The Notice of Assignment is the single most important document for a Factor. The Notice of Assignment protects the Factor in the event that a payment is sent to the Client – or other third parties – instead of to the Factor. Whether a Notice of Assignment complies certain statutory requirements can mean the difference between a Factor getting paid or not.

Because of the harsh remedy of double-payment that Account Debtors face after receipt of the Notice of Assignment, most courts look for any possible reason to not enforce the Notice of Assignment. Unfortunately, recently we have noticed some Factors making seemingly minor mistakes in their Notices of Assignment that did or will create major headaches for the Factor. This article highlights some of those mistakes and provides lessons that can be learned from those experiences.

What’s in a name?

It seems simple but the Notice of Assignment needs to be addressed to and delivered to the Client’s Account Debtor. However, we have come across numerous Notices of Assignment that misidentify the Account Debtor either through spelling mistakes or through misclassification (i.e. addressing the Notice of Assignment to XYZ, Corp. rather than XYZ, LLC). Most of the time, these mistakes are insignificant typos. However, because enforcing Notices of Assignments can force an Account Debtor to pay twice, courts have become hypercritical about everything related to Notices of Assignment. Some of these courts have held that addressing the Notice of Assignment to XYZ, Corp. rather than XYZ, LLC was tantamount to sending the Notice of Assignment to a completely different entity, making the Notice of Assignment invalid.

Factors must spend additional time to ensure that the Notice of Assignment is addressed to the proper name of the Account Debtor. This information can be easily retrieved by performing a search through the state’s corporation search in the state where the Account Debtor is located.

Don’t forget your John Hancock.

Believe it or not, a Notice of Assignment is invalid unless it is signed by the Client or the Factor. Despite this requirement, we have come across form Notice of Assignments from Factors with no signature. The only thing at the bottom of the Notice was the typed-out name of the Factor. This is not enough.

Factors can use wet signatures or e-signatures but every Notice of Assignment needs to have a signature on it on behalf of the Client or the Factor.

Location, location, location.

Where to send the Notice of Assignment is always a complicated issue for Factors, especially for larger Account Debtors with multiple offices and addresses. Because of this, more and more, we see our Factors use addresses provided to them by the Clients. Unfortunately, this information is frequently wrong. In one situation, we have a Factor who sent their Notice of Assignment to a P.O. Box address provided by the Client. Unbeknownst to the Factor, this P.O. Box was unmonitored and the Notice of Assignment was not put into the hands of a human being for more than 3 months after it was sent by the Factor. During that time, the Account Debtor made numerous payments directly to the Client.

Factors should only send their Notices of Assignment to addresses that have been independently verified as belonging to the Account Debtor. Do not rely upon the Client for this information. For larger Account Debtors, Factors should send their Notices of Assignment to the Account Debtor’s registered agent address or the address of its principal place of business. This information can be found either on the Account Debtor’s website, or through the corporation search as discussed above.

Keep those return receipts!

To be effective, the Factor must prove that the Notice of Assignment was received by the Account Debtor. It is not enough to prove that the Factor sent the Notice of Assignment. Proof of delivery of the Notice of Assignment is paramount. More and more, Factors are sending their Notices of Assignment by e-mail, which perfectly acceptable. However, as proof of receipt of their Notices of Assignment, some Factors can only show that they "sent the Notice to the right e-mail address" or that the Account Debtor responded about an unrelated matter to the e-mail containing the Notice of Assignment. These Factors may be correct and may be able to prove receipt by the Account Debtors in these situations, but by creating factual questions as to whether the Notices of Assignment were actually received, these Factors are making litigation more time consuming and expensive and unnecessarily risking recovery of their funds. If the Factor is going to send the Notice of Assignment by e-mail, it should: (i) get a read receipt; and (ii) ask the recipient to respond to the e-mail acknowledging receipt of the Notice of Assignment.

Despite the ease of e-mail technology, we still recommend that all of our clients send their Notices of Assignment either by certified mail/return receipt requested or other method that provides for proof of delivery. This eliminates any possible argument that the Notice was not received by the Account Debtor.

Bruce Loren and Allen Heffner of the Loren & Kean Law Firm are based in Palm Beach Gardens and Fort Lauderdale. For over 30 years, Mr. Loren has focused his practice on construction law and factoring law. Mr. Loren has achieved the title of "Certified in Construction Law" by the Florida Bar. The Firm represents factoring companies in a wide range of industries, including construction, regarding all aspects of litigation and dispute resolution. Mr. Loren and Mr. Heffner can be reached at bloren@lorenkeanlaw.com or aheffner@lorenkeanlaw.com or 561-615-5701.