assignment of future property equity

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Topic 5 Equitable assignment of legal property

Equity and trusts (070517 ), university of technology sydney.

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Equity & Trusts 70517

Disclaimer: these notes have been prepared as a substitute for a lecture,, and as a guide to self-study for students enrolled in the uts:law subject, 70517 equity & trusts. they should not be relied upon for any other purpose., last updated: 23 march 2020., equitable assignment of legal property, topic 1 - history and nature of equity, topic 2 - unconscionable dealing and undue influence, topic 3 - equitable estoppel, topic 4 - equitable estates and interests, topic 5 - equitable assignment of legal property, topic 6 - equitable assignment of equitable property.

Topic 7 - Fiduciary Obligations

Topic 8 - Accessorial Liability for Breach of Fiduciary Duty or Trusts

Topic 9 - Tracing / Account of Profits

Topic 10 - Equitable Compensation

Topic 11 - Constructive Trusts

Topic 12 - Resulting Trusts

Topic 13 - Express Trusts

Topic 14 - Duties, Powers, Rights and Liabilities of Trustees; Rights of

Beneficiaries, these notes are to assist in your self-study of topic 5: equitable, assignment of legal property.

Last created/updated: 23 March 2020.

1. Introduction:

By the time you have read through this topic guide you should be able to answer the, following broad question: ‘when will an attempt to dispose of a legal property right be, recognised in equity, notwithstanding that the disposition is not recognised at law’, as we reach an understanding of how to answer that question, we also consider some more, specific questions, including:, 1. what is the distinction between a presently existing property right, and ‘future, property’ (i. a property right that does not yet exist at the time of an attempted, disposition), 2. by what means (i., by what types of dealing) is it possible to convey property, rights if a has a property right, and wants to transfer that right to b, or simply to, make sure that b can enjoy that right, what steps can a take to make that happen, 3. if a property right can be transferred at law so long as the transferor (a) complies, with some formal requirements (such as putting their intentions in writing, or, registering certain official forms), will the transfer be recognised in equity if those, formalities are not completed, before we answer these questions, let’s recall what we already know about property rights., (be sure you have understood the material presented for topic 4.), 2. types of property:, 2 real property, we are already familiar with real property through our studies in real property. real, property includes land, and interests in land. and we already know that our legal system, requires that transactions dealing with interests in land need to be in writing to be, enforceable at law., take the time now to look up the conveyancing act 1919 (nsw). find s 54a (dealing with, agreements to convey), and s 23c(1)(a). copy them into your notes here, and read them, carefully. use the austlii website as a quick reference to nsw legislation., also, refresh your memory of the requirements of the real property act 1900 (nsw) ss 40-, 42. what formalities are required to convey a legal interest in torrens title real estate.

Later in our studies in Equity & Trusts we will consider the case of Farah Constructions Pty Ltd v Say- Dee Pty Ltd (2007) 230 CLR 89. In that case, an allegation was made that the information available from a local council about a development proposal was a form of property. There is was held (at 143-144) that information is not property, although note that trade secrets can be assigned and held on trust: Smith Kline & French Laboratories (Aust) Ltd v Department of Community Services and Health (1990) 22 FCR 73 at 121 per Gummow J. We als o know that some property rights are created by statute to protect novel inventions (patents) and creative works (copyright and designs).

Although a party’s rights under a contract are generally assignable (the right to enforce a contract is a chose in action), not all contractual rights are assignable. For example, contracts for personal service (especially employment contracts) are not assignable. If an employer decides to sell the enterprise to another owner, the new owner will need to enter into new employment contracts with the employees of the enterprise, if the new owner wants to keep the staff employed in the business: see Nokes v. Doncaster Amalgamated Collieries Ltd [1940] AC 1014.

Also, parties to a contract may themselves stipulate that the ri ghts or obligations under the contract cannot be assigned. They may wish to be sure that they will only be dealing with their original contract partner. Such contractual stipulations have been upheld: see Linden Gardens Trust v. Lenesta Sludge Disposals [1994] 1 AC 85.

