equitable assignment and legal assignment

Equitable Assignment: Everything You Need to Know

An equitable assignment is one that does not fulfill the statutory criteria for a legal assignment, but is binding and upheld by the courts in the interest of equability, justice, and fairness. 3 min read

An equitable assignment is one that does not fulfill the statutory criteria for a legal assignment, but is binding and upheld by the courts in the interest of equability, justice, and fairness.

Equitable Assignment

An equitable assignment may not appear to be self-evident by the law's standard, but it presents the assignee with a title that is protected and recognized in equity. It's based on the essence of a declaration of trust; specifically, essential fairness and natural justice. As long as there is valuable consideration involved, it does not matter if a formal agreement is signed. There needs to be some sort of intent displayed from one party to assign and the other party to receive.

The evaluation of a righteous equitable assignment is completed by determining if a debtor would rationally pay the debt to another party alleging to be the assignee. Equitable assignments can be created by:

The only part of an agreement that can be assigned is the benefit. Generally speaking, there is no prerequisite for the written notice to be received or given. 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.

The Doctrine of Equitable Assignment in Wisconsin

In Dow Family LLC v. PHH Mortgage Corp ., the Wisconsin Supreme Court issued in favor of the doctrine of equitable assignment. The case was similar to many other foreclosure cases, except this one came with a twist. Essentially, Dow Family LLC purchased a property and the property owner insisted the mortgage on the property had been paid off. However, in actuality, it wasn't.

Prior to the sale, the mortgage on the property was with PHH Mortgage Corp. When PHH went to foreclose on the mortgage, Dow Family LLC contested it. There was one specific rebuttal that caught the attention of the Wisconsin Supreme Court. The official mortgage on record was with MERS, an appointee for the original lender, U.S. Bank.

Dow argued that PHH couldn't foreclose on the property because the true owner was MERS. Essentially, Dow was stating that the mortgage was never assigned to PHH. Based on this argument, PHH utilized the doctrine of equitable assignment.

Based on a case from 1859, Croft v. Bunster, the court determined that the security for a note is equitably assigned when the note is assigned without a need for an independent, written assignment. Additionally, Dow contended that the statute of frauds prohibits the utilization of the doctrine, mainly because it claimed every assignment on a property must be formally recorded.

During the case, Dow argued that the MERS system, which stored the data regarding the mortgage, was fundamentally flawed. According to the court, the statute of frauds was satisfied because the equitable assignment was in accordance with the operation of law. Most importantly, the court avoided all consideration regarding the MERS system, concluding it was not significant in their decision.

The outcome was a major win for lenders, as they were relying on the doctrine specifically for these types of circumstances.

Most experts agree that this outcome makes sense in the current mortgage-lending environment. This is due to the fact that it is still quite common for mortgages to be bundled up into mortgage-backed securities and sold on the secondary market.

Many economists claim that by not requiring mortgages to be recorded each time a transfer is completed, the loans are more easily marketed to investors. Additionally, debtors know who their current mortgage company is because the new lender must always notify the current borrower in order to receive payment. It was determined that recording and documenting the mortgage merely provides a signal to the rest of the world that the property owner secures a debt.

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Practical Law

Equitable assignment

Practical law uk glossary 2-107-6540 (approx. 3 pages).

Equitable assignment | Practical Law

Equitable assignment

Practical law uk glossary 2-107-6540 (approx. 3 pages), equitable assignment..

What Is the Difference between Legal and Equitable Assignment

Development documents often contain limits on how often the benefit can be attributed to them. According to the wording of the assignment provision, an assignment to the lender and subsequent reallocation to the borrower may « exhaust » the authorized assignments. This could ensure that the assigned development records are with the lender and not with the borrower, although the lender may no longer be interested in the property (after the loan is repaid). Equitable assignment — An assignment that, while invalid by law, is recognized and enforced in equity; (e.B. a sale of a selected company in shares or future acquisitions of the transferor. Stewart v. Kane, Mo.App., Ill S.W.2d 971, 974. . In General Nutrition Investment Company v Holland and Barrett International Ltd and another [2017] EWHC 746 Ch, the High Court held that the beneficiary of a fair assignment did not have the right to bring an action on its own behalf and had to do so with the assignor who assigned the rights to the underlying contract. The assessment of a fair and just assignment is complemented by the determination of whether a debtor would rationally pay the debt to another party claiming to be the assignee. Equitable assignments can be created by: An assignment as security is simply an assignment, whether legal or equitable, of a development document (or other debt or legal matter) to a lender as part of a set of security rights.

