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equitable assignment chose in action

Statutory Assignment vs Equitable Assignment

This article attempts to provide a brief overview of the differences between statutory assignment and equitable assignment. The actual application of the general rules described here would be subject to the applicable distinct facts and circumstances.

What is Assignment?

An assignment is a transfer of rights or liabilities such as those that arise under an instrument, chose in action 1 , or debt. An assignment can either be a statutory assignment or an equitable assignment.

In Malaysia, an assignment complying with Section 4(3) of the Civil Law Act 1956 was described as a ‘statutory assignment’ and an assignment not complying with Section 4(3) of the Civil Law Act 1956 was a ‘non-statutory assignment’ i.e., an equitable assignment. 2 The conditions of a statutory assignment are as follows: 3

(a) it must be absolute and did not purport to be by way of charge only;

(b) the assignment was in writing under the hand of the assignor; and

(c) express notice in writing thereof had been given to the debtor or trustee.

Meanwhile, an equitable assignment gives the assignee a right enforceable only in equity. The mode or form of assignment is absolutely immaterial provided the intention of the parties is clear. 4

Rules that Govern Assignments

Written notice is an essential part of a statutory assignment. Therefore, it is ineffective unless strictly accurate – accurate, for instance, as regards the date of the assignment and the amount due from the debtor. 5

However, notice is not necessary to perfect an equitable assignment. Even without notice to the debtor the title to the assignee is complete, not only against the assignor personally, but also against the persons who stand in the same position as the assignor, as, for instance, his trustee in bankruptcy, a judgement creditor or a person claiming under a later assignment made without consideration. 6

In regard to the form of notice, as mentioned earlier, a statutory assignment must comply with the form of notice required under Section 4(3) of the Civil Law Act 1956, whilst for an equitable assignment, no particular form is required to constitute a valid equitable assignment.

Additionally, it must be noted that although notice is not required for equitable assignments, an assignee must give notice to the debtor in order to get priority over other assignee(s). In this regard, the Federal Court in Public Finance Bhd v Scotch Leasing Sdn Bhd (In Receivership) (Perwira Habib Bank Malaysia, Intervener) [1996] 2 MLJ 369 explained in detail about the importance of notice:

“ We need to say a few words more about the great desirability of giving notice of assignment of a debt by an assignee to the debtor, even though absence of such notice does not affect the validity of the equitable assignment as between the assignor and the assignee. If notice is not given, the assignee must give credit for any payment made to the assignor by the debtor. This rule means that, by extension, even if the assignor assigns once more the debt to another person in fraud or otherwise on the earlier assignee, and that other person gives notice to the debtor; and if the debtor pays that other person or the second assignee, then the earlier assignee must still give credit to the debtor for his payment thus, for the debtor cannot be blamed for doing lawfully in ignorance of the title of the earlier assignee who has failed to give notice of the assignment to the debtor. Notice to debtor is for the protection of the assignee himself. It is this effect of what the debtor does lawfully as described that dims the view of the true role of the nemo dat rule in the resolution of disputed claims to a same debt. The money paid to the ‘second assignee’ can, of course, be recovered by the earlier assignee on the nemo dat principle. ”

(b) An assignee takes subject to equities

For both statutory assignment and equitable assignment, the assignee takes ‘subject to equities’, that is, subject to all such defences as might have prevailed against the assignor.

The general rule, both at law and in equity, is that no person can acquire title to a chose in action…from one who has himself no title to it. 7 In other words, the assignee can be in a no better position than the assignor was prior to the assignment. 8

(c) Rights incapable of assignment

Some choses in action are not assignable, and not every right which arises under or out of a contract can be assigned. 9 An example of rights incapable of assignment is where the nature of the contract is intended to be personal, therefore, it will be meaningless if it is assigned to another person.

Effect of Assignment

A statutory assignment has the sole intended effect of facilitating an assignee to sue in his own name directly irrespective of whether the chose in action is an equitable chose in action or a legal chose in action. 10

Meanwhile, the effect of an equitable assignment depends on whether the assignment is absolute or not. An absolute assignment of an equitable chose in action entitles the assignee to bring an action in his own name. 11 But a non-absolute assignment of an equitable chose in action does not entitle the assignee to sue in his own name but requires him to join the assignor as a party. 12

  • ‘Chose in action’ is a known legal expression used to describe all personal rights of property which can only be claimed or enforced by action, and not by taking physical possession (Associated Tractors Sdn Bhd v Woo Sai Wa [1997] 5 MLJ 441 (High Court)).
  • MBF Factors Sdn Bhd v Tay Hing Ju (T/A New General Trading) [2002] 5 MLJ 536 (High Court).
  • Williams Brandt Sons & Co v Dunlop Rubber Co [1905] AC 454 (House of Lords).
  • Leong, A. P. B. (1998). Cheshire, Fifoot and Furmston’s Law of Contract (2nd ed.). Butterworths Asia, at page 861.
  • Guest, A. G. (1984). Anson’s law of contract, at page 400.
  • Meagher, R. P., Heydon, J. D., & Leeming, M. J. (2022). Meagher, Gummow and Lehane’s Equity Doctrine and Remedies (4th ed., p. 284). Butterworths LexisNexis.
  • Guest, A. G. (1984). Anson’s law of contract, at page 402.
  • Lim Chon Jet @ Lim Chon Jat & Ors v Wee Ai Hua & Anor [2022] 6 MLJ 243 (Court of Appeal).

