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COMMERCIAL VOCABULARY: A - ASSIGNMENT (B2+)

‘Assignment’ is a word used for the transfer of legal rights. These could be rights in property – including intellectual property - or rights which exist under a contract. The party transferring the rights is called the ‘assignor’. The party receiving the rights is called the ‘assignee’.

Commentary:

Assignment is an important concept in many different areas of the business and commercial world. For example, in the world of corporate finance, a company may wish to borrow money from a lending institution. The lending institution may, however, ask the borrower to assign accounts receivable (the rights to receive money owed by debtors to the borrower) to the lending institution, as security for the loan. If the borrower then defaulted (failed to repay the loan advanced by the lending institution as agreed), the lending institution could collect the receivables as the assignee.


English law has developed principles in relation to assignment. For example, it must be remembered that it is contractual ‘rights’ than can, in principle, be assigned under English law. The obligations – or ‘burdens’ – of a contract cannot be. Contracts, in their entirety, cannot simply be assigned. This point was made clear in the leading case of Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1993] UKHL 4, where Lord Browne-Wilkinson stated:


“It is trite law [law which is obvious or common knowledge] that it is…impossible to assign ‘the contract’ as a whole, i.e. including both burden and benefit. The burden of a contract can never be assigned without the consent of the other party to the contract, in which event such consent will give rise to a novation.”


Essentially, a ‘novation’ is the act of substituting an old obligation for a new one, or an old party for a new party.


It should be obvious why there is a distinction between being able to assign the rights, but not the obligations, of commercial contracts. On the one hand, it probably does not matter to a buyer of goods if they pay the purchase price to the seller or someone to whom the seller has assigned the right to receive it. On the other hand, a party to a commercial contract would probably not wish – without their consent – to run the risk of having anyone other than the party they actually contracted with performing the contract. What if, for example, the assignee is not creditworthy?


However, the reality is that parties to commercial contracts may behave as though the obligations – the burdens – of the contract can be assigned, along with the benefits. Whilst this may be the commercial reality, from a legal perspective, English courts would probably look at this behaviour as either


· a novation; namely, the replacing of one contract (or the obligations of one contract) with another, or

· the assignment of the benefits of the contract, together with the subcontracting of the obligations.


From a legal perspective, this is important, because it has an effect on who you may be able to pursue at some future point.


Note: The contents of this post are intended for educational study purposes only. Nothing contained in it should be regarded as legal advice. If you need legal advice, you should consult an appropriate lawyer.


(c) Cambridge Legal English Academy 2021




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