§ 368.Action By Assignee Without Prejudice to Set-Off Or Other Defenses

Section 368 answers a question that follows naturally from allowing lawsuits on assigned claims: does the defendant lose defenses because the claim changed hands? The statute says no. When someone assigns a thing in action -- a right that can be enforced by suit -- the assignee steps into the assignor's shoes and takes the claim subject to any set-off or other defense the defendant already had against the assignor before receiving notice of the assignment.

The statute carves out one important exception: negotiable promissory notes and bills of exchange transferred in good faith, for value, before maturity. A holder of that kind of instrument who meets those conditions takes it free of many defenses that would bind an ordinary assignee, reflecting the commercial-paper policy of letting negotiable instruments circulate without every downstream holder having to investigate the underlying transaction.

The practical effect is that a debtor who owes money on an ordinary assigned contract does not lose a defense, such as an earlier payment or an offsetting claim against the original creditor, merely because the creditor sold or transferred the claim to someone else.