deed of assignment in banking

Deed of Assignment or Deed of Novation: Key Differences and Legal Implications of Novation and Assignment Contracts

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Introduction

Novation and assignment stand out as pivotal processes for the transfer of contractual rights and obligations. These legal concepts allow a party to the contract to adapt to changing circumstances, ensuring that business arrangements remain relevant and effective. This article explores the nuances of novation and assignment, shedding light on their distinct legal implications, procedures, and practical applications. Whether you’re a business owner navigating the transfer of service contracts, or an individual looking to understand your rights and responsibilities in a contractual relationship, or a key stakeholder in a construction contract, this guide will equip you with the essential knowledge to navigate these complex legal processes.

What is a Deed of Novation? 

Novation is a legal process that allows a new party to a contract to take the place of an original party in a contract, thereby transferring both the responsibilities and benefits under the contract to a third party. In common law, transferring contractual obligations through novation requires the agreement of all original parties involved in the contract, as well as the new party. This is because novation effectively terminates the original contract and establishes a new one.

A novation clause typically specifies that a contract cannot be novated without the written consent of the current parties. The inclusion of such a clause aims to preclude the possibility of novation based on verbal consent or inferred from the actions of a continuing party. Nevertheless, courts will assess the actual events that transpired, and a novation clause may not always be enforceable. It’s possible for a novation clause to allow for future novation by one party acting alone to a party of their choosing. Courts will enforce a novation carried out in this manner if it is sanctioned by the correct interpretation of the original contract.

Novation is frequently encountered in business and contract law, offering a means for parties to transfer their contractual rights and duties to another, which can be useful if the original party cannot meet their obligations or wishes to transfer their contract rights. For novation to occur, there must be unanimous consent for the substitution of the new party for the original one, necessitating a three-way agreement among the original party, the new party, and the remaining contract party. Moreover, the novation agreement must be documented in writing and signed by all involved parties. Understanding novation is essential in the realms of contracts and business dealings, as it provides a way for parties to delegate their contractual rights and responsibilities while freeing themselves from the original agreement.

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What is a Deed of Assignment? 

A deed of assignment is a legal document that facilitates the transfer of a specific right or benefit from one party (the assignor) to another (the assignee). This process allows the assignee to step into the assignor’s position, taking over both the rights and obligations under the original contract. In construction, this might occur when a main contractor assigns rights under a subcontract to the employer, allowing the employer to enforce specific subcontractor duties directly if the contractor fails.

Key aspects of an assignment include:

• Continuation of the Original Contract: The initial agreement remains valid and enforceable, despite the transfer of rights or benefits.
• Assumption of Rights and Obligations: The assignee assumes the role of the assignor, adopting all associated rights and responsibilities as outlined in the original contract.
• Requirement for Written Form: The assignment must be documented in writing, signed by the assignor, and officially communicated to the obligor (the party obligated under the contract).
• Subject to Terms and Law: The ability to assign rights or benefits is governed by the specific terms of the contract and relevant legal statutes.

At common law, parties generally have the right to assign their contractual rights without needing consent from the other party involved in the contract. However, this does not apply if the rights are inherently personal or if the contract includes an assignment clause that restricts or modifies this general right. Many contracts contain a provision requiring the consent of the other party for an assignment to occur, ensuring that rights are not transferred without the other party’s knowledge.

Once an assignment of rights is made, the assignee gains the right to benefit from the contract and can initiate legal proceedings to enforce these rights. This enforcement can be done either independently or alongside the assignor, depending on whether the assignment is legal or equitable. It’s important to note that while rights under the contract can be assigned, the contractual obligations or burdens cannot be transferred in this manner. Therefore, the assignor remains liable for any obligations under the contract that are not yet fulfilled at the time of the assignment.

Key Differences Between Novation and Assignment Deeds

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Choosing Between Assignment and Novation in a Construction Contract

Choosing between a deed of novation and an assignment agreement depends on the specific circumstances and objectives of the parties involved in a contract. Both options serve to transfer rights and obligations but in fundamentally different ways, each with its own legal implications, risks, and benefits. Understanding these differences and considering various factors can help in making an informed decision that aligns with your goals.

