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• Contract Administration

Assignment of Claims and Power of Attorney

By earbinov December 6, 2018 in Contract Administration

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I work at a financial institution that lends to small business government contractors. 

We've had a borrower go radio silent on us and they are in default on their debt with my company. The loan agreement provides us with the irrevocable right to act as power of attorney/agent-in-fact for the borrower. As such, we've prepared a number of assignment of claims documents to ensure that we are perfecting our security interest and that the payments associated with the contracts under which the borrower is performing will be routed to our control account to pay down all outstanding balances. 

We are getting pushback from certain COs stating that the borrower has intervened and since they have privity of contract, they would need to approve of any assignment. I have provided the loan agreement and other loan documents (including a cooperation agreement and a deposit account control agreement), all of which essentially require the borrower to not interfere with any efforts by us to perfect our security interest in the collateral (namely, the A/R related to all government contracts). 

Is there anything I can say or do here short of seeking an injunction to compel the COs to effectuate the aforementioned assignments. My understanding is that effectuating an assignment of claims is a ministerial act. Unless the contract contains a clause prohibiting the assignment (and assuming the contract  contains  the clause permitting it), then there is no discretion afforded to the CO assuming a valid assignment is submitted. In this case, I'm assuming that the bank signing using POA does provide for a valid assignment, but perhaps that is not a correct assumption. 

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Have you complied with FAR 32.802(e)?

Are you registered in SAM amenable to FAR 32.805(d)(4)?

FAR 32.805(a)(1), (2), and (3) list who make assignments -- a contractor's attorney-in-fact is not listed there.  Could that be part of the problem?

Quote 5 hours ago, ji20874 said: Have you complied with FAR 32.802(e)?  Are you registered in SAM amenable to FAR 32.805(d)(4)? FAR 32.805(a)(1), (2), and (3) list who make assignments -- a contractor's attorney-in-fact is not listed there.  Could that be part of the problem?  

Yes, I have compiled and always do comply with FAR 32.802(e). For what it's worth, I'm a former Contract Specialist so I know my way around the FAR and how to communicate with COs. 

Yes - we are registered in SAM. 

With respect to FAR 32.805(a)(1), (2), and (3) - while it is true that a contractor's attorney-in-fact is not listed there, that same list only specifies requirements for corporations, partnerships, and individuals. Many of our borrowers are LLCs and so the FAR is silent on how to treat those types of entities. Furthermore, unless something is explicitly and specifically prohibited in the FAR, the CO/specialist can generally exercise their best judgment (See FAR 1.102(d)). Lastly, the underlying common denominator between these sections is that whoever is signing the assignment is authorized to do so. I believe I've provided sufficient evidence and context which supports the bank signing using power of attorney privileges.  

joel hoffman

I would suggest requesting a face to face meeting with the KO and request that government counsel also be present. Then lay out your legal arguments. Time is of the essence here. 

Perhaps you’ve done that already. 

If the KO and the government’s attorney don’t provide satisfaction, then- as the Swamp People would cry out v“Chute ‘em,   Lizbeth!!!”

I should add that our borrower has explicitly intervened and advised the government to not process any assignment and that they do not approve. I am arguing to the contracting officer that the assignment package we've submitted is valid, and therefore should be effectuated immediately. Notwithstanding protests from the borrower, once a valid notice of assignment is received, the Government is compelled to process the assignment as it is a ministerial act. However strange it may be for a contractor to plainly oppose an assignment, I feel that the contractor (our borrower) has essentially revoked their authority to weigh in on the matter once they signed the loan agreement and appointed us as power of attorney. Also, I'm arguing that the FAR lays out the procedure for the release of claims, and emails/calls stating they don't want an assignment are not included in those procedures. 

Lastly, the following case law supports my argument that the assignment should be effective, so long as it is valid, upon receipt and acknowledgment, which the Government has now indicated/signaled:

US Court of Appeals -  CENTRAL NAT. BANK OF RICHMOND, VA. v.   UNITED STATES.

Excerpt : "Generally, notice of an assignment is effective as of the time of its receipt, and according to official Government records, the plaintiff's notices were all received prior to the disbursement made"

"Plaintiff's assignment was made pursuant to the Act of 1940 and notice thereof was given in the manner and to the officials as required. Having so complied with the act, plaintiff [bank] is entitled to that degree of protection ordinarily given to an innocent assignee who acts in good faith."

The Comptroller General has "Recogniz[ed] that, in legal effect, acknowledgment of receipt was nothing more than a recognition that the documents had been received..."    [in other words, merely a ministerial act, without discretion to decide if the assignment will be "accepted"]

" We can perceive of no good reason why the various offices to whom notices of assignment are to be given under the act should not be held to the same degree of responsibility and liability as any others to whom such notices are given in everyday commercial transactions."

"The Government having received timely notice of plaintiff's assignment paid [contractor/assignor] at its peril."

Comptroller General Warren to the Board of Governors, Federal Reserve System (see attached)

Excerpt : " ASSIGNMENTS MADE UNDER THE ASSIGNMENT OF CLAIMS ACT OF 1940 WILL BE ACKNOWLEDGED BY THIS OFFICE IMMEDIATELY UPON THEIR RECEIPT, WITHOUT PRIOR EXAMINATION, SUCH ACKNOWLEDGMENT IMPLYING NOTHING MORE THAN A RECOGNITION THAT THE NOTICES OF ASSIGNMENT AND ASSIGNMENT INSTRUMENTS HAVE BEEN RECEIVED, LEAVING ANY QUESTION AS TO THE VALIDITY OR REGULARITY OF THE ASSIGNMENT FOR CONSIDERATION IN CONNECTION WITH THE AUDIT OF PAYMENTS MADE UNDER THE CONTRACTS INVOLVED."

