Also known as: assignments for security · assign for security · assigned for security · security assignment
Written by attorneys — see sources below.
An assignment of contract rights made to secure repayment of a loan or other obligation. The assignee receives only the right to collect payments or proceeds while the assignor retains the duty to perform unless the parties expressly agree otherwise.
Orion LLC borrowed funds from Lark Finance and executed a written assignment of all rights to future proceeds under its Harbor Insurance policy as collateral. Lark accepted the assignment solely to secure repayment. When a covered judgment later arose, Harbor refused Lark's demand for payment because the policy barred assignment without consent. The assignment operated only as a security interest, so no performance duties passed to Lark.
Falco assigned its rights to payment under supply agreements to BAII Banking as collateral for financing the underlying transactions. BAII accepted the assignment only to secure the loan and did not undertake any delivery or performance obligations. When the buyer later sought assurances, Falco remained responsible for performance. The security nature of the assignment prevented any delegation of duties to BAII.
In July 1986, BAII Banking Corporation and its affiliate Banque Arabe et Internationale d'Investissement filed a diversity action in the United States District Court for the Southern District of New York against UPG, Incorporated and Internorth, Incorporated. The suit arose from four agreements entered in December 1985 and January 1986 between UPG Falco, a division of UPG and subsidiary of Internorth, and Will Petroleum, Incorporated. Two agreements concerned the sale of Rumanian blendstock gasoline that BAII had financed for Will, while the other two were buy-sell transactions for gasoline. The Dodsland Agreement required Will to sell Falco 80,000 metric tons of Rumanian unleaded blendstock for delivery on the East Coast between January 26 and February 10, 1986. The Konpolis Agreement called for the sale of approximately 100,000 barrels for delivery to Riverhead, New York between January 21 and 25, 1986. For both transactions, Falco sent purchase confirmations to BAII directing that payment be remitted to Chemical Bank for credit to a BAII account and further credit to Will Petroleum. By mid-January 1986, rumors had resurfaced concerning Will’s financial difficulties. On January 23, Falco sent Will a telex demanding adequate assurances of performance by 3:00 p.m. Central Standard Time on January 24 with respect to the Rumanian blendstock agreements and the buy-sell agreements. Will did not respond to the demand. On the evening of January 24, Falco sent Will a telex canceling all unfulfilled contracts. Will filed a voluntary petition for bankruptcy on January 29, 1986, after which BAII obtained from the bankruptcy court an assignment of Will’s rights under the agreements. Trial commenced before Judge Louis L. Stanton on March 12, 1991. BAII Paris withdrew its claims on the buy-sell agreements shortly after opening statements, leaving only BAII’s claims on the two Rumanian blendstock agreements. The jury returned a verdict in favor of the defendants on April 8, 1991. BAII moved for judgment notwithstanding the verdict or a new trial; the district court denied the motion in an order filed September 20, 1991, and BAII appealed. During late 1985 through mid-1986 the market price for petroleum products declined, and Falco stood to gain financially if the agreements were not performed. Evidence at trial showed that the vessel Konpolis arrived at the pilot station near Riverhead on January 23, 1986, prepared a notice of readiness, but was instructed not to berth after receiving a call from the terminal operators acting on instructions from the cargo receiver. The Dodsland discharged its cargo at Riverhead in early February 1986.
View caseAn assignment for security transfers only the assignor's rights to payment or proceeds as collateral. It does not carry a presumption that the assignee assumes the assignor's performance duties. A general assignment of the contract or all rights under it normally includes both an assignment of rights and a delegation of duties unless the security context or other circumstances indicate otherwise.
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No. Acceptance of an assignment for security does not create a promise by the assignee to perform the assignor's duties. The security context supplies the contrary indication that prevents the usual presumption of delegation from arising under UCC § 2-210(5).
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The nonassigning party may still treat an assignment that delegates performance as grounds for insecurity. Because an assignment for security normally does not delegate performance, the nonassigning party ordinarily has no basis to demand assurances from the assignee on that ground.
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