Acommon – and often confusing – feature of English legal terminology is that two or more words are used to describe what appears to be the same noun, adjective or verb. So we see two or more words describing nouns, such as “goods and chattels” and “will and testament”; two or more words describing adjectives, such as “null and void”, “in full force and effect” and “fit and proper”; and two or more words describing actions, such as “give, devise and bequeath” and “sell, transfer and assign”.

Often referred to as synonym strings, this practice can be attributed to a couple of factors. The first factor is the subtle difference in the traditional legal meaning of words. For example, “will” was traditionally used in relation to real (or immovable) property, and “testament” was traditionally used in relation to personal (or movable) property. Along similar lines, “devise” was used in relation to the testamentary gift of real property and “bequeath” was used in relation to the testamentary gift of personal property.

In the context of modern contracts, many of these traditional legal distinctions are no longer relevant. For example, each of the words “representations” and “warranties” traditionally referred to different concepts and gave rise to different remedies. However, they still appear in contracts as a matter of convention, even where they refer to the same concept (see Lexicon in China Business Law Journal volume 1, issue 3, page 78, entitled Warranties and misrepresentations).

The second factor causing synonym strings is historical and linguistic in nature. After the Normans conquered England in 1066, Norman French or “law French” became the language of the law, together with Latin. The use of Latin and law French was subsequently prohibited by a statute in 1731, which introduced English as the language of the law and the courts.

Despite the adoption of English as the language of the law, many lawyers continued to use the French words alongside their English equivalents in contracts and other legal documents. For example, the English word “goods” was inserted in the phrase “goods and chattels” and the English word “give” was inserted in the phrase “give, devise and bequeath”.

In this column, we look at the use of the words “transfer” and “assign” in common law jurisdictions, and the equivalent terms in China. We will also look at the assignment of contractual rights under English law and PRC law.

English

In all common law jurisdictions, each of the words “transfer” and “assign” is commonly used to describe the act by which ownership of an asset is passed from one party to another. The asset might be a right or interest in relation to tangible property, such as a house or car, or a right or interest in relation to intangible property, such as a contractual right or claim.

Although the words are often used interchangeably, “transfer” has traditionally been used in connection with property that is capable of being physically possessed (e.g. a house or car) and property where ownership is represented by a legal instrument (e.g. a share certificate).

“Assign”, on the other hand, has traditionally been used in relation to intangible property rights, such as a debt or the benefits arising under a contract (e.g. the rental income under a lease agreement).

Assignment of debts, contractual rights under English law

From a public policy perspective, the transfer of an asset that is capable of being physically possessed is much less complicated than the assignment of an asset that consists of a claim or right under a contract.

This is because a tangible asset has a separate existence, which is not dependent on the acts or obligations of a third party. As long as the person in possession of the asset is also its owner and has clean title to the asset, no third parties will be adversely affected by the transfer.

In the case of the assignment of a debt or the benefits arising under a contract, however, the asset consists of a right to claim payment from a third party (i.e. the debtor or obligor).

The third party will be affected by the assignment, as it may be asked by the assignee to make payments to itself in place of the assignor. It will also be adversely affected if the assignment means that it loses the right to set off any payment obligations owing by the assignor against its own payment obligations.

Before the statutory development that occurred under the Judicature Act 1873, an assignment of a debt or contractual right was recognised in equity as an equitable assignment (see Lexicon in China Business Law Journal volume 3, issue 5, page 74, entitled Law or equity?).

Under an equitable assignment, the assignee could not enforce the debt or contractual right directly against the debtor or the obligor. However, it could require the assignor to sue the debtor or the obligor in the assignor’s name to recover payment on behalf of the assignee.

The Judicature Act (now section 136 of the Law of Property Act) introduced the concept of a legal assignment. Under a legal assignment, the assignee is able to step into the shoes of the assignor and claim payment directly from the debtor or the obligor if four conditions are satisfied: (1) the assignment is absolute (i.e. it is not part of a security arrangement); (2) the assignment is in writing; (3) the whole of the debt is assigned; and (4) written notice has been given to the debtor or the obligor. The relevant part of section 136 is set out below (note that a “legal thing in action” is a right that has no physical existence and can only be enforced through legal action).

