Last edited 12 Jul 2019

Equitable assignment

Assignment is the right to transfer 'choses in action' defined as 'all personal rights of property which can only be claimed or enforced by action and not by taking physical possession'. This definition includes benefits arising under a construction contract such as right to payment, but not burdens such as the obligation to pay. The definition also includes claims for breach of contract. See Assignment for more information.

A failure to comply with the formalities of section 136 of the Law of Property Act is not necessarily fatal to a transaction; a defective legal assignment may operate as an equitable assignment (see William Brandts Sons & Co v Dunlop Rubber Co). Indeed, a defective legal assignment which takes effect as an equitable assignment may subsequently become a legal assignment if the defect is removed; for example, where an equitable assignee of a defective legal assignment subsequently serves written notice on the debtor to perfect the legal assignment.

There may be an equitable assignment of an equitable chose or an equitable assignment of a legal chose. No consideration is required for the assignment of an equitable chose provided that the assignor has, at the material time, done all that they can to perfect the gift (see Letts v Inland Revenue Commissioners). It is suggested that the better view is that the same rule applies to equitable assignments of legal choses although there are judicial dicta to the contrary.

The effect of a legal or equitable assignment is to put the assignee in the same position as the assignor in respect of the benefits (not burdens) arising from the original transaction with the debtor.

An equitable assignment may be in writing or oral. Any words will suffice provided they are unambiguous. Referring to the form of an equitable assignment Lord Macnaghten in the William Brandts case stated:

  • 'It may be addressed to the debtor. It may be couched in the language of commerce. It may be a courteous request. It may assume the form of mere permission. The language is immaterial if the meaning is plain. All that is necessary is that the debtor should be given to understand that the debt has been made over by the creditor to some third person.’

Lord Macnaghten's judgment in William Brandt referred to notice to the debtor. In law there may be a binding equitable assignment between assignor and assignee without notice to the debtor. However, as a matter of practice, notice to the debtor is very important for three reasons.

  • First, in the absence of notice the debtor is entitled to discharge their obligations to the assignor and not to the assignee, whereas if they have notice they do so at their own peril and may be required to discharge the obligation a second time to the assignee with no entitlement to recovery from the assignor (see Walter & Sullivan Ltd).
  • Second, the giving of notice to the debtor has an effect on prior equities (see below).
  • Third, the date of notice establishes the order of priority as between successive assignees (see Dearie v Hall). The notice may be written or oral and the wording of the notice may be informal, although casual conversations may not be sufficient notice (Re Croggon ex parte Carbis). Indeed, in the case of Lloyd v Banks, the court held that a newspaper article was sufficient notice to the debtor.

[edit] Equitable assignment by way of charge

An equitable assignment may operate by way of a charge only or be of part of the debt or chose (see Walter & Sullivan Ltd). Thus, where a developer wishes to dispose of the completed building to more than one purchaser or tenant, it is submitted that they will only be in a position to give each individual purchaser or tenant an equitable assignment of the benefits arising under the principal design and construction contracts.

If a legal assignment is required, then the drafting of the principal contracts should take care to impose an obligation on the designers and contractors to provide a sufficient number of collateral warranties to satisfy the requirements of multi-occupation.

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