Filing or recording of an assignment of a chose in action is not mandatory unless a statute expressly requires such filing. The assignee’s right is of a peculiar nature and enjoys a prerogative whether or not to sit on its rights or to pursue litigation. Even if the assignee fails to pursue litigation, the assignor will not have the right to interfere.[i] There is no requirement of a public filing by an assignee for monies due, in contradistinction with a judicial lien or security interest. An assignee only need to provide notice to the obligor in order to preserve his/her interest.[ii] Since there is no specific legal requirement for recording, placing it on record could not operate as constructive notice.
Some states require the recording of some specific kinds of assignments in order to render them valid against the claims of third parties. Mortgages, assignments of rents and profits are some of the transactions that require recording.
Filing a notice of an assignment of a judgment in the real estate records will serve as notice to subsequent encumbrancers and purchasers of the real estate. However, such notice of assignment will not constitute notice to the judgment debtor, so as to require the debtor to pay the assignee, rather than the assignor.
For instance, in Tennessee, the assignment of a chose in action is not effective against third party creditors of the assignor unless notice of the assignment is given to the party obligated to pay.[iii]
Hence, between successive purchasers or assignees of a chose in action, one who first gives notice to the debtor, although his/her assignment is subsequent to that of the other, is entitled to preference. Notice is necessary to perfect the assignment, not merelyas against the debtor, but also as against creditors and subsequent bona-fide purchasers. [iv]
Similarly, a stamp on an invoice specifically demanding that “payment is to be made to a person other than the assignor and reasonably referring to the goods reflected on the invoices satisfies the notice requirements.”[v]
Notice of an assignment is effective under the applicable provision of the Uniform Commercial Code when the debtor receives notice that the funds have been assigned and that payment is to be made to the assignee.[vi]
In addition, an imputed, constructive, or inquiry notice would have the same effect of an actual notice, except in the case of a notice of an assignment under the Uniform Commercial Code. In such case, actual notice is necessary.
The obligor cannot, after receiving notice of assignment, send the money to a person other than the assignee. Such an action is not justified, even if it was done out of a legitimate confusion as to where to send the money assigned. Once, the obligor receives notice of the assignment, the obligor is duty bound to pay the assignee.[vii]
”Actual notice includes those things that a reasonably diligent inquiry and exercise of the means of information at hand would have disclosed.”[viii]
Also, if an obligor has such knowledge of facts as is sufficient to put him on inquiry about an assignment, he is not entitled to rely only on statements made to him by the assignor after receiving such information.[ix]
[i] University of Texas Medical Branch v. Allan, 777 S.W.2d 450 (Tex. App. Houston 14th Dist. 1989)
[iii] Moran v. Adkerson, 168 Tenn. 372 (Tenn. 1935)
[iv] Fugate v. Carter County Bank (In re Webb), 187 B.R. 221, 225 (Bankr. E.D. Tenn. 1995)
[v] Capital Factors, Inc. v. Caldor, Inc., 182 A.D.2d 532 (N.Y. App. Div. 1st Dep’t 1992)
[vi] Estate of Haas v. Metro-Goldwyn-Mayer, Inc., 617 F.2d 1136, 1139 (5th Cir. 1980)
[vii] Ifert v. Miller, 138 B.R. 159 (E.D. Pa. 1992)
[viii] Woodward v. Ortiz, 150 Tex. 75 (Tex. 1951)
[ix] Winkler Constr. Co. v. Hornor & Co., 580 S.W.2d 401 (Tex. Civ. App. San Antonio 1979)