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Valid Assignment

A valid assignment takes effect the moment it is made regardless of whether notice of the assignment is given to the other party to the contract.  If the obligor is notified that there has been an assignment and that any money due must be paid to the assignee, the obligor’s obligation can only be discharged by making payment to the assignee.  In other words, payment to the assignor would not satisfy the contract after notice.  If the obligor does not know of the assignment and makes payments to the assignor who does not turn the money over to the assignee, the assignee cannot sue the obligor, but does have a remedy against the assignor.  However, if the obligor both knows of the assignment and has been notified to make future payments to the assignee, any payments made by the obligor to the assignor have no effect and do not reduce the debt of the obligor.  If Acme Furniture sells furniture to Smith on a retail installment contract, and Acme then assigns this contract to Tenth Bank, Acme is the assignor, the buyer is the obligor, and Tenth Bank is the assignee.  When Tenth Bank  and Acme notify the buyer that future payments are to be made to Tenth Bank, the buyer must make these payments to Tenth Bank.  If he makes payments to Acme, the payments will not reduce the debt unless Acme forwards the money on to Tenth Bank.  If the buyer did not know of the assign­ment and continued to make payments to Acme, and Acme pocketed the money and did not turn it over to Tenth Bank, Tenth Bank  could not recover from the buyer, but could sue Acme to recover the payments.

When an assignment is made for consideration, the assignor warrants:

  • That the right assigned is valid;
  • That the assignor owns the claim assigned; and
  • That the assignor will not interfere with the assignee’s enforcement of the obligation.

The assignor does not warrant that the other party will pay or perform as required by the contract.  In other words, this is not impliedly warranted.  However, it can be warranted by contract.  In other words, the assignor can agree to pay the assignee if the obligor does not pay.

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