A bare right to litigate can also not be assigned (e., the right to sue in tort for compensation, or for unliquidated damages for breach of contract, and the right to bring an action in equity are not assignable). Historically, this was because of a policy-based concern against ‘champerty and maintenance’ of law suits. There are exceptions. A purported assignment of the fruits of litigation has been held to be assignable as future property (more of that further on in these notes). So for example, in Glegg v. Bromley [1912] 3 KB 474, an assignment of the eventual proceeds of litigation was held to be valid. Also in Trendtex Trading Corp v. Credit Suisse [1980] 3 All ER 72 assignment of the right to bring proceedings was recognised where the assignee had a genuine commercial interest in the outcome of the case.

4. Dispositions of property rights

There are several ways in which a property owner may deal with or dispose of their interest in property.

a) A may assign property to B, as a gift (i. without requiring any consideration from B). This is an assignment by gift. b) A may assign property to B for value (i. requiring consideration from B). This is an assignment for value. c) A may declare that A holds A’s property on trust for B, so that while A retains legal ownership of the property, B holds the beneficial interest in that property. This is a declaration of trust. d) Prior to an actual conveyance of the property, A may enter into an agreement with B, to transfer the property to B. If this is a promise of a gift, unsupported by consideration, B will not acquire any rights until the conveyance is perfected. If, however, A’s agreement is supported by executed consideration, equity will recognise that A is conscience-bound to honour that agreement so that B acquires an equitable interest in the property. This is an agreement to assign for value. (More of this later in these notes at x). e) A may give a revocable mandate to C, instructing C to take the necessary steps to convey A’s property to B. A ‘revocable mandate’ is an instruction that can be withdrawn before it has

been acted upon. Of course, once it has been acted upon, the property will pass to B, but it will be C’s actions in perfecting the transfer according to A’s instructions that cause the conveyance to B to take place.

ARE YOU CONFUSED YET? Don’t worry, we are going to explain all of these methods of disposing property, and when these methods will create equitable interests in property, in the following sections. Before we consider the methods of disposition in detail, we need to remember that when we are dealing with legal property, there are often formalities to follow in order to effect a disposition recognised at law.

5. Legal formalities for effective dispositions of property at law

5 Interests in real property

Did you take the time (suggested at 2 above) to check the provisions of the Conveyancing Act 1919 (NSW), and the Real Property Act 1920 (NSW) dealing with the writing and other formal requirements for effecting a conveyance of interests in Real Property in NSW? Remembering those formal requirements is important, because a conveyance of an interest in real estate will not be effective at law until those formalities are completed.

Note particularly the Conveyancing Act, s 23C(1).

Section 23C(1)(a) and (b) of the Conveyancing Act 1919 (NSW) provide:

23C Instruments required to be in writing

(1) Sub ject to the provisions of this Act with respect to the creation of interests in land by parol:

(a) no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by the person’s agent thereunto lawfully authorised in writing, or by will, or by operation of law,

(b) a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by the person’s will ...

[We consider 23C(1)(c) in Topic 6, when we consider dispositions of equitable interests in property.]

5 Legal requirements for valid transfer of a debt or chose in action

First – note that s 12 of the Conveyancing Act 1919 (NSW) does not apply to the assignment of certain choses in action such as patents, copyright, trademarks, life insurance policies and marine insurance policies, and company shares which are covered by separate legislation: Patents Act 1990 (Cth) s 14; Copyright Act 1968 (Cth) ss 196-197; Trade Marks Act 1995 (Cth) ss 106-111; Life Insurance Act 1999 (Cth) ss 200-203; Marine Insurance Act 1909 (Cth) ss 56-57; Corporations Act 2001 (Cth) s 1071B and 1072F (a replaceable rule). Wherever a specific statute deals with the transfer of property rights regulated by that statute, the statutory rules prevail.

Conveyancing Act, section 12: ASSIGNMENTS OF DEBTS AND CHOSES IN ACTION

Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee, or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, shall be, and be deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee if

‘I hereby assign to you my right to receive royalties under my publishing contract with P’, then A is purporting to assign a presently existing right.

What more would A need to do, to comply with s 12 to make this assignment effective at law? YES! A, or B would need to give notice to the publisher, so that the publisher knows who to pay the royalties to when they arise, since the presently existing right to receive royalties has now been assigned from A to B.

HOWEVER, what if, instead, A’s statement to B instead said: ‘I will give you any royalties I get from my publishing contract with P’. In this case, A’s apparent intention is to assign property that A does not yet hold. B will not be able to enforce this promise without consideration. A purported assignment of future property is not effective without consideration.

