assignment of monetary claims

31 U.S. Code § 3727 - Assignments of claims

In subsection (a)(1), the words “or share thereof” and “whether absolute or conditional, and whatever may be the consideration therefor” are omitted as surplus. In clause (2), the word “authorization” is substituted for “powers of attorney, orders, or other authorities” to eliminate unnecessary words.

In subsections (b) and (c), the word “official” is substituted for “officer” for consistency in the revised title and with other titles of the United States Code.

In subsection (b), the words “Except as hereinafter provided” are omitted as unnecessary. The words “read and” are omitted as surplus. The words “to the person acknowledging the same” are omitted as unnecessary. The text of 31:203(1st par. last sentence) is omitted as superseded by 39:410. The words “Notwithstanding any law to the contrary governing the validity of assignments ” and the text of 31:203(last par.) are omitted as unnecessary.

In subsection (c), before clause (1), the words “bank, trust company, or other . . . including any Federal lending agency” are omitted as surplus. The words “of money due or to become due under a contract providing for payments totaling at least $1,000” are substituted for “in any case in which the moneys due or to become due from the United States or from any agency or department thereof, under a contract providing for payments aggregating $1,000 or more” to eliminate unnecessary words. The text of 31:203(2d par. proviso cl. 1) is omitted as executed. In clause (1), the words “in the case of any contract entered into after October 9, 1940 ” are omitted as executed. In clause (2)(A), the words “payable under such contract” are omitted as surplus. In clause (3), the words “true” and “instrument of” are omitted as surplus. The words “department or” are omitted because of the restatement. The words “if any” and “to make payment” are omitted as surplus.

In subsection (d), before clause (1), the words “During a war or national emergency proclaimed by the President or declared by law and ended by proclamation or law” are substituted for “in time of war or national emergency proclaimed by the President (including the national emergency proclaimed December 16, 1950 ) or by Act or joint resolution of the Congress and until such war or national emergency has been terminated in such manner” to eliminate unnecessary words. The words “ Department of Energy (when carrying out duties and powers formerly carried out by the Atomic Energy Commission)” are substituted for “Atomic Energy Commission” (which was reconstituted as the Energy Research and Development Administration by 42:5813 and 5814) because of 42:7151(a) and 7293. The words “other department or . . . of the United States . . . except any such contract under which full payment has been made” and “of any moneys due or to become due under such contract” before “shall not be subject” are omitted as surplus. The words “A payment subsequently due under the contract (even after the war or emergency is ended) shall be paid to the assignee without” are substituted for “and if such provision or one to the same general effect has been at any time heretofore or is hereafter included or inserted in any such contract, payments to be made thereafter to an assignee of any moneys due or to become due under such contract, whether during or after such war or emergency . . . hereafter” to eliminate unnecessary words. The words “of any nature” are omitted as surplus. In clause (1), the words “or any department or agency thereof” are omitted as unnecessary. In clause (2), the words “under any renegotiation statute or under any statutory renegotiation article in the contract” are omitted as surplus.

Subsection (e)(1) is substituted for 31:203(4th par.) to eliminate unnecessary words.

In subsection (e)(2), the words “person receiving an amount under an assignment or allotment” are substituted for “assignees, transferees, or allottees” for clarity and consistency. The words “or to others for them” and “with respect to such assignments , transfers, or allotments or the use of such moneys” are omitted as surplus. The words “person making the assignment or allotment” are substituted for “assignors, transferors, or allotters” for clarity and consistency.

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The law applicable to third-party effects of assignments of claims: the UN Convention and the EU Commission Proposal compared

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Spyridon V Bazinas, The law applicable to third-party effects of assignments of claims: the UN Convention and the EU Commission Proposal compared, Uniform Law Review , Volume 24, Issue 4, December 2019, Pages 609–632, https://doi.org/10.1093/ulr/unz032

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In October 2019, the U.S. ratified the United Nations Convention on the Assignment of Receivables in International Trade (the “Convention”) by the US, thus creating a new impetus for the broad adoption and entry into force of the Convention and with that for the facilitation of international receivables finance. In March 2018, the E.U. Commission issued a Proposal for a Regulation of the European Parliament and of the Council on the law applicable to the third-party effects of assignments of claims (the “Commission Proposal” or “Proposal”). The Commission Proposal includes a first draft of the proposed Regulation (the “draft Regulation”). An alignment of the main rule of the draft Regulation with the equivalent rule in the Convention could result in an internationally uniform conflict-of-laws rule on this matter, which would remove the legal divergences existing among legal systems and reduce the uncertainty as to the law applicable to the third-party effects of assignments of claims. The purpose of this article is to compare the relevant rules of the Convention and the draft Regulation, determine whether this coordinated approach is achieved and, if not, make suggestions as to how it can be achieved to the benefit of all parties involved in international receivables finance.

