American countries.
• Liquidation of commercial and investment banks
• IPOs and reverse mergers for companies in the extraction industries (Canadian stock exchange), ILS listed in Bermuda and African sovereign funds listed in London.
• Franchising and other commercial contracts in the food & drinks, health, aero-space, and automotive industries.
In the last three decades Prof. Veytia has lived, and successfully completed investments and disinvestments in more than forty countries in the five Continents. She is frequently appointed as arbitrator and invited as speaker on risk transfers at international industry conferences in fields of her expertise: energy (both renewable and traditional), artificial intelligence, infrastructure, mining, real estate, agriculture, rail, space, automotive, and franchising. She sits in the board of directors of companies in Europe including the United Kingdom.
Anna Veneziano is the Deputy Secretary General of the International Institute for the Unification of Private Law (UNIDROIT). She is a Professor of Comparative Law at the University of Teramo, Italy, where she was formerly the Director of the Department of Private Law. She has also formerly been a tenured Professor of European Property Law at the University of Amsterdam (UvA). Her education includes a Law Degree with honours from the University of Rome La Sapienza, an LL.M degree from the Yale Law School funded by a Fulbright scholarship, and a PhD degree from the University of Florence (Italy).
Her main research and publication areas are on secured transactions as well as international, comparative, and European contract and sales law. Before joining UNIDROIT she was a member of the Italian delegation with respect to the Cape Town Convention on International Interests on Mobile Equipment and its Aircraft Protocol as well as its Space Protocol. She was also a member of the Study Group on a European Civil Code and of the Compilation and Redaction Group on a Draft Common Frame of Reference on European Private Law (DCFR), and of the restricted Expert Group set up by the European Commission on a common European law on sales.
P
rofessor Ignacio Tirado was appointed Secretary-General by the Governing Council at its 97th session, and officially took office on 27 August 2018. A national of Spain, Professor Tirado (Commercial, Corporate and Insolvency Law, Universidad Autónoma of Madrid, Spain) holds a PhD from the Universities of Bologna and Autónoma de Madrid and an LLM from the University of London. Professor Tirado has been a Senior Legal Consultant at the World Bank’s Legal Vice-Presidency and Financial Sector Practice for more than nine years, having also consulted for the IMF on insolvency related matters as well as for the Asian Development Bank on commercial legal reform.
Amongst other accolades to his professional experience, Professor Tirado is a founding member of the European Banking Institute, an International Fellow of the American College of Bankruptcy and has been Director and Academic Co-Chair of the International Insolvency Institute.
A Swedish national, Ms Lena Peters grew up in Italy where she attended an English school. In 1978 she took her Juris Kandidatexamen at Stockholm University followed by a Master of Laws from King’s College, London (1979). Since 1985 she has been with UNIDROIT, first as Research Officer, lastly as Principal Legal Officer, her main duties being Secretary to the Working Group for the Preparation of Principles of International Commercial Contracts, Secretary to the Study Group on Franchising, Secretary to the Committee of Governmental Experts on Franchising.She also collaborated on the project for the preparation of the ELI-Unidroit Model European Rules of Civil Procedure. She is currently Managing Editor of the Uniform Law Review and responsible for publications at UNIDROIT.
Marina Schneider is Principal Legal Officer and Treaty Depositary at UNIDROIT. She studied law at the University of Strasbourg (France) and Paris I – Panthéon Sorbonne. She joined the UNIDROIT in 1987 and was involved in the elaboration and French versions of most UNIDROIT instruments since. She is in charge of the 1995 UNIDROIT Convention on Stolen or Illegally Exported Cultural Objects and of the UNESCO-UNIDROIT Model Provisions on State Ownership of Undiscovered Cultural Objects. She is the author of the Explanatory Report of the 1995 Convention and many articles on the Convention and other international instruments in the field. Ms Schneider is also responsible for the project on private collections and for the UNIDROIT Convention Academic Project (UCAP). She is member of the Board of the International Society for Research on Art and Cultural Heritage Law (ISCHAL).
Professor of Commercial Law, Carlos III University of Madrid. Currently, Sir Roy Goode Scholar at UNIDROIT, Rome, 2021-2022. Chair of Excellence 2017-2018 at University of Oxford (Uc3m- Santander Program), affiliated to Harris Manchester College. Previously Distinguished Visiting Professor and fellow of a number of Academic Institutions. Arbitrator of Madrid Court of Arbitration. Member of ELI (European Law Institute) Council and Executive Committee. Member of the Expert Group of the European Commission on Liability and New Technologies and member of the Expert Group of the European Observatory of Platform Economy; the International Academy of Commercial and Consumer Law; the expert group of the Inclusive Global Legal Innovation Platform for Online Dispute Resolution – UNCITRAL and Hong Kong Department of Justice. Expert of the UNIDROIT Study Group on the MAC Protocol of the Cape Town Convention on International Interests. Delegate of Spain to UNIDROIT for the adoption of the Protocol, delegate of Spain in Working Group VI of UNCITRAL on secured transactions and in Working Group IV on Electronic Commerce. Member of UNIDROIT Working Groups on Enforcement and Warehouse Receipts.
William Brydie-Watson is an Australian lawyer who specialises in secured transactions law and private international law. Before joining UNIDROIT, William was a government lawyer in the Private International Law and International Arbitration section of the Australian Attorney-General’s Department, where he worked primarily on treaty negotiation and the implementation of private international law treaties in Australia. At UNIDROIT, he is primarily responsible for the implementation of the Mining, Agriculture and Construction (MAC Protocol) to the 2001 Cape Town Convention on International Interests in Mobile Equipment and the development of a Model Law on Factoring. William also serves as UNIDROIT’s liaison with the Asia Pacific Economic Cooperation (APEC) forum and as manager of the Institute’s Scholarship and Internship Programme. Admitted to practice in New South Wales and the High Court of Australia, he has a Bachelor of Arts (honours), a Bachelor of Laws and a Master of Laws from the Australian National University. William also lectures on International Secured Transactions Law at the Eotvos Lorand Faculty of Law in Budapest.