Future property cannot be assigned at law as it does not presently exist so it cannot be transferred immediately. Likewise, a purported assignment of future property by way of gift will not succeed in equity. This is an illustration of the maxim that ‘Equity will not assist a volunteer’.

However, future property can be assigned in Equity, if valuable consideration has been given: Tailby v Official Receiver (1888) 13 App Cas 523.

Any such bargain will be construed as ‘an agreement to assign the property when it is acquired’: Norman v. FCT (1963) 109 CLR 9 at 24 per Windeyer J. Because of another maxim, that equity regards that as done that which ought to be done, the ‘contract [to assign] would, in equity, transfer the beneficial interest’ immediately upon it being acquired: Holroyd v Marshall (1862) 10 HLC 191 at 121; 11 ER 999 at 1007. Equity acts upon the conscience of the assignor who has accepted consideration, and binds them by holding them to be a trustee of the property for the benefit of the assignee as soon as it comes into existence.

Examples of future property assignable in equity include:

a) The expectancy of a beneficiary under the will of a living person (who may live long enough to change their will!); b) Freight yet to be earned by a ship owner: Lindsay v Gribbs (1856) 52 ER 1209; c) Royalties yet to be earned: re Trytel [1952] 2 TLR 32; d) Future income, for example, salary or wages; e) Copyright in songs yet to be written: Performing Right Society Ltd v London Theatre of Varieties Ltd [1924] AC 1; f) After -acquired chattels to be brought onto mortgaged premises: Hallas v Robinson (1885) 15 QBD 288; g) Future book debts not limited to those in any particular business: Tailby v OR (1888) 13 App Cas 523; h) Damages which the assignor might recover in litigation: Gle gg v Blomley [1912] 3 KB 474.

6 Norman v. FCT (1963) 109 CLR 9.

Take the time to read the extract of Norman v FCT in the Sourcebook at p 210-214.

Norman had purported to make a gift to his wife. He made a deed, purporting to assign to her :

x ‘all his right title and interest in and to certain interest to accrue due on loan repayable by the borrower at will’, and

x ‘all his right title and interest in and to all the dividends’ which might be declared on certain shares in public companies.

The majority held that both the interest under the loan and the dividends were “mere expectancies” or possibilities which could not be assigned without consideration. After all, the loan might have been repaid early, so that no interest would be payable, and the company may not declare any dividends.

Menzies J characterized the ‘interest which may accrue in the future upon an existing loan repayable without notice’ as having a character of a right to come into existence rather than a right already in existence.

Windeyer J however, (in dissent) characterised the right to receive interest in the future as a presently existing legal right be paid money at a future date, a nd so decided that the interest component of the assignment was a present chose in action.

6 Shepherd v. Comm. Of Taxation (1965) 113 CLR 385

Now read the extract of this case on pp 214-216 of the Sourcebook.

This was another case involving an attempt by a well-heeled taxpayer to alienate income from himself to a spouse for tax purposes. Shepherd had patented an invention and granted a licence to a manufacturer to produce it, in exchange for royalties. He purported to assign by gift to members of his fami ly, all his right title and interest in an amount equal to 90% of the income that may accrue during a period of 3 years. The case is often cited for the metaphor used by Kitto J: the right to receive royalties was the tree, while the payments themselves when they arose were the fruit. The tree is a presently existing property right, but the fruit is future property.

It doesn’t even matter if the tree is fruitless: Barwick CJ, said at 393: “That a promise might not be fruitful does not make it incapable of assignment. The fact that a present right might be barren should not alter its character as a present right.”

We saw an example of the distinction between the ‘tree’ (a presently existing right) and the ‘fruit’) future property in Topic 4. Do you recall the case of Official Receiver v Schultz (1990) 170 CKR 306? (See pp 15-16 of the Topic 4 Lecture materials.)

Mrs Schultz’s presently existing equitable chose in action was her entitlement to an interest in the estate of Mrs Pereira. This was the ‘tree’. The ‘fruit’ was the proceeds she received when the estate’s administration was eventually completed and she received her inheritance.

6 Summary of future property

SO – in a case involving apparently future property first ask: Has the assignor purported to assign a presently existing right (the tree) or merely the fruit (future property)? If the assignor does not have a presently existing right to assign but a mere expectancy, this will be a future property problem. Future property is not assignable at all at law, and is only assignable in equity for value. If the assignor does have a presently existing right which may bear future fruit, interrogate the words used for the purported assignment, to see whether the intention is to assign the tree, or merely the fruit. If the words suggest an assignment merely of the fruit and not the underlying right, the assignment will not be effective at law, and will only be effective in equity if supported by consideration.

