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Report No. 70

109.11. Recommendation as to part of debt.-

In our opinion, the latter view is to be preferred on the language of the section, which does not seem to bar transfer of a part of the claim In order to clarify the position, we recommend adoption of the latter view by suitable amendment. No serious hardship is, in practice, likely to be caused by such a provision. Whether or not Order 2, rule 2, Code of Civil Procedure, 1908 applies, we do not dunk that many cases will necessitate the institution of legal proceeding for recovery of the actionable claim.

In any case, if an actionable claim is "property", then juristically there should be no objection to transfer of a part thereof, subject, of course to compliance with the formalities prescribed by law. We may add that we do not, with respect, agree with the view that Order 2, rule 2, applies where an assignee of a part of a debt sues the debtor. He will not be splitting up his own claim. So far as he is concerned, the entire cause of action will be included in his suit, so that there will be no breach of Order 2, rule 2.

109.12. Section 130-Pay orders distinguished from assignments.-

That the "transfer" of a debt not bind the debtor unless notice is given, is one aspect of the law. The converse question-how far a communication addressed to the debtor is a valid assignment as between the parties-represents another aspect. There seems to be some obscurity on the question whether a direction to the debtor is valid as an assignment of an actionable claim. It will be noted that so far as the text of section 130 goes, it does not, in express terms provide that the assignment should be addressed to the proposed assignee.

There is, nevertheless, a distinction between a mere pay order and an assignment-though the distinction may not be easy of application. Thus, a mere direction by A to his debtor B that B should pay C, does not amount to a transfer of the debt to C, in the absence of an express words of transfer or-to add a necessary refinement-unless there is prior agreement with the alleged assignee, or a direction to pay out of specific funds.

The latter would be a mere pay order, which is revocable and in which the liability of the debtor (A) remains. Such a pay order may fail on the death of the person giving the order. It may even be defeated by the adjudication of the giver of the order as an insolvent.1 Therefore, in practice, it becomes important to determine whether a letter is mere pay order or whether it operates as an assignment.

1. B.N. v. Rly. Employees Urban Bank v. Seager, AIR 1942 Pat 307 (308) (Harris, C.J. and

109.13. Pay order-Indian case law.-

Mulla1 has commented that the Indian cases as to pay orders are not very consistent. The matter bears examination.

In a Madras case,2 the delivery of a bond with a letter to the debtor directing him to pay was held to be an assignment.

It was held in a Bombay case3 that the delivery of a banker's deposit receipt with a letter to that bank directing payment, if acted upon, is valid as a delivery of the money. The Bombay case furnishes an interesting illustration of the difficulty of the subject-matter. The letter in issue in that case was in these terms:

Bombay, 8th August, 1912.

"The Agent,

Hongkong and Shanghai Banking Corporation.

"Sir,

I hereby state that I have found my Bank Receipt. Herewith I am forwarding the same for the interest now due. I wish it to be handed over to my nephew.

I also wish you to hand over the amount of Rs. 105,000 which is in fixed deposit to my nephew Wilmost Charles Harrison to his account.

Yours truly,

Sd/-
(C.A. Wakeford)

This is my nephew's signature:- Sd/- W.C. Harrison

Sd/- C.A. Wakeford."

In the trial court, Maleod, J. held that this writing was merely a notice to the person from whom the debt to the defendant, but this was not sufficient to transfer the ownership in the debt. According to him, an obvious test is to see whether, after this document has been executed, the defendant could have sued the bank. When a writing under section 130 has been executed, all the rights and remedies of the transferor vest in the transferee.

But the mere direction by the owner of a debt to the debtor to transfer in his books the debt in the name of another party cannot give that other party any right to sue for the debt. Macleod J. treated the letter as merely a "notice" of transfer. There was no transfer of the debt due from the bank and therefore the debt remained up to the time of the death of Mr. Wakeford (the writer of the letter) an asset belo'nging to him.

In the court of appeal, Scott C.J. and Batchelor J. held that while a deposit receipt is not a negotiable instrument, yet where the money mentioned in the receipt is immediately payable and the receipt was duly endorsed to give an order to pay a given individual, that individual becomes the owner of the money upon payment by the banker or upon the banker's promise to hold it at the disposal of the payee. For this proposition the court of appeal followed an English case.4 The position was summed up by the court of appeal finally in these terms:-

"An order on a Banker to pay money which he holds to the credit of the customer is not an assignment of a debt, but an authority to deliver property which, if acted upon, is equivalent to deliver by the customer."

1. Mulla, (1973), pp. 813, 814.

2. Konjeti Veerswamy v. Varada, (1913) 13 Mad LJ 77.

3. Sethna v. Hemingway, 1914 ILR 38 Born 618 (629) (Scott, C.J. and Bachelor, J.)

4. Thakar Das v. Malik Chand, AIR 1933 Lah 102 (103), para. 10.

109.14. In the Lahore case of Thakar Das v. Malik Chand,1 a letter "by a dairyman to the purchasers of his milk-cantonments-directing them to pay to his creditors the amounts of bills representing price of milk, was held to be an assignment, since the letter specifically recorded that the other creditors of the dairy man should have no claim, and thus indicated; an intention to transfer.

