1 Akinogami

Difference Between Equitable And Legal Assignment Template

"Assignee" redirects here. For the racehorse, see Assignee (horse).

An assignment (Latin cessio) is a term used with similar meanings in the law of contracts and in the law of real estate. In both instances, it encompasses the transfer of rights held by one party, the assignor, to another party, the assignee.[1] It can also be a transfer of a benefit, including an equitable interest, according to established rules (at common law or in equity).[2] The rights may be vested or contingent.[3] The details of the assignment determines some additional rights and liabilities (or duties).

Typically a third party is involved in a contract with the assignor, and the contract is, in effect, transferred to the assignee. For example, a borrower borrows money from a local bank. The local bank receives a mortgage note and can thereafter transfer that note to a financial institution in exchange for a lump-sum of cash, thereby assigning the right to receive payment from the borrower to another entity. Mortgages and lending contracts are relatively amenable to assignment since the lendor's duties are relatively limited; other contracts which involve personal duties such as legal counsel may not be assignable.

The related concept of novation is not assignment. Rather than assigning only the rights to another party, novation involves the replacement of the original party with a new party or the replacement of the original contract with a new contract. Since novation creates a new contract, it requires the consent of all parties, but assignment does not require the consent of the nonassigning party, but in the case of assignment, the consent of the nonassigning party may be required by a contractual provision.[4]

Procedure[edit]

The assignment does not necessarily have to be in writing; however, the assignment agreement must show an intent to transfer rights. The effect of a valid assignment is to extinguish privity (in other words, contractual relationship, including right to sue) between the assignor and the third-party obligor and create privity between the obligor and the assignee.

Liabilities and duties[edit]

Unless the contractual agreement states otherwise, the assignee typically does not receive more rights than the assignor, and the assignor may remain liable to the original counterparty for the performance of the contract. The assignor often delegates duties in addition to rights to the assignee, but the assignor may remain ultimately responsible.

However, in the United States, there are various laws that limit the liability of the assignee, often to facilitate credit, as assignees are typically lenders.[5] Notable examples include a provision in the Truth in Lending Act[6] and provisions in the Consumer Leasing Act and the Home Ownership Equity Protection Act.[5]

In other cases, the contract may be a negotiable instrument in which the person receiving the instrument may become a holder in due course, which is similar to an assignee except that issues, such as lack of performance, by the assignor may not be a valid defense for the obligor.[7] As a response, the United States Federal Trade Commission promulgated Rule 433, formally known as the "Trade Regulation Rule Concerning Preservation of Consumers' Claims and Defenses", which "effectively abolished the [holder in due course] doctrine in consumer credit transactions".[7] In 2012, the commission reaffirmed the regulation.[8]

Assignment of contract rights[edit]

Assignment of rights under a contract is the complete transfer of the rights to receive the benefits accruing to one of the parties to that contract. For example, if Party A contracts with Party B to sell Party A's car to Party B for $10, Party A can later assign the benefits of the contract - i.e., the right to be paid $10 - to Party C. In this scenario, Party A is the obligee/assignor, Party B is an obligor, and Party C is the assignee. Such an assignment may be donative (essentially given as a gift), or it may be contractually exchanged for consideration. It is important to note, however, that Party C is not a third party beneficiary, because the contract itself was not made for the purpose of benefitting Party C. When an assignment is made, the assignment always takes place after the original contract was formed. An Assignment only transfers the rights/benefits to a new owner. The obligations remain with the previous owner. Compare Novation.

When assignment will be permitted[edit]

The common law favors the freedom of assignment, so an assignment will generally be permitted unless there is an express prohibition against assignment in the contract. Where assignment is thus permitted, the assignor need not consult the other party to the contract. An assignment cannot have any effect on the duties of the other party to the contract, nor can it reduce the possibility of the other party receiving full performance of the same quality. Certain kinds of performance, therefore, cannot be assigned, because they create a unique relationship between the parties to the contract. For example, the assignment of a legal malpractice claim is void since an assignee would be a stranger to the attorney-client relationship, who was owed no duty by the attorney and would imperil the sanctity of the highly confidential and fiduciary relationship existing between attorney and client.