(2) Higgins J said that if the donor has done everything in his power to comply with the legal requirements , the assignment will be effective in equity. This means that the donor needs to do all acts possible for them to do, even though it may be equally possible for some other person to do the acts. For example, in the case of an assignment under the Conveyancing Act s 12, this would mean that the donor must also give notice to the debtor.

(3) Griffith CJ said that if the assignor/donor did everything that was necessary for themselves to do alone to comply with legal requirements, the assignment was effective in equity. So for example, if the donor gave a written, signed assignment to the assignee and asked the assignee to give notice to the debtor, the assignee could claim an effective assignment had taken place in equity before the notice had been given.

7.1 Corin v Patton (1990) 169 CLR 540

This case concerned an attempt by a dying woman (Mrs Patton) to leave her share of her home to her children. The property was held in a joint tenancy with her husband. She knew that if she died, her husband would acquire the whole property by right of survivorship, but she wanted to leave her interest to her children so she tried first to sever the joint tenancy and transferher interest to her brother who would hold the share on trust for her until her death. Then it would pass as part of her estate by her will to her children. She executed a memorandum of transfer and gave it to her brother. The certificate of title was held by a bank that held a mortgage over the home. She did not take any steps to acquire the certificate of title before she died, so she did not put her brother in the position that he could effect a legal transfer of the property to himself. The question for the court was, had the brother (Corin) acquired an equitable interest in the property, notwithstanding that the legal conveyance had not been completed?

Read the extract of the case on p 207-9 of the Sourcebook.

See what the court held in this case: Mrs Patton had not done everything that was necessary to put the pr oposed transaction beyond her own recall. She had not enabled him to obtain the necessary certificate of title. At any stage while she was alive, she could have changed her mind and asked for the unregistered memorandum back. So Corin did not acquire an equitable interest.

7.1 Costin v. Costin

Corin v Patton has been considered by the NSW Supreme Court of Appeal in Costin v Costin (1994) NSW Conv R 60 (20 March 1997) BC 9700845 (Butterworths Online)

Sheller JA said that the principles to be applied fromCorin v. Patton (1990) 169 CLR 540, per Mason CJ and McHugh J at 559 and Deane J at 582, were that the the test for determining whether the stage had been reached when a gift of real property under an unregistered Memorandum of Transfer was complete and effective in Equity is whether the donor had done all that was necessary to place the vesting of the legal title within the control of the donee and beyond the recall or intervention of the donor.

7 Assignment for value.

The attempted assignment in Corin v Patton was by way of gift. Different consequences flow in the case of an assignment for value. Assignment of legal property for consideration takes effect in equity immediately upon the consideration being paid or executed (if the contract to assign is specifically enforceable).

This is a case where Equity regards as done that which ought to be done. Read the extract of Holroyd v Marshall (1862) 11 ER 807 in the Sourcebook at pp 216-218. See the important statement of Lord Westbury LC: ‘A contract for valuable consideration , by which it is agreed to make a present transfer of property, passes at once the beneficial interest, provided the contract is one of which a Court of Equity will decree specific performance’.

See also Tailby v Official Receiver (1888) 13 App Cas 523.

The effect of a valid equitable assignment of a legal interest in property after payment or execution of the consideration is to constitute the assignor a trustee of the property for the benefit of the assignee: Cator v Croydon Canal Co (1843) 160 ER 1149 at 1150

7 Declaration of trust.

A may declare that A holds A’s property on trust for B, so that while A retains legal ownership of the property, B holds the beneficial interest in that property. This is a declaration of trust.

It will not always be necessary for formal words creating a trust to be used, before a Court of Equity will recognise the existence of a declaration of trust. For example, see Paul v. Constance [1977] 1 All ER 195.

Constance was separated from his wife in 1965 and, without going through a divorce, moved with another woman, Paul in 1967. Constance lived in a defacto relationship with Paul until his death in 1974. In 1969 Constance had been injured at work and he received sum of compensation in 1973. Constance and Paul decided to open bank account to deposit these funds and they intended that both should have the benefit of the funds. The account was nevertheless opened in Constance’s name only. Both of them added money to the account. Tragically, Constance then died, leaving no will, so his legal wife became the administrator of his intestate estate, and was his next of kin. Ms Paul took proceedings against Mrs Constance for relief on the basis that Constance had made an oral declaration of trust for himself and Paul. C onstance had said many times that the money was as much P aul ’s as it was his.