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Law applicable to the third-party effects of assignments of claims

The assignment of a claim refers to a situation where a creditor (the assignor) transfers the right to claim a debt from the debtor to another person (the assignee) who then becomes a creditor vis-a-vis the debtor (replacing in this role the original creditor). This mechanism is used by companies to obtain liquidity and access credit. At the moment, there is no legal certainty as to which national law applies when determining who owns a claim after it has been assigned in a cross-border case. The new rules proposed by the Commission will clarify which national law is applicable for the resolution of such disputes. As a general rule, the law of the country where assignors have their habitual residence applies, regardless of which Member State's courts or authorities examine the case. This proposal will promote cross-border investment and access to cheaper credit, and prevent systemic risks. Both Parliament and Council have adopted their positions, and the proposal is currently the subject of trilogue negotiations. Second edition. 'EU legislation in progress' briefings are updated at key stages throughout the legislative procedure.

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Publication type.

• DELIVORIAS Angelos

Policy area

• Economics and Monetary Issues
• Financial and Banking Issues

Assignment of claims

The European Commission proposes to harmonise conflict of laws rules on the third-party effects of assignment of claims

When claims are assigned across borders, it's not always easy for investors, credit providers and other market participants to know which national law applies to determine who owns the assigned claims. Different national rules about the third-party (or ownership) effects of assignments of claims complicate the use of claims as collateral and make it difficult for investors to price the risk of debt investments.

Removing legal uncertainties about the ownership of claims after they have been assigned on a cross-border basis is important for the assignor and the assignee of the claims. However, it is also essential for market participants who are not party to the assignment but who interact with any of the parties and need certainty about who has legal title over the assigned claims.

Commission initiatives

The  Action plan on building a capital markets union , adopted by the Commission in September 2015, envisaged targeted action on securities ownership rules and third-party effects of assignments of claims.

In order to consult all interested parties, in February 2017 the Commission published an  inception impact assessment  providing an overview of the problems to be addressed and the possible solutions.

In April 2017, the Commission launched a public consultation ( consultation on conflict of laws rules for third party effects of transactions in securities and claims ) and established an Expert group on conflict of laws regarding securities and claims. The members of the Expert group assisted the Commission by providing specialist advice on private international law and financial markets as a sound basis for policymaking.

On 12 March 2018, the Commission proposed the adoption of common conflict of laws rules on the third-party effects of assignments of claims . The proposal provides that, as a rule, the law of the country where the assignor has its habitual residence will govern the third-party effects of the assignment of claims. As an exception, the law of the assigned claim will govern the third-party effects of the assignment of specific claims. By introducing legal certainty, the new rules will promote cross-border investment, enhance access to credit and contribute to market integration. The proposal, which deals with the law applicable to the ownership questions of assignments of claims, complements the rules in the Rome I Regulation , which deal with the law applicable to the contractual questions of assignments of claims.

Previous work in relation to claims

The question of the third-party effects of assignments of claims was raised when the  Rome Convention  was being transformed into the Rome I Regulation ( Regulation (EC) No 593/2008 ). The Rome I Regulation did not address the issue, but required the Commission to prepare a report on the matter. To that effect, the Commission asked the British Institute of International and Comparative Law (BIICL) to carry out a study and the Commission presented its report in September 2016

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Change Number: DFARS Change 04/25/2024 Effective Date: 04/25/2024

Subpart 232.8 - ASSIGNMENT OF CLAIMS

232.803 policies..

(b) Only contracts for personal services may prohibit the assignment of claims.

(d) Pursuant to 41 U.S.C. 6305, and in accordance with Presidential delegation dated October 3, 1995, Secretary of Defense delegation dated February 5, 1996, and Under Secretary of Defense (Acquisition and Sustainment) delegation dated February 23, 1996, the Director of Defense Procurement determined on May 10, 1996, that a need exists for DoD to agree not to reduce or set off any money due or to become due under the contract when the proceeds under the contract have been assigned in accordance with the Assignment of Claims provision of the contract. This determination was published in the Federal Register on June 11, 1996, as required by law. Nevertheless, if departments/agencies decide it is in the Government's interest, or if the contracting officer makes a determination in accordance with FAR 32.803(d) concerning a significantly indebted offeror, they may exclude the no-setoff commitment.