Although the High Court accepted that this decision could be appealed, this raised the issue of equitable assignments and the rights of the fair assignee in English law. In the meantime, in practice, the parties must consider the type of right they are seeking, whether as collateral or as a full legal assignment, and choose the method that provides the clearest possible result under the applicable law if they accept the assignment. Anyone who accepts an assignment of the benefit of a contract must clearly ensure that a notice is sent to the other party if he wants to be sure that he can act on his own behalf against the other party under that contract if necessary. If there is a full suite of collateral guarantees, consider whether the approach of belts and shoulder straps to take over the mission for security purposes is really necessary given the problems this can cause. Equitable assignment – An order, written letter or deed of the assignor that makes an absolute allocation of a selected measure or fund for the use of the assignee with the intention of transferring a current interest that does not constitute a legal assignment. An enforceable. . Ballentine`s Law Dictionary The legal status of the assignment may affect the credit rating that may be given to a particular class of assets. It can also affect a lender`s ability to implement part of its exit strategy if that strategy requires the lender to be able to deal directly with the counterparty. At a hearing on preliminary issues, the High Court ruled that the notices of termination served by GNIC as an assignee entitled to equity were invalid because the licensee had not been informed of the assignment. Although this is only a decision of the High Court, it follows a decision of the Court of Appeal in Warner Bros Records Inc v. Rollgreen Ltd, which was decided as part of the attempt to exercise an option.

An important difference between a lawful and equitable assignment is the ability of the assignee, whether a financier or a lessor, to sue the debtor in its own name for payment of the debt due or to enforce the rights arising from the contract. Assignment – A transfer or settlement of property, rights or interests in them from one person to another and, unless qualified in any way, the transfer of the entire share of an estate, movable property or other property. 6 a.m. J2d Assignment § 1. . Ballentine Law Dictionary Otherwise, there is a risk that an assignee will not be able to assert substantive contractual rights without having to join the assignor in the proceedings. However, it may still be economically preferable to have a fair assignment for certain financing and leasing structures where it is not considered difficult to reach the assignor at a later date if necessary. In this case, this was not possible because the assignor had been dissolved.

Advice should be sought on the nature of the assignment to be made in each transaction pending further clarification by the courts. In the event that it is not possible to reassign the corresponding development document to the borrower (for example. B due to the lack of remaining authorized assignments), lenders may be involuntarily drawn into costly and lengthy legal proceedings or the lender may not be willing to get involved in this way, borrowers may find themselves with no possibility to make a claim at all. Specific legal standards for fair allowances may depend on the nation. People with concerns can seek advice from a lawyer in these situations. Lawyers with expertise in this area are familiar with lawsuits in equity courts and can determine whether a settlement will hold up in court. It should also be noted that if authorization is required to assign the benefit of a document and such authorization is not obtained, it does not result in a fair assignment, but not in an assignment. This information is provided for informational purposes only and should not be considered as a substitute for the use of legal advice. Please refer to the full terms and conditions on our website.

Fair — Equivalent — Equivalent — Equivalence — Equivalence — Equivalence Means equitably United States Code 2: present or valid in terms of equity or as a matter of equity, as opposed to the law and. . The Technology and Construction Court (TCC) law dictionary earlier this year discussed the implications of attributing the utility of development documents to a lender. The key question was whether the borrower, Mailbox, had benefited from the construction contract when it issued a decision against Galliford Try, the contractor. Galliford Try attempted to oppose the enforcement of the arbitrator`s award on the ground that Mailbox had not benefited from the rights under the construction contract because it had assigned them to the lender […].

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equitable assignment and legal assignment

Designing Buildings - The Construction Wiki

Legal and equitable assignment

[ edit ] common law and equity.

There are four types of assignment:

A brief knowledge of English legal history is helpful in understanding the dichotomy between legal and equitable assignments . Legal rights derive from the common law of England which was conceived and developed during the period between the Norman Conquest and the fourteenth century. The common law was administered by the King's Justices on circuit through the three common law courts of King's Bench , Common Pleas and Exchequer. There were no courts of equity .