Torts are not assignable as public policy, and various statutes may prohibit assignment in certain instances.[9] In addition, the Restatement (Second) of Contracts lists prohibitions in §317(2)(a) based upon the effect to the nonassigning party (obligor),[9] with similar prohibitions in the Uniform Commercial Code §2-210.[10] For example, UCC §2-210 states the following:[11]

Unless otherwise agreed all rights of either seller or buyer can be assigned except where the assignment would materially change the duty of the other party, or increase materially the burden or risk imposed on him by his contract, or impair materially his chance of obtaining return performance. A right to damages for breach of the whole contract or a right arising out of the assignor's due performance of his entire obligation can be assigned despite agreementotherwise [sic].

Requirements for an effective assignment[edit]

For assignment to be effective, it must occur in the present. No specific language is required to make such an assignment, but the assignor must make some clear statement of intent to assign clearly identified contractual rights to the assignee. A promise to assign in the future has no legal effect. Although this prevents a party from assigning the benefits of a contract that has not yet been made, a court of equity may enforce such an assignment where an established economic relationship between the assignor and the assignee raised an expectation that the assignee would indeed form the appropriate contract in the future.

A contract may contain a non-assignment clause, which prohibits the assignment of specific rights and some various rights, or of the entire contract, to another. However, such a clause does not necessarily destroy the power of either party to make an assignment. Instead, it merely gives the other party the ability to sue for breach of contract if such an assignment is made. However, an assignment of a contract containing such a clause will be ineffective if the assignee knows of the non-assignment clause, or if the non-assignment clause specifies that "all assignments are void".

Two other techniques to prevent the assignment of contracts are rescission clauses or clauses creating a condition subsequent. The former would give the other party to the contract the power to rescind the contract if an assignment is made; the latter would rescind the contract automatically in such circumstances.

Requirement of a writing[edit]

There are certain situations in which the assignment must be in writing.

  1. Assignment of wages; additionally, statutes may prohibit this assignment[9]
  2. Assignment of any interest in real property
  3. Assignment of choses in action worth over $5,000

Delegation[edit]

A parallel concept to assignment is delegation, which occurs when one party transfers his duties or liabilities under a contract to another. A delegation and an assignment can be accomplished at the same time, although a non-assignment clause may also bar delegation.

Remedies[edit]

Legal remedies may be available if the nonassigning party's rights are affected by the assignment.

Revocability[edit]

Assignments made for consideration are irrevocable, meaning that the assignor permanently gives up the legal right to take back the assignment once it has been made. Donative assignments, on the other hand, are generally revocable, either by the assignor giving notice to the assignee, taking performance directly from the obligor, or making a subsequent assignment of the same right to another. There are some exceptions to the revocability of a donative assignment:

  1. The assignment can not be revoked if the obligor has already performed
  2. The assignment can not be revoked if the assignee has received a token chose (chose being derived from the French word for "thing", as in a chose of action) - a physical object that signifies a right to collect, such as a stock certificate or the passbook to a savings account.
  3. The assignment can not be revoked if the assignor has set forth in writing the assignment of a simple chose - a contract right embodied in any form of token.
  4. Estoppel can prevent the revocation of a donative assignment if the assignee changed their position in reliance on the assignment.

Finally, the death or declaration of bankruptcy by the assignor will automatically revoke the assignment by operation of law.

Breach and defenses[edit]

A cause of action for breach on the part of the obligor lies with the assignee, who will hold the exclusive right to commence a cause of action for any failure to perform or defective performance. At this stage, because the assignee "stands in the shoes" of the assignor, the obligor can raise any defense to the contract that the obligor could have raised against the assignor. Furthermore, the obligor can raise against the assignee counterclaims and setoffs that the obligor had against the assignor. For example, suppose that A makes a contract to paint B's house in exchange for $500. A then assigns the right to receive the $500 to C, to pay off a debt owed to C. However, A does such a careless job painting the house that B has to pay another painter $400 to correct A's work. If C sues B to collect the debt, B can raise his counterclaim for the expenses caused by the poor paint job, and can reduce the amount owed to C by that $400, leaving only $100 to be collected.