232.805 Procedure.

(b) The assignee shall forward—

(i) To the administrative contracting officer (ACO), a true copy of the instrument of assignment and an original and three copies of the notice of assignment. The ACO shall acknowledge receipt by signing and dating all copies of the notice of assignment and shall—

(A) File the true copy of the instrument of assignment and the original of the notice in the contract file;

(B) Forward two copies of the notice to the disbursing officer of the payment office cited in the contract;

(C) Return a copy of the notice to the assignee; and

(D) Advise the contracting officer of the assignment.

(ii) To the surety or sureties, if any, a true copy of the instrument of assignment and an original and three copies of the notice of assignment. The surety shall return three acknowledged copies of the notice to the assignee, who shall forward two copies to the disbursing officer designated in the contract.

(iii) To the disbursing officer of the payment office cited in the contract, a true copy of the instrument of assignment and an original and one copy of the notice of assignment. The disbursing officer shall acknowledge and return to the assignee the copy of the notice and shall file the true copy of the instrument and original notice.

232.806 Contract clauses.

(a)(1) Use the clause at 252.232-7008 , Assignment of Claims (Overseas), instead of the clause at FAR 52.232-23, Assignment of Claims, in solicitations and contracts when contract performance will be in a foreign country.

(2) Use Alternate I with the clause at FAR 52.232-23, Assignment of Claims, unless otherwise authorized under 232.803 (d).

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Council Amends Commission Proposal on the Law applicable to the Third-Party Effects of Assignments of Claims (F. Garcimartin)

On 7 June 2021, the Council of the EU approved its general approach on the proposal for a regulation on the law applicable to the third-party effects of assignments of claims (“the Council General Approach” or “the proposal”). The text adopted by the Council has introduced some important amendments to the Commission’s Proposal of 12 March 2018 (COM (2018) 96 final).

Scope of application

The proposal lays down universal conflict of laws rules on the law applicable to the third-party effects of voluntarily assignments of claims and contractual subrogation (articles 1-3). The term ‘ claims’ is very broad and includes monetary and non-monetary, contractual and non-contractual, existing and future obligations (article 2(d) and recital 16i).

Regarding its material scope of application, the main amendments introduced by the Council concern financial instruments, crypto-assets and secured claims.

The General Approach has (presumably) clarified and broadened the exclusion of financial instruments and securities . The proposal now distinguishes between (i) financial instruments as such, (ii) and claims arising from these instruments . The transfer or assignment, including by way of security, of all these instruments as such is excluded from the scope of application of the proposal (see article 1.1a, recital 16a). Furthermore, the Council General Approach also clarifies that it does not apply to the assignment of claims arising from transferable securities , units in collective investment undertakings and money-market instruments, even if they are assigned in immaterial form, which is legally possible is certain jurisdictions (see article 1.2 (g) and (h), and recitals 16,16a,16b, 16c, and 16d). Conversely, the proposal applies to claims deriving from financials instruments other than transferable securities, money-market instruments and units in collective investment undertakings (see article 4.2). Therefore, it does not apply to the transfer of a swap (a contract) or an option, but it does apply to the assignment of the payment netting amounts or the close-out netting amount arising from such a swap or the cash settlement amount that may arise from the exercise of the option (see recital 27 and for emission allowances recital 16f).  

The Council General Approach has also excluded the transfer of crypto-assets , irrespective of whether they qualify as financial instruments or not (see article 1.1ab, recital 16a in fine ). But it does apply to claims arising from crypto-assets with the exceptions of those that qualify as transferable securities, money-market instruments and units in collective investment undertakings (see recital 16bis). This solution replicates the same solution applied to financial instruments and is consistent with the technology-neutral approach underlying the proposal (see recital 16bis).