Written by:

Nur Izzatie Azlan & Narina Aireen Hilmy Zaini  ( [email protected] )

Corporate Communications Azmi & Associates 28 November 2023

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Sealy and Hooley's Commercial LawText, Cases, and Materials

Sealy and Hooley's Commercial Law: Text, Cases, and Materials (6th edn)

  • Note: The Effect of Brexit
  • Preface to the sixth Edition
  • New to this Edition
  • Acknowledgements
  • Table of cases
  • Table of legislation
  • 1. An introduction to commercial law
  • 2. Basic concepts of personal property
  • 3. Bailment
  • 4. Introduction
  • 5. Creation of agency, and the authority of the agent
  • 6. Relations with third parties
  • 7. Relations between principal and agent
  • 8. Introduction and definitions
  • 9. Passing of the property in the goods as between seller and buyer
  • 10. Transfer of title
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  • 15. International sales
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  • 18. Negotiable instruments
  • 19. Bills of exchange
  • 20. Cheques and miscellaneous payment instruments
  • 21. The financing of international trade
  • 22. Assignment of choses in action
  • 23. Receivables financing
  • 24. Introduction
  • 25. Possessory security
  • 26. Non-possessory security
  • 27. Insurance
  • 28. Insolvency

p. 787 22. Assignment of choses in action

  • D Fox , D Fox Professor of Common Law, University of Edinburgh
  • RJC Munday , RJC Munday Reader Emeritus in Law, University of Cambridge
  • B Soyer , B Soyer Professor of Commercial and Maritime Law, Institute of International Shipping and Trade Law, Swansea University
  • AM Tettenborn AM Tettenborn Chair in Law, Swansea University
  •  and  PG Turner PG Turner Visiting Senior Fellow of the Melbourne Law School
  • https://doi.org/10.1093/he/9780198842149.003.0022
  • Published in print: 13 July 2020
  • Published online: September 2020

This chapter deals with the general law of assignment of choses in action. Beginning with the historically based difference between equitable and statutory assignment, it then explains what ‘chose in action’ and ‘assignment’ are before discussing the requirement that there be an existing and assignable chose in action or right as well as the requirement that a person who holds an existing assignable chose in action intends to assign it. It also examines whether and when a rule of legal formality requires writing to be made; whether and when notice of the assignment is required; and obstacles to the enforcement of an assigned chose in action.

  • chose in action
  • law of assignment
  • legal formality
  • enforcement

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Part II The Transfer of Intangible Property, 13 Equitable Assignment of Choses in Action

From: the law of assignment (3rd edition), marcus smith, nico leslie.

This chapter studies the requirements that are necessary for an effective assignment of choses in action. In order to effect the assignment or a chose in action: the assignor must have manifested an intention to transfer the chose; the thing being assigned must be a chose in action, in present existence, certain or capable of being ascertained; the identity of the assignee must be clear; and the appropriate forms and formalities must have been satisfied. These requirements apply both to legal and equitable assignments. However, since legal assignments can only be affected by statute, the forms and formalities required for a legal assignment are those set out in the relevant legislation, and addressed elsewhere.

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Hall Ellis Solicitors

chose in action

Chose in action: meaning.

A chose in action is:

  • an intangible property right or property
  • which is legally not in a person's possession
  • but is only enforceable by legal process.

The legal process begins with a chose in action and ends with a judgment or court order.

Therefore, a chose in action is a right to sue : a legal right. It's a property right. It's more often referred to as a cause of action .

A person owns a chose in action in the same way as someone owns the device you are using right now.

Choses in action comprise all personal rights of property which cannot be taken by possession of a physical object (ie a chose in possession). 

Depending on the cause of action, a person would be:

  • owed a sum of money (ie a creditor owed a debt), and the debtor must pay the money
  • entitled to performance of a contract
  • the owner of intellectual property rights and entitled to sue for infringement
  • entitled to a licence to use intellectual property rights

In turn, the remedy leads to the entitlement to enforce (aka "enjoy") the legal rights which flow from the chose in action, which is usually one or more of:

  • an injunction
  • specific performance

And suppose the debtor, did not pay the sum ordered to be paid, the creditor would be entitled to initiate action to enforce the judgment or order. 

For a chose in action to exist, there must be a remedy at common law or equity which recognises the chose.

So, if a remedy does not exist for the alleged chose in action, the chose in action cannot exist.

It's pronounced "ch-oh-se" in action.

Types of Choses in Action: Examples

Legal choses in action are enforceable in a court exercising its common law jurisdiction.

Well known forms of legal choses in action include:

  • claims for debts
  • patent rights
  • trade marks
  • design rights
  • confidential information
  • common design 
  • interference with contractual rights

Equitable choses include:

  • a share in a trust fund
  • the share of proceeds of sale in the hands of a mortgagee.

Choses in action are also able to be established by reliance upon vicarious liability , apparent or ostensible authority and the law of agency, where the facts of the case permit.

Chose in Action Examples

  • Chattels: One person can hand another a pen, and thereby pass possession of the pen. The pen is a physical object. In legal terminology, the pen is a chattel and a chose in possession, not a chose in action. 
  • a chose in action
  • which is personal property
  • which is owned by you 
  • which entitles you to sue the person for conversion
  • for damages or delivery up of a chattel
  • Copyright law: Suppose you own copyright in some software. The software is protected by copyright law. A person uses the software without your consent. As the person has not obtained a licence from you, it is an infringement of copyright law. Infringement entitles you to damages for your pecuniary loss and an injunction to restrain infringement (ie unlawful use of the software) in the future. The right to sue for infringement is a chose in action.
  • Conspiracy: Continuing the copyright infringement example above, a series of people combine with an intention to infringe the copyright of your software. A separate, freestanding tort of conspiracy arises to render each of the participants in the conspiracy liable for the conspiracy.

Assignments

  • Legal choses in action may be assigned in equity, at common law or by statute. 
  • Equitable choses can be assigned in equity or by statute.

