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03 February 2021
Contractual rights under aircraft manufacturing and sale agreements are often assigned and transferred from the initial buyer to a third party, such as a financial institution or an operating lessor extending financing to the buyer in relation to its acquisition of the aircraft. Such rights range from airframe warranties to the right to be named as the buyer in the bill of sale upon payment in full of the purchase price, and include other rights such as credit memoranda.
For years, airlines, lenders and lessors have sent process servers to French aircraft manufacturers (including Airbus) to ensure that assignments and transfers are enforceable against the manufacturer. This approach is based on an old provision of the Civil Code, known as 'Article 1690', which provides that the assignment of a right is enforceable against third parties (including the debtor of such right) only if it is notified to the debtor by a French process server. Accordingly, regardless of the law governing the sale agreement, it was previously felt (rightly at the time) that to ensure perfection of the assignment, it had to be notified to the French seller and manufacturer because it was incorporated in France. Under French international private law, the law governing the perfection of the assignment of a right against a French debtor is French law. This related mainly to Airbus deliveries; however, the rule also applied to other French aircraft manufacturers, such as ATR, Dassault Aviation and Daher Socata.
However, in 2016 provisions of the Civil Code relating to the formation and performance of contracts were significantly amended. As a result, provisions dealing with the outright assignment of contracts and the assignment of rights were introduced to the code.
Under Article 1216 of the Civil Code, a party to a contract (assignor) may assign its capacity as a party to such contract (ie, all of its rights and obligations thereunder) to a third party (assignee) with the other party's (debtor's) consent. Perfection of the assignment is obtained upon:
Accordingly, in the case of an outright assignment of a contract involving a French counterparty, the assignment need not be notified to such counterparty by way of a process server.
If, on the other hand, only certain rights provided in the sale agreement (eg, rights under the airframe warranties) are being assigned to a third party and the original party retains all of its other rights, the assignment will be governed by Articles 1321 to 1326 of the Civil Code.
Under such provisions, where a party assigns all or part of a right against a debtor to a third party, such assignment is perfected against third parties upon execution of the assignment agreement between the assignor and the assignee; however, it is enforceable against the debtor only if the debtor was notified of the assignment (Article 1324). The code does not require such notification to be delivered through a process server.
The fact that the old Article 1690 (which requires notification by a process server) was not removed from the Civil Code in 2016 seems to have created some confusion among practitioners; some still require the notification of an assignment to Airbus or another French manufacturer even though this bears no legal ground.
However, the position has been clear since 2016 and assignments of rights no longer require notification to be delivered to a debtor by means of a process server, as confirmed by Article 1701-1 of the Civil Code.
This should remove unnecessary costs and reduce the administrative burden on airlines which take delivery of French manufactured aircraft.
For further information on this topic please contact Matthieu de Varax at Odi-se Avocats by telephone (+33 1 7935 0750) or email (email@example.com). The Odi-se Avocats website can be accessed at www.odise.com.
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