When an immediate assignee of an assignor further assigns in favor of a subsequent assignee, the subsequent assignee takes the assignment without any liability. To avoid liability the subsequent assignee must be a bonafide purchaser for value and should not have notice of the prior assignment. The original assignor who assigned the chose in action to the assignee cannot recover the property from the subsequent assignee who acted in good faith. The subsequent assignee gets a valid title over the assignor, although the assignment was of a nontransferable chose in action[i]. The fact that the assignment was made to the subsequent assignee by the assignee or a person without authority does not invalidate the assignment. Thus, a subsequent assignee has right over the original or prior assignor where s/he acts in good faith.
In McCarthy v. Crawford, 238 Ill. 38 (Ill. 1908), a purchaser/subsequent assignee challenged the judgment denying a sale of certificate. The subsequent assignee sought a confirmation of sale by an assignee of the certificate. The holder of the certificate/assignor was a creditor and the certificate was evidence of a debt. The assignor executed assignment and power of attorney in favor of the assignee on the backside of the certificate. The assignee sold the certificate to the purchaser/subsequent assignee instead of the stock he tried to buy through the assignee. The trial court denied ordering conveyance of the certificate to the subsequent assignee. However, the trial court’s judgment was reversed on appeal holding that although the assignee had no power to transfer the certificate, the assignor gave apparent power to the assignee by executing power of attorney. The subsequent assignee relied on it and purchased the certificate.
The general rule on transfer of property is that a vendor cannot transfer the right which s/he does not possess. But in a case where the owner projects the assignee or permits the assignee to appear as the owner and an innocent third party acts on the belief that the person who conveys is the real owner, the assignee will be protected. The owner is estopped from claiming that s/he is the real owner as against the subsequent transferee because it was due to his act that it appeared that the assignee was vested with right to dispose the property. The title of property is of no relevance in such cases[ii].
Further, in State Credit Corp. v. Ranger, 101 Cal. App. 310 (Cal. App. 1929) it was observed that the owner of a property will be estopped from claiming title over a property when another person is made to appear as the owner with power to dispose, and a third party purchases the property from the apparent owner.
[i] Stoner v. Security Trust Co., 47 Cal. App. 216 (Cal. App. 1920).
[ii] Patterson v. Fitzpatrick McElroy Co., 247 Ill. App. 81 (Ill. App. Ct. 1927).