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Assignments are an important part of business financing, such as factoring.A To effect an assignment, the assignor must make known his intention to transfer the rights to the third person.When an assignment has the effect of materially changing the duties that the obligor must perform, it is ineffective.
Federal Trade Commission regulations also affect the ability of many sellers to pass on rights to assignees free of defenses that buyers could raise against them.
Because of these various limitations on the holder in due course and on waivers, the “shoe rule” will not govern in consumer transactions and, if there are real defenses or the assignee does not act in good faith, in business transactions as well.
Also, the waiver clause in the contract must have been presented in good faith, and if the assignee has actual notice of a defense that the buyer or lessee could raise, then the waiver is ineffective.
Moreover, in consumer transactions, the UCC’s rule is subject to state laws that protect consumers (people buying things used primarily for personal, family, or household purposes), and many states, by statute or court decision, have made waivers of defenses ineffective in such .
The assignor may assign any right unless (1) doing so would materially change the obligation of the obligor, materially burden him, increase his risk, or otherwise diminish the value to him of the original contract; (2) statute or public policy forbids the assignment; or (3) the contract itself precludes assignment.
The common law of contracts and Articles 2 and 9 of the Uniform Commercial Code (UCC) govern assignments.First, it is inapplicable to the sale of a negotiable instrument to a holder in due course.Second, the rule may be waived: under the UCC and at common law, the obligor may agree in the original contract not to raise defenses against the assignee that could have been raised against the assignor.Nor will a minor change in the duties the obligor must perform defeat the assignment.Several residents in the town of Centerville sign up on an annual basis with the Centerville to receive their morning paper.Notice to the obligor is not required, but an obligor who renders performance to the assignor without notice of the assignment (that performance of the contract is to be rendered now to the assignee) is discharged.Obviously, the assignor cannot then keep the consideration he has received; he owes it to the assignee.After all, anybody could waltz up to the obligor and say, “I’m the assignee of your contract with the bank.From now on, pay me the 0 a month, not the bank.” The obligor is entitled to verification of the assignment. He gains all the rights against the obligor that the assignor had, but no more.Problems of acceptance normally arise only when the assignor intends the assignment as a gift.Then, for the assignment to be irrevocable, either the assignee must manifest his acceptance or the assignor must notify the assignee in writing of the assignment.