Effect Of Prior Notice To Debtor Or Public Recording

Prior notice to a debtor or a public recording is important in multiple assignments.  Generally, when there is more than one assignee for the same right, the assignees will be prioritized based on the order of the execution of assignments.  However, a debtor who pays or becomes liable to pay a debt to a subsequent assignee will not be liable to a prior assignee if the debtor lacked notice of that prior assignment.  The rule on debtor’s notice is applicable even in a jurisdiction where priority is decided on the basis of the assignment’s execution time and not on the notice to the debtor[i].

In certain cases courts have held that a subsequent assignee who provided notice first had priority and should have been preferred irrespective of the time of assignment.  However a subsequent assignee may lose priority if the subsequent assignee had notice of the previous assignment and the subsequent assignment was made without valuable consideration[ii]. On the other hand it was also observed that an earlier assignee should be given priority as between assignees of a chose of action.  It is irrelevant that notice is not given to the subsequent assignee or debtor[iii].

In Klebba v. Struempf, 224 Mo. App. 193 (Mo. Ct. App. 1930), an assignor assigned his insurance policies to satisfy a note.  The plaintiff did not give notice to the insurance company and also did not take possession of the policies.  Later, the assignor made his brother beneficiary to the policies in return to providing the assignor a home until his death and paid the premium of the policies.  The assignor’s brother gave notice to the insurance company.  The insurance company gave the insured amount to the brother, the subsequent assignee on the assignor’s death.  The plaintiff assignee brought an action and the trial court held in the plaintiff’s favor.  The defendant brother challenged the decision.  The defendant brother contended that his rights were superior to the right of the prior assignee because it was supported by consideration and there was no notice of earlier assignment.  The trial court reversed the judgment in favor of the defendant brother holding that the subsequent assignment is for consideration and there is laches from the part of the plaintiff in giving notice to the debtor.  The defendant brother had no notice of the previous assignment and he acted in good faith.  When two equities are equal, element of time gains relevance and priority would be given to the earlier one.  But, when equities are unequal one having more merit prevails, irrespective of the time.

Likewise, in Salem Trust Co. v. Manufacturers’ Finance Co., 264 U.S. 182 (U.S. 1924) it was held that the subsequent assignee, who first gave notice to the debtor, should be given priority.

[i] Boulevard Nat’l Bank v. Air Metal Industries, Inc., 174 So. 2d 559 (Fla. Dist. Ct. App. 3d Dist. 1965).

[ii] Corn Exchange Nat’l Bank & Trust Co. v. Klauder, 318 U.S. 434 (U.S. 1943).

[iii] Fidelity Mut. Life Ins. Co. v. City Nat’l Bank, 95 F. Supp. 276 (D. W. Va. 1950).

Inside Effect Of Prior Notice To Debtor Or Public Recording