For an assignment of a legal chose in action to be effective by statute:

  • it must be in writing,
  • be absolute (the whole of the chose, unconditional and not a security interest),
  • with notice to the debtor.

If an assignment is ineffective by statute (for instance, an assignment of part of a debt), it still may be effective in equity.

A deed of assignment or ordinary contract may be used to assign the property rights in a chose.

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What is the significance of an equitable assignment in the context of the assignment of future rights under a contract (or a chose in action)?

An assignment is the transfer of a right or an interest vested in one party (assignor) to another party (assignee). The effect of a valid assignment is to entitle the assignee to demand performance of a contractual obligation.

Assignments may be legal or equitable.

A legal assignment is one which meets the requirements set out in section 136(1) of the Law of Property Act 1925 (LPA 1925). It must be:

absolute and unconditional and not purport to be by way of charge only

made in writing and signed by the assignor

expressly notified in writing to the obligor

Equitable assignments may arise in the following circumstances:

where there is an intention to assign, but not all of the formalities of a legal assignment are met under LPA 1925, s 136(1), the assignment may still be valid as an equitable assignment . The formalities for an equitable assignment to be effective are far less stringent

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Key definition:

Equitable assignment definition, what does equitable assignment mean.

Assignments can occur in equity when any of the requirements of legal assignment are not satisfied.

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equitable assignment chose in action

Chose in Action

Practical law canada glossary 0-621-0054  (approx. 2 pages).

  • Canada (Common Law)

Transfer in Ownership – Choses in Action • Is it a legal or equitable chose in action? o There are two main types of choses in action, they can either be legal or equitable – the first step is to distinguish between whether they are legal or equitable: ▪ Legal: if the chose in action is something that can be enforced at common law , then it is a legal chose in action ▪ Equitable: a beneficiary right under a trust (the trustee has legal title and the beneficiary has equitable title) o The beneficiary has the right to compel the trustee to hold the trust for the benefit of the beneficiary

[DETERMINING WHETHER THE CHOSE IN ACTION CAN BE DEALT WITH (ASSIGNABILITY)]

Legal choses in action

• Can the legal chose in action be assigned? – (capable of assignment at general law) o Prima facie, legal rights over intangible goods can be assigned o S12 of the Conveyancing Act illustrates the requirements of assignment ▪ Absolute assignment (you cannot assign half of the debt owed) ▪ In writing ▪ Signed by the assignor ▪ Notice of writing must be given to the debtor

• What happens when you have a non-assignable chose in action? o The following choses in action cannot be assigned at general law: ▪ Note: the “benefit/burden” principle ▪ Personal service contract ▪ Bare right to litigate ▪ Public policy (for noting) ▪ Capable under general law but not assignable due to: • Materiality of identity • Contractual prohibition o A bare right to litigate cannot be assigned (assigning the right to litigate for litigation’s sake) – Glegg v Bromley - however, there are exceptions to this rule:

1 ▪ The fruits of litigation can be assigned - Glegg v Bromley – “whatever money I get from litigation, I will give to you” ▪ Where a genuine commercial interest exists - Trendtex (Credit Suisse) • In this case, Trendtex had a right to money from the Nigerian Bank which they could have assigned • But the Nigerian bank won’t pay it back, so they assigned the right to litigate to Credit Suisee (had the money to help them litigate) • Oliver LJ: where a cause of action arises out of a bare right which itself is assignable, the cause of the action equally remains assignable” – it has become a right to property • Note the existence of illegality, if there is illegality on foot (e.g. failure to register a prospectus) then the restitution rights cannot be assigned - Equuscorp o Materiality of identity – if you have a contract in which the identity of the parties is so material, you cannot assign the benefit of the contract without the consent of the party ▪ “it is one thing to provide details of production facilities and other business information to PB, it was quite another thing to have to deal with a competitor like PB in that regard” ▪ Direct competitor – it is not beneficial to be in an assignment relationship with your competitor – Pacific Brands v Underworks ▪ Apart from prohibitions created by statute or public policy, the most common such reaons will be contractual prohibitions on assignment, the materiality of the identity obligee to the contractual relationship to the obligor’s performance” – Pacific Brands v Underworks o Certain contractual rights/contractual prohibitions cannot be assigned ▪ A chose in action arising from a contract cannot be assigned if the contract’s terms prohibit it – Linden Gardens Trust • HD Point: Shouldn’t be prohibited, assignor should just have to pay breach damages i.e. as if wording was ‘warrant it will not be assigned”; o Indeed this approach has been adopted with respect to collateral property in the Personal Property Securities Act 2009,

2 o However this is cf Owners of Strata Plan 5290 - reasoned strongly that Linden holds you cannot assign a contractual right when there is an express clause prohibiting it, even when legislation allows assignment (e.g. liquidator rights in Corporations Act 2001) • HD Point 2: May have an equity workaround: o Third Party Equity Workaround: Don King Productions v Warren - rather than transferring benefit of a contract, declare yourself trustee of a chose in action for a third party (in exchange for $$) o CL still sees contract between the contractors, equity notes benefit for 3rd party o Burden of a contract cannot be assigned – Pacific Brands ▪ You cannot assign the burden of the contract without approval, you can assign the benefit as long as s12 of the CA is met ▪ Novation exception – you can novate (change the name on the contract) with the consent of the promise (this consent may be implicit in the contract) ▪ Note: materiality of identity – it won’t be implicit where the identity of the parties is important o Personal services cannot be assigned – Nokes v Doncaster ▪ You should be able to choose who your employer is – Nokes ▪ Exception: you cannot assign positive obligations but you can assign negative obligations o I.e., Doctor has employment contract, which includes a term to keep patient info confidential. (Zahedi-Anarak). When business is on-sold to new employer, his employment contract cannot be assigned, but his NEGATIVE obligations can be. Thus, Breach of Confidence can be automatically transferred with no novation.