The Court of Appeal upheld a decision that a half share in the bank account should to go to Paul. Scarman LJ held there was no need to use the word ‘trust ’; this is lawyer’s language. Ordinary people do not understand the subtleties of Equity, but they do understand their own domestic arrangements. On the evidence, a declaration of trust had been made, although the court could not pinpoint exactly when.

Note that Paul v Constance concerned a chose in action – a bank deposit. Declarations of trust of some forms of property, such as land, are required by law to be manifested in writing. Look again at s. 23C(1)( b) in the Conveyancing Act 1919 (NSW).

We will look again at the creation of equitable interests by declaration of trust in Topic 13, when we examine Express Trusts. For the time being, we will consider one question that arises out of the requirement that a declaration of trust must be manifested by a clear intention to create a trust (even if that is expressed in layman’s terms). What if a person who has made a declaration of trust in formal terms subsequently claims that they didn’t really intend to create the trust at all? Perhaps they just did it to avoid some obligation?

A very contentious case decided by the High Court of Australia a hundred years ago was CSD (Qld.) v. Jolliffe (1920) 28 CLR 178. In the light of Byrne v Kendle (which we note below) this authority is now suspect. The facts were that Jolliffe had opened a bank account in the name of himself AS

Constructive Trusts in Topic 11. Essentially, a constructive trust is a trust declared by a court, regardless of the express intentions of the parties themselves.

An e xample of an equitable interest arising from an agreement to convey property is provided by Chang v. Registrar of Titles (1976) 137 CLR 177. This case is extracted in the Sourcebook at 607-608. Read that extract for the peculiar facts that gave rise to a s ituation in which purchasers who had paid the contract price, and held a memorandum of transfer, were faced with a refusal to register the transfer. For our purposes, the case is authority for the statement:

‘It is accepted that the availability of the remedy of specific performance is essential to the existence of the constructive trust which arises from a contract of sale. It is enough to say that it has been accepted in decisions in England and Australia that at least when the purchaser has paid the purchase money the vendor becomes a constructive trustee of the property sold and that he is a trustee of property.’

7 Revocable mandate

A may give a revocable mandate to C, instructing C to take the necessary steps to convey A’s property to B. A ‘revocable mandate’ is an instruction that can be withdrawn before it has been acted upon. Of course, once it has been acted upon, the property will pass to B, but it will be C’s actions in perfecting the transfer according to A’s instructions that cause the conveyance to B to take place.

In Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614, a man was the residuary beneficiary of his deceased wife's estate. Before he received any legacy, he wrote a letter to the trustee company which was the executor and trustee of her will and also his attorney under power, requesting that the company pay out of his interest as residuary beneficiary in his wife's estate, certain gifts to named relatives. The company paid the amounts in the manner directed, but without creating any further written instruments. The Comptroller of Stamps assessed the letter for stamp duty, on the basis that the letter was a written instrument that conveyed valuable property.

Held: the letter did not amount to an immediate assignment.

It w as meant to convey an authorisation and no more; therefore, it was not an instrument whereby property was settled or given, within the provisions of the stamp duty legislation, and was accordingly not dutiable.

The letter in question was headed—' In the estate of ’ the deceased's wife, and was expressed as follows:—

“Upon the issue of probate of the will of my late wife ... I have to request you, as executors and trustees of her will and estate and as my attorney under power, to pay out of my interest as residuary beneficiary in such estate, either in shares or money at your discretion, to the persons and institutions hereunder mentioned, the amounts set out opposite to their names or titles respectively. I desire that all such payments shall be made free of gift and stamp duty (if any) and if for any reason my interest in the said estate shall not be sufficient to make all such payments in full, then I direct that all such payments shall abate proportionately. All allotments of shares hereunder shall be made at the values placed thereon respectively in the statement of my said wife's estate as passed for duty on the issue of probate of her will by the Supreme Court of Victoria.”

Then followed the list of persons and amounts. Dixon J said:

‘As residuary legatee, the husband was not entitled to specific items of property, but to an equitable interest in the entire mass [...]. There is thus no question of an assignment of a legal chose in action. The property dealt with was simply an equitable interest. Further, there is no question of consideration. The distribution directed by the letter was by way of gift.

