Sunday, April 26, 2015

MBE Fast Fact: Notice of Assignments

Let's take a common situation where x enters into a contract with y whereby x will be providing a product to y, and y will be paying x for that product. Prior to payment x assigns his right to payment to z, and further provides y with notice of the assignment to z. Y submits payment to x rather than to z, and then claims its obligations under the contract have been fulfilled. Z, who never receives payment because payment went to x, sues y for payment. What should result?

The key to understanding such an issue is to understand that (provided the right was assignable, and it almost always is), the assignee (here, z) becomes the real party in interest and is therefore entitled to performance under the contract. Further, once the obligor (here, y) has notice of the assignment he is bound to render performance to the assignee. If after receiving adequate notice the obligor pays the assignor (here, x) instead of the assignee, then the obligor will be required to pay the assignee even though payment has already been submitted to the assignor.

All that said, here y will be required to submit payment to z as the right to payment was assigned to z, and y was on notice of the assignment.

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