When the assignor makes the assignment, he makes with it an implied warranty that the right to assign was not subject to defenses. If the contract had a provision that made the assignment ineffective, the assignee could sue the assignor for breach of this implied warranty. Similarly, the assignee could also sue under this theory if the assignor wrongfully revoked the assignment.

Successive assignments[edit]

Occasionally, an unscrupulous assignor will assign exactly the same rights to multiple parties (usually for some consideration). In that case, the rights of the assignee depend on the revocability of the assignment, and on the timing of the assignments relative to certain other actions.

In a quirk left over from the common law, if the assignment was donative, the last assignee is the true owner of the rights. However, if the assignment was for consideration, the first assignee to actually collect against the assigned contract is the true owner of the rights. Under the modern American rule, now followed in most U.S. jurisdictions, the first assignor with equity (i.e. the first to have paid for the assignment) will have the strongest claim, while remaining assignees may have other remedies. In some countries, the rights of the respective assignees are determined by the old common law rule in Dearle v Hall.

  1. Earlier donative assignees for whom the assignment was revocable (because it had not been made irrevocable by any of the means listed above) have no cause of action whatsoever.
  2. Earlier donative assignees for whom the assignment was made irrevocable can bring an action for the tort of conversion, because the assignment was technically their property when it was given to a later assignee.
  3. Later assignees for consideration have a cause of action for breaches of the implied warranty discussed above.

See interpleader.

Special rules for assignment of certain rights[edit]

Property rights[edit]

See also: Rule in Dumpor's Case and Privity of estate

Real property rights can be assigned just as any other contractual right. However, special duties and liabilities attach to transfers of the right to possess property. With an assignment, the assignor transfers the complete remainder of the interest to the assignee. The assignor must not retain any sort of reversionary interest in the right to possess. The assignee's interest must abut the interest of the next person to have the right to possession. If any time or interest is reserved by a tenant assignor then the act is not an assignment, but is instead a sublease.

The liability of the assignee depends upon the contract formed when the assignment takes place. However, in general, the assignee has privity of estate with a lessor. With privity of estate comes the duty on the part of the assignee to perform certain obligations under covenant, e.g. pay rent. Similarly, the lessor retains the obligations to perform on covenants to maintain or repair the land.

If the assignor agrees to continue paying rent to the lessor and subsequently defaults, the lessor can sue both the assignor under the original contract signed with the lessor as well as the assignee because by taking possession of the property interest, the assignee has obliged himself to perform duties under covenant such as the payment of rent.

Unlike a Novation where consent of both the lessor and lesse is required for the third party to assume all obligations and liabilities of the original lessee, an assignment does not always need the consent of all parties. If the contract terms state specifically that the lessor's consent is not needed to assign the contract, then the lesee can assign the contract to whomever the lesee wants to.

Absent language to the contrary, a tenant may assign their rights to an assignee without the landlord's consent. In the majority of jurisdictions, when there is a clause that the landlord may withhold consent to an assignment, the general rule is that the landlord may not withhold consent unreasonably unless there is a provision that states specifically that the Landlord may withhold consent at Landlord's sole discretion.

Partnership rights[edit]

A person can also assign their rights to receive the benefits owed to a partner in a partnership. However, the assignee can not thereby gain any of the assignor's rights with respect to the operation of the partnership. The assignee may not vote on partnership matters, inspect the partnership books, or take possession of partnership property; rather, the assignee can only be given the right is to collect distributions of income, unless the remaining partners consent to the assignment of a new general partner with operational, management, and financial interests. If the partnership is dissolved, the assignee can also claim the assignor's share of any distribution accompanying the dissolution.