Need a Deed of Novation or Assignment? Key Factors to Consider

The choice between assignment and novation in a construction project scenario, where, for instance, an employer wishes to engage a subcontractor directly due to loss of confidence in the main contractor, hinges on several factors. These are:

• Nature of the Contract:  The type of contract you’re dealing with (e.g., service, sales) can influence which option is more suitable. For instance, novation might be preferred for service contracts where obligations are personal and specific to the original parties.
• Parties Involved: Consent is a key factor. Novation requires the agreement of all original and new parties, making it a viable option only when such consent is attainable. Assignment might be more feasible if obtaining consent from all parties poses a challenge.
• Complexity of the Transaction: For transactions involving multiple parties and obligations, novation could be more appropriate as it ensures a clean transfer of all rights and obligations. Assignment might leave the original party with ongoing responsibilities.
• Time and Cost: Consider the practical aspects, such as the time and financial cost associated with each option. Novation typically involves more complex legal processes and might be more time-consuming and costly than an assignment.

If the intention is merely to transfer the rights of the subcontractor’s work to the employer without altering the subcontractor’s obligations under a contract, an assignment might suffice. However, if the goal is to completely transfer the main contractor’s contractual role and obligations to the employer or another entity, novation would be necessary, ensuring that all parties consent to this new arrangement and the original contractor is released from their obligations.

The legal interpretations and court decisions highlight the importance of the document’s substance over its label. Even if a document is titled a “Deed of Assignment,” it could function as a novation if it transfers obligations and responsibilities and involves the consent of all parties. The key is to clearly understand and define the objective behind changing the contractual relationships and to use a deed — assignment or novation — that best achieves the desired legal and practical outcomes, ensuring the continuity and successful completion of the construction project.

Selecting the Right Assignment Clause for Your Contract – Helping You Make the Right Choice

Understanding the distinction between assignment deeds and novation deeds is crucial for anyone involved in contractual agreements. Novation offers a clean slate by transferring both rights and obligations to a new party, requiring the consent of all involved. Assignment, conversely, allows for the transfer of contractual benefits without altering the original contract’s obligations. Each method serves different strategic purposes, from simplifying transitions to preserving original contractual duties. The choice between novation and assignment hinges on specific legal, financial, and practical considerations unique to each situation. At PBL Law Group, we specialise in providing comprehensive legal advice and support in contract law. Our team is dedicated to helping clients understand their options and make informed decisions that align with their legal and business objectives. Let’s discuss!

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Authored By Raea Khan

Director Lawyer, PBL Law Group

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Assignment: Definition in Finance, How It Works, and Examples

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

What Is an Assignment?

Assignment most often refers to one of two definitions in the financial world:

• The transfer of an individual's rights or property to another person or business. This concept exists in a variety of business transactions and is often spelled out contractually.
• In trading, assignment occurs when an option contract is exercised. The owner of the contract exercises the contract and assigns the option writer to an obligation to complete the requirements of the contract.

Key Takeaways

• Assignment is a transfer of rights or property from one party to another.
• Options assignments occur when option buyers exercise their rights to a position in a security.
• Other examples of assignments can be found in wages, mortgages, and leases.

Uses For Assignments

Assignment refers to the transfer of some or all property rights and obligations associated with an asset, property, contract, or other asset of value. to another entity through a written agreement.

Assignment rights happen every day in many different situations. A payee, like a utility or a merchant, assigns the right to collect payment from a written check to a bank. A merchant can assign the funds from a line of credit to a manufacturing third party that makes a product that the merchant will eventually sell. A trademark owner can transfer, sell, or give another person interest in the trademark or logo. A homeowner who sells their house assigns the deed to the new buyer.

To be effective, an assignment must involve parties with legal capacity, consideration, consent, and legality of the object.

A wage assignment is a forced payment of an obligation by automatic withholding from an employee’s pay. Courts issue wage assignments for people late with child or spousal support, taxes, loans, or other obligations. Money is automatically subtracted from a worker's paycheck without consent if they have a history of nonpayment. For example, a person delinquent on $100 monthly loan payments has a wage assignment deducting the money from their paycheck and sent to the lender. Wage assignments are helpful in paying back long-term debts.

Another instance can be found in a mortgage assignment. This is where a mortgage deed gives a lender interest in a mortgaged property in return for payments received. Lenders often sell mortgages to third parties, such as other lenders. A mortgage assignment document clarifies the assignment of contract and instructs the borrower in making future mortgage payments, and potentially modifies the mortgage terms.

A final example involves a lease assignment. This benefits a relocating tenant wanting to end a lease early or a landlord looking for rent payments to pay creditors. Once the new tenant signs the lease, taking over responsibility for rent payments and other obligations, the previous tenant is released from those responsibilities. In a separate lease assignment, a landlord agrees to pay a creditor through an assignment of rent due under rental property leases. The agreement is used to pay a mortgage lender if the landlord defaults on the loan or files for bankruptcy . Any rental income would then be paid directly to the lender.

