Contract assignment: pitfalls to avoid

Two main situations may arise in practice:

• The contract or the general terms and conditions of sale do not contain any clause governing the assignment of the contract to a third party:

In such cases, the assignor is obliged, in principle, to seek the express prior agreement of the assigned customer, failing which the contract may be terminated at the assignor’s expense and at the customer’s expense, if the customer so wishes.

In practice, however, it is often the case that the assignor does not seek the consent of the assigned customer, who may simply receive a letter informing him that his contract has been assigned to a third party.

In this situation, the assignor is not released from his obligations towards the assigned customer, and will be jointly and severally liable with the assignee for the proper performance of the contract.

Article 1216-1 of the French Civil Code stipulates that:

“If the assignee has expressly agreed, the assignment of the contract releases the assignor for the future. Failing this, and unless otherwise agreed, the assignor is jointly and severally liable for performance of the contract.”

Consequently, even in the event of tacit continuation of the contract between the assigned customer and the assignee, the assigning company is not released from the debts arising from the assigned contract, including those subsequent to the assignment. It will be liable to the assigned customer for the debts of its assignee, for which it is legally jointly and severally liable. The consequences of such joint and several liability can be far-reaching.

If the assignee of the contract does not pay the sums it owes to the assigned customer in respect of performance of the contract (for example, because it has been placed in receivership), the assigned customer has recourse against the assignor of its contract. He may obtain an order that the assignor pay him the sums owed by his assignee in performance of the contract[1].

• The contract or the general terms and conditions of sale contain a clause governing the assignment of the contract to a third party:

The content of this clause needs to be examined. In practice, it is often limited to obtaining the prior agreement of the assigned customer to a possible assignment of his contract to a third party.

However, agreeing to the assignment does not mean waiving the right to sue the assignor. It is not enough for the customer to have given his express consent to the assignment for the assignor to be protected from all claims and actions. The customer must also have expressly agreed to release the assignor from any debts arising from the performance of the contract.

There is general agreement that the transferor cannot be tacitly released[2].

The contract clause should therefore stipulate not only the assigned customer’s agreement to the assignment, but also the assigned customer’s consent to the assignor’s release from the contractual debt.

Jurisprudence will even have to clarify whether such consent can be given in advance of the conclusion of the contract.

In all cases, great vigilance is required.

The assignor of the contract must take care to assess the extent of the risks that the assignment entails for him and, if necessary, demand to be effectively counter-guaranteed by his assignee in the event of difficulty.

Alerted to the dangers of transferring a contract, the transferred customer can assert his rights against the transferor.

Would you like support in negotiating and drafting your contracts and in transferring them?

Our Commercial Law team, including Cécile Moreira – Partner in the Paris office – will be happy to discuss your requirements.

(1) See in this line: TCom Angers 8/11/2023 – RG 2022 002677

(2) Revue « Droit et Patrimoine » n° 260 – 1^er juillet 2016 – La cession de contrat : Laurent AYNES ; La cession de contrat consacrée par le Code Civil : Julie COLLIOT – Revue Juridique de l’Ouest.