Equity Notes-Exam PDF

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Equity notes for exams...

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The Assignment of Interests in Property in Equity An assignment is the ‘immediate transfer of an existing proprietary right, vested or contingent, from the assignor to the assignee’: Norman v Federal Commissioner of Taxation (1963) 109 CLR. An ‘equitable assignment’ is simply the recognition in equity of the transfer of property – a recognition that may be granted even though some prescribed method of assignment at law, such as registration, has not been completed. Future property – property not yet in existence, at least not in the hands of the assignor – can only be assigned in equity, and then only for valuable consideration. The form of the assignment will be determined by the intention of the parties or, in the case of a gift, by the intention of the donor only. The voluntary assignment of equitable property by way of direction to a trustee will require the communication of a binding direction to the trustee. An assignment of the same interest by way of declaration of trust (that is, by the creation of a sub-trust) can be effected without any communication to the trustee.

The Rule in Strong v Bird (1874) LR 18 Eq315  There are three major exceptions to the maxim that equity will not perfect an imperfect: the doctrine of equitable estoppel; donationes mortis causa; and the rule in Strong v Brid.  Under that rule, where a donor attempts to make a present gift of legal property which is imperfect as a gift, and the donee is later named as executor, or as one of the executors, in the will of the donor, and the donor has maintained the intention to make the gift until death, the equity will regard the gift as having been completed on the death of the donor. Donationes Mortis Causa  Where a person, in contemplation of death, makes a gift of property conditional on his or her death – in the sense that it can be retrieved if the donor recovers from the illness or other peril – and delivers the property which is the subject of the gift or its indicia of title to the donee prior to death, then the gift will be completed by the death of the donor, subject to the odd rule that the property will be available to satisfy the deceased’s creditors if there is a shortfall in the rest of the estate: Smith v Casen (1718) 24 ER 447.  Three elements that need to be satisfied to establish a valid donatio, set out in Sen v Headley [1991] 2 All ER 636: 1. The gift must be made in contemplation, although not necessarily in expectation, of impleading death; 2. The gift must be made on condition that it is to be absolute and perfected only on the donor’s death, being revocable until the end; and 3. There must be a delivery of the subject matter of the gift, or the essential indicia of title to that subject matter, amounting to a parting with dominion over, and not mere physical possession of the subject matter of, the gift. Assignments of Choses in Action  ‘Chose in action’, roughly translated, means a thing provable in an action.  The statutory method of choses in action is set out in provisions such as ss 199 and 200 of the Property Law Act 1974 (Qld). Property That Cannot Be Assigned Personal contracts  The right to receive payment of salary or emoluments by a holder of public office, and other contracts where the benefits provided are peculiar to the party entitles to or providing them, such as contract for personal services: Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014.  A contract for insurance of a motor vehicle cannot be assigned, as it is dependent on the insurance record of the insured: Peters v General Accident and Life Assurance Co [1938] 2 All ER 267. Bare rights to sue  To supply a plaintiff or defendant with financial assistance for proceedings in court constitutes the common law wrong of maintaining, while a further agreement to divide the proceedings compounds the offence into champerty.  A person cannot agree to sell a bare right to sue, although an assignment of the proceedings of litigation does not offend the rule: Glegg v Bromley [1912] 3 KB 474.