Intellectual property rights[edit]

See also: transfer (patent)

Ownership of intellectual property, including patents, copyrights, and trademarks, may be assigned, but special conditions attach to the assignment of patents and trademarks. In the United States, assignment of a patent is governed by statute, 35 U.S.C. § 261. Patent rights are assignable by an "instrument in writing." Title in a patent can also be transferred as a result of other financial transactions, such as a merger or a takeover, or as a result of operation of law, such as in an inheritance process, or in a bankruptcy. An assignment of a patent can be recorded with the United States Patent and Trademark Office. Although such recording is not required, if an assignment is not recorded at the USPTO within three (3) months or prior to a subsequent assignment, the assignment will be void against a subsequent assignee without notice of the earlier, unrecorded assignment.

With respect to a trademark, the owner of the mark may not transfer ownership of the mark without transferring the goodwill associated with the mark.

Companies sometimes request from employees that they assign all intellectual property they create while under the employment of the company. This is typically done within an Employment Agreement, but is sometimes done through a specific agreement called Proprietary Information and Inventions Agreement (PIIA).

Personal injury torts[edit]

The standard rule is that personal injurytort causes of action are nonassignable as a matter of public policy.[9][12] These should be distinguished from final settlements or judgments resulting from lawsuits brought on such causes of action, which may be assignable.

Legal malpractice[edit]

In the majority of jurisdictions, assignments of legal malpractice causes of action are void as against public policy.[13]

Equitable assignment[edit]

An equitable assignment is an assignment, or transfer of rights, in equity.

General principles[edit]

There are numerous requirements that exist for an equitable assignment of property, outside the 'standard' clear and unconditional intention to assign.[14] These requirements are fundamental characteristics of a statutory assignment: Absolute assignment (an unconditional transfer: conditions precedent or part of a debt are not absolute) and the assignment must be made in writing and signed by the assignor, and in particular, this applies to real property.[15]

Assigning future property in equity cannot be gratuitous. The assignor must receive consideration for the agreement, otherwise the assignment will be ineffective.[3] However, an absolute assignment does not require consideration to be given. Secondly, between the period of agreement between assignor and assignee and acquisition by the assignor, the assignees rights are not contractual, but rather a proprietary right to the property.[16] This means the assignee has an interest in this future property, in the same manner any owner has over property.

In equity, these principles operate to protect both the assignor and the assignee. In Norman v Federal Commissioner of Taxation,[3] a taxpayer attempted to assign by deed, to his wife certain moneys which he was eventually going to receive. This included dividends and interest due on loans. The court held the interest and the dividends were expectancies or possibilities which could not be assigned without consideration. The court's worry was that assignments without consideration might be used as instruments of fraud, to avoid creditors and tax collection.

Mere expectancies[edit]

Courts will not enforce a contract to assign an expectancy unless there is a valuable consideration. For example, under a settlement of property the respondent "the son" would have been entitled to an equal portion of properties along with his other siblings which was gained in a settlement by his mother. This portion was only his when allocated to him at his mothers discretion. Prior to this allocation being made, the respondent allotted his benefit to trustees for a voluntary settlement. He was assigning or purporting to assign something which he might become entitled to in the future, not a contingent interest. The judgment held it ineffective and elaborated on previous points to state the respondent cannot be compelled to allow the trustees to retain the appointed sum.[17]

References[edit]

