LAWS2205 - Topic 3 Summary Notes PDF

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LAWS2205 Equity and Trusts - Topic 3 Summary Notes (Summary of Readings and Lecture Notes)...

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LAWS2205 Week 3-4 Readings Notes Assignments in Equity

TOPIC 3 – ASSIGNMENTS IN EQUITY OUTLINE 1. Can the relevant property be assigned? If it is inherently unassignable, no valid dealing at law or in equity is possible. 2. Assuming the property is assignable, is it “presently existing” OR “future” property? At law, future property is not assignable. 3. Future property is assignable in equity if valuable consideration has been paid (Holroyd v Marshall (1862)) 4. Only the whole of a chose is assignable at law, not part of a chose. Statutory assignment only applies to absolute assignment of legal choses in action. The law does not allow partial assignments of a legal chose in action. Equity may be able to recognise a partial assignment and it will be sufficient if there is a clear expression of an intention to make an immediate disposition on the part of the chose. 5. The method for transferring legal choses in action at law (in particular debts) - prescribed by s 12 Conveyancing Act 1919 (NSW): It must be: (1) absolute, (2) in writing, (3) not by way of charge. Express notice must be given to the debtor/ trustee No time limit is prescribed, and no special form of notice is necessary (Showa Shoji)

[1] Nature of an Assignment  

There are a variety of ways in which equitable interest can be transferred Assignment is one of them, inter alia, covered by Dixon J in Comptroller of Stamps (Vic) v Howard Smith

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An assignment is ‘the immediate transfer of an existing proprietary right , vested or contingent, from the assignor to the assignee’ (per Windeyer J, Norman v Federal Commissioner of Taxation (1963)) Broadly, it can regard change in legal/equitable ownership of land/chattels although ‘transfer’ is normally used for land/chattels More specifically, assignment used for disposition (legal term, distribution/transfer of property to someone, especially by bequest) of chose in action from holder (‘assignor’) to another person (‘assignee’)

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Note, distinction between an assignment and a revocable mandate, as per Noonan v Martin (1987) o The provision to a donee of a signed blank withdrawal form, together w/ permission to access money in account whenever he needed it, was only an authorisation o It was not an assignment and was capable of revocation by donor’s death before it was acted on

LAWS2205 Week 3-4 Readings Notes Assignments in Equity

[1.1] Chose in action 

Chose in action describes ‘ all personal rights of property which can only be claimed/enforced by action, and not by taking physical possession’ (Torkington v Magee [1920]) o ‘In action’ conveys main feature of most choses in action, as they are intangible rights enforceable through action o That is, personal rights of property which can only be enforced through action in court, ie. intangible thing

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Cf chose in possession, personal rights of property which can be enforced by taking physical possession, ie. tangible thing

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Legal chose in action are rights which CL courts would recognise o Examples  Debts  Bank accounts  Overdrafts  Contractual rights  Copyright  Patents  Company shares  Trademarks  Designs  Legal Charges and Security Interests  Business Names  Reputation  Goodwill

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Equitable choses in action are rights which CL refuses to recognise, but are recognised in courts of equity o Examples  Beneficiary’s interest under trust  Partner’s interest in partnership

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CL did not initially recognise assignments of choses in action  equity formulated its own rules re – validity of assignments Equity’s rules aimed at validating both choses in action recoverable in court of equity (equitable choses in action) and court of law (legal choses in action) o Assignee of equitable chose in action can sue in his/her own name o Assignment of legal choses were also effective via injunction (equitable method) to compel assignor to give use of his/her name to assignee, forbidding assignor to sue in his/her own name CL deficiency now addressed by statute, so there is now both statutory and equitable assignments of choses in action

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[1.4] Assignment of legal chose in action  

Legal choses in action can be assigned at law (ie. s 12, Conveyancing Act 1919 (NSW)) or in equity If legal interest fails at law, may be able to assign in equity

