In the case of an absolute assignment of the debt, the assignee has the right of choice in action.
The assignment agreement governs the rights of the assignor and the assignee, especially when the assignment is absolute. By agreement, the assignor transfers to the successor his rights arising from the contract of sale, insurance policy or other agreement.
Therefore, if an assignor wishes to sue for a debt, he needs the consent of the assignee to be included as a claimant in the claim and must disclose his relationship in the statement of claim. If the assignee refuses to consent, the assignor may join them as a defendant, but the court may not allow them to leave the claim without joining the assignee.
The assignor, in order to protect his right to sue, must keep the choice in effect in the assignment agreement, which binds the assignee not to refuse to consent. The assignment agreement is used in cases where a housing loan is granted as a security for its repayment together with a mortgage.
The assignment of rights is considered absolute, although in the case of the buyer, he retains possession and use of this property and becomes the trustee of the bank until the loan is repaid and released from the assignment.
Life insurance is similar: the assignor pays premiums, and the beneficiary is the assignee, the bank that issued the loan. According to case law, the right to specific performance and collection of the amount of insurance coverage belongs to the bank, and although the buyer retains possession of the property or an event covered by insurance may occur, he may not receive the amount of insurance coverage.
In the case of an absolute assignment of the entire debt, as in the case of life insurance payments assigned to a bank on a home loan, the right to sue belongs to the bank as assignee.
This issue was analyzed by the Supreme Court in a decision handed down on 20 January. The Court referred to case law, emphasizing that an assignment in Cyprus is governed by the principles of equity from which it flows, and that the consequences of an assignment, if absolute, are the transfer of the debt and therefore the choice in action.
In this case, there was an assignment of payments under a life insurance policy to a bank that provided a housing loan to the cedant. After his death, both his heirs and the bank demanded the amount of the insurance policy, but the insurance company returned only the amount of premiums paid, arguing that the insured did not fully disclose all material facts when signing the offer.
The manager of his property filed a lawsuit against the insurance company, which, in addition to the issue of the alleged non-disclosure of material facts by the insured, also raised the question of the legitimacy of the manager as a plaintiff, i.e. had no right to sue in connection with the assignment. The court of first instance did not allow the involvement of the bank as a defendant and dismissed the case due to the fact that the administrator did not have the right to bring a claim.
The Supreme Court decided that the trial court was right. It stated that if an assignor unconditionally cedes a claim he has against a third party, he cedes the legal object of the claim and no longer has the right to sue in person, but only as a disclosed representative and fiduciary of the assignee. The court stated that the administrator, on behalf of the deceased, had lost the legal right to sue the insurance company. If the administration illegally paid any amount to the bank, it could recover it from the bank.
George Coucunis is a lawyer practicing in Larnaca and founder of George Coucounis LLC, Advocates & Legal Consultants