" SINCE, IN LEGAL EFFECT, THE ACKNOWLEDGMENT OF RECEIPT BY THIS OFFICE IS NOTHING MORE THAN THE WORD IMPLIES—- A RECOGNITION THAT THE DOCUMENTS REFERRED TO HAVE BEEN RECEIVED IN THIS OFFICE—- AND IN VIEW OF THE DIFFICULTIES ILLUMINATED BY YOUR LETTER AND ENCLOSURES, THIS OFFICE SHALL HENCEFORTH ACKNOWLEDGE RECEIPT OF THE NOTICES OF ASSIGNMENT AND ASSIGNMENT INSTRUMENTS IMMEDIATELY UPON RECEIPT THEREOF WITHOUT PRIOR EXAMINATION—- LEAVING ANY QUESTION AS TO THE VALIDITY OR REGULARITY OF THE ASSIGNMENT FOR CONSIDERATION IN CONNECTION WITH THE AUDIT OF PAYMENTS MADE UNDER THE CONTRACT INVOLVED."

" IT SHOULD BE CLEARLY UNDERSTOOD THAT HENCEFORTH THE PROCESS OF ACKNOWLEDGING SUCH NOTICE OF ASSIGNMENT WILL BE PURELY MINISTERIAL IN NATURE AND IN NO SENSE AN INDICATION THAT THE ASSIGNMENT HAS BEEN EXAMINED IN THIS OFFICE AND FOUND TO BE REGULAR AND VALID."

GAO Decision B-270801:

https://www.gao.gov/products/470539#mt=e-report

Excerpt : “It is well-settled that once an obligor (the United States in this case) has notice of a valid assignment, as in the present case, it pays the assignor at its peril and is, therefore, liable to the assignee for the amount of the erroneous payment."  [Citing Central Bank of Richmond, Virginia v. United States, 117 Ct. Cl. 389 (1950)).

COMPTROLLER GENERAL WARREN TO THE BOARD OF GOVERNORS FEDERAL RESERVE SYSTEM.doc

Great, so problem solved ! Good luck. 

You may be barking up the wrong tree.  Is there case law where the assignment was made by power of attorney (assignor (the bank) and assignee (the bank) are the same), over the objection of the contractor (who is supposed to be the assignor)?  I think that is your problem area.  

36 minutes ago, ji20874 said: You may be barking up the wrong tree.  Is there case law where the assignment was made by power of attorney (assignor (the bank) and assignee (the bank) are the same), over the objection of the contractor (who is supposed to be the assignor)?  I think that is your problem area.  

Yeah - that's the grey area here. The FAR is silent on how to treat LLCs with respect to 32.8, and I couldn't find any case law on this particular question - that is, executing an assignment as agent-in-fact. To be clear, the assignor is still the borrower (with whom the government has privity), despite the fact that the bank is signing as their agent-in-fact. The question is whether signing as agent-in-fact comports with 32.8. 

Ultimately, I think it's a judgement call of each KO. If we game this out...the bank would sue the borrower and, absent them filing for bankruptcy, we would likely get summary judgement resulting in an injunction that compels the borrower to sign any document we need them to. If they don't sign (as they are choosing to do now), then I would be very surprised if, after we sent all of the legal supporting documentation (summary judgement/injunction) with each assignment, any KO would still refuse to process/effectuate the assignment. 

At that point, we may  then arguably go after the Government for all amounts paid to the contractor after receipt of the notice, depending on if a court finds the notice signed using POA is valid. If it's valid, the government would have to pay. 

On ‎12‎/‎6‎/‎2018 at 10:43 PM, earbinov said: I am arguing to the contracting officer that the assignment package we've submitted is valid, and therefore should be effectuated immediately.

In addition to what ji wrote, we only have your opinion that there is a valid assignment.  We have no way of knowing whether that is true and whether you have been able to demonstrate the validity of the assignment to the various COs.

29 minutes ago, Retreadfed said: In addition to what ji wrote, we only have your opinion that there is a valid assignment.  We have no way of knowing whether that is true and whether you have been able to demonstrate the validity of the assignment to the various COs.

Agreed. Are you a CO? I'm curious what your opinion is here given the fact pattern presented above on if the submitted package is valid. 

I am  retired from the Federal government and now work in the private sector.  However, some issues I see are what is the precise language of the power of attorney? What is the law of the state that governs your transaction with the contractor in regard to powers of attorney?  What language is in the contracts regarding assignment?  What specific objections to the COs have to recognizing the assignment?  What have you done to alleviate their concerns?

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What is a notice of assignment?

An assignment takes place when one party is holding a right to property, claims, bills, lease, etc., of another party and wishes to pass it along (or sell it) to a third party. As complicated as that sounds, it really isn’t. Strangely enough, many assignments can be made under the law without immediately informing, or obtaining the permission, of the personal obligated to perform under the contract. An example of this is when your mortgage is sold to another mortgage company. The original mortgage company may not inform you for several weeks, and they certainly aren’t going to ask your permission to make the sale.

