Legal Updates

Assignment of obligations requires the explicit consent of both assignee and creditor

April 5, 2022

A company that sold store franchises granted a franchisee exclusivity in a particular city. After the company assigned its rights to a new company, a third party was given the right to operate a store in that city and the franchisee demanded compensation for the breach of exclusivity.

The Court held that the company assigned only its rights and not its obligations and therefore the new company is not liable to the franchisee for the breach of exclusivity. While the assignment of a creditor's right, including a future or contingent right, does not require the debtor's consent, unless the transfer of the right is expressly restricted by law or a non-assignment clause in the agreement, an assignment of an obligation requires the express consent of both the assignee and the creditor receiving the obligation. A third party can assume the performance of another's obligation, in the sense of "performance by the other", but this does not constitute an assignment and does not derogate from the scope of the debtor's liability for its obligations. Here, the two companies have made it clear in the agreement between them that they are assigning the rights arising from the franchise agreement only and the franchisee, on its part, refused to sign the assignment notice which was addressed to it. Thus, the parties can not be considered to have given their consent to the assignment of obligations as required and the new company can not be held liable for complying with the exclusivity clause in the franchise agreement.