However, because of restrictions placed on the continued development of the common law , not least the baronial intimidation of the common law courts and their juries, plaintiffs in search of justice began to petition the King in Council for a resolution of their disputes pursuant to the King's inherent judicial powers . Eventually this practice led to the petitions being referred to the King's Chancellor who initially discharged this function in the name of the King but who subsequently established the Courts of Chancery as an independent tribunal from the King in Council .

The jurisdiction of the Courts of Chancery were based on the cannon law concept of ‘conscience’ and ultimately developed into the rules of equity . England therefore had two court systems , the Common Law Courts and the Courts of Chancery, each developing their own rules of law . This separation was abolished by statute in 1875, which replaced the old court structure with the present day structure of the Supreme Court of Judicature. Nevertheless the rules of equity remain distinct from the common law .

[ edit ] Legal assignments of choses in action

The right to make a legal assignment is now governed by statute – section 136 of the Law of Property Act 1925. Sub- section 1 of section 136 provides:

'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 thing 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 claim such debt or thing in action, is effectual in law (subject to equities having priority over the right of the assignee) to pass and transfer from the date of such notice:

It will be apparent from the wording of the sub- section that certain legal formalities must be complied with if an assignment is to be an effective legal assignment . These formalities are:

An absolute assignment does not include the assignment of part of a debt of thing in action whether or not the part assigned is ascertained or unascertained.

In Walter and Sullivan Ltd v J Murphy & Sons Ltd , WS were plastering sub-contractors who commenced legal proceedings against M for the sum of £1808 alleged to be due in respect of a sub-contract for plastering works . After the commencement of the proceedings, WS, who were indebted to a third party H & Co, notified M that M were 'to pay to H & Co the sum of £1558 17s 8d from monies owing by you to us.. the receipt of H & Co shall be good and sufficient discharge to you in respect of payment made hereunder'.

By a second document , H & Co agreed with WS that in consideration of the irrevocable authority given by them to M ‘we will pay over to you any monies which are paid to us by (the Defendants)... after your debt to us … has been fully repaid .’ The court held that the arrangement between WS and H & Co was an assignment of part of a debt and therefore did not satisfy the requirements of sub- section 1 of section 136 of the Act .

An assignment that purports to be by way of charge only is not an absolute assignment . This is a complex legal concept . Suffice it to say that the relevant test is to decide whether the assignment merely gives a right to the assignee to payment out of a particular fund by way of security rather than an unconditional transfer of the fund to the assignee. In the Walter and Sullivan case, as well as being an assignment of part of a debt the court also held that the assignment purported to be by way of charge.

By way of contrast, it was held in Tancred v Delagoa Bay Company that an assignment by way of mortgage was absolute because there was a condition for re- assignment on payment of the loan . It is the substance of the transaction and not the titles of documents that determines the nature of the assignment .

An assignment which is qualified by conditions cannot be a legal assignment . In Re Williams, Williams v Ball the assignor purported to transfer the benefit of a life insurance policy but made it conditional upon the assignee surviving the assignor. This was held to be a conditional assignment falling outside section 136 of the Act . The judicial reasoning behind the requirement for an absolute assignment is that the debtor should not be put in doubt or jeopardy by the arrangements between the assignor and the assignee as to whom he is to discharge his obligations . In the cases of Walter and Sullivan and Williams there were such doubts, but not in the case of Tancred where the re- assignment on repayment of the loan would have to be notified to the debtor .

To create a legal assignment there must be a written document signed by the assignor. Signature by an agent would not appear to be sufficient. Any form of wording may be used provided there is a clear intention to make an absolute assignment . The assignment may be a document passing between the assignor and the assignee, or a written demand from the assignor to the debtor that the debtor pays or discharges his obligations to the assignee.

In the latter case, in order to be an effective assignment rather than merely an authority to pay a third party , there must be evidence that the assignee consented to the arrangement between the assignor and the debtor (see Curran v Newpark Cinemas Ltd). Unlike an assignment , an authority to pay can be revoked prior to the actual payment .

A debt or other legal thing in action includes both legal choses and equitable choses. The purpose of section 136 of the Act , which replaced but substantially re-enacted section 25, sub- Section 6 of the Judicature Act 1873, was procedural and not intended to create new forms of choses or things in action.

