Collateral Securities or Liens

An assignment is a transfer vesting in the assignee the assignor’s rights in property which is the subject of the assignment.[i] An assignment carries with it all rights, remedies, and benefits that are incidental to the thing assigned.[ii] An assignment of a debt carries with it all the liens, securities, and remedies which an assignor held or might have employed to enforce its payment.[iii]

A valid assignment of a debt or contract conveys the entire interest of the assignor to the assignee and thereafter the assignor has no interest therein.[iv] However, an assignment does not confer upon the assignee any greater right or interest than that possessed by the assignor.[v] Thus, if the assigned property is subject to a lien, the assignee takes the assigned property subject to the lien.[vi]

A lien is an obligation, tie, duty, or claim annexed to or attaching upon property by the common law, equity, contract, or statute.[vii] A common-law lien is a personal privilege and not transferable by the assignment of the debt which it secures.[viii] An equitable lien reserved by express agreement passes by an assignment of the debt it is created to secure.[ix]

The mere vesting of title in the assignee as to an assignor’s property does not ipso facto place it in custodia ligis.[x] An assignment is valid only if the intention is clearly expressed.[xi] Further, the intention of an assignor must be to transfer a present interest in a debt, fund, or subject matter.[xii]

In District of Columbia v. Hamilton Nat’l Bank, 76 A.2d 60 (Mun. Ct. App. D.C. 1950), the court held that all nonnegotiable written agreements for the payment of money, including nonnegotiable bills of exchange and promissory notes, or for the delivery of personal property, all open accounts, debts, and demands of a liquidated character, except claims against the U.S. or the salaries of public officers, may be assigned in writing so as to vest in the assignee a right to sue for the same in his own name.

In Ama Management Corp. v. Strasburger, 309 S.C. 213 (S.C. Ct. App. 1992), the court held that if the principal obligation is assignable, the assignment of the debt operates as an assignment of the guaranty of the debt.  Similarly, unless the debt instrument or the instrument of guaranty prohibits assignment, an assignment does not release the guarantor, who is discharged only when the underlying debt has been paid or otherwise satisfied in full.

An unqualified assignment of a chose in action carries with it, as an incident to the chose, all securities held by the assignor as collateral to the claim, all rights incidental thereto, and vests in the assignee the equitable title to such collateral securities and incidental rights.[xiii]

In equity, the assignment of a demand entitles the assignee to every remedy, lien, or security that could have been used or made available by the assignor as a means of indemnity or payment.[xiv]

Similarly, in equity, the assignee for value of a note, bill, judgment, decree or other evidence of indebtedness, for the payment of which the assignor holds collateral security, is entitled to such collateral security by virtue of the assignment to him of the principal obligation or evidence of indebtedness.[xv]

In Luikart v. Massachusetts Bonding & Ins. Co., 129 Neb. 771 (Neb. 1935), the court held that the assignee is entitled to collateral security by virtue of the assignment to him of the principal obligation even if not named in the instrument of assignment and regardless of his/her knowledge or lack of knowledge of the existence of such collateral.

The assignment of a debt carries with it a vendor’s or mortgage lien by which the debt is secured.¬† As the right to the chose and its incidents pass to the assignee thereof, so does the right to the remedies which the assignor has for the enforcement of the same.[xvi]

Thus, the assignment of a debt ordinarily carries with it all liens and every remedy or security that could have been used or made available by the assignor as a means of indemnity or payment although they are not specifically named in the instrument of assignment and the assignment is not by any instrument in writing.[xvii]

[i] Eli’s, Inc. v. Lemen, 256 Neb. 515 (Neb. 1999)

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

[iii] Kinney v. Duluth Ore Co., 58 Minn. 455, 458 (Minn. 1894)

[iv] EB, Inc. v. Allen, 722 So. 2d 555 (Miss. 1998)

[v] Id

[vi] Ehlers v. Perry, 242 Neb. 208 (Neb. 1993)

[vii] Dupuy v. Western State Bank, 221 Neb. 230 (Neb. 1985)

[viii] Cincinnati Tobacco Warehouse Co. v. Leslie & Whitaker’s Trustees, 117 Ky. 478 (Ky. 1904)

[ix] Id

[x] Thatcher v. Valentine, 22 Colo. 201 (Colo. 1895)

[xi] Young v. Chicago Federal Sav. & Loan Ass’n, 180 Ill. App. 3d 280 (Ill. App. Ct. 1st Dist. 1989)

[xii] Craig v. Farmers Mut. Ins. Co., 239 Neb. 271 (Neb. 1991)

[xiii] Cincinnati Tobacco Warehouse Co. v. Leslie & Whitaker’s Trustees, 117 Ky. 478 (Ky. 1904)

[xiv] Heisen v. Smith, 138 Cal. 216 (Cal. 1902)

[xv] Luikart v. Massachusetts Bonding & Ins. Co., 129 Neb. 771 (Neb. 1935)

[xvi] Cincinnati Tobacco Warehouse Co. v. Leslie & Whitaker’s Trustees, 117 Ky. 478 (Ky. 1904)

[xvii] Luikart v. Massachusetts Bonding & Ins. Co., 129 Neb. 771, 781-782 (Neb. 1935)


Inside Collateral Securities or Liens