Options Assignment

Options can be assigned when a buyer decides to exercise their right to buy (or sell) stock at a particular strike price . The corresponding seller of the option is not determined when a buyer opens an option trade, but only at the time that an option holder decides to exercise their right to buy stock. So an option seller with open positions is matched with the exercising buyer via automated lottery. The randomly selected seller is then assigned to fulfill the buyer's rights. This is known as an option assignment.

Once assigned, the writer (seller) of the option will have the obligation to sell (if a call option ) or buy (if a put option ) the designated number of shares of stock at the agreed-upon price (the strike price). For instance, if the writer sold calls they would be obligated to sell the stock, and the process is often referred to as having the stock called away . For puts, the buyer of the option sells stock (puts stock shares) to the writer in the form of a short-sold position.

Suppose a trader owns 100 call options on company ABC's stock with a strike price of $10 per share. The stock is now trading at $30 and ABC is due to pay a dividend shortly. As a result, the trader exercises the options early and receives 10,000 shares of ABC paid at $10. At the same time, the other side of the long call (the short call) is assigned the contract and must deliver the shares to the long.

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Obtaining a Lien Release

If you had a loan at a failed bank which you paid off and the bank’s lien on your property was not released, we may be able to help. More information on lien releases

1 Confirm the FDIC has the authority to assist with a lien release

The FDIC may be able to assist you in obtaining a lien release if the request is for a customer of a failed bank that was placed into FDIC receivership.

To determine if the FDIC might be able to assist with a lien release, verify the bank was acquired with government assistance:

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Are you having trouble finding a lienholder?

If the bank failed within the last two years and another bank purchased or acquired the failed bank, you should contact the acquiring bank (see the Failed Bank List ). If the lien is for a subsidiary of a failed bank, the FDIC may also be able to assist you. Please contact FDIC DRR Customer Service at 888-206-4662.

The FDIC cannot process lien releases for:

• Banks that merged without government assistance, unless the successor bank failed (see BankFind )
• Banks that were acquired without government assistance, unless the successor bank failed (see BankFind )
• Banks that closed voluntarily and liquidated their assets or closed without government assistance (see BankFind )
• Credit Unions (see NCUA )
• Mortgage and finance companies (see appropriate Secretary of State Office )

2 Compile Required Documents and Prepare Request for a Lien Release

Review the required documents based on the type of loan:

Home, Building, or Land: Required Documents for Obtaining a Lien Release

Recorded Mortgage or Deed of Trust

A recorded copy of the mortgage or deed of trust document for which you are requesting a release. The copy must be legible and clearly show the recording information. This document can be obtained from the public records in the county where the property is located or from your title company or title attorney.

Recorded Assignments

Recorded copies of all assignments in the chain of title leading to the FDIC receivership.

Title Search, Title Commitment, or Attorney's Title Opinion

A copy of a recent (dated within the last six months) title search, title commitment issued by a title company, or an attorney's title opinion on the property for which you are requesting a release. Your title company or title attorney can usually provide you with this title document.

Proof of Payment

Proof that the loan was paid in full, which can be in the form of a Lienholder’s promissory note stamped "PAID" , a signed HUD-1 settlement statement, a copy of payoff check, or any other documentation evidencing payoff to the failed bank.

The FDIC will not accept a copy of the borrower’s credit report as proof of payoff.

Assignment of a Real Estate Lien: Required Documentation for Obtaining an Assignment

A recorded copy of the mortgage or deed of trust document for which you are requesting an assignment. The copy must be legible and clearly show the recording information. This document can be obtained from the public records in the county where the property is located or from your title company or title attorney.

A copy of a recent (dated within the last six months) Title Search, Title Commitment issued by a title company, or an attorney's title opinion on the property for which you are requesting an assignment that documents the missing assignment or transfer of the lien interest in the chain of title. Your title company or title attorney can usually provide you with this title document.

Note Endorsement or Purchase and Sale Contract

Proof that the party to whom the assignment is being made is the subsequent owner of the lien. Documentation for the FDIC consideration may be a note endorsement or a loan purchase and sale contract.

Allonge: Required Documents for Obtaining an Allonge

Copy of Promissory Note

A copy of the note, and any endorsements for which you are requesting an allonge. The copy must be legible and include all pages of the note.

A recorded copy of the mortgage or deed of trust document for which you are requesting an allonge. The copy must be legible and clearly show the recording information. This document can be obtained from the public records in the county where the property is located or from your title company or title attorney.

