The term assignment means the transfer of property or some right or interest from one person to another.[i] Generally, after a valid assignment, all the rights and interests of the assignor passes to the assignee. The assignee will step into the shoes of the assignor and the assignor cannot demand estoppel or waiver against his/her assignee.
It is imperative to protect the legal rights and interests of an assignee of a chose in action acting in good faith against any unauthorized act on the part of the assignor. Thus, once a notice of assignment has been served to the debtor, an assignee cannot interfere with the rights of the assignee by entering into collusive agreements with the debtor. Courts have held that a debtor cannot contrive with the assignor to defraud the assignee with full knowledge of the assignment.[ii]
An assignment of an interest in a contract gives the assignee the same rights as the assignor and nothing more.[iii] The assignee is responsible for ascertaining the status of the assignor’s rights and duties under the contract.[iv] The guaranties made by an assignor as to the validity of the subsisting contract and as to the genuineness of all signatures appearing on the contract are considered warranties. However, an assignor’s guarantee cannot always ensure the rights of the assignee, especially if the assignment occurs during the pendency of a claim pertaining to the assignment. Moreover, an assignment can come with an express agreement that the assignor is exempt from liability and that the purchaser takes it at his or her own risk.
Similarly, if the assignor warrants that he/she will do nothing to interfere with the subject matter of the assignment or to defeat or impair the value of the assignment, the assignor shall be liable to the assignee for any resulting damages caused by such interference.
All assignments come with an implied warranty that the right, as assigned, actually exists and is subject to no limitations or defenses and that any writing evidencing the right is genuine. However, an assignment by itself will not run as a warranty as to the solvency of the obligor or that the obligor will perform as stipulated. Also, an implied warranty exists that the assignment is based on adequate consideration.
Unless otherwise stated, there is an implied warranty that the amount of money purporting to be due on the obligation is owing and unpaid at the time of the assignment.
The parties to an assignment are free to limit the implied warranties of title, genuineness and validity. The parties can limit the warranties by express agreement. In this regard, the facts and circumstances of the transaction coupled with some apt language of disclaimer may be sufficient to show a disclaimer.[v]
Generally, an assignee who sustained damages through defect of title or fraud cannot proceed against a remote assignor because there is no privity of contract between such an assignee and a remote assignor. In such a case, the assignee has recourse against the immediate assignor.
[i] University of Texas Medical Branch v. Allan, 777 S.W.2d 450 (Tex. App. Houston 14th Dist. 1989)
[ii] Nineteenth Realty Co. v. Diggs, 134 Cal. App. 278 (Cal. App. 1933)
[iii] Wiscombe v. Lockhart Co., 608 P.2d 236, 238 (Utah 1980)
[iv] Jack B. Parson Cos. v. Nield, 751 P.2d 1131, 1133 (Utah 1988)
[v] Indiana Nat’l Bank v. State Dep’t of Human Servs., 1994 OK 98 (Okla. 1994)