‘In the present case, the question is whether the document is no more than an authorization having no dispositive effect until the trustee acts upon it by distributing the shares and money. It is evident upon its face that it cannot operate as a declaration of trust by the husband constituting himself trustee for the persons and bodies intended to benefit.

‘The nature of the gifts intended, the very different character of the interest of the intending donor, the language of the request and the reference to his power of attorney, all support the view that the letter means to convey an authorization and no more. If, before probate actually issued, or before the trustee company acted under the letter, the intending donor desired to modify or recall any part of his instruction, I think he might have done so quite consistently with all that the letter expresses.

‘For these reasons I do not think it amounted to an assignment’.

See how Dixon J analysed the nature of the dealing, by looking carefully at the words used by the donor in this case. In this case, the words indicated a revocable mandate – a set of instructions that the donor could withdraw before they were acted upon – and not an immediate and irrevocable conveyance of property.

8 Voluntary assignment of legal property not assignable at law

Before we conclude our consideration of equitable assignments of legal property (and before we move on to Topic 6 dealing with equitable assignments of equitable property), we should consider the situation that applies when a person seeks to deal with part of a chose in action – for example, part of a debt, or a portion of an entitlement to receive royalties or income. Recall that the Conveyancing Act s 12 provides a legal method for assignments of whole choses in action. There is no method available at law for the recognition of an assignment of part of a chose in action. For instance, if A wants to assign to B half of the debt that C presently owes A, this can be achieved only in Equity. Indeed, prior to the enactment of provisions such as s 12, there was no legal means to assign any chose in action. Now we have a statutory method for a legal assignment of a whole chose in action, but no means of assigning partial debts, except in Equity.

Part of a chose in action cannot be assigned at law: Williams v. Atlantic Assurance Co [1933] 1 KB 81.

However, the old equitable principles still appl y to assignment of a part chose in action: see Shepherd v. FCT (1965) 113 CLR 385.

In Norman v. FCT (1963) and Shepherd v. FCT (1965) it was held that part of a chose in action was assignable in Equity, if the assignor had manifested an intention to immediately and irrevocably assign the property. So the relevant test for the purported assignment (only possible in Equity) of assignment of part of a chose in action is evidence of an intention to immediately and irrevocably assign the property.

Topic 14 - Duties, Powers, Rights and Liabilities of Trustees; Rights of Beneficiaries

If, after diligently doing the readings, and reflecting on these notes, you still

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Simple English definitions for legal terms

equitable assignment

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A quick definition of equitable assignment:

A more thorough explanation:.

An equitable assignment is a transfer of rights or property from one person to another, which may not be legally valid but is recognized and enforced in equity. This type of assignment is often used for choses in action or future acquisitions of the assignor.

For example, if John owes money to Mary, he may assign his future paycheck to her as collateral. This assignment may not be legally valid, but if John defaults on his debt, Mary can seek enforcement of the assignment in equity.

Another example is when a person assigns their right to receive an inheritance to someone else. This assignment may not be legally valid, but if the assignor dies and the inheritance is received, the assignee can seek enforcement of the assignment in equity.

Overall, an equitable assignment is a transfer of rights or property that may not be legally valid but is recognized and enforced in equity.

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Assignment of Choses in Action

Property generally may be realty (real) or personalty (personal). Realty are characterized by geographical fixity(land) while personalty are generally mobile.

Personalty is also classified into tangible/corporeal and intangible/incorporeal. The former is capable of physical handling/possession/manipulation/enjoyment while the latter is incapable of any of these.

Incorporeal property is also called a chose in action which has been defined as a legal expression used to describe all personal rights of property which can only be claimed or enforced by action (in a court) and not by taking physical possession.

A chose generally is a thing capable of being owned. Choses in action may be legal or equitable. Legal choses in action are rights which were enforceable or recoverable only by an action at Common law. This category of choses includes debts, benefits under a contract, insurance policies, copyrights, patents etc.

Equitable choses on the other hand are rights over property which were only enforceable/recoverable/cognizable by the courts of Chancery. It could only be recovered by a suit in Equity and the rights under this category include interests of a beneficiary in a Trust, a legacy/reversionary interest under a will etc.

Choses in action may also be in respect of already existing things/property or things/property to be acquired at a future date but which are not yet in possession. The chose in action may be property in itself and it may also be a propriety right over property.

