Operation and Effect of Assignments

An assignment is the transfer of property or some other right from one person to another.[i] Once an assignment is made, all rights and interests of the assignor are transferred to the assignee.

By assignment, an assignee stands in the shoes of the assignor and acquires all the rights and liabilities of the assignor.[ii] In Thweatt v. Jackson, 838 S.W.2d 725 (Tex. App. Austin 1992), the court held that an assignee of a promissory note stands in the shoes of the assignor and obtains the rights, title, and interest that the assignor possessed at the time of the assignment.

An assignee cannot acquire any greater right or interest than that which belonged to his/her transferor.[iii] An assignee of a non negotiable chose in action acquires no rights superior to those held by his/her assignor and is generally subject to any setoff available to the obligor against the assignor.[iv]

Similarly, successive assignees of a chose in action take the same subject to the equities between the original assignor and his/her assignee, as well as to equities existing between the original assignor and the debtor.

However, sometimes, it becomes inevitable to confer some greater rights to the assignee than his/her assignor because of an estoppel arising against the obligor.  Then, the principle of equitable estoppel may be raised in favor of an assignee of a nonnegotiable chose in an action to protect his/her rights against equity of the debtor.

Thus, the general rule that an assignee acquires no greater rights than his/her assignor is subject to the qualification that the debtor may, by his/her representations or conducts, estop himself /herself to set up against the assignee, defenses which were available to him/her against the assignor.[v]

Similarly, public policy considerations will not allow a debtor to interpose a defense available against his /her original creditor against an assignee of that creditor.[vi]

Assignments are to be interpreted in the same way as any other contract.  Generally, contracts and the rights growing out of them are assignable.  However, contract rights are not assignable if the assignment is prohibited by any statute or contract, or the contract involves a matter of personal trust and confidence.[vii]

Although contract rights are assignable, if a contract is personal in nature or contains a stipulation against assignment or if its assignment is forbidden by statute or public policy, then such contracts are not assignable.[viii] Similarly, personal rights which die with the person cannot be assigned and the mode by which it is acquired becomes immaterial in such a case.[ix]

A creditor or assignor can assign his/her claim against a debtor in such a way as to affect a complete sale of the claim.  Further, a creditor or assignor can assign his/her claim against a debtor for purposes of collection.  Such an assignment transfers legal title to the claim so an assignee can sue in his/her name.

Generally, a debtor may assert against an assignee, all equities or defenses existing against the assignor prior to notice of the assignment. Thus a debtor may allege any claim that may render the assignment absolutely invalid or ineffective.  The debtor can allege that the assignee has no title or right to sue.

However, if the assignment is effective enough to pass legal title, the debtor cannot introduce defects or objections which merely render the assignment voidable at the option of the assignor or the assignee.[x]

A debtor may be estopped by representations or conduct from asserting against the assignee any counterclaims, setoffs, or defenses that otherwise would have been available to the debtor against the assignor.  For instance, if the debtor had expressly waived all rights of action, setoff, and counterclaim he/she may have had against the assignor, the debtor is estopped from proceeding against the assignee.  Similarly, a debtor is estopped by representations or recitals in the original assigned instrument and retaining the benefit of the assigned instrument.

However, the doctrine of estoppel does not always come to the rescue of the assignee, especially if he/she fails to exercise good faith in the transaction.  Courts have held that the doctrine of estoppel is founded upon principles of morality and fair dealing and is available only for the protection of claims made in good faith.

In an assignment for collection, the assignor retains equitable ownership of those claims and may bring an action to collect the amount owed them.  To determine whether an assignment of a claim is a complete sale or an assignment merely for the purposes of collection, both the printed assignment form and the context in which the form was executed are considered.

Generally, the intent of the parties as ascertained from the entire transaction, determines whether an agreement is a security or absolute assignment.  This intent is to be discerned from the contents of the document, the testimony of the contracting parties, and the circumstances surrounding the transaction.

An assignment carries with it all rights, remedies, and benefits that are incidental to the thing assigned.  However, the operation and effect of an assignment may be limited by exceptions, reservations, conditions, or restrictions contained therein.[xi] Also, conditional assignments are not considered legally binding until the condition is fulfilled.[xii]

[i] Horbal ex rel. Highland Fin. Ltd. v. Moxham Nat’l Bank, 548 Pa. 394 (Pa. 1997)

[ii] Twenty First Century Recovery v. Mase, 279 Ill. App. 3d 660 (Ill. App. Ct. 5th Dist. 1996)

[iii] Jones County Trust & Sav. Bank v. Kurt, 192 Iowa 965 (Iowa 1922)

[iv] United States Nat’l Bank v. Madison Nat’l Bank, 355 F. Supp. 165, 169 (D.D.C. 1973)

[v] Thorp Finance Corp. v. Le Mire, 264 Wis. 220, 224 (Wis. 1953)

[vi] Gooch v. Gooch, 178 Iowa 902, 910 (Iowa 1916)

[vii] Physicians Neck & Back Clinics, P.A. v. Allied Ins. Co., 2006 Minn. App. Unpub. LEXIS 804 (Minn. Ct. App. 2006)

[viii] Folquet v. Woodburn Public Schools, 146 Ore. 339 (Or. 1934)

[ix] Folquet v. Woodburn Public Schools, 146 Ore. 339 (Or. 1934)

[x] Glass v. Carpenter, 330 S.W.2d 530 (Tex. Civ. App. San Antonio 1959)

[xi] General Fin. Servs. v. Practice Place, 897 S.W.2d 516 (Tex. App. Fort Worth 1995)

[xii] Sea Air Shuttle Corp. v. Virgin Islands Port Auth., 800 F. Supp. 287 (D.V.I. 1992)


Inside Operation and Effect of Assignments