第136条 据法财产的法定转让

(1) 转让人以书面形式作出并亲笔签署(其意并非只是以押记形式作出)的债权或其他据法财产的绝对转让,如果转让人已就该项绝对转让向该等债权或据法财产的债务人、受托人或其他义务人给予明确的书面通知,则该绝对转让具有法律效力并且自上述通知之日起向受让人转移和转让以下权利:

(a) 该等债权或据法财产的法律权利;

(b) 该等债权或据法财产的所有法律或其他救济措施;

(c) 无须转让人的同意而直接确认债务人已妥为清偿该等债务或据法财产 …

136 Legal assignments of things in action.

(1) Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal thing in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to claim such debt or thing in action, is effectual in law … to pass and transfer from the date of such notice:

(a) the legal right to such debt or thing in action;

(b) all legal and other remedies for the same; and

(c) the power to give a good discharge for the same without the concurrence of the assignor …

The above section – and its equivalent in other common law jurisdictions – is one of the most important statutory provisions in commerce, as it underpins the trade in financial assets and supports many financial transactions, such as securitisation.

There is, however, a complex question that has not been conclusively answered in many common law jurisdictions: what is the legal position if the contract creating the debt prohibits an assignment by the creditor or provides that an assignment of the debt will not be effective without the consent of the debtor?

If a creditor assigns a debt in breach of a contractual prohibition, there are three possible outcomes:

  • the assignment is wholly ineffective;
  • the assignment is ineffective against the debtor but effective between the assignor and the assignee; or
  • the assignment is wholly effective, both against the assignor and also the debtor (once written notice is given).

The question involves important issues of public policy, as it creates a conflict between two fundamental principles – namely, the principle of freedom of trade (under which the owners of financial assets should be able to sell them freely and without restriction) and the principle of freedom of contract (under which the parties to a contract should be free to determine their respective rights and obligations without undue interference from the law).

In England, the position is not settled.

The weight of legal opinion is in favour of treating the assignment as effective between the assignor and the assignee, but not between the assignee and the debtor. In the US, on the other hand, the law has decided in favour of freedom of trade by treating the assignment as fully effective. Article 9-138(4) of the Uniform Commercial Code provides that a term in any contract between a debtor and an assignor is ineffective if it prohibits the assignment of the debt or requires the debtor’s consent to an assignment.

Chinese

As is the case in the English language, there are also several words in the Chinese language that describe the act by which tangible or intangible property rights are passed from one party to another.

These include “转让”, “转移” (or “移转” and “让与”). Some of the contexts in which these words are used are explained below.

转让” and “转移” are often used interchangeably to refer to both the transfer of rights and the transfer of obligations from one party to another party.

See, for example, articles 84 and 88 of the PRC Contract Law, which respectively refer to the transfer of obligations and concurrent transfer of rights and obligations.

转移” is often used to refer to the transfer of title. For example, article 130 of the PRC Contract Law provides that “a sales contract is a contract whereby the seller transfers title to the subject matter to the buyer, who pays the price”.

The term “让与” is often used to describe the assignment of contractual rights or the assignment of debts.

Assignment of debts or contractual rights under PRC law

Similar to article 136 of the Law of Property Act in England, articles 79 and 80 of the PRC Contract Law make provision for an assignment of contractual rights as follows:

第七十九条 

债权人可以将合同的权利全部或者部分转让给第三人,但有下列情形之一的除外:

(一)根据合同性质不得转让;

(二)按照当事人约定不得转让;

(三)依照法律规定不得转让。

第八十条 

债权人转让权利的,应当通知债务人。未经通知,该转让对债务人不发生效力。

债权人转让权利的通知不得撤销,但经受让人同意的除外。

Article 79

An obligee may assign its rights under a contract in whole or in part to a third person, except in any of the following circumstances:

(i) the rights are not capable of assignment in light of the nature of the contract;

(ii) in accordance with the agreement between the parties, the rights may not be assigned;

(iii) the law provides that the rights may not be assigned.

Article 80

Where an obligee assigns its rights, it must notify the obligor. An assignment that is not notified is not binding upon the obligor.

A notice of assignment of rights given by the obligee may not be revoked, except with the consent of the assignee.

Under article 79(ii), contractual rights may not be assigned if there is a prohibition against assignment in the contract. As a result, PRC law has taken the opposite position to the law in the US by providing that an assignment in breach of a contractual prohibition is wholly ineffective.

It will be interesting to see if PRC law becomes more flexible in the future and provides for a special set of rules in the case of commercial transactions.

If it does, it will be interesting to see whether it adopts a position similar to that in jurisdictions like England, where the assignment is effective between the assignor and the assignee, but not against the debtor, or a position similar to that in the US and France, where the assignment is wholly effective both against the assignor and the debtor (once written notice is given).

葛安德 Andrew Godwin
葛安德
Andrew Godwin

A former partner of Linklaters Shanghai, Andrew Godwin teaches law at Melbourne Law School in Australia, where he is an associate director of its Asian Law Centre. Andrew’s new book is a compilation of China Business Law Journal’s popular Lexicon series, entitled China Lexicon: Defining and translating legal terms. The book is published by Vantage Asia and available at www.vantageasia.com.