Proof of Subsequent Owner of Promissory Note

Proof that the party to whom the allonge may be issued to is the subsequent owner of the note. Documentation for FDIC consideration may be a recorded assignment from the failed institution to the subsequent owner or a loan purchase and sale contract.

Car or Truck: Required Documents for Obtaining a Lien Release

Title, Non-Negotiable Title, Vehicle Inquiry Report, or Title Report

A copy of the title or non-negotiable title for the vehicle that you are requesting a release. The copy must be legible and clearly show:

• Owner's Name
• Lienholder's Name
• Vehicle Identification Number (VIN)
• Title Number
• Make and Model

If the title or non-negotiable title has been lost or is unavailable, you must request and provide a printout from the state containing the title information. This printout is sometimes called a Vehicle Inquiry Report or Title Report. Depending on the state, you may have to contact the Department of Motor Vehicles, Department of Public Safety, or the local tax office for this printout (note: there may be a small fee).

A registration certificate is not the same as a Title Report and is unacceptable.

Proof of Payoff

Proof that the loan was paid in full, which can be in the form of a Lienholder’s promissory note stamped "PAID" , a copy of payoff check, or any other documentation evidencing payoff to the failed bank.

Boat: Required Documents for Obtaining a Lien Release

Title, Non-Negotiable Title, or Inquiry Report

A copy of the Title or non-negotiable title for the craft which you are requesting a release. The copy must be legible and clearly show:

• Identification Number

If the title or non-negotiable title has been lost or is unavailable, you must obtain and provide a printout from the state, sometimes called an inquiry report or title report. Depending on the state, you may have to go to the Department of Parks and Wildlife, Department of Motor Vehicles, Department of Public Safety, or the local tax office for this printout (note: there may be a small fee).

If the boat is classified as an "Ocean Vessel”, you must obtain and provide a title report from the United States Coast Guard.

Mobile or Manufactured Home: Required Documents for Obtaining a Lien Release

A copy of the title or non-negotiable title for the mobile/manufactured home for which you are requesting a release. The copy must be legible and clearly show:

• Label or Serial Number
• Weight and Size

If the title or non-negotiable title has been lost or is unavailable, you must request and provide a printout from the state containing the title information. This printout is sometimes called an inquiry report or title report. Depending on the state, you may have to go to the Department of Housing and Community Affairs, Department of Motor Vehicles, Department of Public Safety, or the local tax office for this printout (note: there may be a small fee).

Proof that the loan was paid in full, which can be in the form of a lienholder’s promissory note stamped "PAID" , a copy of payoff check, or any other documentation evidencing payoff to the failed bank.

Aircraft: Required Documents for Obtaining a Lien Release

Title Report

A copy of a title report from an aircraft title agency for the aircraft for which you are requesting a release. The copy must be legible and clearly show:

• Debtor's Name
• Secured Party or Lienholder's Name
• FAA Registration Number
• Aircraft Serial Number
• Aircraft Manufacturer and Model
• Date of the Security Conveyance
• Date of the recording of the Security Conveyance
• Conveyance Number

Business Equipment and/or Other Chattel Property (UCC): Required Documents for Obtaining a Lien Release

UCC Financing Statement

A copy of all filed UCC Financing Statements for the property for which you are requesting a release. The copy must be legible and clearly show:

• Debtor's Name and Address
• Name of the Secured Party
• Filing Number for the UCC
• Any subsequent Amendments and/or Continuations

If a copy of the filed UCC Financing Statement has been lost or is unavailable, you must obtain and provide a printout from the Secretary of State or county recorder’s office containing the information listed above.

Life Insurance: Required Documents for the FDIC Review of Obtaining a Lien Release

Collateral Assignment of Life Insurance

A complete copy of the collateral assignment of life insurance for the policy for which you are requesting a release. The life insurance company that issued the policy should be able to provide this document. The copy must be legible and clearly show:

• Name of the Insured Person
• Date of Insurance Policy
• Policy Number
• Name of the Insurance Company that issued the policy
• Address of the Insurance Company.

3 Register/Mail request to FDIC DRR Customer Service and Records Research

You must register and submit your request and supporting documentation through the FDIC Information and Support Center. Access the FDIC Information and Support Center site and submit requests directly

FDIC Information and Support Center

Do not include your social security number in any correspondence.

Do not include a credit report as proof of payoff.

Requests are processed in the order they are received.

Allow 45 business days for FDIC's review and response once all required documentation is received.

Please note that documents provided by the FDIC are signed and notarized electronically.

Frequently Asked Questions

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Last Updated: June 24, 2024