or copyright. Although the licensee has rights to use it,
he or she does not own the patent or copyright and may
not transfer or assign it. The license agreement may also
prevent assignment of the license, patent or copyright.
Contracts containing prohibitions against assign-
ments are common, for understandable reasons.
Imagine contracting with someone to manufacture
your product. You have shopped around and care-
fully selected a manufacturer to assure the quality and
service will be of the highest caliber. Then you discover
that carefully chosen manufacturer sold your contract
to a company you already considered and rejected. Your
desire to prohibit that kind of assignment makes perfect
sense, so your contract includes a prohibition against
assigning any and all rights under your contracts:
This agreement and the rights provided for
hereunder may not be assigned by any party
hereto without the prior written consent of
the non-assigning party.
But can that manufacturer assign his payment
rights? He still manufactures your product, but instead
of paying him, you pay his assignee. Does that fly in
the face of the non-assignability clause of your contract?
Payment Rights Are Different
Payment rights are a different creature. Although
contracts often prohibit assignments of any kind, the
drafters of the Uniform Commercial Code separate
payment rights from other rights. In 9-406(d), the
The right to reassign property interests is a basic oncept in western jurisprudence. Simply, secured lenders are allowed to make advances
to their borrowers, relying on the borrowers’ assignment
to the lender of property rights. Without these assignments, many borrowers would be unable to secure
working capital and the overall economy would suffer.
Of course, there are risks in accepting assignments.
Consider, for example, the sale of property leased to a
third party. The purchaser is not obtaining a present
right to use the premises because the tenant has a
contractual right to use it during the lease period. The
seller might retain the payment rights under the lease,
leaving only the remainder to the buyer. The same
issues exist with transfers of personal property, especially intellectual property. Consider a licensed patent
Financing Government Receivables:
State Governments Subject to Notification
Like Other Account Debtors
BY JEFFREY A. WURST
Assigning payment rights is a basic concept that enables borrowers to obtain working capital. However,
matters can be more complex when working with government departments. Jeffrey Wurst explains a
recent decision in a Florida appellate court that requires state government departments to make payments
when the debt has been reassigned to a factor if proper procedures have been followed.
Traditionally, federal anti-assignment law made it impractical for
a lender or factor to make advances against federal government
accounts. As the U.S. was preparing to enter World War II, it became
necessary to ease these restrictions to allow government contractors
to obtain the necessary financing to manufacture products needed to
support the war effort. The federal Assignment of Claims Act of 1940
was amended from 1951 through 1996 and was ultimately repealed
and replaced with more practical provisions in 2011.
JEFFRE Y A. WURS T
Partner, Ruskin Moscou