[1.5] Assignment of equitable chose in action 

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Equitable chose in action can only be assigned if: o There is a manifest intention to assign the property (William Brandt Dunlop)

o o o

LAWS2205 Week 3-4 Readings Notes Assignments in Equity  Intention is not manifest where it is intended that something else is needed before assignment is complete (NT Power Generation v Trevor) The assignment must not be by way of security The assignment must be in writing, complying w/ requirements of s 23C(1)(c), Conveyancing Act (NSW) Notice does not need to be given between assignee and assignor, that is, transfer of property is effective before notice is given

[1.6] Choses in action assignable subject to equities    

The rule is that where there is competition in priority between equitable interests and merits are equal, first in time prevails One aspect of this rule is that the assignee of an equitable interest, even for value, takes subject to all the equities affecting, and infirmities of, his/her assignor’s title Therefore, whereby an assignee takes subject to equities means that any defence, set-off, or counterclaim available to debtor as against the creditor is also available as against the assignee (Cummins v Austin (1903)) This applies to defences that either arise before debtor is given notice of assignment or flow out of and are inseparably connected w/ obligation  the benefit of which is assigned (Tooth v Brisbane City Council (1928))

[2] Rights Which Cannot Be Assigned There are some choses in actions which cannot be assigned:  Public salaries  Contracts involving personal skill  Bare right to litigate Equuscorp Pty Ltd v Haxton [2012] Facts  A number of investors invested in a blueberry farm project in NSW  An entity related to promoters managed farming activities in consideration of fees paid in advance from moneys lent to investors by another related entity  Investment schemes were subsequently held to be unenforceable for illegality due to promoters’ failure register prospectuses or adequate prospectuses required by statute  Scheme failed, and proceedings for recovery of amount advanced were brought by an assignee from original lender of rights under loan agreements  Equuscorp Pty Ltd commenced proceedings in Supreme Court of Victoria claiming ‘loss and damage’ stemming from breach of certain loan agreements that had been assigned to it by Rural Finance Pty Ltd Held 

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French CJ, Crennan and Kiefel JJ, Gummow said that ‘legal and other remedies’ only referred to legal enforcement of debts o Illegally rendered loan agreements unenforceable; and o Also deprived lender of a right to claim amounts advanced under those agreements as money had and received Heydon and Bell JJ said, ‘any action for money had and received was remedy “for these matters” in sense that it arose out of or by reason of failure of loan agreements. There would have been little sense for the [vendor] to retain these restitutionary actions and for Equuscorp to pay for some but not all of the rights … against the borrowers.’ Purchasers of debt must ensure that documentation effecting debt trades properly assign all rights (including restitutionary rights) attached to debt as well as debt itself Highlights importance of drafting comprehensive assignment provision in any transfer documentation as failure to do so may limit right of any purchaser of debt

LAWS2205 Week 3-4 Readings Notes Assignments in Equity

[3] Presently Existing Rights and Expectancies 

The distinction between vested (present) and contingent (future) equitable choses is highlighted by comparing Norman v FCT and Shepherd v Commissioner of Taxation (1965)

Norman v FCT (1963) Facts  Taxpayer, Norman (appellant) purported to assign to his wife: o Interest on loan N had made to partnership, which loan was repayable at will; and o Dividends from shares N was to receive from distribution of 2 estates, shares having been transferred to N.  FCT argued that assignment was not effective  interests and dividends derived by N were thus taxable in his hands rather than his wife’s Held  

Majority held that interest was future chose, a mere expectancy, which had been assigned ineffectively for lack of consideration from wife Menzies J held that ‘interest which may accrue in future upon existing loan repayable w/o notice as having character of a right to come into existence’

Windeyer J (partly in dissent, but held as statement of correct law by Dixon CJ)

(i)   

(ii)   

