Report No. 70
109.22. Position in England.-
In England, once a contract of assignment of a those-in-action between the assignor and the assignee has been made, notice should be given to the debtor. Where the assignment is at law, there is, under section 136 of the Law of Property Act, 1925, an express requirement of notice in writing to complete the assignment, i.e., to transfer full legal title in the chose to the assignee. At law, property only passes with notice, in England. But in equity,1 title in a chose can be transferred without this notice to the debtor.
After Ward v. Duncombe, 1893 AC 398 (392), it was settled that for four important reasons the equitable assignee should give notice to the debtor as soon as possible:
(i) to gain priority over subsequent assignees;
(ii) to ensure that the debtor paid the assignee and not the assignor;
(iii) to take the chose out of the "reputed ownership" of the assignor in case he eventually became bankrupt;
(iv) to avoid further "equities" which might arise between assignor and assignee.
1. Diana M. Close Equitable Assignment, (1975) 39 Cov 261.
So much as regards the operation of the transfer as between the parties to the assignment. Besides the instrument of transfer, there must be notice given to the debtor. The notice of the assignment required by section 130(1), proviso, of our Act can be given either by the assignor or by the assignee. As to its character as a notice, it does not matter who gave it. But the fact that the notice was given by the assignor (the original creditor) may, in certain situations, make a difference. It may re-inforce the assignment, or remove doubts as to whether an earlier letter from the creditor to the debtor was merely an authority (pay order) or a transfer (assignment).
109.24. Section 131.-
This takes us to the next section which deals with the form and contents of the notice. Section 131 provides that every notice of transfer of actionable claim shall be in writing, signed by the transfer or his agent duly authorised in this behalf, or, in case the transferor refuses to sign, by the transferee or his agent, and shall state the name and address of the transferee.
The notice under section 131 must contain the name and address of the transferee. The reason is thus stated by the Select Committee:
"A notice in general terms not stating the name and address of the transferee would not be sufficient as a safeguard against fraud. A debtor is, we think, entitled to know the name and address of the person to whom he becomes liable on a transfer of the claim against him."
109.25. Significance of notice.-
Though there be a valid transfer of a debt between the transferor and the transferee, the person bound to pay the debt is not bound by the transfer unless he receives an express notice in writing conforming to the provisions of section 131, from the transferor, or if he refuses to sign, from the transferee, stating the name and address of the transferee. Where the notice did not contain the address of the transferee, it was held to be insufficient.1 So also, a notice which did not state the address of the assignee but his solicitor's address, was held to be defective.2
The notice must be given to the person concerned, or to his agent authorised to receive such notice.
1. Hansraj v. Nathoo, 9 Born LR 383.
2. Sadasook v. Hoare Miller & Co., AIR 1923 Cal 719 (720).
109.26. No change.- No need for amendment of section 131 is disclosed by these points.
109.27. Section 132. Section 132 read.-
"132. The transferee of an actionable claim shall take it subject to all liabilities and equities to which the transferor was subject in respect thereof at the date of the transfer.
(i) A transfers to C a debt to him by B, A being then indebted to B. C sues B for the debt due by B to A. In such suit B is entitled to set off the debt due by A to him, although C was unaware of it at the date of such transfer.
(ii) A executes a bond in favour of B under circumstances entitling the former to have it delivered up and cancelled. B assigns the bond to C for value and without notice of such circumstances. B cannot enforce the bond against A."
The section needs no change.
109.28. Section 133.-
Section 133 reads-
"133. Where the transferor of a debt warrants the solvency of the debtor, the warranty, in the absence of a contract to the contrary, applies only to his solvency "at the time of the transfer, and is limited, where the transfer is made for consideration, to the amount or value of such consideration."
Section 133 does not make it compulsory on the part of the assignor to give the assignee any warranty as to the solvency of the debtor, nor does it mean that in every assignment of an actionable claim there shall be implied a covenant by the assignor to warrant the solvency of the debtor. This section merely lays down a rule of construction to be applied only when the assignor actually gives such warranty to the assignee. If a warranty is given, it means that the debtor is solvent at the date of the transfer. The insolvency of the debtor after the date of the transfer does not entail any liability on the transferor. Section 133 may be left as it is.
109.30. Section 134.-
The subject of mortgaged debts is dealt with in section 134 in these terms:
"134. Where a debt is transferred for the purpose of securing an existing or future debt, the debt so transferred, if received by the transferor or recovered by the transferee, is applicable, first, in payment of the costs of such recovery; secondly, in or towards satisfaction of the amount for the time being secured by the transfer; and the residue, if any, belongs to the transferor or other person entitled to receive the same."
It should be noted that section 134 does not allow the transferor to recover the debt. Accordingly, after the transfer, no decree can be passed in favour of the transferor in a suit by him, even if the transferee is impleaded as a defendant.1
1. Santuram v. Trust of India Assurance Co., AIR 1945 Bom 11 (12, 13) (Chagla, J.).