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Assignment dispute

Re: Assignment dispute

Postby dls » Thu Sep 17, 2015 5:05 am

I believe a contract is more than just a set of obligations between two parties


This is getting philosophical.

A contract is nothing beyond the group/set of obligations it contains. It is nothing more, and it 'contains' nothing more.

There is nothing to stop a contract having obligations between more than two parties, though the standard requirements apply to each obligation and party.

Consumer credit legislation has long created this sort of confusion
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Re: Assignment dispute

Postby theycantdothat » Thu Sep 17, 2015 10:20 am

The first step is to ask if the contract is assignable. Under the common law the starting point is that contracts are assignable. They are are not if the terms of the contract prohibit it. Assignment is also ruled out if the rights of the non-assigning party are seriously affected. Contracts for the provision of finance are pretty much a classic case where the lender can assign because the duties of the lender under the contract are few, if any.

The next step is to ask what happens on assignment. Unless the contract provides to the contrary:

(a) The assigning party is not released from his obligations. There is still privity of contract between the original contracting parties. In a contract for the provision of finance this is not likely to be relevant.

(b) The assignee is bound by the terms and conditions of the contract as if he had agreed to them. He cannot take on the benefit without the burden.

(c) An assignee cannot unilaterally change the terms of the contract. (Many companies seem to think they can do this to streamline all their contracts.) If there is a dispute with the assignee as to what a provision means that is a separate issue.
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Re: Assignment dispute

Postby dls » Thu Sep 17, 2015 10:43 am

Might I also repeat the bit about assigning the benefit but not the burden, and also say that the situation can be a little complicated by the Contracts (Rights of Third Parties) Act.
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Re: Assignment dispute

Postby caffiene » Tue Sep 22, 2015 10:50 pm

Thanks for your input. @DLS Yes. The contract is an object and the rights and duties are attributes! Each attribute has rules. The existence of contractual rights is dependant on the performance of agreed obligations, so 'contract' as a thing is probably the set of rules that govern the attributes. While the rules are satisfied the contract is good. If they are broken, the contract may cease to exist. A will do X if B does Y, etc.

@Theycantdothat thanks for your excellent answer. As for most credit contracts, the contractual duties of the lender are few. However, it may not be just that the obligations are few, but rather, they do not require personal performance.
So to clarify my understanding, please correct if I am wrong:
From (b) for CCA agreements, the assignee cannot benefit from becoming creditor without being bound by the statutory obligations of the CCA, hence the definition of creditor in s.189. However, I think if there are contractual duties that are not part of the CCA, i.e. to give free annual travel insurance, etc., it is a matter to be agreed between assignor and assignee who should perform. If the assignee is to perform, I think it is a delegation of the assignor's duty.

So, from (a) If the assignee fails to give the free insurance, the debtor can insist the assignor provides it as there is still privity with the assignor. I think this would be so, even if there is a clause in the contract that says the lender may assign both rights and duties without consent. If it is without consent then there is no new contract between the assignee and the debtor. So, even if there was only ever one contractual duty from the original lender - to advance the loan, and it has already been advanced/discharged, the existence of the contract/privity remains until the loan has been repaid. I think that privity still exists in this case between the original lender and the borrower even after assignment, even if there are no further contractual obligations owed by the lender.

What I am trying to get at is, if the right to be paid for the debt is sold to an assignee without consent of the borrower, there remains privity between the borrower and the original lender. The debtor is obliged to pay the assignee to fulfil his contractual obligation to the original lender because it is the original lender's will that the assignee be paid.

Finally, my question is, what happens if after the assignment the original lender claims the assignment means there is no longer any contract between the original lender and the borrower? i.e. the original lender erroneously believes there is now privity between the assignee and the borrower?

As I understand, the obligation for the borrower to pay the original lender is being fulfilled to the original lender by paying the assignee because that is what the original lender wishes and he is free to have his payment paid to whoever he likes if notice of assignment is given. The original lender meanwhile has a contract with the assignee where it has been agreed that the borrower will now pay the assignee instead. LPA s.136 has to make a special rule that the assignee can enforce his right against the borrower as a work around to the privity rule that would otherwise prevent the assignee from having any direct claim against the borrower. So despite s.136 I think there is still privity with the original parties.

Now, If the original lender tells the borrower there is no contract, can the borrower accept it as termination of the contract and be free of his obligation to pay the assignee?
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Re: Assignment dispute

Postby theycantdothat » Wed Sep 23, 2015 10:29 am

An assignment is distinguished from a novation. A novation happens where if there is a contract between A and B (a) A assigns the benefit of the contract to C (b) B joins in and agrees that C replaces A and (c) C agrees to take on A's obligations. That amounts to a new contract between C and B and the contract between between A and B is discharged.

Unless the contract provides otherwise: In the case of an assignment of the same contract C gets all the rights of A; that means that A loses the right to enforce the contract - indeed no rights can be retained since an assignment has to be absolute. C takes on A's obligations and the assignment will (typically) include a covenant by C with A that he will perform the obligations and indemnify A if he does not. B's rights are not affected. Subject to being given notice of the assignment, B must treat C as the party to whom he owes the obligations imposed on him by the contract. In the case of a loan agreement he has to make payments to C; payment to A will not be compliance with the contract. He can require C to comply with the obligations imposed on A. In the event of default by C, B can look to A to perform the obligations since his contract was with A and that contract is still continuing. There is no question of A successfully arguing that there is no contract between him and B. If A insists there is no contract, whether between him and B or at all, that certainly does not release B as that would clearly be unfair to C. Once A has assigned nothing he says or does can affect the contract since he no longer has any rights under it.
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