109.15. In a Calcutta case,1 a vendor's endorsement on a bill for goods sold, requesting the purchaser to pay the amount to a third person, who would collect the amount on behalf of the vendor, was correctly held to be a mere pay order, Ghose J. observed that the test is whether the right has been transferred to the third party so that the third party becomes entitled as of right. Sanderson C.J. pointed out that the endorsement meant that the named person was to collect the debt as agent of the creditor.

That decision was distinguished in a later Calcutta case,2 where the direction was unconditional and irrevocable.

The direction was "Please make the payment of bill to Messrs. It may please be treated as irrevocable". It was "accepted" by the debtor. The direction was held to be an assignment. "Though the instrument is in the form of a pay order, the intention to assign appears plainly on its face". So observed the High Court.

1. Kiser Gopal v. BavM, AIR 1926 Cal 447 (448).

2. Prakash Chandra v. Kays Constructions Co., AIR 1962 Cal 604 (605, 606), paras. 4, 5 (Bachawat and D.N. Das Gupta, E.).

109.16. Power of attorney.-

A mere authority or power of attorney to recover debts does not constitute an assignment of the debts. The attorney is the agent of the creditor, but there is no assignment. There is a series of Assam cases1 decided on that basis, and holding that the instrument in question did not constitute an assignment. This position must, however, be read as subject to qualification where there is a prior agreement.2

In a Xatna case,3 a letter of authority written by a society authorising, his employer to deduct, from the amount of his salary, sums due to the society, was held not to constitute an assignment of an equitable charge. It was regarded merely as an authority, and therefore it terminated on the adjudication of the alleged assignor as insolvent.

In a Madras case,4 on the other hand, subscribers to a chit fund purchasing chits from the company deposited money with a bank for payment to the company of the instalments of the chits as and when they fell due. It was held that the money deposited by the subscribers with the bank operated as a valid assignment, in favour of the company.

1. (a) Bank of the East Ltd. v. State of Assam, AIR 1958 Assam 22; (b) Gauhati Bank v. Rajendra Nath, AIR 1959 Assam 167 (168, 169), paras. 7-8.

2. Para. 109.17, infra.

3. B.N. Rly. Employees Bank v. Seagar, AIR 1942 Pat 307 (Harries, C.J. and Manohar Lall, J.).

4. T.N. Subsidiary Co. v. T.N. & 0. Bank, AIR 1940 Mad 258.

109.17. Agreement.-

There are cases holding that an agreement between the debtor and the creditor that the debt shall be paid out of a specific fund coming to the debtor, or an order given by a debtor to his creditor upon a person who owes money belonging to the giver of the order, directing such person to pay such fund to the creditor, out of a specific fund, are valid assignments1-3 of the part of the debt or fund to which the agreement or order relates.

In some cases, such a situation has been regarded as amounting to an equitable assignment.4 But the only question to be considered in India is whether it falls within section 130.

1. Venkata Rao v. Venkatapthy, AIR 1965 AP 410 (411).

2. Thakar Das v. Malik Chand, AIR 1935 Lah 102 (103), para. 10 (Tek Chand and Mosroe, JJ.).

3. T.N. Subsidiary. Co., AIR 1940 Mad 258 (261).

4. AIR Mys 196 (197).

109.18. Supreme Court case-Irrevocable authority.-

In a Supreme Court case1 a contractor to the military and other authorities entered into an arrangement with a Bank whereby the Bank agreed to finance the contractor and to advance monies to the contractor against his bill for supplies under the contracts. For the purposes of carrying out his arrangement, the contractor executed an irrevocable power of attorney, in favour of the Bank, authorising it to receive payments of the bills from the authorities.

The contractor made out a bill on the military authorities for a sum and handed over the same to the Bank for collection, with an endorsement that it should be paid to the Bank. The Bank sent the bill for payment, but before it received the payment, the amount due under the bill was attached by a creditor of the Contractor in execution of a money decree obtained by him against the Contractor.

It was held that the attachment by the creditor was not valid. The power of attorney coupled with the endorsement on the bill was a clear engagement by the Contractor to pay the Bank out of the monies receivable under the bill and amounted to an equitable assignment of the fund by way of security.

The Supreme Court quoted with approval Palmer v. Carey, in which Lord Wrenbury observed:2

"The law as to equitable assignment, as stated in Roddick v. Gandell, (1852) 1 De GM and G 763 (778) is this: The extent of the principle to be deduced is that an agreement between a debtor and the creditor that the debt owing shall be paid out of specific fund coming to the debtor, or an order given by a debtor to his creditor upon a person owing or holding funds belonging to the giver of the order, directing such person to pay such funds to the creditor, will create a valid equitable charge upon such fund, in other words, will operate as an equitable assignment of the debts of fund to which the order refers."