Equitable chose in action Distinct from a legal chose in action • These are rights over actions, which can only be enforced in courts of equity

3 • They can be personal or proprietary rights – for example, the right to force someone to transfer land to you

Trusts There are three attributes which are common to all trusts: • A trust must have a trustee who holds title to the trust properly • The trustee must hold the property for the benefit of a beneficiary or a purpose recognised by law • Trust property must vest in the trustee • Note: the chose in action lies with the beneficiary – they compel the trustee to hold the trust property

There are four main elements of a trust (the three certainties) which need to be fulfilled when creating a trust: • Intention – use of the word “trust” is determinative for intention - Byrnes v Kendle o can also infer from obligatory, not permissive, language (hope vs must/expect) • Subject matter – what is the trust property? This must be clear or the trust fails o Intangible test – clarity and certainty of language – in context o Tangible test – clarity of language and specificity of segregation • Objects – who are the beneficiaries? o Object must be a legal person – purpose trusts are automatically invalid • Constitution: The trust property must be vested in the trustee – it is not enough for the settler to declare a trust, you actually have to transfer the property to the trustee

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Home » Dictionary » Chose in action

Chose in action

A chose in action is a personal property right to an intangible object. In the case of Torkington v Magee [1902] 2 KB 427 a chose in action was defined as “personal rights of property which can only be claimed or enforced by action, and not taking physical possession”. This means that the only way to obtain possession of the claimed intangible rights is through either legal or equitable action.

The main example of a chose in action is a debt. A debt owed to a creditor is incapable of being physically possessed and can only be enforced by suing. The economic value of debt is a right to sue for its recovery. A critical aspect of a chose in action is that any paper documentation supporting the right is not in and of itself the proprietary right.

A chose in action is capable of being assigned both at law and in equity. The transfer of property at law in NSW is governed by section 12 of the Conveyancing Act 1919 (NSW). In order for a chose in action to be validly assigned at law the transfer must:

  • Be absolute, meaning that the transfer must be unconditional;
  • Be in writing and signed by the assignor (section 23C);
  • The person liable to the chose needs to be put on notice in writing of its assignment; and
  • Not necessarily be supported by consideration.

If an assignment of a legal chose in action fails at law, there is protection in equity for the transfer to be valid. Parties will be bound in equity if “by reason of some fact or circumstance which a court of equity regards as binding the legal owner in conscience to hold the property upon trust for the assignee” (see Kitto J in Olsson v Dyson (1969) 120 CLR 365.

Equity will bind a legal owner in conscience if:

  • The assignee has provided consideration for the assignment of the chose in action;
  • The assignor has done everything required to effect the transfer, despite not complying with statutory requirements; or

In the absence of consideration, equity will regard an assignor’s conscience as bound if they induce the assignee to act to their own detriment in reliance on the inducement (equitable estoppel).

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EQUITY 1.4 NOVATION AND ASSIGNMENT

  • Equity and Trust I

ASSIGNMENT OF CHOSES IN ACTION.

A chose in action is a personal intangible right in property which can only be enforced by taking legal proceedings and not by taking physical possession. A cursory appreciation of property is necessary for a proper understanding. Property can be classified into:

  • Realty : immovable
  • Personal : Movable property further classified into:
  • 1 Tangible : chose in possession capable of being physically possessed and stolen.
  • 2 Intangible : these are choses in action incapable of physical possession. Rights over them can be enforced only through legal action. A chose in action may be:
  • 2.1 Legal Chose in Action: Recoverable by action at common-law. for example debt, copyright, shares, and so on.
  • 2.2 Equitable Chose in Action: only enforced by proceeding in equity like fund, or legacy under a will.

At common-law, only a legal chose could be assigned provided the consent of the debtor was obtained. Except assignment was done by the king, or as regards mercantile choses in action (like negotiable instruments which are transferrable by mere delivery). To prevent a floodgate of suits.

Classification of Assignment .

Section 25 of the Judicature Act removed the common-law rule against assignment. An assignment of choses in action has been classified into legal and equitable above, however for further elucidation they can be classified into four categories viz:

  • Legal (statutory) assignment of Legal Chose : an assignment of a legal chose according to prescribed formalities.
  • Legal (statutory) Assignment of Equitable Chose : an assignment of equitable chose in action according to formalities.
  • Equitable assignment of Legal Chose : assignment of legal chose without full compliance with formalities.
  • Equitable Assignment of Equitable Chose : assignment of an equitable chose without complying with formalities.

Note however that on grounds of public policy, certain choses cannot be assigned like Pension right ( section 18 of the Pensions Act 1979 ), alimony, maintenance, salary, moto insurance policy and the likes.

To amount to STATUTORY ASSIGNMENT: The court in Udukason Enterprises V Robinson Olisa noted that the assignment must be [1] :

  • Absolute : not an assignment of part of a fund or by way of charge. In Western Nigerian Finance Company V West Coast Builders , an assignment of 25 percent of debt was held to be an assignment in part.
  • In writing and signed by the assignor.
  • Written notice must be given to the debtor which takes effect from the time of receipt.

A statutory assignment of chose enables the assignor to sue in his name.

