Transfer Of Actionable Claims

Actionable Claim is a claim to any debt, other than secured by mortgage of immovable property or pledge or hypothecation of some movable property, or to any beneficial interest in movable property, not in possession either actual or constructive of the claimant.

Section 3 of Transfer of Property Act, 1882 defines; " actionable claim means a claim to any debt, other than a debt secured by mortgage of immovable property or by the hypothecation or pledge of movable property, or to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which the civil courts recognizes as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent."

Lets' analyze above definition;

Actionable Claims means a claim to -

1. Any debt, other than a debt secured -

1. By a mortgage of immovable property, or
2. By hypothecation or pledge of movable property, or

2. Any beneficial interest in the movable property- not in possession (either actual or constructive) of the claimant;

3. which the civil courts recognise as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent.

NOTE: it means that Actionable Claim relates only to unsecured debt and beneficial interest of a claimant in movable property not in his possession.

The Transfer of Property (Amendment) Act, 1990 defines;

An Actionable Claim comprises of -

1. a claim to unsecured debt or;
2. a claim to any beneficial interest in movable property not in actual or constructive possession of the claimant.

Debt: we know there are two types of movable property; Tangible and Intangible, in tangible property, we can feel it and have its possession such as car, residence, jewellery, furniture's etc. This type of properties has physical existence. In case of Intangible Properties, there are rights or obligations, which we enjoy. The existence of intangible movable can be known only when the person having such right claims it by an action in the court of law.

The "Debt" includes a sum of money due by one person to another and which includes not only the amount payable at the time but also the sum of money which is not immediately due but might become payable after sometime. A sum of money which become payable in future due to present obligations will be considered as a Debt.

A Debt may be Secured or Unsecured. Where a debtor gives security of any immovable or movable property to secure payment of debt, called Secured Debt and other the other hand where no security has given for payment of debt, called unsecured debt.

An Unsecured Debt is treated as Actionable Claim.

1. Where a debt is already due and become payable is called "Existing Debt"
2. on the other hand, where a debt or sum of money is due at present but payable on a future date, it is "Accruing Debt";
3. Where the claim for a sum of money exists but the payment depends upon the fulfilment of any condition, the debt is known as "Conditional Debt".

CLAIMS WHICH ARE HELD TO BE ACTIONABLE CLAIM; following claims are included under the category of Actionable Claims;

1. A Claims for arrears of rent;
2. A share in partnership;
3. A Claim for money due under any insurance policy;
4. A claim for rent to fall due in future accruing debt;
5. A Claim for the return of earnest money;
6. A Claim for unpaid dower of a Muslim Woman;
7. A right to get back the purchase-money when sale is set aside;
8. A benefit of an executory contract for the purpose of goods is a beneficial interest in the movable property;
9. A right to proceeds of a business.

CLAIMS WHICH ARE NOT TREATED AS ACTIONABLE CLAIM;

1. A Decree is not an Actionable Claim;
2. A Right to get damages under the law of torts or for breach of contract;
3. A Claim to mesne profit is not an actionable claim but it is a mere right to sue;
4. A Copyright;
5. A Debt secured by mortgage of immovable property or hypothecation of movable property.

TRANSFER OF ACTIONABLE CLAIM: Section 130 of Transfer of Property Act, 1882 provides that

(1) The transfer of an actionable claim (whether with or without consideration )shall be effected only by the execution of an instrument in writing signed by the transferor or his duly authorised agent, shall be complete and effectual upon the execution of such instruments, and thereupon all the rights and remedies of the transferor, whether by way of damages or otherwise, shall vest in the transferee, whether such notice of the transfer as is hereinafter provided be given or not:

Provided that every dealing with the debt or other actionable claim by the debtor or other person from or against whom the transferor would, but for such instrument of transfer as aforesaid, have been entitled to recover or enforce such debt or other actionable claim, shall (save where the debtor or other person is a party to the transfer or has received express notice thereof as hereinafter provided) be valid as against such transfer.

(2) The transferee of an actionable claim may, upon the execution of such instrument of transfer as aforesaid, sue or institute proceedings for the same in his own name without obtaining the transferor's consent to such suit or proceeding and without making him a party thereto.

Note —Nothing in this section applies to the transfer of a marine or fire policy of insurance or affects the provisions of section 38 of the Insurance Act, 1938 (4 of 1938)].

LET'S ANALYZE PROVISIONS OF SECTION 130;

1. It provides that the transfer of both types of actionable claims, i.e. with or without consideration are affected by execution of an instrument in writing. The instrument must be signed by the transferor or his duly authorised agent;

2. It must be affected by instrument in writing signed by the transferor or his duly authorised agent. It is not necessary that the assignment should be made by a separate document. Only an endorsement on the back of the document containing actionable claim is sufficient for the purpose;

3. Transfer of actionable claim takes effect only after execution and signing of the instrument. After execution, all the rights and remedies of the transferor vest in the assignee. The Assignee(transferee) becomes entitled to recover the claims and sue in his own name. The assignee also become liable for all the liabilities and equities to which the transferor was subject at time of the transfer.

4. Assignment of Insurance Policy: The insured has assigned his policies to a bank. He then made a claim as a complaint under the Consumer Protection Act against the insurance company. In this case it was held that the Bank has right to claim amount from insurance company on the basis of decree passed by consumer court. The Bank need not to get permission from the insured.