  1. ^For the assignment of claim see Trans-Lex.org
  2. ^Australian Law Dictionary (second ed.). oxford university press. 
  3. ^ abcNorman v Federal Commissioner of Taxation[1963] HCA 21, (1963) 109 CLR 9, High Court (Australia).
  4. ^Tips and traps in contracting: novation versus assignmentArchived January 26, 2013, at the Wayback Machine.. Association for General Counsel. (Australia).
  5. ^ abAssignee Liability: Through the Minefield. Arnstein & Lehr LLP.
  6. ^See 15 U.S.C. 1641(a).
  7. ^ abCommercial Paper: Holder in Due Course & DefensesArchived 2012-11-28 at the Wayback Machine..
  8. ^FTC Opinion Letter Affirms Consumers' Rights under the Holder Rule. FTC.
  9. ^ abcdStark T. (2003). Negotiating and Drafting Contract Boilerplate, Ch. 3: Assignment and Delegation. ALM Publishing.
  10. ^Chapter 18: Assignment and Delegation. LexisNexis study outline.
  11. ^Uniform Commercial Code § 2-210. Delegation of Performance; Assignment of Rights.
  12. ^Pony v. County of Los Angeles, 433 F.3d 1138 (9th Cir. 2006).
  13. ^Cowan Liebowitz & Latman, PC v. Kaplan, 902 So. 2d 755, 759-760 (Fla. 2005).
  14. ^Westbourne Grammar School v Sanget Pty[2007] VSCA 39, Court of Appeal (Vic, Australia).
  15. ^Conveyancing Act 1919 (NSW) s 23C.
  16. ^Federal Commissioner of Taxation v Everett[1978] FCA 39, (1978) 21 ALR 625 at p. 643, Federal Court (Full Court) (Australia).
  17. ^Northumberland (Duke) v Inland Revenue Comrs

This article is a topic within the subject Equity and Trusts.

Required Reading

M.W. Bryan & V.J. Vann, Equity and Trusts in Australia (Cambridge University Press, 2012), pp. Textbook Chapter 9.

Conveyancing Act 1919 (NSW) s 12

Comptroller of Stamps v Howard-Smith (1936) 54 CLR 614 (per Dixon J)

William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454 (per Lord Macnaughten)

Norman v FCT (1963) 109 CLR 9

Shepherd v Commissioner of Taxation (1965) 113 CLR 385 (per Barwick CJ and Kitto J)

Re Lind [1915] 2 Ch 345 per Phillimore LJ

Introduction

[1]Equity recognises as property certain assets which are not recognised at common law, such as a beneficiary’s interest in a trust. Property interests can also be created more informally in equity than in law. One aspect of this is equity’s attitude to assignments.

Assignments are transfers of property, either for consideration or as gifts.

The common law developed basic rules for the transfer of property. Equity acts as a “gloss” and recognises assignments in various cases where the common law would not. Many assignments are effected by statute as well.

  • Common law assumes that people do not part with their wealth lightly or accidently. It treats assignments of property formally, in the sense that it does not recognise a transfer as effective until all formal requirements have been met.
  • Equity may regard a transfer of property as complete in equity even though the law would regard the transfer as incomplete.
  • Because equity has a wider definition of property, it may regard a transfer as effective even though the property is not transmissible at common law.
  • Equity steps in when the assignor’s conscience ought to be bound by the assignment.

The interaction of these three sources of law has been criticised for its excessive complexity and because a lack of formality in equity can lead to uncertainty.

Proper terminology

Real property is land and personal property is chattels or goods.

Choses in possession (tangible property) are things which can be physically held.

Chose in action (intangible property) cannot be ‘possessed’ and can only be enforced by legal action e.g. a debt.

Legal property is that which is recognised by the common law, whereas equitable property is recognised in the equitable jurisdiction. All equitable rights are intangible.

Property rights can fall into more than one category.

Assignment of legal property

[2]Common law methods of transfer for different kinds of legal property developed as common-sense responses to the type of property in question and the relative importance of that property. For example:

  • Ownership of banknotes generally passes with possession.
  • Title to chattels (in the absence of statutory input) passes either by deed or delivery with the intention to confer ownership.
  • Company shares sold off-market require a transfer form signed by the transferee and transferor to be registered in the company books.
  • Legal choses in actions could not originally be assigned at law. This can now be done by statutory methods.
  • Transfer of title to land has always required strict compliance with formalities, reflecting the historical importance of land.