If a person obligated to perform has received notice of the assignment and still insists on paying the initial assignor, the person will still be obligated to pay the new assignee according to the agreement. If the obligated party has not yet been informed of the assignment and pays the original note holder (assignor), the assignor is obligated to turn those funds over to the new assignee. But, what are the remedies if this doesn’t take place? Actually, the new assignee may find themselves in a difficult position if the assignor simply takes off with their funds or payment. They are limited to taking action against the person they bought the note from (assignor) and cannot hold the obligator liable. Therefore, it is important to remember that if any note or obligation is assigned to another party, each party should be well aware of their responsibilities in the transaction and uphold them according to the laws of their state. Assignment forms should be well thought out and written in a manner which prevents the failure of one party against another.

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Assigning debts and other contractual claims - not as easy as first thought

Harking back to law school, we had a thirst for new black letter law. Section 136 of the Law of the Property Act 1925 kindly obliged. This lays down the conditions which need to be satisfied for an effective legal assignment of a chose in action (such as a debt). We won’t bore you with the detail, but suffice to say that what’s important is that a legal assignment must be in writing and signed by the assignor, must be absolute (i.e. no conditions attached) and crucially that written notice of the assignment must be given to the debtor.

When assigning debts, it’s worth remembering that you can’t legally assign part of a debt – any attempt to do so will take effect as an equitable assignment. The main practical difference between a legal and an equitable assignment is that the assignor will need to be joined in any legal proceedings in relation to the assigned debt (e.g. an attempt to recover that part of the debt).

Recent cases which tell another story

Why bother telling you the above?  Aside from our delight in remembering the joys of debating the merits of legal and equitable assignments (ehem), it’s worth revisiting our textbooks in the context of three recent cases. Although at first blush the statutory conditions for a legal assignment seem quite straightforward, attempts to assign contractual claims such as debts continue to throw up legal disputes:

• In  Sumitomo Mitsui Banking Corp Europe Ltd v Euler Hermes Europe SA (NV) [2019] EWHC 2250 (Comm),  the High Court held that a performance bond issued under a construction contract was not effectively assigned despite the surety acknowledging a notice of assignment of the bond. Sadly, the notice of assignment failed to meet the requirements under the bond instrument that the assignee confirm its acceptance of a provision in the bond that required the employer to repay the surety in the event of an overpayment. This case highlights the importance of ensuring any purported assignment meets any conditions stipulated in the underlying documents.
• In  Promontoria (Henrico) Ltd v Melton [2019] EWHC 2243 (Ch) (26 June 2019) , the High Court held that an assignment of a facility agreement and legal charges was valid, even though the debt assigned had to be identified by considering external evidence. The deed of assignment in question listed the assets subject to assignment, but was illegible to the extent that the debtor’s name could not be deciphered. The court got comfortable that there had been an effective assignment, given the following factors: (i) the lender had notified the borrower of its intention to assign the loan to the assignee; (ii) following the assignment, the lender had made no demand for repayment; (iii) a manager of the assignee had given a statement that the loan had been assigned and the borrower had accepted in evidence that he was aware of the assignment. Fortunately for the assignee, a second notice of assignment - which was invalid because it contained an incorrect date of assignment - did not invalidate the earlier assignment, which was found to be effective. The court took a practical and commercial view of the circumstances, although we recommend ensuring that your assignment documents clearly reflect what the parties intend!
• Finally, in Nicoll v Promontoria (Ram 2) Ltd [2019] EWHC 2410 (Ch),  the High Court held that a notice of assignment of a debt given to a debtor was valid, even though the effective date of assignment stated in the notice could not be verified by the debtor. The case concerned a debt assigned by the Co-op Bank to Promontoria and a joint notice given by assignor and assignee to the debtor that the debt had been assigned “on and with effect from 29 July 2016”. A subsequent statutory demand served by Promontoria on the debtor for the outstanding sums was disputed on the basis that the notice of assignment was invalid because it contained an incorrect date of assignment. Whilst accepting that the documentation was incapable of verifying with certainty the date of assignment, the Court held that the joint notice clearly showed that both parties had agreed that an assignment had taken place and was valid. This decision suggests that mistakes as to the date of assignment in a notice of assignment may not necessarily be fatal, if it is otherwise clear that the debt has been assigned.

The conclusion from the above? Maybe it’s not quite as easy as first thought to get an assignment right. Make sure you follow all of the conditions for a legal assignment according to the underlying contract and ensure your assignment documentation is clear.

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Deed of Assignment and the Notice of Assignment -What is the Difference?

In this article, Richard Gray barrister takes a brief look at the differences between a Deed of Assignment and a Notice of Assignment and the effect of the assignment on the contracting party

At the end of 2020, Elysium Law were instructed to act for a significant number of clients in relation to claims made by a company known as Felicitas Solutions Ltd (an Isle of Man Company) for recovery of loans which had been assigned out of various trust companies following loan planning entered into by various employees/contractors.

Following our detailed response, as to which please see the article on our website written by my colleague Ruby Keeler-Williams , the threatened litigation by way of debt claims seem to disappear. It is important to note that the original loans had been assigned by various Trustees to Felicitas, by reason of which, Felicitas stood in the shoes of the original creditor, which allowed the threatened action to be pursued.

After a period of inertia, Our Clients, as well as others, have been served with demand letters by a new assignee known as West 28 th Street Ltd . Accompanying the demand letters is a Notice of Assignment, by reason of which the Assignee has informed the alleged debtor of the Assignees right to enforce the debt.

Following two conferences we held last week and a number of phone call enquiries which we have received, we have been asked to comment upon the purport and effect of the Notice of Assignment, which the alleged debtors have received. Questions such as what does this mean (relating to the content) but more importantly is the ‘Notice’ valid?

Here I want to look briefly at the differences between the two documents.