5. Subrogation of claim under insurance : A consignor has filed a suit against the carrier of cargo for loss of stock due to negligence and heavy rain. The insurance company after accessing claim amount has paid to the consignor and filed a recovery suit against the carrier on the basis of letter of subrogation and power of attorney received from the insured(consignor) in its own name. The court held that the suit of recovery of loss should be in the name of consignor name, not in the name of the insurance company on the basis of Power of Attorney;

6. Notice of Assignment: A notice of assignment to the debtor is not compulsory to perfect the title of the assignee(transferee) but until the debtor receives notice of the assignment to a third person, his dealings with original creditor shall be protected. Thus, it is necessary for an assignee to give notice to the debtor as soon as possible;

7. Exception: the provisions of Section 130 are not applicable to the transfer of a marine or fire insurance policy or affect the provisions of Section 38 of the Insurance Act, 1938.

Indu Kakkar Vs. Harayana State Industrial Development Corporation Ltd., AIR 1999 SC 296C (1999): The Supreme Court held that the transferee cannot compel the corporation allotting the land to treat him as an allottee. In this case a plot was allotted to the allottee for the establishment of an industrial unit within a specified time-period by the Industrial Development Corporation. The original allottee has transferred the plot without the consent of the corporation. The Supreme Court held that the corporation could not ne compelled to treat him as an original allottee. He has no locus standi to challenge the order of resumption passed by the corporation.

Section 131 of The Transfer of Property Act, 1882 deals with Notice in case of assignment of Actionable Claim: provides that every notice of transfer of actionable claim must be in writing and signed by the transferor or his duly authorised agent in this behalf. Where transferor refuses to sign, then the notice must be signed by the transferee or his agent. The notice must be in express terms of notice and name and address of the transferee must be written clearly on the notice. Notice must be unconditional.

Sadasook Ramprotap Vs. Hoar Miller & Co. it was held that there is no time limit within which the notice must be given. Notice given within one year was held to be reasonable.

Section 132 of the Transfer of Property Act, 1882 deals with Liability of Transferee of Actionable Claim; the transferee of an actionable claim shall take it subject to all the liabilities and equities and to which the transferor was subject in respect thereof at the date of the transfer.

Example:

Let's consider Mr. X transfers to Mr. Y a debt due to him by Mr. Z, Mr. X being then indebted to Mr. Y. Mr. Z sues Mr. Y for the debt due by Mr. Y to Mr. X. In this case Mr. Y is entitled to set off the debt due by Mr. X to Mr. Z, although Mr. Y was unaware of it at the date of transfer.

Note: - The principal of this section is that the assignee can get no better title than the assignor. If nothing is due to the assignor the assignee gets nothing .

Section 133 of the Transfer of Property Act, 1882 provides that: 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.

A warranty of solvency is not implied. Warranty is sometimes given by the transferor as a precautionary measure that the debtor is solvent so that the transferee becomes assured that he may not lose his claim. The warranty of solvency of debtor is limited only for the time of transfer or time of the assignment. Where the transfer is for consideration, such warranty extends only to the amount of such consideration.

Section 134 of Transfer of Property Act, 1882 provides that; 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;

1. First, in payment of the costs of such recovery;
2. Secondly, in or towards satisfaction of the amount for the time being secured by the transfer; and
3. Residue if any, belongs to the transferor or other person entitled to receive the same.

Section 135[ inserted by 1944 amendment act] of the Act, 1882 Assignment of rights under policy of insurance against fire. —Every assignee by endorsement or other writing, of a policy of insurance against fire, in whom the property in the subject insured shall be absolutely vested at the date of the assignment, shall have transferred and vested in him all rights of suit as if the contract contained in the policy has been made with himself.

Section 135 provides that any assignee of a policy of insurance against fire, in whom the property in the subject insured shall be absolutely vested at the date of the assignment shall have transferred and vested him all rights of suit as if the contract contained in the policy has been made with him.

Note: Section 130 of the Act, 1882 exempts the assignments of marine or fire policies of insurance from its operation because mere assignment of such policy does not entitle the assignee to the ownership of the subject matter of policy.

SECTION 137 of the Transfer of Property Act, 1882: the provisions of Sections 130 to 136 of the Transfer of Property Act, 1882 dealing with transfer of actionable claim do not apply to stocks, shares or debentures, or to instruments whish are for the time being, by law or custom, negotiable,or to any mercantile document of title to goods.

Mercantile Document of Tile of Goods; includes a bill of landing, dock-warrant, warehouse-keeprs' certificate, railway receipt, warrant or order for the delivery of goods, and any other document used in ordinary course of business as a proof of the possession or control of goods, or authorising or purporting to authorise,either by endorsement or by delivery, the purpose of the document to transfer or receive goods thereby represented.

Conclusion: Negotiable Instruments are governed by the provisions of Negotiable Instrument Act, 1881, such instruments are assigned or transferred by endorsement and delivery or mere delivery. However, a negotiable instrument may also transfer like and actionable claim. The assignee under the Transfer of Property Act, 1882 will acquire no more than the right, title and interest of the assignor but under transfer in Negotiable Instrument Act, 1881 the endorsee will have all rights and advantages of a holder of instrument in due course.

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