Assignment methods are now frequently specified by statute. Unless every required step is completed, the law will not regard the transfer as effective.

Equity and legally ineffective assignments

[3]Equity may regard the transfer of property as complete even if it is legally ineffective and can make orders giving effect to it. This depends on whether equity regards the assignor’s conscience as bound by the transaction. There are two situations to consider: where the assignee has given consideration and where the transaction is a gift.

[4]Equity assists an assignee who has given consideration. Consideration is equity’s cue to do whatever may be required to enforce the transaction, so long as the contract can be specifically performed.

  • Equity regards the assignor’s conscience as bound by the receipt of consideration. This is the converse of the maxim that equity will not assist a volunteer.
  • Receipt of consideration also attracts equity’s intervention where the property assigned is future property. Once the future property comes into the hands of the assignor, equity will deem done that which ought to be done and will insist the assignor complete the transfer, so long as the contract can be specifically performed.

Gifts

[5]In the absence of consideration, equity regards the donor’s conscience as bound when the donor has done all that they alone must do to make the assignment effective. This is the rule in Milroy v Lord, as redefined for Australian purposes in Corin v Patton.

Milroy v Lord[6]

Facts: An uncle attempted to assign shares to a trustee to hold on behalf of his niece. He executed a deed assigning the shares and gave the intended trustee the share certificates, however, this was not the method required to assign shares. At law the shares were not transferred until the assignment was recorded in the company books, following a receipt of transfer executed by both the assignee and the assignor. Failure to comply with the relevant procedure was not discovered until after the uncle’s death.
Issue: At what point will equity enforce the assignment of a gift?
Held: It was held that he had not done enough to transfer the shares. He had taken no steps to sign the relevant transfer and had not armed his agent with sufficient authority to sign it without further reference to him and had therefore not done all that he alone must do to make the assignment effective.

The issue then arises: has the assignor done all that they alone must do to make the assignment effective, even if that leaves some outstanding step to be done by the assignee or a third party? Or does it really mean, ‘all that can possibly be done to transfer the property’? The following case illustrates this distinction:

Re Rose, Rose v IRC[7]

Facts: A husband assigned shares to his wife. He executed all the necessary forms and forwarded them to the company. The transfer was eventually registered. The husband died soon afterwards, and the question arose as to which of the husband or wife had been entitled to the shares on a certain date some months prior to his death (for taxation purposes). On the relevant date, the transfer forms had been forwarded to the company but registration had not yet occurred.
Held: If the test from Milroy meant that ‘all that had to be done by the assignor alone’, then the husband had done all that he had to do (as the remaining steps were to be taken by the company secretary) and the wife would be the owner of the shares in equity. However, if the test meant ‘all that could possibly be done to transfer the property’, the wife would not be the owner in equity until the company secretary registered the transfer.

The question was resolved in Corin v Patton:

Corin v Patton[8]

Facts: A dying woman attempted to assign her interest in land, held as joint tenant with her husband, to her brother on trust. She was to be the beneficiary and then would leave her beneficial interest to her children in her will. The aim was to ensure that her husband would not be entitled to the whole of the land as sole surviving joint tenant. She executed all the necessary transfer documents. However, the land was mortgaged, and the woman died without making arrangements for the production of the title deed by the mortgagee to allow registration of the transfer to occur.
Issue: Meaning of Milroy v Lord test.
Held: She had not done all that she alone had to do to allow the assignment to be recognised in equity. She had to arrange for the production of the title or at least arm her brother with the authority to request the title and complete the remaining steps himself.
  • As long as the donee can complete any remaining steps without the assistance of the court, equity will regard the transfer as binding.
  • Deane J adopted a more complex test, whereby in addition to the donor taking all steps that they alone must take to ensure the assignment, they also have to put the gift “beyond the recall or intervention of the donor”.

The Corin v Patton interpretation has the advantage of certainty. However, sometimes there can be factual doubts concerning whether the donee has yet been placed in a position where they can complete the gift without assistance. This kind of problem can arise where there is doubt about the extent of the authority given to a donor’s agent to complete a transaction.

