Between Assignee and Trust in Favor of Third Person

Generally an assignee’s right is given priority when compared to a trustee’s right.  If notice of assignment is not served to the trustee, then the assignee’s right stands subsequent to the trustee’s right[i].

Sometimes the assignor may be a person who is holding his/her rights against an obligor either in a trust or in a constructive trust.  While in some other cases, the assignee’s right may be subject to right of avoidance or equitable lien.  In such circumstances, the statutory condition of prior notice is mandatory.  If notice of assignment is not given to trust, then the trustee’s right will prevail over the assignee’s right.  Priority to trustee’s right does not mean that the assignee will not have any right against obligor.

However, if the assignee assumes the position of assignee by giving value to the assignor in good faith, then the assignees right will prevail over the trustee’s right.  The fact that notice has not been served to the trustee is irrelevant at this point.  The underlying principle is that a person acting in good faith can not be deprived of his/her rights on the ground that there was ignorance of other’s legal rights[ii].

Generally, protection from all adverse equitable claims is given to bonafide purchaser of assignment.  Such protection is not offered to a promisee of an assignment or to a beneficiary of trust.  To get the protection he/she must become an assignee.  A purchaser of limited interest of assignment is also entitled to protection under this rule.

If the obligor’s right is impaired by the protection offered to an assignee in good faith, then the trustee’s right is given priority[iii]. However this cannot be taken as a defense by obligor against a subsequent assignor.

[i] Levenbaum v. Hanover Trust Co., 253 Mass. 19 (Mass. 1925).

[ii] Anderson v. Hubble, 93 Ind. 570 (Ind. 1884).

[iii] Edmund Wright Ginsberg Corp. v. C. D. Kepner Leather Co., 317 Mass. 581, 585 (Mass. 1945).


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