Once the obligor has notice of the assignment, a settlement and release with the assignor will not defeat the assigned right.[xi] However, if the obligor pays the assignee after notice, even if there is a defect in the right of an assignee, the assignee has the same power that the assignor had to discharge or modify the duty of the obligor.
The assignee can discharge or modify the duty of the obligor only if the obligor gives value to the assignee.
Some courts have held that the rule should be qualified by the statement that, “when the existence of the assigned fund is dependent upon performance by the assignor of an executory contract, the anticipatory debtor may, at any time, do whatever reasonably appears to be necessary to enable the assignor to perform the contract.” [vii] Once a valid assignment has been made, the assignor cannot cancel or modify the completed assignment by a unilateral action without the consent of the assignee.[viii] Hence, once the obligor has been given a notice of assignment, the assignor has no residual power of release and the obligor must pay the assignee.[ix] If the obligor pays the amount to the assignor in violation of the assignee, the obligor will be liable to the assignee.[x] The obligor will be liable in the same manner if he/she makes payment to some person other than the assignee.
Thus, Payment by the obligor to the assignor is valid as against the assignee only in the absence of notice to the obligor.
The same arguments may be applied in relation to other contractual obligations, as the doctrine of precise performance does not discriminate between obligations to pay money and obligations to perform other acts.
So the arguments set out below may apply, mutatis mutandis , to assignments of legal choses in action arising out of contract other than debt.
Notice of assignment and discharge by performance Chee Ho Tham * “A debtor (A) who makes payment to the creditor (B) after having been given notice of its assignment to an assignee (C) is at risk of having to make payment again.” This appears to be a “well settled” aspect of the “transfer” of the legal rights to a debt effected by either equitable or statutory assignment.
Yet it contradicts the common law rules as to invariability of a contractual obligation and the automatic discharge of an obligation when it is precisely performed.
As for negotiable instruments, notice to the maker of the transfer of the note is not required.
This is because the maker can protect himself/herself by demanding production of the instrument and refusing to pay a party not in possession of it.[iv] Some courts have taken a contrary view and criticized the requirement of notice to perfect title in the assignee.