Assignment is the transfer of something from one person to another such that the assignee obtains rights of a nature that were hitherto exercisable only by the assignor. An assignment of a chose is thus the transfer of a chose in action from the assignor to the assignee such that the assignee obtains and becomes entitled to enjoy rights in respect of that chose, which were hitherto exclusively enjoyed by the assignor.

Assignment may be legal (statutory) or equitable.

Assignment and Novation

An assignment is quite distinct from a novation. Novation is essentially a legal device by which parties to a contract may legally vary/shift their obligations under the contract to third parties. Thus, A can agree with B, his creditor, that C, who owes him money, will pay that debt to B in full satisfaction of his own (A’s) debt.

Novation is however fundamentally different from assignment in three material aspects:

The consent of the parties is sine qua non since the original contract is rescinded by the novation. There must thus be consensus ad idem. There can be no novation otherwise. This is contrary to the case in assignment where there only need be communication to the assignee, his consent and that of the trustee of the liability are immaterial.
The original debt in novation must be totally extinguished under the new arrangement.

There is no such requirement for assignment to be valid.

For novation to be valid, there must be consideration in all cases as it is essentially a new contract. The requirement for consideration in assignment is much more relaxed.

Assignment and Equities

The general rule as regards assignment of choses in action is that an assignee takes, subject to the equities thar already apply to the chose in action (property) in question. Thus, anyone who has an interest (legal or equitable) in an assigned chose is entitled to a higher priority than that of the assignee.

The logic here is based on a recognition that the assignee cannot acquire a better title than that of the assignor. What he essentially gains by virtue of the assignment is a right to continue in the stead of the assignor in respect of that chose and nothing better.

In Re Knapman (1881) 18 Ch. D 300 the beneficiaries of a will brought an action against the executor seeking to revoke the probate. While the matter was in court, these beneficiaries assigned the right under the will to someone else.

Their action subsequently failed in court, the court ruled that the executor had a right to set off the costs of the suit against the estate. As such, since the right to this had already been assigned, the assignee has to settle this cost since he was assigned a property that had a pre-existing liability.

Claims of equities that arise after notice of the assignment has been given to the trustee would not affect the assignee however, except where the claim is very closely related to the original transaction upon which the chose came into existence.

The rule that the assignee takes subject to equities will not apply where the trustee is estopped, either by conduct or deed, from setting up equities against the assignee. It would not also apply where the agreement occasioning the original transaction includes a clause that the assignees of the assignor would take free from all equities.

Historically, assignment of choses in action was largely unrecognized at Common law. There was the fear that allowing such assignment would bring about Maintenance and even cases of Champerty as well as the risk of encouraging a litany of contentious matters on the same res.

Maintenance arises where a person who has no legal interest in a matter provides assistance by money or otherwise to a party to the suit while Champerty marries the foregoing with the prospect of reward out of the possible spoils of the suit.

Thus, no debt could be assigned at Common law unless the debtor specifically agreed to the assignment. The only exceptions allowed by Common law were in respect of choses in action assigned by or to the King and assignment of negotiable instruments in order to promote trade.

Equity has however always recognized the assignment of choses in action, both equitable and legal. It would not however allow the assignment of bare rights without accompanying interest in property. This was to avoid, as in the case of the Common law, situations that encourage Maintenance.

Assignability

Not all choses in action are assignable. The courts would not give effect to such assignments either on grounds of public policy or on account of the nature of the subject matter of the assignment.

Choses in action that are not assignable include:

Salaries of public officials. This is because it is perceived that if allowed to assign their salaries, they may deprive themselves of their means of sustenance and thereby impair the efficiency which is most desirable for the public service.
Alimony is not assignable on much the same grounds as salaries of public officials as the money is meant for the maintenance of the spouse.
Rights arising out of a contract of a personal nature i.e. contracts that require personal service like employment.
Expectancies (future choses) are not assignable at Common law based on the maxim: Nemo dat quod non habet. They are assignable in Equity although, such assignment must be for value.

Equitable Assignment

An equitable assignment is of a flexible nature. This flexibility makes it quite distinct from legal assignments as they do not require all of the formality required under the law. It may be in respect of a legal or equitable chose. Thus, there may be an equitable assignment of an equitable chose or an equitable assignment of a legal chose.