Attempted assignments of things not yet in existence A promise of a gift which does not yet exist is not enforceable in either CL or equitable courts Re – promises/agreements, equity’s maxim is that it does not come to aid of volunteers o ‘For equity a deed does not make good a want of consideration’ However, attempted gifts of future property =/= purported dispositions of future property for value o CL objection still remains o In equity, it is construed as agreement to assign the thing when it is acquired  Equity will ensure purported assignor performs agreement, his conscience being bound by consideration  Purported assignee thus gets equitable interest in property immediately as legal ownership is acquired by assignor  Prospective interest of assignee is in meantime protected by equity

Assignments of choses in action ‘Anything that in the eye of the law can be regarded as an existing subject of ownership, whether it be a chose in possession/chose in action, can to-day be assigned’ unless subject to public policy or statutory rule Existing chose in action =/= mere expectancy/possibility of future right (still can be assigned in equity) Early in CL, there was no assignment of debts and other choses in action o Judicature Acts 1873 changed this, and debts and other legal choses in action were made directly assignable through statute  Corresponding statute then came to Australia  While these changes ‘simplified assignments, has not simplified the law surrounding them’

a) Statutory assignment o

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If it satisfies statutory requirements, assignment is valid and fully effectual, although voluntary

o o

LAWS2205 Week 3-4 Readings Notes Assignments in Equity That is, legal owner of chose in action may make a complete and perfect gift of it Note, equity will not perfect an imperfect gift

b) Equitable assignment o o o

o

o o

(iii) 

Intervention to assist assignments of choses in action because they were not assignable in law Equity does not mean to perfect imperfect voluntary assignments ‘There is a valid gift of property transferrable at law if donor intending to make, then and there, a complete disposition and transfer to done, does all that on his part is necessary to give effect to his intention and arms donee w/ means of completing the gift according to requirements of the law’ (Brunker v Perpetual Trustee Co (Ltd) (1937)) Therefore, if X wants to make immediate gift of chose in action that is X’s, executes instrument which meets statutory requirements and delivers to Y, actually or constructively, X has put it out of power to recall X’s gift Furthermore, until notice is given to debtor, all requirements of statute not complied w/ Notice can be given by donee, and if donee has express/implied authority to give it, equity would not allow donor to deny right of donee to do so and intercept gift

Assignments of part of a debt Difficulty of present case is that what was sought to be assigned was part of larger debt

a) Statutory assignment o

Does not allow for assignment of parts of debts or choses in action (William v Atlantic Assurance Co [1933])

b) Equitable assignment o

Does allow for part of debts to be assigned, but assignee would be plaintiff in suit (Performing Right Society Ltd v London Theatre of Varieties Ltd [1924])

(iv)

Whether consideration is required for equitable assignment of equitable chose in action a) Assignment of equitable chose in action  Equitable assignment

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Any present assignment of an equitable interest is an equitable assignment o Can be by way of gift, and except that writing is required by [statute], ‘no formality is necessary beyond a clear expression of an intention to make an immediate disposition’  However, important that this transaction is in form of and intended to be immediate transfer of beneficial interest of assignor, distinct from agreement to assign it  This distinction is critical, as consideration is always necessary to attract equity

b) Assignment of legal chose in action not assignable except by equity  Equitable assignment  

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Historically, only equitable assignment of legal chose unassignable at law can only be for value of debt Cases which attract equity are those where ‘value is not so required by a clear expression of intention is’, where delivery is couched in terms of present gift manifests, w/ intention of assignor to make immediate and irrevocable transfer

LAWS2205 Week 3-4 Readings Notes Assignments in Equity 

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Intervention of equity to support assignments of choses in action to 1 of 2 grounds: o To hold men to agreements and promises which they have made for value; o The analogy of trust  ‘An assignment differs from a declaration of trust’  Agreement to assign will be effective as an equitable assignment if it is for value, as then equity will look on that as done which ought to be done  Can be done so by way of gift, ‘as equity will enforce assignment, not by compelling assignor to do something, but by refusing to allow him to act in a way inconsistent w/ what he has done’ His conscience becomes bound, not by value received but because as between him and assignee, gift was complete

