(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.
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.
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.
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).