There is no need for payment to make the assignment valid and therefore it is normally created by Deed.

 The creation of a legal assignment is governed by Section 136 of the Law of Property Act 1925:

136 Legal assignments of things in action.

(1)Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal thing in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to claim such debt or thing in action, is effectual in law (subject to equities having priority over the right of the assignee) to pass and transfer from the date of such notice—

(a) the legal right to such debt or thing in action;

(b) all legal and other remedies for the same; and

(c) the power to give a good discharge for the same without the concurrence of the assignor:

Some of the basic requirements for a legal assignment are;

• The assignment must not be subject to conditions.
• The rights to be assigned must not relate to only part of a debt, or other legal chose in action.
• The assignment must be in writing and signed by the assignor.
• The other party or parties to the agreement must be given notice of the assignment.

Notice of assignment

To create a legal assignment, section 136 requires that express notice in writing of the assignment must be given to the other contracting party (the debtor).

Notice must be in writing

Section 136 of the LPA 1925 requires “express notice in writing” to be given to the other original contracting party (or parties).

 Must the notice take any particular form?

The short answer is no. Other than the requirement that it is in writing, there is no prescribed form for the notice of assignment or its contents. However, common sense suggests that the notice must clearly identify the agreement concerned.

Can we  challenge the Notice?

No. You can challenge the validity of the assignment assignment by ‘attacking the Deed, which must conform with Section 136. In this specific case, the Notice sent by West 28 th Street in itself is valid. Clearly, any claims made must be effected by a compliant Deed and it is that which will require detailed consideration before any right to claim under the alleged debt is considered.

Can I demand sight of the assignment agreement

On receiving a notice of assignment, you may seek to satisfy yourself that the assignment has in fact taken place. The Court of Appeal has confirmed that this is a valid concern, but that does not give an automatic right to require sight of the assignment agreement.

In Van Lynn Developments Limited v Pelias Construction Co [1969]1QB 607  Lord  Denning said:

“After receiving the notice, the debtor will be entitled, of course, to require a sight of the assignment so as to be satisfied that it is valid…”

The Court of Appeal subsequently confirmed this  stating the contracting party is entitled to satisfy itself that a valid absolute assignment has taken place, so that it can be confident the assignee can give it a good discharge of its obligations

The important document is the Deed of Assignment, which sets out the rights assigned by the Assignor. The Notice of Assignment is simply a communication that there has been an assignment. The deed is governed by Section 136 of the LP 1925. It should be possible to obtain a copy of the Deed prior to any action taken in respect of it.

For more information on the claims by West 28 th Street or if advice is needed on the drafting of a Deed, then please call us on 0151-328-1968 or visit www.elysium-law.com .

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(718) 855-6840, the office is open as per the nys covid-19 guidelines. we are now doing both in-person and telephone consultations. please call the office at 718-855-6840 to schedule a time to speak with one of our experienced bankruptcy attorneys., what is a ‘notice of transfer of claim’.

• August 21, 2014
• >> Bankruptcy , Chapter 13 Bankruptcy , Creditors , Debt

A short time back I discussed what a proof of claim is in a New York bankruptcy: documents that creditors file with the bankruptcy court to show that they’re entitled to distributions from the bankruptcy estate. A similar document is called a “notice of transfer of claim.” What are these, and how do they differ from proofs of claims?

A notice of transfer of claim is what creditors file when they buy debts from other creditors holding debts owed by a debtor in bankruptcy. For example, if the debtor lists a debt owed to Bank A in a chapter 13 bankruptcy petition, then Bank A will file a proof of claim with the bankruptcy court. However, if Bank A sells the debt to Bank B, then Bank B will file a notice of transfer of claim with the bankruptcy court to prove that it’s entitled to the distribution from the bankruptcy estate that formerly went to Bank A. So there’s the difference: Original creditors file proofs of claims; subsequent debtors file notices of transfer of claims.

Selling debts while in bankruptcy raises the question of why banks would bother when they’re being repaid in chapter 13. Sometimes they decide that they want to be paid up front and get out of the process, even if it means selling the debt at a discount. Other times it doesn’t want to worry about taking a charge-off on the debt if it’s discharged, or it doesn’t want to deal with the risk of the debtor being unable to complete the chapter 13 repayment plan.

Once debtors learn of a notice of transfer of claim, what should they do? The answer is to just tell your lawyer, if he or she doesn’t already know, but otherwise nothing. Creditors like Bank B in the example are just as entitled to the distribution from the bankruptcy estate as Bank A or any other creditor. On the other hand, you should go over the claim with the other claims filed in your case because sometimes the banks mess up. Some notices of transfer of claims are filed erroneously, like duplicate claims, claims that are barred by a statute of limitations, claims filed in the wrong cases. If there is a problem, then you can have your bankruptcy lawyer object to the claim. The remedy may result in the claim being reduced, reclassified, or disallowed.

Hiring an experienced New York bankruptcy lawyer will help protect you from problems with claims filed by creditors.

For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy automatic stay Bruce Weiner for a free initial consultation.

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Notice of Assignment of Accounts Receivable Under the PPSA: What Every Factor Should Know

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INTRODUCTION

Factoring is the legal relationship between a financial institution (the “Factor”) and a business (the “Client”) selling goods or providing services to a trade customer (the “Customer”), pursuant to which the Factor purchases the accounts receivable owing to the Client by its Customer. The Courts in Ontario have determined that a factoring agreement creates a security interest and, as such, is subject to the provisions of the Ontario Personal Property Security Act R.S.O. 1990 c.P.10 (the “PPSA”). This means, among other things, that the Factor must register a financing statement against the Client under the PPSA claiming a security interest in the Client’s accounts receivable. A factoring agreement may be on a notification or a non-notification basis.

