In case of an absolute assignment of a debt, the assignee has the chose in action
An assignment agreement regulates the rights of the assignor and the assignee, especially when the assignment is absolute. Through the agreement the assignor confers their rights to the assignee deriving from a sale contract or an insurance policy or other agreement.
Therefore, if the assignor wishes to sue for a debt, they need the consent of the assignee to add them as a plaintiff to the lawsuit and must disclose their relationship in the statement of their claim. If the assignee refuses to give consent, the assignor may join them as a defendant, but the court may not allow them to maintain the claim without joining the assignee.
The assignor, in order to protect their right to sue, must preserve the chose in action in the assignment agreement imposing an obligation upon the assignee so they will not refuse to give consent. An assignment agreement is used in cases of granting a housing loan as security for its repayment together with the mortgage.
The assignment of rights is considered absolute, although in the case of a buyer, they retain possession and use of the property in question and become a trustee of the bank until the loan is repaid and they are exempted from the assignment.
Life insurance is similar, with the assignor paying the premiums, while the beneficiary is the assignee, the bank that granted the loan. According to case-law, the right of specific performance and to collect the sum of the insurance cover belongs to the bank and though the buyer retains possession of the property or the event covered by the insurance may occur, they may not receive the amount of the insurance.
In the case of absolute assignment of the entire debt, as is the case with the benefits from a life insurance policy assigned to a bank for a housing loan, the right to sue belongs to the bank as assignee.
This issue was analysed by the Supreme Court in a judgment issued on January 20. The court referred to case-law, emphasising that assignment in Cyprus is governed by the principles of equity from which it derives and that the consequence of the assignment, if absolute, is the transfer of debt and consequently the chose in action.
In the present case, there was an assignment of 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, alleging that the insured omitted to fully disclose all the essential facts when signing the 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 dismissed the case due to the fact that the administrator had no right to sue.
The Supreme Court decided the court of first instance was correct. It stated that if the assignor absolutely assigns the claim they have against a third person, they assign the legal object of the lawsuit and no longer have the right to file a lawsuit personally, but only as a disclosed representative and trustee of the assignee. 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.
George Coucounis is a lawyer practising in Larnaca and the founder of George Coucounis LLC, Advocates & Legal Consultants, [email protected]