From: eric.gillaspie@enron.com
To: gerald.nemec@enron.com
Date: 2000-09-27 17:03:00+00:00
Subject: Illinois case law on ability to assign a contract w/o consent when
 the contract is silent on assignability

Gerald,

 In Illinois, the courts have generally held a contract may be assigned to 
another party if the contract is silent on whether the contract is 
assignable.  However, the case law fails to specifically discuss if consent 
of the non-assigning party is required for the assignment to be valid.  
However, I think it is reasonable to interpret the omission of such a 
"consent requirement" in the discussion on assignment, to conclude that 
consent is not required.   See the discussion below:

ILLINOIS JURISPRUDENCE 
Copyright 1999 LEXIS Law Publishing, a div. of Reed Elsevier Inc. 

Thomas D. Nusbaum, J.D. 

COMMERCIAL LAW ? 
PART TWO. UNIFORM COMMERCIAL CODE ? 
CHAPTER 9. ARTICLE 2: SALES ? 
III. PERFORMANCE ? 
A. OVERVIEW OF OBLIGATIONS 

Illinois Jur, Commercial Law o 9:35 

o 9:35. Delegation or assignment 

? ?A party may perform a duty under a sales contract through a delegate, 
unless otherwise agreed or unless the other party has a substantial interest 
in having the original promisor perform or control the acts required by the 
contract. No delegation of performance relieves the party delegating of any 
duty to perform or any liability for breach. ?n35 

All rights of the seller or buyer may be assigned, unless otherwise agreed. 
?n36 

This may include rights under a warranty, such that the assignee of a 
warrantee's rights under an express warranty, if the assignment is otherwise 
valid, succeeds to all those rights and thus stands in privity with the 
warrantor. Such an assignee's privity would generally enable it to sue for 
economic loss and consequential damages, just as an original contracting 
party might do. ?n37 

Unless the circumstances indicate the contrary, a prohibition of assignment 
of ''the contract'' is to be construed as barring only the delegation to the 
assignee of the assignor's performance. ?n38 However, an assignment is barred 
where it would materially change the duty of the other party, increase 
materially the burden or risk imposed on him by the contract, or impair 
materially his chance of obtaining return performance. A right to damages for 
breach of the whole contract or a right arising out of the assignor's due 
performance of his entire obligation can be assigned despite an agreement 
otherwise, ?n39 because no delegation of any performance is involved. ?n40 

An assignment of ''the contract,'' of ''all my rights under the contract,'' 
or in similar general terms is an assignment of rights, and unless the 
language or the circumstances, as in an assignment for security, indicate the 
contrary, is also a delegation of performance of the duties of the assignor. 
The acceptance of such an assignment by the assignee constitutes a promise to 
perform those duties. This promise is enforceable by either the assignor or 
the other party to the original contract. ?n41 

Comment: Article 2 of the Uniform Commercial Code ?n42 takes no position on 
the possibility of extending some recognition or power to the original 
parties to work out normal commercial readjustments of the contract in the 
case of financing assignments even after the original obligor has been 
notified of the assignment. This question is dealt with in Article 9. ?n43 

On the other hand, the other party may treat any assignment which delegates 
performance as creating reasonable grounds for insecurity and may, without 
prejudice to his rights against the assignor, demand assurances from the 
assignee. ?n44 

Digest Data 

Case Authorities: 

Assignments to jobbers were not forbidden where agreements' assignment 
provision made only one limitation on dealer's right to assign and no 
limitations on franchisor. Beachler v Amoco Oil Co., 112 F3d 902 (CA7 Ill 
1997). 

The sale of the defendant corporation was not violative of a clause in the 
parties' contract that prohibited assignment without the prior written 
consent of the plaintiff, since a change in corporate ownership does not 
constitute a variation of that corporation's contractual duty and at all 
times, the defendant remained an independent, functioning organization; thus, 
the sale of the defendant corporation did not change the defendant's 
obligations under the contract and did not assign the defendant's rights and 
duties under the agreement to anyone. Baxter Healthcare Corp. v O.R. 
Concepts, 69 F3d 785 (CA7 Ill 1995). 