A factoring agreement on a notification basis requires that the Client’s Customer be notified regarding the purchase of the accounts receivable by the Factor and the assignment of the accounts receivable by the Client to the Factor. One purpose of notifying the Customer is to require the Customer to make payment on the accounts receivable directly to the Factor, instead of to the Client.

A notice of assignment is governed by Section 40(2) of the PPSA, which states that an account debtor (i.e., the Customer) may pay the assignor (i.e., the Client) until the Customer receives notice, reasonably identifying the relevant rights, that the accounts receivable have been assigned. If requested by the Customer, the Factor is required, within a reasonable period of time, to furnish proof of the assignment and, if the Factor fails to do so, the Customer may pay the Client.

What constitutes adequate notice of an assignment of accounts receivable? The PPSA does not set out a statutory form of notice of assignment. In RPG Receivables Purchase Group Inc. v. Krones Machinery Co. Limited , 2010 ONSC 2372, C. W. Hourigan J. of the Ontario Superior Court of Justice was required to review a notification of assignment and to determine whether it was adequate. The Court’s decision is an important guide to the essential elements that should be included in the notice of assignment.

The facts were as follows:

1. On July 14, 2005, RPG Receivables Purchase Group Inc. (“RPG”) entered into a factoring agreement with its client Kennedy Automation Limited (“Kennedy”), pursuant to which RPG agreed to purchase certain of Kennedy’s accounts receivable, including accounts receivable due from its customer Krones Machinery Co. Limited (“Krones”).

2. On July 14, 2005, Kennedy faxed a notification of assignment to Krones, which read as follows:

“NOTIFICATION OF ASSIGNMENT

In order to grow and serve you better, we have retained the services of RPG Receivables Purchase Group Inc. to accelerate and stabilize our cash flow. Through their accounts receivable program, RPG has purchased and we have assigned to them all of our right, title and interest in all currently outstanding as well as all future accounts receivable from your company.

We request that all payments be made payable and mailed directly to:

RPG Receivables Purchase Group Inc. (“RPG”)

Suite 300, 221 Lakeshore Road East

Oakville, ON L6J 1H7

Tel (905) 338-8777 (800) 837-0265

Fax (905) 842-0242

This notice of assignment and payment instructions will remain in full force and effect until RPG advises you otherwise in writing. Please note that their receipt of payment is the only valid discharge of the debt and that RPG’s interest has been registered under the Personal Property Security Act of the Province of Ontario.

Although this notification is effective upon receipt by you, in order to complete RPG’s records, we would appreciate your acknowledgement of this notification and your confirmation that:

• the invoices on the attached statement are for goods and/ or services completed to your satisfaction (please note any exceptions or simply provide a listing from your accounts payable); and
• that payments will be scheduled in accordance with the invoice terms and that your accounts payable records have been modified to ensure payment of the full invoice amounts directly to RPG or you will notify RPG of any disputes or potential chargebacks in a timely manner.

Please fax and mail the signed copy of this letter to RPG Receivables Purchase Group Inc., who shall be entitled to rely upon your notification and confirmation as a separate agreement made between you and them. Thanks for your help and cooperation. We look forward to serving you in the future.”

3. On August 5, 2006, Krones executed the notification of assignment and returned the executed copy to RPG.

4. In 2007, Kennedy entered into agreements with Krones for the supply of services and materials to Krones in relation to various projects including projects in Etobicoke, Edmonton, and Moncton.

5. Before Kennedy submitted its invoices to Krones, Kennedy provided the invoices to RPG and RPG stamped each invoice as follows:

“NOTICE OF ASSIGNMENT All payments hereunder have been assigned and are to be made directly to:

RPG RECEIVABLES PURCHASE GROUP INC.

221 Lakeshore Road East, Suite 300

Any offsets or claims should be reported to:

(905) 338-8777 Ontario

(800) 837-0265

Fax (905) 842-0242”

6. Krones paid 13 of the 16 invoices issued by Kennedy. RPG did not receive any notice from Krones regarding any disputes, off-sets, chargebacks or claims arising out of the Edmonton or Etobicoke projects.

7. At or about the time that the three unpaid invoices were rendered, Kennedy began to experience difficulty in paying its subcontractors on the Moncton project.

8. When the Moncton project ran into difficulty, Krones stopped making payments on the Edmonton and Etobicoke invoices in a timely fashion.

9. RPG commenced an action against Krones in respect of the unpaid invoices for the Moncton project that RPG had factored.

10. Krones also commenced an action for damages against Kennedy relating to the Moncton project.

11. Krones denied liability in respect of the unpaid invoices on the grounds that it had a right to set- off due to alleged overpayments, chargebacks, and damages relating to the Moncton project. It also raised issues with respect to the validity of the assignment of the invoices by Kennedy to RPG and the validity of the invoices.

12. The Court decided in favour of RPG and granted it summary judgment in the amount of $183,172.61, plus interest, for payment of the three outstanding invoices.

