Time of Existence of Defense

The assignment of a non-negotiable contract right cannot transfer more than what the assignor has.[i]  An assignee of a nonnegotiable chose in action is not affected by defenses arising after the assignment.  Generally, such an assignee takes subject to all equities and defenses which could have been set up against the chose in the hands of the assignor at the time of the assignment.[ii]  Thus, an assignee of a nonnegotiable chose in action is only subject to the equities and defenses that were remaining at the time of the assignment.

However, some courts are of the view that a debtor may deal with his creditor until he has actual notice of an assignment, after which the assignee stands in shoes of the assignor subject to all defenses which the debtor has, not only at the time of the assignment but until the debtor has actual notice. [iii]

Some case laws state that set-off against an assignee is limited to cases where both offsetting claims were fully matured at the time of assignment.  “The modern rule, however, unless a statute provides otherwise, turns on the time the obligor receives notification of assignment and applies even though the assigned right has not then matured.” [iv]

[i] Beacon Constr. Co. v. Prepakt Concrete Co., 375 F.2d 977 (1st Cir. 1967)

[ii] Hartford-Connecticut Trust Co. v. Riverside Trust Co., 123 Conn. 616, 626-627 (Conn. 1938)

[iii] Patten v. Mutual Ben. Life Ins. Co., 192 S.C. 189 (S.C. 1939)

[iv] Restat 2d of Contracts, § 336

Inside Time of Existence of Defense