Assignment For Collection or Security

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 or her claim against a debtor for purposes of collection, such an assignment transfers legal title to the claim.  In such circumstances, an assignee can sue in his or her own name, leaving equitable ownership with the creditor/assignor. The resulting split in ownership gives rise to a fiduciary relationship between the assignor and assignee and the relationship generally is one of principal-agent. Subject to exceptions, a principal can revoke an agent’s authority at any time. In an assignment for collection, the assignor retains equitable ownership of those claims and may bring an action to collect the amount owed.[i]

The significance of the assignment-for-collection type of assignment is that it does not create mutuality between the assignee and the original debtor, and therefore does not permit setoff.  In particular, an assignee for purposes of collection cannot set off his personal debt against the assigned claim.  The reason is since mutuality is essential, the debtor must be the beneficial owner of the claim or judgment which he seeks to set off and not merely a trustee on behalf of an assignor who has retained the equitable interest in the thing assigned.[ii]

An assignor may also sue in his or her name when the assignment is for security.

[i] O&G Indus. v. LaFarge Bldg. Materials, Inc., 2009 Conn. Super. LEXIS 2494 (Conn. Super. Ct. Sept. 16, 2009)

[ii] In the Matter of Liquidation of Home Ins. Co., 157 N.H. 543 (N.H. 2008)

Inside Assignment For Collection or Security