THE DEFENCE OF SET-OFF

The primary defence of Krones was that it had a valid defence of set- off. In reviewing this defence, the Court referred to the legal principle of “mutuality”. In order to establish a valid claim of legal set-off, there must be mutuality which requires that the debts be between the same parties and that the debts be in the same right. The Court stated that this mutuality is lost where the debt has been assigned to another party (i.e., the Factor), unless the rights to set-off have accrued between the debtor (i.e., the Customer) and the original creditor (i.e., the Client) prior to receipt of the notice of assignment by the debtor. At the time that the accounts receivable owing by Krones to Kennedy were assigned to RPG, no right of set- off had accrued in respect of the alleged overpayments, chargebacks, and damages relating to the Moncton property. Therefore, Krones had no legal right to set-off, because the mutuality required for this defence was lost when the accounts receivable were assigned by Kennedy to RPG.

The Court also reviewed the purchase order for the Moncton project to see whether it contained a contractual right of set-off. The Court rejected this claim by Krones and found that there was no contractual right of set-off.

Finally, the Court considered the issue of equitable set-off and concluded that it was not available to Krones.

OTHER DEFENCES

In its other defences, Krones took issue with the validity of the invoices and the validity of the assignment by Kennedy to RPG. Krones argued that the notification of the assignment was limited to the invoice attached to the notification of assignment. The Court rejected this argument for three reasons:

1. This argument ignored the clear statement in the notice of assignment that “RPG has purchased and we have assigned to them all of our right, title and interest in all currently outstanding as well all future accounts receivable from your company”.

2. Each of the disputed invoices contained a stamped notification of assignment; and

3. Krones paid RPG directly for 13 of the 16 invoices. The Court also rejected a number of other arguments raised by Krones in its defence relating to the validity of the invoices.

CONCLUSIONS

In a notification factoring arrangement, a Factor needs to protect its interest in the purchased accounts receivable by giving written notice of the assignment to the Client’s Customer. According to Section 40(2) of the PPSA, the Customer may continue to pay the Client until the Customer receives notice that the accounts receivable have been assigned to the Factor. However, the PPSA does not set out a statutory form of notice, nor does the PPSA deal with any right of set- off that the Customer may claim with respect to the purchased accounts receivable. In general, a Factor can only “step into the shoes” of his Client and assert the same right that his Client has against the Customer. This means that, if the Customer has any right to claim a set-off against the accounts receivable owing to the Client, then the Factor is required to accept the reduction in payment as a result of any legitimate claim asserted by the Customer.

In order to protect its interest in the purchased accounts receivable, the Factor should send a notice of assignment, which when signed by the Customer, should accomplish the following purposes:

1. it should require the Customer to make payment on the purchased invoices directly to the Factor, instead of to the Client;

2. it should request the Customer to verify the accuracy of the purchased invoices;

3. it should eliminate the Customer’s right to claim any set-off or reduction in the amount payable on the accounts receivable in respect of the Client’s obligations arising after the delivery of the notice; and

4. It should create an enforceable direct contract between the Factor and the Customer.

Since the notification of assignment in the RPG case has been given the “judicial seal of approval”, it is recommended that this form be used by a Factor in Ontario. It is also recommended that the Factor follow the procedure referred to in the RPG case pursuant to which the Customer is requested to acknowledge and confirm the terms of the notification of assignment and return a signed copy to the Factor.

The Court in RPG also referred to the “stamped notification of assignment” on each of the disputed invoices as one of the reasons for rejecting the Customer’s defences. For this reason, it is recommended that this form of stamp also be used by a Factor in Ontario on each factored invoice before the invoice is submitted to the Customer.

If a Factor follows the above procedures, then the Factor should be able to collect from the Customer on the invoice, regardless of what issues arise between the Client and the Customer subsequent to the delivery of the notice of assignment. If the Customer refuses to acknowledge and sign the notice of assignment, then the Factor will have limited recourse against the Customer and will have to make a business decision regarding the risk involved in funding the invoice. Even if the Customer acknowledges and signs the notice of assignment, the Factor will still have to be on the alert for any future disputes between the Client and the Customer. For example, the form of notification used in the RPG case requires the Customer to notify the Factor of “any disputes or potential chargebacks” and the stamp on the invoices in this case requires the Customer to report “any offsets or claims”. If the Customer notifies the Factor about any such disputes, chargebacks, offsets, or claims, then the Factor will also have to evaluate the funding of the invoice.

A properly drafted notice of assignment will put the Factor in a stronger position to resist any reduction in payment claimed by the Customer. As a practical matter, however, the Factor should also try to confirm with the Customer prior to funding an invoice that there are no disputes between the Customer and the Client. This extra step could avoid the time and expense of litigation over the purchased accounts receivable.

Jeffrey Alpert

• T. 416 777 5418
• E. [email protected]

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Previously known as Law portal

Actionable claim under Transfer of Property Act

Table of Contents

DEFINITION OF ACTIONABLE CLAIM

According to Section 3 of the Transfer of Property Act, 1882  actionable claim means :

Unsecured money debt

A debt may be secured or unsecured. Where the creditor takes security from the debtor for repayment of his money, the debt is secured debt. If debtor gives the security of his immovable property, the debt is secured by way of mortgage. Where security is some movable property, it is pledge or hypothecation. On the other hand, if there is no security of any movable or immovable property, the debt is unsecured. According to Section 3 only unsecured debt is an actionable claim. Debt secured by way of mortgage, pledge or hypothecation is not an actionable claim. ‘Debt’ in this Section does not mean only ‘loan’. Any obligation to pay a certain or definite sum of money may be called a ‘debt’. For example, claim of ‘arrears of rent’ is an actionable claim. ‘Debt’ may be existent, accruing or conditional:  

• Existent Debt – Where a debt or sum of money has already become due and is payable at present, the debt is existent.
• Accruing Debt – Where a debt or sum of money is at present due but it is payable not now but on a future date, the debt is accruing. Accruing debt is due at present but becomes payable only on a future date. It was held in Poothekka v. Annamalai [1] that a claim for salary to fall due in the next month is an accruing debt and as such an actionable claim
• Conditional or Contingent Debt. – Where the claim for a sum of money exists but the payment depends upon the fulfillment of any condition, the debt is conditional. Where the claim of money is subject to some uncertain future event which may or may not happen, the claim is contingent.

