(1) The other party may discharge the assignor.
(2) The other party may also retain the assignor as an obligor in case the assignee does not perform properly.
(3) Otherwise the assignor and the assignee are jointly and severally liable.
1. Extent of assignor’s discharge
This Article, concerning the assignment of contracts, corresponds to Article 9.2.5. To the extent that the assignment of a contract causes obligations to be transferred from the assignor to the assignee, the other party, as an obligee, may decide the effect that the acceptance of the assignee as a new obligor will have on the assignor’s obligations. This Article gives the other party several choices and provides for a default rule.
2. Other party’s choice: full discharge
The other party may first of all fully discharge the assignor.
1. By contract with company X, company A has undertaken to dispose of the waste produced by an industrial process. At a certain point, X accepts that the contract is assigned by A to company B. Fully confident that B is solvent and reliable, X discharges A. Should B fail to perform properly, X will have no recourse against A.
3. Other party’s choice: assignor retained as a subsidiary obligor
Another possibility is for the other party to accept the assignment of the contract on condition that it retain a claim against the assignor.
There are two options.
The first option is that the assignor is retained as an obligor in the event that the assignee does not perform properly. In this case the other party must necessarily claim performance first from the assignee, but if the assignee does not perform properly, the other party may call upon the assignor.
2. The facts are the same as in Illustration 1, except that X, when consenting to the assignment, has stipulated that A will remain bound if B does not perform properly. X no longer has a direct claim against A, and must first request performance from B. However, should B fail to perform, then X would have a claim against A.
4. Other party’s choice: assignor retained as jointly and severally liable with the assignee
The second option, the one most favourable to the other party, is to consider the assignor and the assignee jointly and severally liable. This means that when performance is due, the other party can exercise its claim against either the assignor or the assignee (see Articles 11.1.3 et seq.). Should the other party obtain performance from the assignor, the latter would then have a claim against the assignee (see Articles 11.1.10 et seq.).
3. Company X accepts that company A assign the contract to company B, but stipulates that A and B will remain jointly and severally liable. In this case X may require performance from either A or B. Should B perform properly, both A and B would be fully discharged. Should A have to render performance to X, it would then have a right of recourse against B.
5. Default rule
The language of this Article makes it clear that the last-mentioned option is the default rule. In other words, if the other party has neither indicated that it intends to discharge the assignor, nor indicated that it intends to keep the assignor as a subsidiary obligor, the assignor and the assignee are jointly and severally liable.
4. Company X accepts that company A assign the contract to company B, but says nothing about the liability of A. Also in this case X may request performance from either A or B. Should B perform properly, both A and B would be fully discharged. Should A have to render performance to X, it would then have a right of recourse against B.
6. Differentiated options possible
A party to a contract is often subject to a whole set of obligations. When the contract is assigned, the other party may choose to exercise different options with regard to the different obligations. The other party may for instance accept to discharge the assignor for a certain obligation, but to retain it either as a subsidiary obligor or to consider it jointly and severally liable with the assignee with respect to other obligations.
5. Company A has entered into a know-how licence contract with company X. In return for the transferred technology, A has undertaken to pay royalties and to co-operate with X in the development of a new product. When X later on accepts that A assign the contract to company B, X discharges A from the obligation to participate in the joint research, for which it will deal with the assignee only, but retains A as a subsidiary or a jointly and severally liable with B for the payment of royalties.