EQUITABLE ASSIGNMENT: Arises due to non-compliance with formalities stipulated in the law. The following are guiding requirements

  • An intention to assign.
  • A sufficiently identified chose (out of a specified fund).
  • Consideration must be furnished as Equity would not aid a volunteer.
  • The assignment Need NOT be in writing.
  • Need NOT be absolute: the assignee would have to join the assignor in a suit where the assignment is not absolute.
  • Notice may or may not be given to the debtor. Notice may however be relevant in the following situations:
  • To determine priority. (the rule in Dearle V Hall (discussed later)).
  • To ensure payment to the assignee.
  • An assignee cannot take a better title except notice has been received by the debtor or it is a negotiable instrument and a holder in due course for value takes a good title.
  • A notice in writing may make an absolute equitable assignment a legal assignment.

The rule in Dearle V Hall .

Where the owner of an equitable interest in pure personalty assigns same to more than one assignees, the priority does NOT depend on dates of creation but on the dates on which the trustee (debtor) receives notice. Except an assignee has notice of a previous assignment. (Not verbatim)

In this case (Dearle V Hall), one Brown assigned his interest first to Dearle, Sherring (second) and Hall (third) in 1808, 1809 and 1812 respectively. Hall (the last assignee) served the executors notice of the assignment. The court held that Hall was entitled since notice of his assignment reached the executors first and he had no notice of previous dealings.

Where notice is received at the same time, priority shall be determined in the order which the interests were created.

Notice can be oral or in writing. In Lloyds V Bank , notice received through newspaper was sufficient. Section 152 Property and Conveyancing Law (Ogun State) preserved this rule provided notice is given in writing (similar provisions can be found in the laws of other states).

DISTINCTION BETWEEN NOVATION AND ASSIGNMENT.

A novation occurs where contracting parties (by agreement) shift the burden of repaying a debt. In simple terms: Where A owes B #50 and B owes C #50, both A, B and C can agree that A should pay C the money due. See GB Olivant V Effioms .

  • Consideration : Novation must be supported by consideration. While (as stated above) a legal assignment of chose in action does not need to be supported by consideration.
  • Consent : Under novation, all the parties must consent while under Assignment of choses in action, the consent of the debtor may not be required.
  • Notice : under novation, notice must be given to the debtor and creditor while under equitable assignment, notice is not essential.
  • Absolute : Unlike an equitable assignment, novation requires that the original debt must be totally extinguished.

[1] See also Section 25 judicature act 1873, section 150 Property and Conveyancing Law (Ogun State).

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equitable assignment chose in action

McMahon Legal (Solicitors)

Choses in Action

Paul McMahon Intangibles

Intangible Property

Most intangible property rights are so-called “choses in action”. A chose in action is a right asserted by legal action. The classic type of chose in action is a debt or an incontrovertible contractual obligation. It also includes a wide range of assets such as stocks, shares, insurance policies. The rights of a beneficiary under its trust is an equitable chose in action. The essential right of a partner is to an account of the partnership assets generally, on winding up.

Intellectual property rights cover a range of rights, which are protected by statute or common law. Copyright consists of a bundle of rights in respect of original works. They protect against copying. A patent protects an inventor of an invention for a period of 20 years. A trademark protects the goodwill associated, with particular goods. Other rights, such as industrial designs and semiconductor chip designs, enjoy similar statutory protection.

A range of other rights, such as confidential information and goodwill are protected by common law. Various rights and remedies are available from the courts to counter interference with such rights.

Nature of Chose in Action

A chose in action is a quasi-property right which may be ultimately asserted by legal action.  The expression embraces a wide variety of assets and quasi-assets. The classes of chose in action vary in respect of their assignability and the nature of the rights and property concerned.

In broad terms, choses in action are divided into legal choses in action and equitable choses in action.  However, there are choses in action outside of these categories and choses in action which are not enforceable in court but depend for their existence on other circumstances and factors.

A legal chose in action is one which was historically enforced by action at law (as opposed to in equity). Rights enforceable by action at law include rights under contracts, claims for unliquidated damages for breach of contract or a right of action based on tort. The right of the trustee to recover trust assets is a legal chose in action.

Equitable choses were those originally enforced by the courts of equity.  They arise out of property rights over which the Chancery Court formerly had exclusive jurisdiction, including, in particular, equitable interests in property, shares in partnership and shares in funds.

Equitable rights to the property include beneficial interest under trusts, many interests in funds, reversionary interest in estates and shares in partnerships. Equitable choses in action include claims in equity for misfeasance, breach of trustee and relief against forfeiture.

Examples of Choses in Action

The following are examples of choses in action;

  • debts whether by contract or by instrument under seal;
  • mortgage debts;
  • debentures;
  • rights to rents;
  • tithes and annuities;
  • many interests in funds,
  • negotiable instruments,
  • promissory notes;
  • bills of exchange.
  • insurance policies;
  • charterparties.

A chose in action need not be evidenced by an instrument; such as for example;

  • patent rights;
  • dividends due;
  • contractual rights from a verbal contract.

Debts, Accounts and Policies

Certain types of assets are effectively legal claims, which can only be enforced by Court Action.  A debt, insurance policy or bank account can be mortgaged by being assigned to the mortgagee as security. In order to complete the security, notice should be given to the debtor or the party who has the obligation to pay, who should in turn confirm and acknowledge such assignment.

An assignment and notice in writing is essential to give the assignee the right to sue and enforce the obligation in its own name.  Failure to give notice does not render the assignment void.  Instead, it means that it can only be enforced indirectly.   The priority of assignments is determined by the date of notice to the debtor/covenanting party. Therefore, failure to give notice may cause priority to be lost, if a later assignment is notified first.

Security Assiignments

A security assignment may be taken over rents receivable, in the same manner as over any debt or third party liability. A formal security assignment is the best way to procure effective security. The tenant should be notified to pay the rent to a nominated account. This can be a very effective security, in the case of an investment property.

