(1) The obligee may assert against the new obligor all its rights to payment or other performance under the contract in respect of the obligation transferred.
(2) If the original obligor is discharged under Article 9.2.5(1), a security granted by any person other than the new obligor for the performance of the obligation is discharged, unless that other person agrees that it should continue to be available to the obligee.
(3) Discharge of the original obligor also extends to any security of the original obligor given to the obligee for the performance of the obligation, unless the security is over an asset which is transferred as part of a transaction between the original obligor and the new obligor.
1. Scope of the transfer
The rules laid down in this Article are inspired by the same principle as Article 9.2.7. The obligation is transferred to the new obligor as it is, not only with the defences the original obligor was able to assert, but also with all the rights to payment or to other performances under the contract that the obligee had in respect of the obligation transferred.
The following illustrations provide examples of such rights.
1. Company A must reimburse bank X for a loan of EUR 1,000,000 bearing an interest rate of 3%. A transfers its obligation to reimburse the principal to company B. The transfer also includes the obligation to pay the 3% interest.
2. The facts are the same as in Illustration 1, except that the loan contract entitles X to claim premature reimbursement if A fails to pay the interest due. X can assert also this right against B.
2. Contractual deviations
Party autonomy permits deviations from the rules laid down in this Article, such as a separate transfer of the obligation to pay interest.
3. Securities in assignment of rights and transfer of obligations compared
In the case of the assignment of a right, all rights securing performance are automatically transferred to the assignee (see Article 9.1.14(b)). This solution is justified by the fact that the assignment of a right does not alter the obligor’s situation, i.e. securities can continue to serve their purposes in unchanged circumstances.
The transfer of an obligation to a new obligor on the contrary modifies the context in which the security has been granted. If the original obligor is discharged, and if the security were to be transferred with the obligation, the risk of breach or insolvency to be covered would be that of another person, thus completely altering the object of the security.
If the original obligor’s obligation was covered by a suretyship granted by another person, this suretyship can survive if the original obligor remains bound. If, on the other hand, the original obligor is discharged, the suretyship cannot be transferred to cover the new obligor, unless the person who granted the suretyship agrees that it should continue to be available to the obligee.
3. Company A owes USD 1,000,000 to company X. Bank S has agreed to guarantee due performance of this obligation. With X’s agreement, A transfers the obligation to company B, and X accepts to discharge A. S does not guarantee B’s obligation, unless it agrees to continue to provide the security.
A special case occurs when the suretyship was granted by the person who was itself to become the new obligor. In such a case, the security necessarily disappears, since a person cannot provide a security for its own obligation.
5. Securities over assets
The original obligor may have given one of its assets as security. In this case, if the obligation is transferred and the original obligor is discharged, the security ceases to cover the obligation now binding the new obligor.
4. Bank X has granted a loan of EUR 100,000 to company A, secured by a deposit of shares by the obligor. With X’s agreement, A transfers the obligation to pay back the loan to company B, and X accepts to discharge A. The shares cease to serve as security.
The solution is different if the asset given as security is transferred as part of a transaction between the original and the new obligor.
5. The facts are the same as in Illustration 4, but the transfer of the obligation between A and B occurs as part of a broader operation in which ownership of the shares is also transferred to B. In such a situation, the shares will continue to serve as security for B’s obligation to reimburse the loan.