Report No. 70
109.1. Section 130.-
An ordinary transaction of transfer does not involve more than two parties. But there is a species of property which, when it is proposed to be transferred, must involve a third person. That third person is a debtor or other person under liability. Where the debt, i.e. the benefit thereof, is to be transferred a mere bilateral transaction is not enough. The debtor must also be brought into the picture-though he may not be a party to the "transfer". In the terminology of the Act, debts and other choses in action are called "actionable claims". For the transfer of actionable claims, section 130 provides in these terms:
"130. (1) The transfer of an actionable claim whether with or without consideration shall be effected only by the execution of an instrument in writing signed by the transferor or his duly authorised agent, shall be complete and effectual upon the execution of such instrument, and thereupon all the rights and remedies of the transferor whether such notice of the transfer as is hereinafter provided be given or not:
Provided that every dealing with the debt or other actionable claims by the debtor or other person from or against whom the transferor would, but for such instrument of transfer as aforesaid, have been entitled to recover or enforce such debt or other actionable claim, shall (save where the debtor or other person is a party to the transfer or had received express notice thereof as hereinafter provided) be valid as against such transfer.
(2) The transferee of an actionable claim may, upon the execution of such instrument of transfer as aforesaid, sue or institute proceedings for the same in his own name without making the transferor a party thereto.
Exception.-Nothing in this section applies to the transfer of a marine or fire policy of insurance or affects the provisions of section 38 of the Insurance Act, 1938.
(1) A owes money to B, who transfers the debt to C, B then demands the debt from A, who, not having received the notice of the transfer, as prescribed in section 131, pays B. The payment is valid, and C cannot sue A for the debt.
(2) A effects a policy on his own life with an insurance company and assigns it to a Bank for securing the payment of an existing or future debt. If A dies, the Bank is entitled to receive the amount of the policy and to sue on it without the concurrence of A's executor subject to the proviso in sub-section (1) of section 130 and to the provisions of section 132".
The section appears to be simple in its provisions, but it has raised a number of interesting problems, since it provides an exclusive procedure for transferring actionable claims-vide the word "only". Its rigour is, to some extent, modified by section 137, which saves the modes of transfer authorised by the law relating to negotiable instruments and documents of title to goods. That section, however, has created its own problems. The law relating to the transfer of actionable claims has consequently acquired a richness and complexity of which the sparse chapter in the Act does not give an adequate picture.
In a judgment of Ramesam, J.1, are to be found almost all the propositions of importance on the subject of assignment:
"To effectuate an assignment of a debt there must be words of transfer in the instrument. A notice to the debtor not containing words of transfer nor referring to a transfer is not an instrument of transfer. An instrument of transfer in general, must be an instrument executed in favour of the assignee. But a transfer can be effected by an endorsement on the bond or other paper evidencing the debt sought to be transferred. Apart from such cases, an instrument of transfer would be addressed to the assignee.
But assuming that the instrument may be addressed to the debtor, there must be words operating as a transfer. The fund out of which the payment is to be made should be specified and if no fund is specified, the order does not operate as assignment. The assignment of a debt must be of the whole debt. But the assignment may be absolute or by way of security."
Not all of these propositions have remained non-controversial. But the extract shows pithily the salient features which may require consideration-the necessity of transfer, the mode of transfer, what can be transferred, and the nature of the assignment. In order to appreciate the significance and importance of the present law, it is desirable to have a look at the historical development of the law relating to the transfer of actionable claims.
1. Doraiswami Mudaliar v. Doraiswami lyengar, AIR 1925 Mad 753 (Ramesam, J.).
Three distinct branches of the law have contributed to the evolution of the principles on the subject-
(a) It was a well-known rule of the common law1 that no possibility, right, title or thing in action could be granted to third persons, because it was thought that a different rule would be the occasion of multiplying contentions and suits. At common law, a debt was looked upon as a strictly personal obligation. An assignment of a right to bring an action at law against the debtor was looked upon as open to the objection of maintenance.2
(b) After a time, the Common Law Courts recognised the right of any one who bad a pecuniary interest in the debt to sue in the name of the creditor. This was the limit of their departure from the old strict rule.
(c) But the Courts of Equity took a different view:3 Courts of equity admitted the title of an assignee of a debt, regarding it as a piece of property, an asset capable of being dealt with like any asset, and treating the necessity of an action at law to get in as a mere incident.2 Every such assignment was considered in equity as, in its nature, amounting to a declaration of trust, as amounting to an agreement to permit the assignee to make use of the name of the assignor in order to recover the debt or to reduce the property into possession.
1. Kishan Gopal, AIR 1927 Cal 447 (448) (C.C. Ghose, J.).
2. Hawkins Pleas of the Crown, Vol. 1, p. 458, cited in Kishan Gopal, AIR 1927 Cal 447.
3. Row v. Dawson.
109.4. Civil law.-
The doctrine of the Courts of equity is so nearly coincident with the rules obtaining in the civil law and in the jurisprudence of the modern commercial nations of continental Europe that perhaps one may be allowed to quote the following passage from Pothier on Sales1 (Ed. Cushing): "A credit being a personal right of the creditor, a right inherent in his person, it cannot, be considered according to the subtlety of the law, be transferred to another person nor consequently be sold. It may well pass to the heir of the creditor because the heir is the person and of all the personal rights of the deceased.
