Chose in Action IV
Bill Long 12/10/05
The Shattering of the Inalienability Myth
In the previous three essays I have defined a chose in action, described its history, and identified the two underlying principles of English law that determined its essence. These two princples: the notion that legal actions were personal and the English fear of maintenance and champerty, forbade the alienabilty of choses in action. This essay will show how contract-type (ex contractu) choses in action, such as action on a debt, gradually became assignable in the 18th and 19th centuries. Another essay, not on this page, will show how several legal scholars now want the proverbial other shoe to fall in 2005--i.e., so that tort claims (ex delicto) also would become assignable. Actually, the debate over this last issue only becomes explicable if we understand the history and nature of a chose in action at common law.
How Choses in Action Became Assignable
Holdsworth's treatment of the history of choses in action becomes less helpful the closer we get to current realities. An article by noted legal realist scholar Walter Wheeler Cook in 1916 ("The Alienability of Choses in Action," 29 HLR 816 (1916)), however, shows how the myth of a chose in action's inalienability became shattered around 200 years ago. Though Cook doesn't really demonstrate it, the nature of English commercial life in the 18th-19th centuries no doubt stands behind the relaxation of the non-alienability rule. Merchants no longer simply dealt face to face with customers. You had middlemen, warehouses, complex financial arrangements, the extension of credit, unpaid debts and the growth of the insurance industry. All of these new economic realities (which I would love to be able to describe, each one in its effulgent richness) tended to convince courts that the simple rule of non-assignability of choses in action ought not to be maintained in contract-type actions. Cook's article is brilliant not only in laying out this history but in defining the issue from the perspective of the amazingly-influential article by the short-lived Wesley N. Hohfeld (1879-1918; he fell victim to the Spanish flu that we forget ravised the country near the end of WWI) of Yale on "Some Fundamental Legal Conceptions," 23 YLJ 16.
After a very illuminating application of Hohfeld's "jural opposites" to the nature of a chose in action (i.e., how the chose grants powers, privileges and immunities to the creditor and corresponding duties to the debtor), Cook shows that the relaxation of the non-alienability rule occurred first in equity and only then in the common law through the concept of the "power of attorney." More specifically, Cook relies on the 1914 work of W.T Barbour ("The History of Contract in Early English Equity") to show that "among the earliest petitions (in chancery) preserved we find assignees seeking to recover in their own names debts which had been assigned to them" (Cook, supra at 821). No one is quite sure exactly when this first happened, but Cook cites several cases from the 17th and early 18th centuries to conclude:
"We know from later cases that it became the settled doctrine that the assignee, at least where there was a consideration, and perhaps where there was none, could recover from the debtor by bill in equity brought in the name of the assignee" (Id.).
It was not until the 1799 common law case (Court of Common Pleas) that the law courts were confronted with equity's relaxation of the non-assignability rule. In Legh v. Legh the facts were as follows. The assignor of a bond, after the assignee had begun suit in the name of the assignor, accepted payment from he debtor who had notice of the assignment, and also executed a release, which release was pleaded as a defense by the debtor when sued by the assignee in the name of the assignor. The debtor defendant pleaded a complete defense because of the theory that in fact the assignor owned the bond. This was the common law theory of non-assignability of a chose in action in spades. Therefore, according to the debtor, the only action available to the assignee would be an action for damages against the assignor or by bill in equity for cancellation of the release. The following words from Chief Justice Eyre's opinion are noteworthy:
"The conduct of this Defendant has been against good faith, and the only question is, whether the Plaintiff must not seek relief in a Court of Equity?...The Court has in many cases refused to allow a party to take his legal advantage, where it has appeared to be against good faith (i.e., the defendant was "taking legal advantage" here)...In order to defeat the real Plaintiff (the assignee), this Defendant has colluded with the nominal Plaintiff (the assignor) to obtain a release; and I think therefore the plea of release may be set aside consistently with the general rules of the Court. And if so, the Defendant cannot be permitted to plead payment of the bond..."
Two things are noteworthy here. First is the recognition that a court in equity would have cancelled the release which the assignee desired; and second, is the sense that the law court could now do the same thing. That is, equity was leading by example, and now law thought that it could do the same.
Coming to America and Conclusion
Cook goes on to show how in cases from Connecticut between 1772 and 1794 the law courts also relaxed the common law rule in the same way. It seemingly just made sense for debts to be assigned and collected by third parties. As a court held in one instance: "by the assignment of the note, the property of the grain (the commodity in question in this particular case) upon the tender, vested in the assignee." By 1825 the transformation was largely complete and the notion of the non-assignabililty of contract-type choses in action was a thing of the past.
Click here for an essay that shows that the assignability issue is not dead yet.
Copyright © 2004-2007 William R. Long