Marchest v Apostolou[9]

Facts: One solicitor acted for both the transferor and the transferee in an attempted gift of land to a trustee. Transfer documents were executed but no other steps were taken. Never having been registered, the transfer was incomplete at law. It was argued that the transfer was complete in equity once the solicitor held the executed documents on behalf of the transferee; thereafter the transferee could have completed the assignment themself.
Issue: Extent of authority given to a donor’s agent.
Held: Jessup J held that, where a solicitor acted for both parties in a transaction, the solicitor would not hold the transfer documents on behalf of the transferee until he had the transferor’s authority to treat them as the property of the transferee. On the facts the solicitor did not have this authority.

Non-assignable rights

[10]Some assets or rights cannot be assigned at law or equity and therefore if the transaction in question is an attempted assignment of one of these kinds of rights the assignment will fail.

  • The benefit of contracts of personal service cannot be assigned because the identity of the person for whom the service is to be performed may matter to the person who has to perform it.
  • Public policy dictates that most assignments of bare rights of action are void unless the assignee has a genuine interest in the litigation.
  • Contracts can stipulate that contractual rights are not assignable.
  • Statutes may expressly or impliedly make an asset unassignable.
    • In Re Bruynius[11] legislation expressly forbade assignment of superannuation pensions. In Tasmanian Seafoods Pty Ltd v MacQueen[12] the statute impliedly restricted assignments of abalone diving licences.

However, in equity:

  • The holder of a contractual right, can by self-declaration, hold that right on trust for another.
  • Rights that are really expectancies or hopescannot form the subject matter of a trust by self-declaration because they are in no sense property (Kennon v Spry).[13]

Future property

[14]Future property cannot be assigned at common law because the assignor has no title to assign. Future property cannot be effectively assigned without consideration in equity. Property can be future in two sense:

a) The property may exist, but not yet be owned by the would-be assignor.
b) Or the property may not yet be in existence.

Most problems arise over what can generally be called “income cases”. Here it is crucial to determine whether:

a) The assignor is attempting to assign only the income not yet earned, which is future property. E.g. an unborn foal.
b) Or is the assignor trying to assign the underlying property that gives rise to the income, which is presently existing property. E.g. the horse pregnant with the foal.

Norman v Federal Commissioner of Taxation[15]

Facts: A taxpayer tried to assign income. The deed of assignment voluntarily assigned dividends to be earned on shares. Another clause of the deed attempted to assign interest earned on a loan. Interest only became payable on the loan on an annual basis but the borrower could repay the loan at will, meaning that if the borrower chose to repay the loan in a particular year, no interest would become payble in the following year. It could not be said at the time of the assignment that the interest would ever be payable.
Issue: Assignment of future property.
Held: The High Court held that the yet-to-be declared dividends were future property and could not be assigned without consideration. They were ‘future’ in that the dividend did not yet exist and indeed might never be declared by the company. The interest on the loan was also an assignment of future property because it was uncertain whether it would exist and therefore, because there was no consideration, it was also ineffective.

Contrast with: Shepherd v Federal Commissioner of Taxation[16]

Facts: The inventor of a furniture castor granted a licence to produce the castors to a manufacturer who was to pay him royalties based on the number produced. He attempted to assign voluntarily a percentage of royalties. The Commissioner argued that this was an assignment of future property. As the manufacturer was no obliged to produce any castors at all, it could not be said with certainty that any royalties would be earned under the agreement.
Issue: Assignment of future property.
Held: The High Court held that the transaction was an assignment of part of the contractual right to receive royalties (akin to underlying property), rather than the assignment of the as yet unearned royalties. Shepherd therefore, appears to be good authority for the proposition that assignments of assets that may produce income in the future can be made voluntarily.

If who has a mere expectancy or an interest that is “future property” attempts to assign it to another for valuable consideration, equity treats the transaction as a contract to assign. If and when the assignor receives the property, equity deems done that which ought to be done, and regards the property as owned beneficially by the assignee.