The change of ownership of defendant's stock did not constitute an assignment 
of defendant's interests in its agreement with plaintiff; a change in 
corporate ownership does not constitute a variation of that corporation's 
contractual obligations. Baxter Healthcare Corp. v O.R. Concepts, 69 F3d 785, 
27 UCCRS2d 1185 (CA7 Ill 1995). 

Annotation References: Sales: what constitutes ''reasonable grounds for 
insecurity'' justifying demand for adequate assurance of performance under 
UCC o 2-609. 37 ALR5th 459. Liability of secured creditor under uniform 
commercial code to third party on ground of unjust enrichment. 27 ALR5th 719. 

Periodicals: 

For article, ''Survey of Illinois Law: Commercial Law,'' see 21 S. Ill. 
U.L.J. 729 (1997). 

FOOTNOTES: 
???[n35] 810 ILCS 5/2-210(1). 

[n36] 810 ILCS 5/2-210(2). Assignments are generally discussed in Illinois 
Jur, Property. 

[n37] Collins Co. v Carboline Co. (1988) 125 Ill 2d 498, 127 Ill Dec 5, 532 
NE2d 834, CCH Prod Liab Rep 12019, 7 UCCRS2d 616, later proceeding (CA7 Ill) 
864 F2d 560, 7 UCCRS2d 629. As to warranties generally, see oo 9:76 et seq. 

[n38] 810 ILCS 5/2-210(3). 

[n39] 810 ILCS 5/2-210(2). 

[n40] Official Comment 3 to UCC o 2-210. 

[n41] 810 ILCS 5/2-210(4). 

[n42] 810 ILCS 5/2-101 et seq. 

[n43] Official Comment 5 to UCC o 2-210. As to Article 9 of the UCC (810 ILCS 
5/9-101 et seq.) generally, see Chapter 17, Article 9: Secured Transactions. 

[n44] 810 ILCS 5/2-210(5). As to the right to seek assurance under 810 ILCS 
5/2-609, see o 9:36. 

Research References: 

Forms: 

Complaint-Misrepresentation of ability to pay for goods. 7A Callaghan's 
Illinois Civil Practice Forms, Sales o 176.07. 

COMMERCIAL LAW ? 
PART ONE. CONTRACTS ? 
CHAPTER 6. GUARANTY, SURETY, AND INDEMNITY CONTRACTS ? 
II. GUARANTY CONTRACTS ? 
A. IN GENERAL 

Illinois Jur, Commercial Law o 6:10 

o 6:10. Assignability; substitution of parties 

? ?Illinois recognizes the general principle of nonassignability of 
guaranties. ?n44 The general rule provides that a guarantor is released from 
his obligations where the creditor assigns his contract to a third party. 
?n45 However, that rule is not applied mechanically; rather, the facts of 
each case determine whether the policy underlying the rule applies. ?n46 The 
test of whether a guaranty may be transferred is not whether new credit is 
extended after the transfer, but whether the obligations of the parties to 
the guaranty have thereby changed. ?n47 

The rationale for the rule that a special guaranty is not assignable without 
the consent of the guarantor stems from the general contract principle that a 
person may be held only to the precise obligation he undertook. ?n48 The rule 
thus rests upon the principle that the assignment would be a material 
alteration because the surety may have extended his promise because of his 
reliance on one or the other of the original parties or because the addition 
of the new party would materially affect the operation of the instrument. 
?n49 

A simple assignment of a guaranty pursuant to a contract between a 
creditor-guarantee and a third party is more likely to cause a material 
alteration in the guarantor's obligation than an assignment pursuant to a 
merger, but, in either case, a court must determine whether the guarantor's 
obligation was materially altered. The manner in which an assignment takes 
place is not determinative. ?n50 

Claims for money arising by virtue of past extensions of credit made in 
reliance upon a continuing guaranty can be assigned. ?n51 

Eric Gillaspie
713-345-7667
Enron Building 3886