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Voluntary Assignments of Equitable Interests ‘Equitable property’ means property recognised only in equity, or rights only enforceable in equity; for example, the interest of a beneficiary under a trust, the rights of a partner in the assets of a partnership, or any other equitable chose in action (that is, a thing provable in an action in equity). The effectiveness of any purported assignment of such equitable property requires consideration of two different questions: 1. Does the assignment satisfy the general law test for the validity of assignments in that particular form, whether the assignment is in the form of a direct assignment, a declaration of trust, a direction to the trustee, or whatever? 2. Even if the assignment satisfies the general law test, does it have to be in writing as required by s 11(1) of the PLA? And, if it does, is it in writing sufficient to satisfy the section? Corin v Patton (1990) 169 CLR 540, Mason CJ and McHugh J, if an intending donor of equitable property has done everything which it is necessary for him or her to do to effect a transfer of the equitable title, equity will recognise the gift. Comptroller of Stamps(Vic) v Howard-Smith (1936) 54 CLR 614, Dixon J (621-3): o A voluntary disposition of an equitable interest may take one of at least three forms. 1. It may consist of an expression or indication of intention on the part of the donor that he shall hold the equitable interest vested in him upon trust for the persons intended to benefit.  In that case he retains the title to the equitable interest, but constitute himself as trustee and, by his declaration imposes upon himself an obligation to hold it for the benefit of others, namely, the donees. 2. The disposition may consist of sufficient expression of an immediate intention to make over to the persons intended to benefit the equitable interest vested in the donor, or some lesser interest carved out of it.  In that case, communication to the trustee or person in whom the legal title to the property is vested is not required in order effectually to assign the equitable property.  Notice to the trustee may be important to bind him to respect the assignment and in order to preserve priorities. But it is not a condition precedent to the operation of the expression of intention as an assignment.  Nor does it appear necessary that the intention to pass the equitable property shall be communicated to the assignee.  What is necessary is that there shall be an expression of intention then there to set over the equitable interest, and, perhaps, it should be communicated to someone who does not receive communication under confidence or in the capacity only of an anger for the donor. 3. The intending donor for whom property is held upon trust may give to his trustee a direction requiring him thenceforth to hold the property upon trust for the intended donee. The above echoed in the judgement of Romer LJ in Timpson’s Executors v Yerbury [1936] 1 KB 654 at 664: o Now the equitable interest in property in the hands of a trustee can be disposed of by the person entitled to it in favour of a third party in any one of four different ways. The person entitled to it can 1. Assign it to the third party directly; 2. Direct the trustees to hold the property in trust for the third party; 3. Contract for valuable consideration to assign the equitable interest to him; or 4. Declare himself to be a trustee for him of such interest. o In addition to the above four methods, equitable property can be assigned by way of release, in the sense that a beneficiary of a trust can release the trustee from his or her obligations as trustee, thereby enabling the trustee to enjoy complete beneficial ownership of the trust property.

The Requirement of Writing  The necessity for writing to effect an assignment of equitable property arises from ss 199 and 200 of the PLA.  Any writing or other disposition of an equitable interest in land must be in writing. 1

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If the interest being assigned is an equitable chose in action it would, prima facie, also have to comply with legislative provisions dealing with the assignment of choses in action, such as ss 199 and 200 of the PLA. Sections 199 and 200 of the PLA – notice to the trustee or fund-holder is not necessary to effect the assignment: Comptroller of Stamps(Vic) v Howard-Smith (1936) 54 CLR 614. Notwithstanding (in spite of) the fact that notice is not necessary to effect the assignment, failure to give notice may affect the priority of the assignee: Ward & Pemberton v Duncombe [1893] AC 369. Similarly, notice to the assignee does not appear to be essential (Comptroller of Stamps(Vic) v Howard-Smith (1936) 54 CLR 614). In Australia, failure to communicate to the assignee would go to the question of the intention of the assignor, rather than to validity alone. o If the assignee takes action to enforce the equitable right or interest that has been assigned, it will not be necessary to join the assignor to the proceedings, at least not where the assignment is effected by way of an absolute assignment of the equitable interest: Redman v Permanent Trustee Co of New South Wales Ltd (1916) 22 CLR 84 at 95.

