Common assumption of valid assignment creates effective transfer of title of receivable
- William Kanaan
- 12 hours ago
- 2 min read
The Commercial Court held that a lender was the valid assignee of receivables used as security for a loan even though the purported assignor did not have title to the receivables.
The lender's right was limited to a claim for the receivables referred to in the assignment agreement but do not extend to additional monies that became due under the agreement under which the receivables arose.
The receivables arose under a consultancy agreement between A and B. C, a company related to A, offered amounts outstanding under the consultancy agreement (B receivable) as security to its lender, D. The assignment agreement purporting to assign the B receivable to D was between C and D, even though the B receivable was, in fact, owed to A.
The court found that there was no express or implied assignment of the B receivable from A to C before C purported to assign it to D.
D relied on estoppel by convention in Blindley Heath Investments Ltd v Bass [2015] EWCA Civ 1023 and the court found that they were met so that A was estopped from denying that there was a valid assignment to D.
All of A, C and D had entered into agreements extending the loan on a common assumption that the assignment agreement created an effective assignment of the B receivable.
The court stated that it would be contrary to common sense and commercial propriety for C to offer security while knowing it was ineffective because the correct assignor was A, not C. The requirements for an estoppel by acquiescence were also satisfied.
The court's decision shows that estoppel by convention can validate an otherwise ineffective assignment if there is a shared assumption communicated between relevant parties and as a result it would be inequitable to deny the purported assignee title to the receivable.
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