But in strictness of law it cannot pass to a third person; for the debtor being obliged towards a certain person cannot, by a transfer of credit, which is not an act of his, become obliged towards another. The jurisconsults have nevertheless invented a mode of transferring credits, without either the consent or the intervention of the debtor as creditor may exercise against his debtor by a mandatory as well as by himself the action which results from his credit. When he wishes to transfer his credit to a third person he makes such person his mandatory to exercise his right of action against the debtor.
It is agreed between them that the action shall be exercised by the "mandatory" in the name indeed of the mandator, but at the risk and on the account of the mandatory who shall retain for himself all that be exacted of the debtor in consequence of the mandate without rendering any account thereof to the mandator. Such a mandatory is called by the jurisconsults procurator in rem suam. From this it was established in practice that credits might be transferred, given, sold or disposed of by any other title, and it was not even necessary that the act which contains the transfer should express the mandate in which, as has been explained, the transfer consisted".
1. Pothier on Sales (Edited by Cushing) cited in Kishan Gopal, AIR 1927 Cal 447 (448).
The last step was taken by statute law by recognising the transfer of actionable claims, subject to certain formalities. Side by aside, there developed the law merchant the rules whereof governed negotiable instruments and mercantile documents of title.
109.6. Position elsewhere.-
We may now revert to section 130, which requires a writing for effecting the assignment of an actionable claim. In England, there is a broadly similar provision.1 In some of the States in the United States, to constitute an assignment of a chose in action, no writing or particular form is necessary, if the consideration be proved and the meaning of the parties be apparent. Therefore, the mere delivery of the written evidence of the debt is enough to constitute an assignment2 in some States of the U.S.A.
In France, an assignment of a debt must be in writing, the registration duty must be paid thereon and the formal notice in writing must be served (after registration) by an officer of the court called a "huisser". Such notice can be replaced by the debtor's formal acknowledgment in a notarial Frency deed. This passes the legal title to the debt.3
1. Section 136, Law of Property Act, 1925.
2. Bonvier Law Dictionary, (1914), Vol. I, p. 484, right-hand column.
3. (1900) 1, 602.
109.7. Requirement of writing.-
It is art essential requirement of section 130 that the transfer-conveniently described in practice as an "assignment"-should be in writing. No particular formula, however, is required. The section does not even provide that a separate document is needed.1 So long as the intention to transfer is established and finds expression in writing, there is a valid assignment as between the creditor and the alleged assignee. Thus, what is material is-(i) an intention to transfer and (ii) its expression in writing. If these requirements are satisfied, the form is immaterial.
1. See para. 109.8, infra.
109.8. Instances where separate instruments not required.-
A separate instrument, is not required for a valid assignment of actionable claims. Thus, an endorsement on an instrument which represents the debt,1 can constitute an assignment. An endorsement on a promissory note may operate to assign the debt as well, when the endorsement is so worded, and the requirements of the law with regard to stamping are complied with.
An endorsement on a money bond to the effect 'I have sold the document',2 or to the effect 'the balance due should be paid into the hands of my son'3 is enough to constitute an assignment, since the intention to assign exists and is expressed in writing.
This does not, of course, mean that it is always easy to determine the question whether there was an intention to transfer. That question must be answered on the facts of each case.
1. Mohamed Shareef v. Abdul Rahiman, AIR 1966 Mad 50, para. 3.
2. Firm Nanak Chafed v. Firm Ram Sarup, AIR 1924 Lah 684 (685).
3. (1909) 1 Ind Cas 212 (213) (Mad).
The section does not apply where there is no "transfer". It is well settled that a partition of joint property is not a "transfer" within the meaning of the Transfer of Property Act.1 It is for this reason that when a promissory note is allotted to the share of one of the coparceners without endorsement or written instrument (section 130), the allotment is still valid. Partition itself can be effected orally, because of section 2(b).2
1. Muthu Veeran v. Govindan, AIR 1961 Mad 518 (FB).
2. Ganu Santu v. Shankar Tukaram, 71 Born LR 165 (167) (reviews cases).
109.10. Part of a debt.-
We shall deal later with certain points concerning what is an assignment. In the meantime, let us consider the question-what can be assigned? An important question that requires to be considered relates to assignment of a part of a debt. In England, there is some uncertainty on the question whether, at law, a part of a debt can be validly assigned.1
There is nothing in section 130 which prohibits the transfer of a part of debt. Nevertheless, there has arisen a conflict of opinion on the point. In an earlier Calcutta case2 and in a Patna case;3 it was held that a part of the debt cannot be validly assigned, for the reason that such a splitting up might cause harassment to the debtor.
According to the Madras view, on the other hand, assignment of a part of a debt is valid.4
The High Court of Patna has, in a later case,5 held that where A transfers a part of debt to B who enforces the same in a suit against the debtor, the assignment would be valid, but Order 2, rule 2, of the Civil Procedure Code will prevent
A from suing the debtor for the remaining portion of the debt. A similar view on the validity of the assignment, namely, that an assignment of even a part of the debt is valid, has been taken by the Gujarat Court.6
1. Durga Singh v. Kesho Ram, AIR 1940 Pat 170 (173).
2. Ghisulal v. Gambhirmal, AIR 1938 Cal 377 (378, 381) (Lord Williams and Jack, JJ.).
3. Bibi Hali'man v. Bibi Umadahinnissa, AIR Pat 506 (508) (Wort, J.) (obiter).
4. Raja of Ramanad v. Subramaniam Chettiar, AIR 1928 Mad 1201.
5. Durga Singh v. Kesho Lal, AIR 1940 Pat 170 (174) (Harries, C.J. and Fazal Ali, J.).
6. ILR 1964 Guj 453 (471, 472): (1964) 5 Guj LR 621 (FB).