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Assignment & Novation

The issues of 'assignment' and 'novation' are critical ones for us where breach of our contracts with the banks is concerned. The banks will argue that they had the right to assign their obligations in the contracts to Storm under the principle of novation. I have highlighted the important points in red.

The Wikipedia, free encyclopedia, explains the situation in this regard for you:
"An assignment (Latin cessio) is a term used with similar meanings in the law of contracts and in the law of real estate. In both instances, it encompasses the transfer of rights held by one party—the assignor—to another party—the assignee.
[1] The legal nature of the assignment determines some additional rights and liabilities that accompany the act.

Continuing liability of assignor
 Assignor remains liable unless there is an agreement to the contrary. An agreement must manifest intent to transfer rights, it may not necessarily be in writing, words will do, and the rights assigned must be certain. The effect of a valid assignment is to extinguish privity between the assignor and the obligor and create privity between the obligor and the assignee. (
Incidentally, "privity" in law  means 'one of the parties having an interest in the same matter.')
An assignment of rights under a contract is the complete transfer of the rights to receive the benefits accruing to one of the parties to that contract. For example, if Party A contracts with Party B to sell Party A's car to Party B for $10, Party A can later assign the benefits of the contract - i.e., the right to be paid $10 - to Party C. In this scenario, Party A is the obligee/assignor, Party B is an obligor, and Party C is the assignee. Such an assignment may be donative (essentially given as a gift), or it may be contractually exchanged for consideration. It is important to note, however, that Party C is not a third party beneficiary, because the contract itself was not made for the purpose of benefitting Party C. However an Assignment only transfers the rights/benefits to a new owner. The obligations remain with the previous owner. Compare Novation.
When assignment will be permitted

The common law favors the freedom of assignment, so an assignment will generally be permitted unless there is an express prohibition against assignment in the contract. Where assignment is thus permitted, the assignor need not consult the other party to the contract. An assignment cannot have any effect on the duties of the other party to the contract, nor can it reduce the possibility of the other party receiving full performance of the same quality. Certain kinds of performance, therefore, cannot be assigned, because they create a unique relationship between the parties to the contract. For example, if party A contracts to hire an attorney to represent her in a civil case for a fee of $1000, she cannot then assign her contractual right to legal representation to another party. Note however, that party A can assign her right to sue under the same claim she contracted with the attorney to pursue.

Requirements for an effective assignment
For assignment to be effective, it must occur in the present. No specific language is required to make such an assignment, but the assignor must make some clear statement of intent to assign clearly identified contractual rights to the assignee. A promise to assign in the future has no legal effect. Although this prevents a party from assigning the benefits of a contract that has not yet been made, a court of equity may enforce such an assignment where an established economic relationship between the assignor and the assignee raised an expectation that the assignee would indeed form the appropriate contract in the future.

A contract may contain a non-assignment clause, which prohibits the assignment of specific rights, or of the entire contract, to another. However, such a clause does not necessarily destroy the power of either party to make an assignment. Instead, it merely gives the other party the ability to sue for breach of contract if such an assignment is made. However, an assignment of a contract containing such a clause will be ineffective if the assignee knows of the non-assignment clause, or if the non-assignment clause specifies that "all assignments are void".

Two other techniques to prevent the assignment of contracts are rescission clauses or clauses creating a condition subsequent. The former would give the other party to the contract the power to rescind the contract if an assignment is made; the latter would rescind the contract automatically in such circumstances.
[edit]Requirement of a writing

There are certain situations in which the assignment must be in writing.
 1. Assignment of wages
 2. Assignment of any interest in real property
 3. Assignment of choses in action worth over $5,000 
(A chose in action is essentially a right to sue. It is an intangible personal property right recognised and protected by the law, that has no existence apart from the recognition given by the law, and that confers no present possession of a tangible object.) 
 4. Assignment as collateral for a loan or debt
 For more information about contractual writing requirements see Statute of frauds.

Novation replaces the original party with a new party. For a valid novation, (i) all parties must assent to novation, (ii) there must be a previously valid contract, (iii) the duties provided for in the contract be extinguished immediately, and (iv) a new, enforceable contract need be created.

Victor Ainslie,
May 4, 2011, 6:28 PM