It is possible to create a fixed charge over monies due, such as accounts receivable (e.g. unpaid invoices).  It is necessary that the borrower does not control the account and only makes withdrawals with the lender’s specific consent. It is often desirable for a lender to create a fixed charge over a borrower’s debtors as these may constitute a significant asset.

Many attempts to create a fixed charge over a receivable, leave the borrower with too much control, so that the such charges take effect if at all, as floating charges, with the consequent weaknesses and vulnerability. Certain Irish Revenue debts have priority over fixed charges over book debts.

There are very little limitations on what might be contained in a contract. Usually there are rights and obligations on the respective parties. One person’s rights are equivalent to the other person’s obligation. The obligations or rights “receivable” are often capable of assignment. This might comprise a right to payment or the right to require performance

The developer’s rights under a building contract and various associated contracts may be assigned by way of security to a bank. More commonly, the lender acquires direct rights that allow the lender or its nominee the option of assuming the rights and obligations of the borrower under the contracts.

Many contracts are not capable of assignment. There is a presumption that a contract may be assigned, unless it is expressed or implied otherwise. An assignment involves an outright transfer of the benefit of the contract. It is not possible to transfer the burdens or obligations under a contract.

It is possible to subcontract their performance to a third party. However it is a fundamental principle that a person who has undertaken obligations cannot get rid of his obligations by transferring or assigning them.

Bank Accounts

A bank account is a debt owed by the bank to the customer. The customer does not “own” the deposit as such and it is not property. Rather it is a claim against the bank. A debt, asset or receivable is mortgaged by assignment in writing followed by notice to the debtor.

Certain difficulties arise with a charge over a deposit with the lender itself. Generally, it is not possible to take a security charge over the mortgagee’s own debt (which is what the deposit is). There is a mechanism to avoid this difficulty and EU regulations have assisted and simplified this type of security.

Insurance Policies

The Policy of Insurance Act provides that an assignment of an insurance policy must be in writing, either by endorsing the policy or by a separate instrument. Written notice of the assignment must be given to the insurance company at their principal place of business.  The company should acknowledge receipt of a notice.

A mortgage of an insurance policy takes the form of an assignment with a provision for re-assignment.  The assignments take effect in order of notice.

A “legal” mortgage may be taken over shares by making a transfer of them to the mortgagee, subject to an agreement to re-transfer.  The mortgagee will be registered as shareholder.  It is not possible to note a mortgage on the register of shares of a company.

An “equitable” mortgage of shares can be taken by way of a transfer executed by the mortgagor, leaving the name of the transferee blank. The share certificate should also be delivered.  It is possible to give a company a stop notice that entitles the mortgagee to notice of an application to transfer and gives the mortgagee the opportunity to obtain a restraining order.

Intellectual Property

A mortgage over intellectual property, which comprises patents or trade marks must be signed, transferred and registered on the Register.  A mortgage is registered in the Patents  Office. Mortgages have priority in order of registration.

The grant of security over the  following assets must be registered in the Patents Office;

  • trade marks;
  • registered designs.

There is no register of copyright. A mortgage of copyright is taken by way of a transfer subject to an obligation to re-transfer upon redemption.

Assignability of Rights

It is possible to assign some, but not all, intangible rights. They are usually assigned by written assignment, followed by notice to the obligor (other party). Equitable interests may be created over intangible rights.

A right to sue for an indefinite amount, such as a right to compensation, is usually non-transferable on public policy grounds. Where, however, the transferee has a genuine interest in the litigation, an assignment may be permitted.

References and Sources

Irish Texts

Modern law of personal property in England and Ireland 1989  Bell

Consumer Law Rights & Regulation 014       Donnelly & White

Commercial Law White           2012 2 nd  ed

Commercial & Economic Law in Ireland        2011 White

Commercial Law 2015 Forde 3 rd  ed

Irish Commercial Precedents (Looseleaf)

Commercial & Consumer Law: Annotated Statutes 2000  O’Reilly

Irish Tort Legislation    Fahey  Irish Tort Legislation    2015

Personal Property Law: Text and Materials  2000  Sarah Worthington

Personal Property Law (Clarendon Law Series) 2015 Michael Bridge

The Law of Personal Property 2017   Professor Michael Bridge and Prof. Louise Gullifer

The Principles of Personal Property Law 2017  Duncan Sheehan

Crossley Vaines on Personal Property 1967 by J C Vaines

The Law of Bills of Sale 2017 James Weir

Palmer on Bailment 2009  Norman Palmer

The Reform of UK Personal Property Security Law: Comparative Perspectives  2012 John de Lacy

The Law of Personal Property Security 2007  Hugh Beale and Michael Bridge

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To find out more about the Government’s amendments to the Bankruptcy Act please visit Bankruptcy amendment .

Choses in action

Official Trustee Practice Statement 6 explains the choses in action in bankruptcy.

On this page

Introduction, what is a chose.

  • a chose in possession is a thing of which the owner has actual enjoyment
  • a chose in action is a thing of which a person has not the present enjoyment, but merely a right to sue to recover it (if withheld) by commencing an action, and protected by the law.
  • Examples of choses in action include money due on a bond, the right to recover money by legal action, the right of a beneficiary under a will to “due administration” with respect to the executor, the right to enforce a contract or recover damages for its breach and rights arising by reason of the commission of a tort (civil wrong) or other wrong.
  • A common situation in bankrupt estates is where a person sells goods to another and then becomes bankrupt.  If, at the date of bankruptcy, the purchaser has not paid for the goods, the right to collect payment is an asset that vests in the trustee of the bankrupt estate.
  • A chose in action may be assigned by written instrument signed by the assignor that is absolute in terms and by notice in writing being given to the debtor (see section 100-5 of the Insolvency Practice Schedule).  The Courts have confirmed the right of a trustee to sell a chose in action, including to a discharged bankrupt.  This is not possible in the case of an undischarged bankrupt as the “asset” would immediately revest in the trustee under paragraph 58(1)(b) of the Bankruptcy Act 1966 – see also the decision in Meriton Apartments Pty Limited v Industrial Court of New South Wales [2008] FCAFC 172 (13 October 2008) .