Shepherd v FCT (1965) Facts 1. Shepherd was grantee of certain letters patent relating to castors 2. He granted third party (Cowen) license to manufacture castors in accordance w/ specifications in these letters patent 3. In return, C agreed to make payment each month to S, or to his personal representatives/assigns, that were directly proportional to gross sale price of castors in question 4. S, by deed, purported to assign to 5 persons by way of gift ‘all my right title and interest in and to an amount equal to 90% of income [from royalties of castors sales] which may arise during a period of 3 years from date of this assignment’ Issue  Held 

Whether assignment was effective to shift burden of taxation on royalties from S to assignees

Majority held that deed was not an attempt to assign future property (mere expectancies) but was present assignment of existing chose in action

Kitto J  Distinguished between this case and Norman  In Norman, money could be repaid at any time w/o notice, there was also no valuable consideration when attempting to assign right, and the property was not presently in existence  In this case, ‘situation at date of assignment was exactly the opposite’ o There was a contractual relationship between S and C, of which its terms would continue for those 3 years  S therefore had a vested right in respect of those 3 years  However, it may become divested, if licence agreement provided for cesser of C’s liability to pay royalties if letter patents are not maintained/declared void o Furthermore, S’ right under licence agreement would yield in royalties in those years was dependent upon contingencies partly within control of C  As it was up to C to decide how many castors to manufacture then sell, and market conditions would also determine how successful his efforts would be o ‘The tree, though, not the fruit, existed at the date of assignment as a proprietary right of appellant of which he was competent to dispose; and he assigned 90% of tree.’

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LAWS2205 Week 3-4 Readings Notes Assignments in Equity

[3.1] Agreements to assign expectancies Norman v FCT (1963) Windeyer J  Refer to above, (i) Attempted assignments of things not yet in existence o Not possible at law to assign a future/merely expectant right to the receipt of money, or in equity to make such an assignment to a volunteer Dixon CJ  Found that the future interest was ‘the merest expectancy/possibility, having no existence in contemplation of law’ (ie. not a future/merely expectant right)  therefore, no voluntary assignment of equitable interest  There was no more than an expected right w/ respect to sums, and furthermore necessary divestment of future accrual could not be made as a gift 

Note, while it is not possible to assign a promise of a gift of a thing which is not yet in existence, ‘[i]t is possible in equity to assign a future/merely expectant right for value. It is necessary, too, to distinguish between a future/expectant right, and a present right which will/may yield receipts in the future (Shepherd v FCT)

Palette Shoes Pty Ltd v Krohn (1937) Dixon J  If subject does not exist, matter primarily rests in contract  ‘Because value has been given on one side, the conscience of the other party is bound when the subject comes into existence … the legal property vests in him.’  Conscience is bound  Equity fastens upon property itself  Makes assignor trustee of legal rights/ownership for assignee  Furthermore, prospective right in property which assignee obtains ‘is higher right than right to have specific performance of contract’, and even may survive assignor’s bankruptcy  Therefore, assignment of future property requires consideration, and moment assignor receives consideration, automatically at moment of event, assignor becomes trustee for assignee

[4] Statutory Assignments (Legal Assignments) 

All jurisdictions have procedural requirements for valid assignments of choses in action o When requirements fulfilled, statutory assignment effects ‘a divesting of legal title correlative to transfer of the right, so that if notice has been duly given the debt or chose in action no longer belongs to the assignor and he cannot take proceedings to recover it’ (Carob Industries Pty Ltd (in liq) v Simto Pty Ltd (2000))  There are several aspects/requirements to this statement:  Transfer of right (divesting of legal title); and  Notice must be duly given; therefore  Debt no longer belongs to assignor and he cannot take proceedings to recover it

s 12, Assignment of debts and choses in action, Conveyancing Act 1919 (NSW) Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal chose in action , of which express notice in writing has been given to the debtor, trustee, or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, shall be, and be deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee if this Act had not passed) to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other

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LAWS2205 Week 3-4 Readings Notes Assignments in Equity remedies for the same, and the power to give a good discharge for the same without the concurrence of the assignor: Provided always ...