The Council General Approach has also sought to clarify its application to claims secured by a tangible asset (e.g. an immovable property). The proposal applies to the assignment of claims, even if they are secured by a security right over a tangible asset, e.g. a pledge or a mortgage (see recital 16aa). However, it does not apply to the transfer of the security right (e.g. the mortgage), nor does it apply to the consequences of failing to comply with the requirements of the lex rei sitae for the resolution of a priority conflict over the secured claim (article 1.1.aa, and recitals 16aa, 16aaa and 16ab). Thus, for example, where under the law of the State where the immovable property is situated or under the authority of which the register is maintained, compliance with certain form or registration requirements for the effectiveness of the transfer of the security right is also required for the assignee to acquire title over the claim itself, the proposal should not apply to the effects of complying or failing to comply with any these requirements when resolving priority conflicts over the secured claim (see recitals 16ii and 16ab).

Finally, as regards its application in time , the Council General Approach has clarified that the proposal only applies to assignments based on contracts concluded on or after the date of application (see article 14). Recital 33b suggests that, unlike the Commission Proposal, it does not apply to a priority conflict between two assignments, one prior to the application of the Regulation and one under the Regulation.

Applicable law: main rule

In line with the Commission proposal, the Council General Approach maintains the law of the assignor’s habitual residence as the general rule and the law of the assigned claim as the special rule (note, however, that the reference to collateral arrangements in recital 19 as part of the justification for this option is misleading, as they now will be covered by the special rule, infra ). As for the general rule, the Council General Approach has linked the relevant time for determining the assignor’s habitual residence to the conclusion of the assignment contract, not to the time when the assignment becomes effective against third parties (this is consistent with the Parliament’s report, infra ).

However, the most relevant amend concerns the special rule. With good reasons, the Council has considerably broadened the number of cases in which the special rule must be applied. Whereas the Commission proposal only included under this rule the assignment of cash accounts and claims arising from financial instrument, the Council General Approach also includes, in addition to others (e.g. e-money accounts or claims arising from crypto-assets), all claims arising out of a loan (“agreements whereby credit is granted in the form of a loan”, see article 4.2 (d)). All loans are now covered by the special rule, i.e. the application of the law governing the assigned claim, so that its relevance in practice has grown exponentially. In fact, it is quantitatively much more important than the general rule. It covers, for example, non-performing loans, syndicated loans, company and intra-group lending or lending-based crowdfunding (see recital 27b). Certain transactions may, however, be difficult to qualify, e.g. the financial leases.

Alongside this important change, the Council General Approach has included new recitals that seek to clarify the identification of the law governing the assigned claim in relation to financial instruments, in particular concluded in financial market infrastructures and systems (recitals 27a, 27i, 27ii and 27a). Unfortunately, the wording of some parts of these recitals is not always clear and easily understandable.

Finally, and also in line with the structure of the Commission proposal, the Council General Approach maintains the possibility to choose between the law of the assignor’s habitual residence and the law of the assigned claim for securitisation. The aim of this flexibility is not to affect the current practice of large operators and, at the same time, to facilitate the expansion of the cross-border securitisation market to smaller operators. The Council has limited itself to including covered bonds within the application of this rule (see Article 4.3 and recital 28); and, as a corollary of the expansion of the special rule, has clarified that the choice of law applies to both cases, i.e. where the default rule is the law of the assignor and where the default rule is the law of the assigned claim, depending on the nature of the claims to be securitised (Article 4.3)

Scope of the applicable law and other provisions

As regards the scope of the applicable law, the text approved by the Council has excluded priority conflicts involving novation (see article 2, recital 17). The final picture may be questionable from a functional perspective. On the one hand, the proposal does not apply to “transfers of contracts, in which both rights and obligations are included, or the novation of contracts including such rights and obligations” (article 2 (c)). And it does not apply to a priority conflict involving novation. But, on the other hand, it does apply to a priority conflict involving the same claim which has been assigned independently and also “as a result of the transfer of the contract from which the claim arises” (article 5 (d)). 

As regards the final provisions, the Council General Approach has, surprisingly, modified the solution to multi-unit States and has opted for the application of the internal conflict of laws provisions as the primary rule (article 9.1), which will complicate unnecessarily the practical application of the future regulation, in particular when the internal conflict of laws are ambiguous or take a different approach. 

The European Parliament adopted its first-reading position, which included 24 amendments to the Commission’s Proposal, on 13 February 2019. The proposal will therefore now enter the trilogue phase and will probably be adopted by the end of this year. This will be the culmination of a longstanding project aimed at establishing a common framework in the EU on the law applicable to the third party effects of assignments of claims, following the failure to achieve this objective in the context of the Rome I Regulation.

Francisco Garcimartín

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