Equitable assignment PDF

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Bahagian A (PAST YEAR 15/16) In facilitating commercial transactions, there may be circumstances when a party must assign his personal rights to another party. The effect of assignment is to transfer the rights and interests of the assignee to the assignor. There are basically two types of assignment that can be upheld by the court, namely, a legal assignment and an equitable assignment. In Malaysia, section 4(3) of Civil Law Act 1956 stipulates the requirements for legal assignment. To determine whether a deed of assignment is a legal assignment, the four main requirements lays down by section 4(3) must be fulfilled conjunctively. The four requirements are first, the assignment is in respect of a debt or other legal chose in action. Second, the assignment must be in writing under the hand of assignor. Third, it must be an absolute assignment and not by way of charge only. Fourth, notice in writing must have been given to the debtor. For the first requirement, the assignment is in respect of a debt or other legal chose in action. Only a debt or a legal chose can be legally assigned. A chose in action is a personal right of property which can only be claimed or enforced by legal action and not by taking physical possession. Second, the assignment must be in writing under the hand of assignor. The agreement of the parties to assign the debt or chose in action must be evidenced in writing under the hand of the assignor. An oral agreement cannot be upheld as a valid legal assignment. Third, it must be an absolute assignment. An assignment is absolute when there is no conditions attached to the assignment. An assignment by way of charge is not an absolute assignment. The word ‘charge’ refers to a security transaction where a charge is entitled to the right of repayment but the title of the property remains with the charger and there is no transfer of title to the chargee. The chargee only has an interest in the property. In an assignment by way of charge, an assignment ceases upon repayment and there is no requirement for reassignment. Fourth, notice in writing must have been given to the debtor. Express notice in writing concerning the assignment must be given to the debtor so that the debtor knows to whom he must now pay the debt. This is supported in UMW Industries Sdn Bhd v Ah Fook3, which held that in order to establish legal assignment, the third requirement must be fulfilled namely ‘notice in writing to be given to the person liable to the assignor’. Consent of the debtor to the assignment is not required. The notice must not be defective, it must be dated and the amount stated must be correct. No particular form of wording is required; indeed a document can constitute notice even though it was not intended to be a notice. By referring the case of MBF Factors Sdn Bhd v Tay Hing Ju where one Gan Siong Pew as assignor had assigned all his book debts to the plaintiff. He then served a notice of assignment on the defendant and informed the latter that by virtue of the assignment, the defendant was indebted to the plaintiff in the sum of RM584,873.88. Jeffrey Tan J held that where Section 4(3) of the Civil Law Act 1956 applies, the assignee is allowed to sue the debtor in his own name instead of having to sue in the name of the assignor and perhaps having to go to a court to compel his joinder in the action. From this case, it is clear that the effect of legal assignment is to confer the same rights to the assignee as possessed by

the assignor before the assignment. Therefore, this case indicated that all the requirement under Section 4(3) of CLA 1956 must be fulfilled in order to establish legal assignment. Moreover, when a legal assignment is ineffective due to its requirements not being fulfilled, equity comes to light to save the assignment as an equitable assignment. For an equitable assignment, intention is the upmost essence when discussing on equitable assignment. The words must signify that the action as instructed by the assignor will bring a certain benefit to the assignee. Thus, the assignment must be specifically directed to the assignee. The importance of intention was discussed in the English Case of William Brandt’s Sons and Co v Dunlop Rubber Co. In this case, the court was asked whether the instruction given by the bank’s customer to purchasers of rubber to make payment to its bank directly, amounted to an equitable assignment. It was held that an equitable assignment does not need any particular form. The debtor shall clearly understand that the debt has been made over by the creditor to some third person (assignee). The debtor is not able to dismiss or ignore the assignment and if he does so, it is done in his own wishes. Additionally, the language is immaterial, so to say it can be conveyed orally as long as it is addressed to the debtor. In conclusion, an equitable assignment requires no more than an expression of intention to sign coupled with notice to the debtor, which then imposes obligation to the debtor to pay the assignee. The requirements of equitable assignment are illustrated in the case of Malayawata Steel Bhd v Government of Malaysia. In this case, a construction company (NKHC) undertook to construct for the government, a broadcasting company. NKHC entered into agreement with Malayawata Steel Bhd (MSB) for the supply of steel bars. Later it was agreed between NKHC and MSB that the payment for the steel bars by way of NKHC authorizing the PWD (the fund holder for government) to deduct the amount of progress payment due to NKHC and make direct payments to MSB. It means the government instead of paying to NKHC, NKHC directed the government to pay directly to MSB. The issue in this case was whether this was a valid equitable assignment. Privy Council held that there was a valid equitable assignment of the progress payment for the payment for the steel supplied. The intention to assign, according to Judge Mohd Azmi stated that “the words must clearly show an intention that the assignee is to have the benefit of the chose in action”. The judge also stated that “as regards to mode and form of assignment, no form of words is required for an equitable assignment”. For the third requirement, the property assigned must be identifiable. As in Malayawata’s case, the progress payments from the government that was due to NKHC. Other than that, it is important to note that legal and equitable assignment may operate almost similarly but there stands a clear disparity between the two. Peh Swee Chin FCJ in his judgment held that even without complying with section 4(3) of Civil Law Act 1956, for instance no notice of the assignment was given to such debtors, the assignment would have been valid in equity as satisfying section 4(3) is not a prerequisite to a valid and enforceable assignment. Thus, it is fair to say that notice to the person owing the debt or assignor is not necessary to complete the title of the assignee. By virtue of the case Southern Pipe Industry (M) Sdn Bhd & Anor v Telekom Malaysia Bhd, the assignment in question is not absolute and it will not constitute a legal assignment. Nevertheless, an assignment that is not absolute may be an effective assignment

in equity. Azizul Azmi Adnan J laid down three reasons in his judgment as to why notice would be desirable despite it not being a prerequisite. One of them is notice would convert an absolute equitable assignment into a legal assignment, in which the assignee may sue in his own name. Without a notice, the assignee must sue in the name of the assignor, or join the assignor as a co-plaintiff. Secondly, if no notice is given to an obligor of the assignment, an assignee is bound by any payments which the obligor may make to the assignor. Thirdly, a notice by an assignee to the obligor will afford it priority over an earlier assignee who has failed to give notice provided that the subsequent assignee did not have prior notice of the earlier assignment. With notice, the assignee has a right in rem but without notice, the assignee only gets a right in personam. From the discussion above we can conclude: Requirement

Effect

Legal Assignment  Subject matter assigned must be a debt or legal chose.  In writing under the hand of the assignor  Notice to person liable to the assignor.  Assignment must be absolute and not by way of charge only. The assignee has a legal interest in the property assigned and can sue in his own name to enforce the interest

Equitable Assignment  Intention to assign  Some form of assignment  Property assigned must be identifiable

The assignee has an equitable interest and may only claim in personam remedies...