Actions where the official trustee commences proceedings

  • Where a cause of action exists and the bankrupt has not commenced recovery as at the date of bankruptcy, if the cause of action has vested it is open to the Official Trustee to commence proceedings to enforce its rights – for example, to sue for a debt that was previously owed to the bankrupt.
  • the probability of succeeding in the action
  • the costs of pursuing the matter
  • the attitude of the bankrupt’s creditors and whether they want to contribute towards any cost of recovery
  • the ability of the other party to pay the amount awarded if the trustee is successful, and
  • the possibility that the trustee could become liable for the defendant’s costs in the event the action is unsuccessful.
  • Paragraph 19(1)(k) of the Bankruptcy Act affords a trustee protection in circumstances where such actions may be considered not cost-effective to recover.

Assignment of a cause of action

  • A bankrupt who no longer has the ability to pursue a claim against another party may request that the trustee either pursue the action or sell that right back to the bankrupt (after discharge) or to an associated (third) party.  The trustee has a duty to the bankrupt as well as to the creditors in the estate and may consider either possibility.
  • The potential defendants in the action may challenge any proposed assignment of the cause of action to the bankrupt or their associates.  The potential defendants may make a competing offer to purchase the cause of action from the trustee in order to ensure it does not proceed.  In any event, either party may challenge the trustee’s decision.

Section 60 of the Bankruptcy Act

  • Where an action is on foot when bankruptcy occurs, the trustee is required to make an election under subsection 60(2) of the Bankruptcy Act to either abandon the proceedings or continue the action.  Subsection 60(3) provides the trustee with 28 days following service of notice of the action to make the election, otherwise it is deemed abandoned.
  • However, under section 60, there are some types of action in which a trustee is not required to make an election.  Pursuant to subsection 60(4), any action involving a “personal injury or wrong” done to a bankrupt, to their spouse or de facto partner or to a member of their family is an action that can be continued by a bankrupt in their own name.  Likewise, an action in respect of the death of the bankrupt’s spouse or de facto partner or a member of their family may be continued by the bankrupt.  The fruits of any such action are not property a trustee would be entitled to recover as divisible property due to the exemption in paragraph 116(2)(g) of the Bankruptcy Act.
  • The basic test to determine whether an action relates to a “personal injury or wrong” was set out in Cox v Journaux (No.2) [1935] HCA 48 and has been referred to in many subsequent cases, including Faulkner v Bluett [1981] FCA 3.  The test is that an action will be one for personal injury or wrong where the relief sought is to be assessed by immediate reference to the pain felt by the bankrupt in respect of their mind, body or character and without any reference to their rights to property.
  • In some situations, it may not be immediately clear whether an action commenced by the bankrupt relates to a personal injury or wrong or is referrable to their property rights, and it is possible that an action may contain both elements.

Considerations

  • A decision as to whether to pursue an action depends on several factors, including the potential amount to be realised in the estate and evidence of liability.
  • advances and indemnities from creditors
  • funding under section 305 of the Bankruptcy Act, and/or
  • applying money in the estate.
  • Where there is money in the estate that would in the normal course be available to creditors as a dividend, creditors’ views will be sought to ascertain whether they agree that the money being used to pursue the proceeding.  Creditors are presented with information to assist in making the decision.

Assignment of actions

  • The Official Trustee may elect to assign a chose in action where a recovery is not a viable proposition within the administration of an estate.  There may be instances where the Official Trustee forms the view that prosecution of the action would not benefit the estate notwithstanding a bankrupt’s opposing opinion.
  • The Official Trustee has several options for determining the value of the consideration that will depend on the action, the potential cost and benefit to the estate.  Creditors will be consulted during the process.
  • The assignment of the action may be finalised by the Official Trustee and the assignee entering into a deed.  Usually, the assignee bears legal costs incurred in preparing the deed, with the trustee’s solicitor vetting the deed.

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VIDEO

  1. Week 6 Part 3. Equitable Assignment

COMMENTS

  1. Assignment of Choses in Action

    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.

  2. Different Models of Equitable Assignment (Chapter 4)

    This chapter explores the two main conceptions of equtiable assignment as are currently found in the academic discourse, namely, a 'substitutive transfer' model, and a 'partial trust' model. The former denies that an equitable assignment operates by way of a trust, at all. The latter, however, admits taht where a legal chose in action ...

  3. Statutory Assignment vs Equitable Assignment

    A statutory assignment has the sole intended effect of facilitating an assignee to sue in his own name directly irrespective of whether the chose in action is an equitable chose in action or a legal chose in action. 10. Meanwhile, the effect of an equitable assignment depends on whether the assignment is absolute or not.

  4. PDF TWO CONCEPTIONS OF EQUITABLE ASSIGNMENT

    conception of equitable assignment is that equitable assignment essentially involves the creation of a trust. Unless the case is brought within the statute, and a legal assignment effected, title never passes. The right of action remains with the assignor, and what the assignee acquires is a right against the assignor relating to that right of ...

  5. 22. Assignment of choses in action

    Abstract. This chapter deals with the general law of assignment of choses in action. Beginning with the historically based difference between equitable and statutory assignment, it then explains what 'chose in action' and 'assignment' are before discussing the requirement that there be an existing and assignable chose in action or right as well as the requirement that a person who ...