Dealings in the Form of Declarations of Trust  Involves the creation of a sub-trust, as the interest held in the first place is equitable.  If the assignor imposes active duties on himself or herself, then he or she will ‘remain in the picture’: Re Lashmar; Moody v Penfold [1891] 1 Ch 258.  If the declaration of trust is expressed as an absolute declaration, the position of the assignor is less certain. o In Australia the assignor remains beneficiary under the first trust and is under an obligation to hold those rights for the benefit of the assignee: Comptroller of Stamps(Vic) v Howard-Smith (1936) 54 CLR 614.  The general law test for the validity of assignments in this form is similar to that which applies to declarations of trust of legal property: the assignor must indication an intention immediately and from then on to hold the property on trust for the intended beneficiary. o Specific words need not be used, provided the intention is clear: Richards v Delbridge (1874) LR18Eq 11. o Nor is it essential for the declaration to be communicated to the assignee: Standing v Bowring (1885) 31 Ch D 282. Dealings in the Form of Directions to the Trustee Directions dealing with the equitable estate  The general law test for assignments in this form was set by Dixion J in Comptroller of Stamps(Vic) v Howard-Smith (1936) 54 CLR 614: o Provided the beneficiary is sui juris and entitled to a beneficial interest corresponding to the full legal interest, he or she may impose a new object on the trustee by a voluntary disposition, which may be effected by the communication to the trustee of a direction, intended to be binding on the trustee, from then on to hold the trust property on trust for the donee.  It must be a direction, and not a mere authority revocable until acted on.  Such an authority is not in itself an assignment, although it may result in the transfer of an equitable interest.  If the direction does not amount to an immediate and irrevocable assignment, and it is not acted on prior to the death of the assignor, the authority will be revoked by death: Parker & Parker v Ledsham [1988] WAR 32.  Assignments in the form of directions to the trustee to deal with the equitable estate, if intended to take effect immediately, must be in writing. Dealings in the form of a release  In the context of assignments of equitable interest, this means the release of a trustee from his or her obligations to deal with the trust property for the benefit of the cestui que trust, leaving the trustee free to treat the property as his or her own. Dealings in the form of a disclaimer  A disclaimer takes place when an intended donee repudiates a gift.  There is authority that writing is not necessary for such an assignment because a disclaimer operate by way of avoidance, not dispositions: Re Paradise Motor Co [1968] 2 All ER 625.  The word ‘disclaimer’ appears in the definition of ‘disposition’ in Sch 6 of the PLA. Dealings in the form of nomination  Where the act of ‘nomination’ constitutes an exercise of a general power of appointment, writing may be required.

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Assignments of Interests in Property for Value in Equity An assignment for valuable consideration of property capable of being assigned, whether legal or equitable, will effect a transfer of that property in equity when the consideration is paid or executed, notwithstanding any failure to comply with statutory or other formal requirements for such an assignments: Holroyd v Marshall (1862) 11 ER 999. While it may be appropriate to say that the purchaser has some ‘interest’ or even an ‘equity’ in the subject property upon contract, his or her rights remain conditional unless and until the consideration is provided. o In the meantime, the vendor cannot be said to hold the property under any fiduciary obligation. Once the consideration has been paid or provided, equity will regard the assignment as complete by virtue of the maxim that equity regards as done that which ought to be done. While equity will not uphold an assignment of a bare right of action, it will recognise an assignment of a present chose in action or of future property, such as the proceeds anticipated from the prosecution of some chose in action – for example, the money to which a party was or might become entitled from certain proceedings for slander: Glegg v Bromley [1912] 3 KB 474.

Assignments of Legal Property for Valuable Consideration  Where one person agrees to assign legal property to another in return for valuable consideration, the vendor will be a constructive trustee of the property in the eyes of equity at least as early as the moment at which the consideration is paid or executed, and perhaps earlier.  This rule applies notwithstanding a failure to comply with any statutory requirement that the assignment concerned be in writing or some other particular form where strict observance of the statute would allow it to be used as an instrument of fraud. Assignments of Equitable Property for Valuable Consideration  A contract for valuable consideration to assign an equitable interest will give rise to a constructive trust of the interest being assigned, provided the contract is specifically enforceable.  It is possible to have a trust of an equitable interest, in which case the ‘trustee’ retains title to the equitable interest but is under an obligation to hold it for the benefit of others: Comptroller of Stamps(Vic) v Howard-Smith (1936) 54 CLR 614.  Prior to the payment of the purchase price, the trust, if it has arisen before then, must be defeasible, as the vendor cannot necessarily be compelled to complete the assignment.  This is complicated by the requirements of ss 199 and 200 of the PLA – does not apply to an assignment to assure property at some time in the future.  Sections 199 and 200 is directed at the creation or disposition of interest in land, or the disposition of subsisting equitable interest; it is not directed to or in concerned with the validity or enforceability of agreements.  An agreement to assign an equitable interest constitutes, prima facie, a disposition of a subsisting equitable interest and must, therefore, be in writing. Statute of Frauds cannot be used as an Instrument of Fraud  The creation or disposition of an interest in land and the disposition of a subsisting equitable interest be in writing signed by the assignor or an authorised agent.  Section 59 of the PLA provides that no action or proceedings can be brought on any contract for the sale or disposition of land unless the contract, or some note or memorandum of it, is in writing signed by the party charged by the contract or some authorised agent.  Unless equitable fraud can be established s 59 of the PLA will render any such agreement unenforceable. 2

