An action can be brought in a U.S. court by an assignee only if the assignor could have maintained the action in that same court.[i] Where both assignor and assignee are citizens of the same state, a change of district by assignment for the purpose of preventing removal is not allowed as the basis for a forced application of the doctrine allowing suit by an assignee only when the assignor might sue in the same jurisdiction.[ii]
The common law prohibits an assignee from suing in his/her name to enforce the assigned obligation. However, statutes in many jurisdictions allow an assignee of a non negotiable note or other assignable chose in action to bring suit in his/her name to enforce the assigned obligation. In the absence of a statute providing otherwise, an assignee is permitted and required in bringing suit using the name of the assignor, even without the assignor’s consent or knowledge.
Under the doctrine of assignment for collection, an assignor retains an equitable ownership and therefore, substantial rights in the action assigned. When a creditor/assignor assigns his/her claim against a debtor for purposes of collection, such an assignment transfers legal title to the claim. In such a circumstance, an assignee can sue in his/her name leaving equitable ownership with the creditor/assignor. The resultant split in ownership gives rise to a fiduciary relationship between the assignor and assignee and the relationship generally is one of principal-agent. In an assignment for collection, the assignor retains equitable ownership of those claims and may bring an action to collect the amount owed them.[iii]
The common law prohibition against an assignee to sue in his/her name to enforce an assigned obligation has been widely abolished by legislation. Statutes in many jurisdictions enable an assignee to sue in his/her name, provided the debtor does not have to face double liability. An executor/administrator or trustee of an express trust or a person expressly authorized by statute, may sue without joining with him the person or persons for whose benefit the action is prosecuted.
When a statute specifically designates the classes of choses in action upon which the assignee may bring suit in his/her name, the right of the assignee to sue in his own name is limited to suits upon choses of the kind designated. Moreover, in some jurisdictions, if there has been a full and complete assignment of rights under a contract, the assignee, rather than the assignor, is the proper party to maintain the cause of action. In other jurisdictions, a statute authorizing an assignee to sue in his/her name is merely permissive, leaving the assignee at liberty to sue in the name of the original party to the contract.
The general rule is that where part of a chose in action has been assigned, the assignor and the assignee may unite in a suit for the enforcement of the chose.[iv] In common law, to enforce a claim against a debtor, the assignee of a fund or debt must also make the assignor a party to the suit. Likewise, under modern practice, where there has been a partial assignment leaving the assignor owner of a part of the claim, or where different parts of the claim have been assigned to different persons, an assignee in bringing suit should join either as plaintiffs or defendants all the parties in interest, so that the entire matter may be settled at one time and a single decree may determine the duty of the debtor to each claimant and protect the rights and interests of each party.
An action must be prosecuted in the name of the real party in interest.[v] If the statutes require all actions to be prosecuted in the name of the real party in interest, the assignee of a chose in action to enforce a claim can sue in his/her name since the assignee is the real party in interest. When the assignee is the only real party in interest within the meaning of the statute, the assignor is prohibited from suing on the assigned claim. However, in the case of a partial assignment, the assignee owns the part assigned to him/her and the assignor owns the balance. Consequently, each is the real party in interest as to his/her part of the claim and should sue separately, subject to the rule prohibiting the splitting of a cause of action.
An assignee of a claim when suing on the assigned chose in action or instrument must allege and prove the assignment of the claim sued upon.[vi] In order to recover on an assigned cause of action, the party must plead and prove that a cause of action capable of being assigned existed and was assigned to the party alleging the theory of assignment.[vii]
An objection that the plaintiff’s pleading fails to show a valid assignment and therefore does not state a cause of action is not waived by failure to demur. However such an objection may be made at any stage of the proceeding.[viii] The assignability of a cause of action and the right of an assignee to sue in his/her name must be raised by demurrer to the complaint or by a plea in abatement.
An assignment is a manifestation by the owner of a right to another person indicating the intent to transfer his/her right to such other person. An assignment generally requires the underlying elements of a valid contract, including intent.[ix] Since the intention is an essential element, not every transfer of interest is an assignment. In order to create an equitable assignment, there must be sufficient evidence of intent to assign.[x] The intention is a question of fact derived from the instruments and the surrounding circumstances. Thus, whether or not an assignment occurred is a question of fact.[xi] In a case where all evidence is documentary, questions concerning construction and effect of an assignment are for the court, since the construction of an ambiguous instrument is a question of law.[xii]
When an alleged assignment is denied, the burden of proving it is on the assignee.[xiii] Thus, assignees have the burden of proof to establish a valid assignment.[xiv] Further, an assignment in writing is presumed to have a sufficient consideration.[xv] Similarly, the consideration for an assignment need not appear on its face. Consideration may be proven by parol evidence, inferred from the agreement, or implied.[xvi] However, an assignment of a chose in action is valid after delivery even though made without consideration.[xvii]
Parol evidence is not admissible to vary or contradict the terms of an unambiguous written assignment. However, when admission of parol evidence tended to corroborate the assignment and was not prejudicial, it is admissible.[xviii] Also, parol evidence can be used to show that an assignment was executed in order to provide security.[xix]
[i] Cincinnati, H. & D. R. Co. v. Orr, 215 F. 261 (D.N.Y. 1914)
[ii] Cincinnati, H. & D. R. Co. v. Orr, 215 F. 261 (D.N.Y. 1914)
[iii] O&G Indus. v. LaFarge Bldg. Materials, Inc., 2009 Conn. Super. LEXIS 2494 (Conn. Super. Ct. Sept. 16, 2009)
[iv] Ridgeland Box Mfg. Co. v. Sinclair Refining Co., 216 S.C. 20 (S.C. 1949)
[v] USCS Fed Rules Civ Proc R 17(a)
[vi] Tech. Renewal Corp. v. Houghton, 2001 Ohio App. LEXIS 1417 (Ohio Ct. App., Franklin County Mar. 27, 2001)
[vii] La Joya Gardens, L.L.C. v. Chubb Custom Ins. Co., 2007 U.S. Dist. LEXIS 36191 (N.D. Tex. May 17, 2007)
[viii] Zwick & Zwick v. Suburban Constr. Co., 103 Ohio App. 83 (Ohio Ct. App., Cuyahoga County 1956)
[ix] Gold’n Plump Poultry, Inc. v. Simmons Engineering Co., 805 F.2d 1312 (8th Cir. 1986)
[x] In re Ashford, 73 B.R. 37 (Bankr. N.D. Tex. 1987)
[xi] Gold’n Plump Poultry, Inc. v. Simmons Engineering Co., 805 F.2d 1312 (8th Cir. 1986)
[xii] In re Ashford, 73 B.R. 37 (Bankr. N.D. Tex. 1987)
[xiii] Norton v. Consolidated Fisheries, Inc., 120 Cal. App. 2d 86 (Cal. App. 1953)
[xiv] Cummins v. Dixon, 265 S.W.2d 386 (Mo. 1954)
[xv] Massie v. Massie, 91 Ohio App. 169 (Ohio Ct. App., Greene County 1951)
[xvi] Nebco & Assoc. v. United States, 23 Cl. Ct. 635, 645 (Cl. Ct. 1991)
[xvii] Nebco & Assoc. v. United States, 23 Cl. Ct. 635, 645 (Cl. Ct. 1991)
[xviii] Bergson v. H. P. Hood & Sons, Inc., 300 Mass. 340 (Mass. 1938)
[xix] Harambee Enterprises, Inc. v. State Board of Agriculture, 511 P.2d 503 (Colo. Ct. App. 1973)