Although Zlotnic had been in business a long time, he had been forced to borrow heavily in the last few years. When his debt reached the limit of his line of credit, $100,000, the manager of the Regal Bank called him in for a talk. Subsequently, Zlotnic sold his house for $250,000 to the Johnsons. He contracted to buy another from the Scotts. From the proceeds he anticipated receiving from the Johnsons, he assigned $200,000 to the Scotts, the purchase price of Scott's house, and assigned $50,000 to the Regal Bank to reduce his debt. The assignment to the Scotts was in writing; the assignment to the bank was not. The Scotts gave written notice of the assignment to the Johnsons on March 1, the day the money was owed to Zlotnic. Johnson verified the assignment and paid out the $200,000 to the Scotts. On March 2, the Regal Bank gave written notice of its assignment to the Johnsons. Unfortunately, at that time only $45,000 was owing to Zlotnic because the Johnsons had paid $5,000 to the Canada Revenue Agency for Zlotnic. On these facts, which of the following is true?
A) The bank has no claim since the Johnsons didn't owe Zlotnic the specified $50,000 at the time of the assignment.
B) Zlotnic needed the permission of the Johnsons, the debtors, before he could make any assignments.
C) The assignment to the bank is not enforceable because it was not in writing.
D) Regal Bank must take "subject to the equities" between Zlotnic and the Johnsons; i.e., it can't receive the whole $50,000.
E) The assignment to the bank is a statutory assignment.

Question

Quizplus · Accepted Answer

The bank must take "subject to the equities" between Zlotnic and the Johnsons, meaning that it cannot receive the full $50,000 as only $45,000 was owed to Zlotnic at the time of its written notice of assignment. This principle is based on the fact that the Johnsons had already paid out $5,000 on behalf of Zlotnic, and to allow the bank to receive the full $50,000 would be unjust to the Johnsons. Therefore, the bank can only receive the amount that was owed to Zlotnic at the time of its notice of assignment, which is $45,000. Choice A is incorrect because the bank does have a claim, just not for the full $50,000. Choice B is incorrect because as long as the assignment to the Scotts was valid, Zlotnic did not need permission from the Johnsons to make the assignment to the bank. Choice C is incorrect because the assignment to the bank was in fact in writing. Choice E is incorrect because there is no indication that the assignment to the bank was a statutory assignment.

Although Zlotnic Had Been in Business a Long Time, He