Assignment of equitable property

[17]Property that is only recognised in equity can only be assigned in equity. As the beneficiary’s interest in land can only be enforced in equity, it can also only be assigned in equity.

Equity does not differentiate between varieties of equitable property. There is only one method of equitable assignment:

“Assignment can be by way of gift; and except that writing is required by s 9 of the Statute of Frauds, no formality is necessary beyond a clear expression of an intention to make an immediate disposition.”[18]

A gift is effective when the assignor has manifested an immediate, irrevocable intention to assign property. Without the necessary writing prescribed by statute the assignment may be rendered invalid or at least unenforceable.

Statutory assignment

[19]Many kinds of legal choses in action such as bills of exchange and insurance policies have specific statutory methods of transfer but additionally the legislature had provided a ‘default’ mechanism for other legal choses. The current Victorian provision, in s 134 of the Property Law Act 1958 is an example.

While there is no particular form of assignment dictated by the above legislation, the instrument must be in writing and signed by the assignor.

  • The assignment takes effect when the express notice in writing has been given to the person who is liable to pay the assignor.
  • There are no statutory time limitations on the giving of notice but it has been said that receipt of notice is not technically required because under evidence legislation a presumption will arise that the notice was received a certain time after posting unless evidence is presented that this was not so.

It is unclear whether the statutory method of assignment was intended to apply to equitable choses in action.

  • The better view is that the legislatures did not intend that statutory methods should be the only transfer mechanism for equitable choses in action.
    • It is not a compulsory formality but an optional method.
  • Compliance would be a very clear manifestation of an immediate intention to assign.

Legal property that can only be assigned in equity

[20]The statutory assignment method above only applies to absolute assignment of legal choses in action, the law still does not allow partial assignments of a legal chose in action.

Equity may be able to recognise a partial assignment. It will be treated in the same manner as equitable property for assignment purposes and therefore it will be sufficient if there is a clear expression of an intention to make an immediate disposition on the part of the chose.

Statutory formalities

[21]An assignment may still be void if it fails to comply with relevant statutory formalities. An interest in land must be reduced to writing at the time of disposition or the assignment will be invalid at law and in equity. There are several exceptions to this rule:

  • Dispositions of by land by will, or by resulting, implied or constructive trusts are explicitly excluded.
  • The sections have no effect on the law relating to part performance of contracts.
  • A trust of an interest in land can be created orally and later reduced to writing. Until it is manifested in writing it will be unenforceable. (The writing is of evidentiary value only).
  • The legislation is not concerned with the creation of new equitable interests, only of assignments of existing interests.

End

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References

Textbook refers to M.W. Bryan & V.J. Vann, Equity and Trusts in Australia (Cambridge University Press, 2012).

  1. ↑ Textbook, pp 131-2.
  2. ↑ Textbook, pp 132-4.
  3. ↑ Textbook, pp 134.
  4. ↑ Textbook, pp 134.
  5. ↑ Textbook, pp 134-8.
  6. ↑ (1862) 4 Dec G F & J 264.
  7. ↑ [1952] Ch 449.
  8. ↑ (1990) 169 CLR 540.
  9. ↑ [2007] FCA 986.
  10. ↑ Textbook, pp 138-9.
  11. ↑ [1995] 1 Qd R 492.
  12. ↑ [2005] TASSC 36.
  13. ↑ (2008) 238 CLR 366.
  14. ↑ Textbook, pp 140-1.
  15. ↑ (1963) 109 CLR 9.
  16. ↑ (1965) 113 CLR 385.
  17. ↑ Textbook, pp 141-2.
  18. ↑ Windeyer J in Norman’s case. Norman v Federal Commissioner of Taxation (1963) 109 CLR 9.
  19. ↑ Textbook, pp 143-5.
  20. ↑ Textbook, pp 145.
  21. ↑ Textbook, pp 145-7.

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