National Reserve Co. of America v. Metropolitan Trust Co.
112 P.2d 598, 17 Cal.2d 827, 1941 Cal. LEXIS 319 (1941)
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Rule of Law:
An unqualified assignment of a contract or chose in action transfers to the assignee all incidental rights, including an accrued cause of action for a prior breach, if that cause of action is essential for the contract's complete enforcement or cannot be asserted apart from ownership of the contract.
Facts:
- Metropolitan Trust Company of California (Metropolitan Trust) and National Thrift Corporation of America (National Thrift) created a trust agreement requiring a fund to be maintained at 110% of the value of investment certificates sold by National Thrift.
- In 1927, Ward Esplín purchased a $1,000 participation certificate from National Thrift, which was secured by this trust.
- In 1932, National Thrift became insolvent, and it was discovered that the value of the trust fund had fallen below the required 110% level, reducing the value of Esplín's certificate.
- On July 8, 1933, Esplín executed a written agreement with the National Reserve Company of America (National Reserve), assigning 'all his right, title and interest' in the certificate to National Reserve.
- The purpose of the assignment was for National Reserve to collect the proceeds from the certificate and apply them as a credit toward the purchase of one of its own investment certificates by Esplín.
- The underlying trust indenture agreement provided that only an owner of a certificate could maintain a cause of action for a breach of the trust.
Procedural Posture:
- National Reserve Company of America sued Metropolitan Trust Company of California in the trial court, alleging breach of the trust agreement.
- The trial court first considered the preliminary issue of whether National Reserve had the right to bring the lawsuit.
- The trial court found that National Reserve was not the legal owner of the certificate and that the cause of action for the prior breach had not been assigned to it.
- Pursuant to these findings, the trial court entered judgment for the defendant, Metropolitan Trust Company.
- National Reserve Company of America, as the appellant, appealed the trial court's judgment to the Supreme Court of California.
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Issue:
Does an assignment of a participation certificate for the purpose of collection also transfer an accrued cause of action against a third party for a prior breach of trust that diminished the certificate's value, when the trust agreement requires ownership of the certificate as a condition for bringing such a suit?
Opinions:
Majority - Traynor, J.
Yes. An unqualified assignment of a contract transfers to the assignee all rights and remedies incidental to it, including an accrued cause of action that is essential to the contract's enforcement. The court reasoned that the instrument Esplín signed was a valid assignment for collection, which vests legal title in the assignee, National Reserve, allowing it to sue in its own name. The court then established that while some accrued causes of action do not automatically transfer with an assignment, a cause of action that cannot be asserted apart from the contract or is essential to its complete enforcement does pass as an incident of the assignment. Here, the trust agreement itself required ownership of the certificate to sue for a breach. Since Esplín no longer owned the certificate, he could not sue, and the right must therefore have passed to the assignee, National Reserve. To hold otherwise would mean the right to sue for the breach would be extinguished, as neither the assignor nor the assignee could enforce it.
Analysis:
This decision clarifies the scope of rights transferred in an assignment, particularly an assignment for collection. It establishes the important principle that an accrued cause of action is not severed from a contract upon assignment if the right to sue is dependent on ownership of the contract itself. This prevents a legal 'no-man's land' where a valid claim could go unenforced because the original owner lacks standing and the new owner lacks the right. The case reinforces the idea that an assignment of 'all right, title and interest' should be read broadly to include the necessary tools for its complete enforcement, thereby protecting the value of the assigned asset for both the assignor and assignee.