  6. Part II The Transfer of Intangible Property, 13 Equitable Assignment of

    This chapter studies the requirements that are necessary for an effective assignment of choses in action. In order to effect the assignment or a chose in action: the assignor must have manifested an intention to transfer the chose; the thing being assigned must be a chose in action, in present existence, certain or capable of being ascertained; the identity of the assignee must be clear; and ...

  7. Choses in Action & Rights to Sue: legal rights to sue

    A chose in action is: an intangible property right or property. which is legally not in a person's possession. but is only enforceable by legal process. The legal process begins with a chose in action and ends with a judgment or court order. Therefore, a chose in action is a right to sue: a legal right. It's a property right.

  8. Equitable Assignment: Everything You Need to Know

    The significant characteristic that separates an equitable assignment from a legal assignment is that most of the time, an equitable assignee may not take action against a third party. Instead, it must rely on the guidelines governing equitable assignments. In other words, the equitable assignee must team up with the assignor to take action.

  9. Equitable Assignment

    Equitable Assignment. An assignment of an equitable chose in action, for example, a legacy or an interest in a trust fund may be assigned in equity and the assignee may sue in his or her own name. For a valid equitable assignment, there must be a contractual agreement, an intention to enter into such an agreement and consideration.

  10. PDF Is the Right of an Assignee of a Chose in Action Legal or Equitable?

    RIGHT OF AN ASSIGNEE OF A CHOSE I07. rather in the nature of a cross-action. Certainly it seems impossible to say, that it is a legal limitation of the claim, and if it is only an equity, it would be cut off by the assignment if the assignee be-. came the legal owner of the claim.

  11. What is the significance of an equitable assignment in the context of

    An assignment is the transfer of a right or an interest vested in one party (assignor) to another party (assignee). The effect of a valid assignment is to entitle the assignee to demand performance of a contractual obligation.. Assignments may be legal or equitable. A legal assignment is one which meets the requirements set out in section 136(1) of the Law of Property Act 1925 (LPA 1925).

  12. 22. Assignment of choses in action

    Abstract. This chapter deals with the general law of assignment of choses in action. Beginning with the historically based difference between equitable and statutory assignment, it then explains ...

  13. Assigning the right to sue

    A right to sue is known as a chose in action. The ... If notice is not given, you only have an equitable assignment, not a legal assignment. This means legal title to that claim has not actually passed - only that (provided consideration has been paid) equity will treat it that it should have been passed. So the assignor technically retains ...

  14. Chose in Action

    Chose in Action. Personal rights of property which can only be claimed or enforced by action and not by taking physical possession (as distinct from choses in possession, things capable of physical possession). Divided into legal and equitable choses in action, depending on whether they can be recovered or enforced by action at law (such as ...

  15. Why It Matters (Chapter 15)

    Fourth, it explains how it is possible to assign parts of a chose in action, whether such chose be one arising at common law, or even in equity. Fifth, this chapter explains how equitable defences such as laches and 'clean hands' may have a wider role to play in connection with equtiable assignments than is usually assumed.

  16. Assignment and novation

    Legal and equitable assignment. The Law of Property Act creates the ability to legally assign a debt or any other chose in action where the debtor, trustee or other relevant person is notified in writing. If the assignment complied with the formalities in the Act it is a legal assignment, otherwise it will be an equitable assignment.

  17. 1894 Equitable Assignments

    Assignment of @lioses in Act ion at the Common Law.7 Chapter III. The attitude of Equity towards the Assign-ment of a Chose in Action 00.00....0013 Chapter IV. What could be assigned at Equity though not at Law ..... 24 Chapter V. What am-ounts to an Equitable Assignment ... 30 Chapter VI.

  18. Is It a Legal Or Equitable Chose in Action? [PDF]

    Thus, Breach of Confidence can be automatically transferred with no novation. Equitable chose in action Distinct from a legal chose in action • These are rights over actions, which can only be enforced in courts of equity. 3 • They can be personal or proprietary rights - for example, the right to force someone to transfer land to you ...

  19. Chose in action

    This means that the only way to obtain possession of the claimed intangible rights is through either legal or equitable action. The main example of a chose in action is a debt. A debt owed to a creditor is incapable of being physically possessed and can only be enforced by suing. ... If an assignment of a legal chose in action fails at law ...

  20. EQUITY 1.4 NOVATION AND ASSIGNMENT

    A chose in action may be: 2.1 Legal Chose in Action: Recoverable by action at common-law. for example debt, copyright, shares, and so on. 2.2 Equitable Chose in Action: only enforced by proceeding in equity like fund, or legacy under a will. At common-law, only a legal chose could be assigned provided the consent of the debtor was obtained.

  21. PDF EQUITABLE ASSIGNMENTS

    CASE COMMENT : EQUITABLE ASSIGNMENTS 25 1 Higgins JJ.) in Anning v. Anning16 that there cannot be a valid equitable assignment of a chose in action without full compliance with the statute. This majority view must be taken now as not representing the law. So far, Chamberlain J. has followed Windeyer J.'s reasoning in Norman v.

  22. Choses in Action

    A chose in action is a right asserted by legal action. The classic type of chose in action is a debt or an incontrovertible contractual obligation. It also includes a wide range of assets such as stocks, shares, insurance policies. The rights of a beneficiary under its trust is an equitable chose in action. The essential right of a partner is ...

  23. Choses in action

    Introduction. What is a chose? A chose is a thing or a right. Choses are of 2 kinds - choses in possession and choses in action: a chose in possession is a thing of which the owner has actual enjoyment; a chose in action is a thing of which a person has not the present enjoyment, but merely a right to sue to recover it (if withheld) by commencing an action, and protected by the law.