09 May Rights of assignor and assignee in an assignment agreement
Rights of assignor and assignee in an assignment agreement
by George Coucounis
“In case of an absolute assignment of a debt, the assignee has the chose in action”
THE assignment agreement regulates the rights of the assignor and the assignee especially when the assignment is absolute. The assignor through the assignment agreement confers his rights to the assignee deriving from a sale contract or an insurance policy or other agreement. The assignor loses the actionable right which is conferred to the assignee. Therefore, if the assignor wishes to sue for a debt, he needs the consent of the assignee to add him as a plaintiff to the lawsuit and he has to disclose their relation in the statement of his claim. If the assignee refuses to give his consent, the assignor may join him as a defendant, but the Court may not allow the assignor to maintain the claim without joining the assignee. The assignor, in order to protect his right to sue, must preserve the chose in action in the assignment agreement imposing an obligation upon the assignee so that he will not refuse to give his consent. The assignment agreement is used in cases of granting a housing loan as security for its repayment together with the mortgage. If a dispute arises between the assignor as buyer and the vendor, the assignor cannot sue the vendor on his own without the consent of the assignee – bank to be added as plaintiff in the lawsuit. Several lawsuits have been dismissed by the Courts on the ground that the assignor did not have the right to sue due to the assignment.
Such an assignment of rights is considered absolute, although in the case of a buyer, he retains the possession and use of the property and becomes a trustee of the bank until the loan is repaid and he is exempted from the assignment. The case of a life insurance is similar, where the assignor pays the premiums, but the beneficiary of his rights is the assignee, the bank that granted him the loan. According to case-law, the right of specific performance and the right to collect the sum of the insurance cover belongs to the bank being the assignee and the buyer, although he retains possession of the property or the event covered by the insurance occurs, may not receive the amount of the insurance.
In the case of an absolute assignment of the entire debt, as it is the case with the benefits from a life insurance policy which were absolutely assigned to a bank for a housing loan, the right to sue belongs to the bank as assignee and not the assignor. This issue as well as the legitimacy of the assignor to file a lawsuit as the representative and trustee of the assignee are analysed by the Supreme Court in a judgment issued on 20.1.2022. The Court referred to case-law, emphasizing that the assignment in Cyprus is governed by the principles of equity from which it derives and that the consequence of the assignment, if it is absolute, is the transfer of the debt and consequently the chose in action.
In the present case, there was an assignment of the benefits from a life insurance policy to the bank which had granted a housing loan to the assignor. After he passed away, both his heirs and the bank claimed the sum of the insurance policy, but the insurance company returned only the amount of the premiums paid, refusing to pay the insured amount, alleging that the insured omitted to fully disclose all the essential facts when signing the insurance proposal. The administrator of his estate filed a lawsuit against the insurance company, which in addition to the issue of the alleged failure of the insured to fully disclose essential facts, also raised the issue of the legitimacy of the administrator as plaintiff, that is to say he had no right to sue due to the assignment. The Court of first instance did not allow the addition of the bank as a defendant and after hearing the action, it dismissed it due to the fact that the administrator had no right to sue.
The Supreme Court decided that the Court of first instance dealt correctly with the matter. It states that the assignor, if he absolutely assigns the claim he has against a third person, assigns the legal object of the lawsuit. As a result, he no longer has the right to file the lawsuit personally, but only as a disclosed representative and trustee of the assignee, an element which in this case did not exist or was not disclosed. The Court stated that the administrator, through the assignment by the deceased, lost the legal right to sue the insurance company. If the administration unduly paid any amount to the bank, it could recover it from the bank.