1. Bharat Nidh v. Takhat Mal, AIR 1969 SC 313.

2. Palmer v. Carey, 1926 AC 703 (706).

109.18A. English laws-Test of knowledge.-

In England, it has been held on the one hand that there must be document which purports to assign the chose-in-action and not merely a document directing the debtor to pay a third person who knows nothing of the transaction.1 But, on the other hand,3 merchants2 letters to purchasers of their goods to pay the price to the Bank (who financed the merchants' business) on receipt of documents from the Bank was held to be a valid assignment, presumably because the letter was sent through the Bank.

It would appear that in England an assignment is said to have taken place- (i) when there is a prior agreement between the debtor and the creditor to whom the assignment is now to be made,3 or (ii) where the creditor's letter addressed to the debtor is given to the assignee,4 or (iii) otherwise the assignment is communicated to the assignee.5

In some of these cases, the assignment was held to be equitable and not statutory, but this was because of certain other defects in the assignment.

1. Curran v. Newpark Cinema Ltd., (1951) 1 All ER 285.

2. Brandt & Sons v. Dunlop Rubber Co., 1905 AC 454: 1903 All ER Rep 345.

3. Fisher v. Calvert, (1879) 27 WR 301.

4. (a) Brice v. Bannister, (1878) 3 QBD 569 (571); (b) Buck v. Robson, (1878) 3 QBD 686 (687).

5. Snell Equity, (1966), p. 85.

109.19. Position as to direction to pay in England.-

In England, to constitute a legal assignment, there must be a document which purports to assign the chose, and not merely to direct the debtor to pay a third person who knows nothing of the transaction.1 A cheque is no assignment of any money in the drawer's account, for it is "but an order to pay and not as absolute assignment of anything", and in any case there is no debt to be assigned for no debt arises until the customer demands payment from the bank.2

The position on this point is as follows as regards equitable assignment in England.

An assignment is not binding on the assignor and the assignee, unless it either is made by prior arrangement with the assignee or has been communicated to him;3 otherwise it is revocable.4 Thus, if D owes money to C, an assignment by C to A made between C and A binds them forthwith, even if D has no notice of it;5 but if the assignment to A is made between C and D, C and D are not bound until A has notice of it.6-7

1. Curran v. Newpark Cinemas Ltd., (1951) 1 All ER 295.

2. Schroeder v. Central Bank of London, (1876) 24 WR 710 (per Brett, J.), cited in Snell Equity, (1966), p. 81.

3. Hamilton FitzGeorge (in re:) v. FitzGeorge, (1921) 124 LT 737 (739).

4. Morrel v. Wooten, (1852) 16 Beav 197.

5. Gorringe v. Iruell India Rubber and Gutta Percha Works, (1886) 34 Ch D 128.

6. Morrel v. Wooten, (1852) 16 Beav 197.

7. Snell Equity, (1966), p. 85.

109.20. Principles need to be stated.-

We have discussed at length the case law in India and the position in England as to direction to pay, in order to show the nature of the problems that have arisen. It seems to us that while each case may depend on its own facts, those facts must be dealt with in the light of certain principles, and that those principles should find mention in the Act in some form, so that at least a broad amount of certainty can be introduced into the statute law, and controversies may be reduced to the minimum. Disputes will still arise, but a citizen, or at least his legal adviser, will know what language to adopt if he desires that the instrument should be legally operative as an assignment, or if he does not desire that the instrument should be so operative, as the case may be.

The need for such a course will be readily appreciated when it is borne in mind that the problem under consideration comes up again and again before the courts, and the interests, not only of the parties to the alleged transfer and the debtor, but also of rival creditors of the debtor, are to issue. Very often, the problem arises in the context of insolvency, so that the Official Assignee is also interested.

109.21. Having considered all aspects of the subject, we think that in order to clarify the position, the following provision should be made1 to regulate the position between the alleged assignor and assignee:

(a) a mere direction by a person to his debtor2-3 to pay the debt to a third person is not an assignment to the third person;

(b) it is an assignment to the third person if

(i) it is given in pursuance of an agreement with the third person to whom the debt is alleged to be transferred,4 or

(ii) it is communicated by the creditor to the third person,5 or

(iii) it directs payment to the third person out of a specified fund,6 or

(iv) it shows on the face of it an intention to assign the debt irrevocably to the third person.7-8

1. This is not a draft.

2. What we say of "debts" applies to other actionable claims also.

3. Clarification as to part of debt also to be made, see supra.

4. T.N. Subsidiary Co., AIR 1940 Mad 258 and cases in para. 109.9, supra.

5. Rama Iyer v. Venkata Chellam, 1908 ILR 30 Mad 75: 16 MLJ 554.

6. Para. 107.17, supra.

7. (a) Thakar Das, AIR 1933 Lah 1021; (b) Prakash Chandra, AIR 1962 Cal 604.

8. Para. 109.18, supra.



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