Claim to beneficial interest not in possession of the claimant

Right of a person to take the possession of a movable property from the possession of another, is the actionable claim of that person provided that the claimant has beneficial interest, that is, the right of possession in that property. Following requirements are necessary for consulting an actionable claim –

• The claim is to some movable property.
• The movable property is in possession of another person.
• The beneficial interest or the right of possession of the claimant is recognized by the Court.

A person can claim possession of a movable property of which he has right to possess but it is not in his possession. Moreover, the claimant must also have right of possession, if he has no legal right of possession, the claim is not actionable claim.

INSTANCES OF ACTIONABLE CLAIMS

Some of the claims recognized as actionable claims are:

• Claim for arrears of rent.
• Claim for money due under insurance policy.
• Claim for return of earnest money.
• Right to get back the purchase-money when the sale is set aside.
• Right of a partner to sue for an account of the dissolved partnership firm.
• Muslim woman’s claim for her unpaid dower/
• Right to claim benefit under a contract for the purchase of goods.
• Right to get the proceeds of a business.

In Sunrise Associates vs. Govt. of NCT of Delhi & Ors [2] , the Supreme Court held that the lottery ticket has no value in itself as it is mere piece of paper. Its value lies in fact that it represents chance or right to conditional benefit of winning prize of greater value than consideration paid for transfer of that chance. It is nothing more than token or evidence of this right. Three ingredients in the sale of lottery tickets, namely, (i) prize; (ii) chance; and (iii) consideration. The bench held that the sale of lottery tickets is an actionable claim.

TRANSFER OF ACTIONABLE CLAIMS

Section 130 makes it clear that actionable claims are transferable properties. Any kind of transfer, that is, sale, gift, exchange or mortgage of an actionable claim is possible.

MODE AND EFFECT OF ASSIGNMENT

According to Section 130, transfer of actionable claims, whether with or without consideration, must be made by an instrument in writing. The instrument must be either signed by the transferor or by his duly authorized agent. There cannot be oral assignment of any actionable claim. However, registration of the same is not necessary to effect the transfer. It is also not compulsory that there is a separate deed for transfer. If there is an endorsement transferring the right under a promissory note, the actionable claim is deemed to be transferred and the transferee is in position to recover money due under the promissory note without obtaining a decree on the debt itself.

Transfer of actionable claims takes effect after execution of the instrument. The execution is complete when the transferor puts his signature or thumb impression. After execution, all the rights and remedies of the transferor passes on to the transferee. The assignee himself becomes entitled to recover the claims and sue in his own name. As the assignee becomes ‘owner’ of all the rights and liabilities of the actionable claim transferred to him, he is subject to also the liabilities present.

NOTICE OF ASSIGNMENT

According to Section 131, notice is not necessary to perfect the title of the assignee of a debt. However, until the debtor receives notice of the assignment in accordance with law, his dealings with the original creditor will be protected. Accordingly, notice is necessary to protect the interest of the assignee. In the absence of notice, the transferee shall lose his claim which is paid to the transferor. This Section provides following two requirements for a valid notice:

• The notice must be in writing and state the name and address of the transferee.
• It must also be signed by the transferor or his duly authorized agent or, where transferor refuses to sign, it must be signed by the transferee or his agent.

LIABILITY OF TRANSFEREE OF ACTIONABLE CLAIM

According to Section 132, after execution of the instrument assigning actionable claim, all the rights and liabilities in respect of the claim will pass on from transferor to the transferee. The liabilities and equities, to which the transferor was subject to at the date of transfer, become the liabilities and equities of the transferee. Transferor can get no better title than the transferor. The assignee is bound by the liabilities of the assignor being transferred even if the assignee had no notice of such liabilities.

WARRANTY OF SOLVENCY OF DEBTOR

When a debt is transferred the transferee may run the risk of losing the claim in such circumstances when the debtor is an insolvent. As a precautionary measure, the transferee should assure the transferor that debtor is solvent. Section 133 provides that when the transferor of a debt gives warranty as to solvency of the debtor, in the absence of any contract to contrary, the warranty applies to his solvency only at the date of transfer. When the transfer is for consideration, any such warranty extends only to the amount or value of such consideration. However, this rule is applicable only where the transferor actually gives such warranty. It is open to the parties to contract any contrary stipulation.

MORTGAGED DEBT

Actionable claim is a property and transfer of this property by way of mortgage is possible. Actionable claim is unsecured money debt. This debt may be secured by another debt (actionable claim). So, where a debt is transferred for securing another existing or, future debt it is considered to be a transfer of an actionable claim by way of mortgage. Section 134 provides the following rules under which the money realized out of such debt is to be appropriated:

• The debt received by the transferor or recovered by transferee is to be applied in payment of the cost of such recovery.
• It is to be applied towards satisfaction of the amount secured by the transfer.
• If any residue remains after the above mentioned payments, the remainder is to be given to the transferor.

ASSIGNMENT OF RIGHTS UNDER POLICY OF INSURANCE AGAINST FIRE

The general rules for assignment of actionable claims are unsuitable to the assignment of rights under the insurance policies of fire or marine. This is because of the fact that such rights cannot be assigned without transfer of the property insured. Mere transfer of such policy cannot entitle the assignee to get ownership of the property insured.