However, it a party to such a parole agreement can be shown to have received the benefit available under the contract, then it will be equitable fraud for that party to deny the corresponding burden attached to that benefit, and the would-be purchaser may be saved by the operation of s 59. These all provide that the statutory requirement that agreements for the sale of land or an interest in land be in writing is subject to the law of part performance while ss 199 and 200 of the PLA preserve the doctrine of resulting and constructive trusts. An agreement to create a trust of land, or an interest in land, will be a ‘contract for the sale of land or other disposition of land or any interest in land’ and will thus be unenforceable, unless in writing, by virtue of s 59 of the PLA. Absent writing, such an agreement will be unenforceable unless the party seeking to enforce the agreement can prove sufficient acts of part performance to invoke the doctrine of part performance, or otherwise can make out a case for a resulting or constructive trust, or, applying the more general principle, demonstrate that the other party to the agreement is attempting to use the statute as an instrument of fraud: Khoury v Khouri [2006] NSWCA 184. A person who wishes to claim the benefit of a contract for the sale or other disposition of land that is not in writing, or some disposition of land or of some equitable interest which is not in writing sufficient to satisfy ss 199 and 200 of the PLA may be able to rely on the principles of equitable estoppel. o

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Assignments of Future Property Neither the common law nor equity will recognise any purported voluntary disposition of property that is not presently held by the assignor, but which will or may be acquired by the assignor in the future. However, equity will recognise an assignment of such ‘future property; if it is made for value. Any such bargain will be constructed as an agreement to assign the thin whin it is acquitted: Normal v Federal Commissioner of Taxation (FCT) (1963) 109 CLR 9.

The Distinction Between Present and Future Property  Some things are clearly future property: an interest under the will of a person still living ( Re Lind [1915] 2 Ch 345); damages that might be recovered in pending litigation (Glegg v Bromley [1912] 3 KB 474); future book debts ( Tailby v Official Receiver (1888) 13 App Cas 523); royalties yet to be earned on some literary or artistic work(Re Trytel [1952] 2 TLR 32); and such things as copyright in songs not yet written, freight not yet earned, rent to be paid under a lease, and interest to be under a mortgage. The Basis for the Enforcement of Assignments of Future Property  Holroyd v Marshall (1862) 11 ER 999, Lord Westbury LC stated at 1007, the rule that: … of the vendor or mortgagor agrees to sell or mortgage property, real or personal, of which he is not possessed at the time, and he recovers consideration for the contract, and afterwards becomes possessed of property answering the description in the contract, there is no doubt that a Court of Equity would compel him to perform the contract, and that the contract would, in equity, transfer the beneficial interest to the mortgagee or purchaser immediately on the property being acquired. This, of course, assumes that the supposed contract is one of that class of which a Court of Equity would decree specific performance.  The above rule lies in the exclusive jurisdiction of equity. There is no equivalent doctrine at common law; you cannot assign what you do not have.  Specific performance lies in the auxiliary jurisdiction of equity and is invoked where the common law remedy for breach of contract is inadequate.  The promise binds the property itself from the moment the contract becomes capable of being performed, in accordance with the maxim that equity regards as done that which ought to be done. So once the property is acquired by the assignor, he or she then immediately holds it on trust for the assignee: Boot v FCT (1987) 164 CLR 159. The Nature of the Assignee’s Right  Section 153(1) of the Bankruptcy Act 1966 (Cth) provides that a discharge...