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.
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.
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.
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.
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.
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.
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.
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.