While there is no strict formality required for equitable assignments, certain criteria are instructive as to whether it would be considered valid or not.

For an equitable assignment to be considered as having been effected, there must be a clear intent to assign. While Equity does not require that the assignment be in writing or made in any particular format, there must be a clearly deducible intent to assign on the part of the assignor.

The intent to assign here will be construed from the words used and the particular circumstances of the case. If what is construed is a mere mandate/authority to hold onto certain property, no intent to assign may be ascribed by the court.

The position that Equity does not require writing for equitable assignments has however been affected by S. 9 of the Statute of Frauds and S. 78(1)(c) of the Property and Conveyancing Law which require that the assignment of any equitable interest or trust must be in writing.

The assignment is also required to be communicated to the assignee. Although, the assignee may still take in certain instances even without communication, subject to the right of the assignee to repudiate the transfer when he becomes aware of it.

The particular chose intended to be assigned must be identified. It is insufficient to give a vague representation of what is sought to be assigned. Such vagueness may impair the court’s construction of an intent to assign in such circumstance.

Consideration in equitable assignment depends on the circumstance. Where the assignment is complete in the sense that there is nothing left for the assignor to do to perfect the assignee’s title, there would be no need for consideration.

If it is incomplete though, consideration may be required. Consideration will also be required where the assignment concerns some future chose as the agreement in such instance can only be a contract to assign and all contracts must be backed by consideration.

No consideration is however required for assignment of existing choses.

There is no real requirement for notice of the equitable assignment to be given to the trustee of the liability. Notice is however useful to the extent that it puts the trustee on guard as to the change of rights affecting the chose and may prevent him from settling in favour of the assignor instead of the assignee.

It also makes the trustee liable to the assignee where he settles in favour of the assignor in spite of the notice given to him. Again, while the assignee generally takes subject to any prior equities affecting the chose, giving notice ensures that he would not be affected by any subsequent equities.

Most importantly, notice allows the assignee to establish the priority of his interest in consequence of the rule in DEARLE v HALL.

An equitable assignment of a chose in action has bearing on the manner in which the rights can be enforced in a court of law. The effect here is largely dependent on whether the chose in question is a legal or equitable chose and if the chose was absolutely assigned or not.

Where the assignment concerns a legal chose, the assignee cannot assert his title over the property in his own name. He must join the name of the assignor either as co-plaintiff, where he agrees, or as a defendant. Where the chose is equitable though, the assignee can sue in his own name.

An assignment is absolute when the assignor transfers his whole interest in the chose to the assignee. It is however non-absolute where it is made subject to some condition at the happening of which it would become inoperable or where only a charge is made on the chose, in favour of the assignee.

In this instance, only a part of the assignor’s interest is transferred. The effect of this is that in situations where the transfer was absolute, the assignee would be able to sue in his own name. Where it is not absolute however, he must join the assignor before he can enforce his rights over the chose.

Where the chose is legal though, it is immaterial whether it is absolute or not, the assignee must join the assignor.

Legal Assignment

The Common law rule against assignment of choses in action was only lifted in 1875 and this was via the provision of the Judicature Acts, particularly S. 25(6) . This provision is impari materia with S. 150(1) Property and Conveyancing Law .

The purport of those provisions is that there can be absolute assignments by writing of any debt or other legal thing in action when express notice in writing has been given to the trustee of the liability. Also, it shall be effectual to transfer the legal right to sue in respect of such thing, along with the legal and other remedies in respect of it and the power to give a good discharge for the chose without the assignor’s permission.

The provisions clearly contain ingredients that would make a legal assignment valid and these include the following:

The assignment must be in writing and signed by the assignor.
It must be in respect of some existing debt or other legal thing in action and this includes equitable choses in action.
It must be absolute.
There must be an express notice in writing given to the debtor, trustee, or other person from whom the assignor would have been entitled to receive the debt or claim the thing in action.

The assignment takes effect from the date that notice is given. Failure to give notice at all or failure to give it in writing or failure to even execute the writing in the first place will not invalidate the assignment.

Rather, it becomes an equitable assignment instead of a legal one. Further, there is no requirement for consideration here.

The position at Common law before the Act amended it was that the assignee had no right independent of the assignor’s and was obligated to sue in the assignor’s name if he wanted to enforce his rights over the chose.

The Acts have however changed this and the assignee no longer needs to sue in the name of the assignor. He can sue all by himself.

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