INCAPACITY OF OFFICERS CONNECTED WITH COURTS OF JUSTICE

Section 136 states that the persons specified in the Section cannot be assignees of actionable claims. Both the transferor and transferee must be competent persons and the property must also be transferable within the meaning of Section 6 of this Act. This Section specifies the persons who are legally disqualified to a be a transferee for the transfer of actionable claims. According to this section no Judge, legal practitioner or officer connected with any Court of Justice shall buy or traffic in or, stipulate for or agree to receive any share or interest in any actionable claim. It further provides that no Court of Justice shall enforce at his instance or at the instance of any person claiming by or through him, any actionable claim, so dealt with by him. The object of such prohibition is to ensure the impartiality of judiciary. In Kerakoose v. Serle [3] , the privy Council has stated the following: “It is of great importance that no officer of a Court of Justice should be even exposed to the suspicion that in the discharge of his official duties his conduct may be influenced by any personal consideration.

However, the above mentioned persons cannot buy or deal with another person’s actionable claim privately, but they can sell their own actionable claims.

SAVING OF NEGOTIABLE INSTRUMENTS, ETC.

The expression “mercantile document of title to goods” includes railway receipt, warrant or order for the delivery of goods, and any other document used in the ordinary course of business as proof of the possession or control of goods, or authorizing or declaring to authorize, either by endorsement or by delivery, the possessor of the document to transfer or receive goods hereby represented.

Under Section 137 documents which are in the nature of negotiable instruments are exempt from the operation of the provisions of this Chapter. Negotiable instruments are regulated by the Negotiable Instruments Act. Normally, negotiable instruments are assigned by endorsement and delivery of possession or, if payable to bearer, by delivery alone. So, the assignment of stocks, shares or debentures or instruments which are for the time being, by law or custom, negotiable, or any mercantile document of title to goods, has been exempted from the operation of this Chapter. ‘Mercantile document of title to goods’ have been enumerated in the Explanation to this section. Their transfer is governed by the law or custom of the merchants. A Railway Receipt is a document of title to goods. In Commissioner of Income Tax v. Bhopal Textiles Ltd [4] ., the Supreme Court held that when it is handed over to the consignee on payment, the property in the goods is transferred.

A negotiable instrument may be transferred also like any actionable claim under this Act. Section 137, while giving an additional privilege to mercantile documents, does not restrict the transfer of negotiable instruments otherwise than by way of an endorsement.

[1] AIR 1926 Mad. 1173

[2] 2006 (5) SCC 603

[3] (1846) 3 MIA 329

[4] AIR 1961 SC 426

Dr. R.K.Sinha, The Transfer of Property Act (Central Law Agency, Allahabad, 20 th edn., 2019).

• S. Rama Rao, Transfer of Property Act (MSR Law Books)

G.C. Venkatasubharao, The Transfer of Property Act, 1882 (C.Subbiah Chetty & Co., Chennai, 16 th edn., 2019).

Author: Aditi Shanmugam, Chettinad School of Law, 2nd year/ Student

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Change Number: DFARS Change 08/15/2024 Effective Date: 08/15/2024

Subpart 232.8 - ASSIGNMENT OF CLAIMS

232.803 policies..

(b) Only contracts for personal services may prohibit the assignment of claims.

(d) Pursuant to 41 U.S.C. 6305, and in accordance with Presidential delegation dated October 3, 1995, Secretary of Defense delegation dated February 5, 1996, and Under Secretary of Defense (Acquisition and Sustainment) delegation dated February 23, 1996, the Director of Defense Procurement determined on May 10, 1996, that a need exists for DoD to agree not to reduce or set off any money due or to become due under the contract when the proceeds under the contract have been assigned in accordance with the Assignment of Claims provision of the contract. This determination was published in the Federal Register on June 11, 1996, as required by law. Nevertheless, if departments/agencies decide it is in the Government's interest, or if the contracting officer makes a determination in accordance with FAR 32.803(d) concerning a significantly indebted offeror, they may exclude the no-setoff commitment.

232.805 Procedure.

(b) The assignee shall forward—

(i) To the administrative contracting officer (ACO), a true copy of the instrument of assignment and an original and three copies of the notice of assignment. The ACO shall acknowledge receipt by signing and dating all copies of the notice of assignment and shall—

(A) File the true copy of the instrument of assignment and the original of the notice in the contract file;

(B) Forward two copies of the notice to the disbursing officer of the payment office cited in the contract;

(C) Return a copy of the notice to the assignee; and

(D) Advise the contracting officer of the assignment.

(ii) To the surety or sureties, if any, a true copy of the instrument of assignment and an original and three copies of the notice of assignment. The surety shall return three acknowledged copies of the notice to the assignee, who shall forward two copies to the disbursing officer designated in the contract.

(iii) To the disbursing officer of the payment office cited in the contract, a true copy of the instrument of assignment and an original and one copy of the notice of assignment. The disbursing officer shall acknowledge and return to the assignee the copy of the notice and shall file the true copy of the instrument and original notice.

232.806 Contract clauses.

(a)(1) Use the clause at 252.232-7008 , Assignment of Claims (Overseas), instead of the clause at FAR 52.232-23, Assignment of Claims, in solicitations and contracts when contract performance will be in a foreign country.

(2) Use Alternate I with the clause at FAR 52.232-23, Assignment of Claims, unless otherwise authorized under 232.803 (d).

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