To create a valid legal assignment , written notice of the assignment must be given to the debtor . No particular form of wording is required; indeed a document can constitute notice even though it was not intended to be a notice .

In Van Lynn Developments Ltd v Pelias Construction Co Ltd P's bank overdraft was paid off by Van Lynn in consideration of P assigning the debt to Van Lynn. The assignment was dated 26 June. By a letter dated 27 June, Van Lynn demanded payment from P. In their letter Van Lynn stated, incorrectly, that notice of the assignment had previously been given to P. The court held that a notice of assignment was still good notice to the debtor even though it did not refer to the date of the assignment .

Further, as regards Van Lynns letter dated 27 June, the incorrect statement as to a notice could be ignored as 'an inaccurate surplusage' and it was immaterial that the letter was not written with the intention that it should perform the function of giving notice under the Act . It is not necessary for the notice to the debtor to be given by the assignor or the assignee; it may be given by a third party .

In Bateman v Hunt, a valid notice was given by the executor of a deceased sub-assignee. In Herkules Piling Ltd and Another v Tilbury Construction Ltd, purported notice to the debtor by way of disclosure of documents in legal proceedings in which the debtor was a party, was considered to be insufficient notice of a legal or equitable assignment .

Once there has been an assignment which complies with the formalities of section 136, there is a transfer to the assignee of the legal right to the chose in action and the assignee can give good discharge upon payment or satisfaction by the debtor . It follows that the assignor has no right to sue in respect of the chose in action unless of course there is a re- assignment to the assignor. The same rules apply to intermediate assignments , thus creating a potential problem where a tenant assigns to a sub- tenant part of the demised property .

An assignment within the statute does not require consideration , thus voluntary assignments are enforceable between the assignor and the assignee and between the assignee and the debtor .

[ edit ] Equitable assignments

A failure to comply with the formalities of section 136 of the Act is not necessarily fatal to the 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 he 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.

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. Firstly, in the absence of notice the debtor is entitled to discharge his obligations to the assignor and not to the assignee, whereas if he has notice he does so at his own peril and he may well be required to discharge the obligation a second time to the assignee with no entitlement to recovery from the assignor (see Walter & Sullivan Ltd).

Secondly, the giving of notice to the debtor has an effect on prior equities (see below). Thirdly, 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 .

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 he 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 draftsman 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 .

[ edit ] Procedural differences between legal and equitable assignment

Substantively legal and equitable assignments (provided notice has been given to the debtor ) are essentially the same. In the Herkules Piling case, it was considered that an arbitration clause in the FCEC form of sub-contract could be assigned by a legal assignment by reason of the wording of section 136 of the Law of Property Act 1925, which stipulated that all attendant remedies were transferred, but not by an equitable assignment as the arbitration clause conferred discrete rights and obligations between the original contracting parties. There are however important procedural differences.

A legal assignment within the Act transfers a legal right in the chose to the assignee. Consequently the assignee sues the debtor in his own name. If there is an equitable assignment of an equitable chose in action the assignment being absolute, then again the assignee is entitled to sue in his own name. However, if there is an equitable assignment of a legal chose in action or an equitable chose which is not absolute, for example a part of the debt , the assignor must be joined into the action either as claimant, if he co- operates , or as defendant if he does not.

If the assignor is not joined as a party, the assignee's action may well fail although it is important to stress that these requirements are procedural and are not substantive, therefore the courts have a discretion to dispense with joinder of the assignor if they are satisfied that there is no prospect of a further claim by the assignor (see The Aiolos). Also note that under the Civil Procedure Rules Part 19, the Supreme Court has a wide discretion to order that additional parties should be joined to an action.

[ edit ] Prior equities

The effect of an assignment , whether it is a legal assignment or an equitable assignment , is to place the assignee in the shoes of the assignor in respect of the benefits (but not the burdens ) arising under the original transaction with the debtor . Consequently the assignee cannot by the assignment obtain a more advantageous position vis-à-vis the original debtor than that which was occupied by the assignor. In Business Computers Ltd v Anglo African Leasing Ltd, Templeman J stated that:

'a debt which accrues due before notice of an assignment is received, whether or not it is payable before that date, or a debt which arises out of the same contract as that which gives rise to the assigned debt , or is closely connected with that contract , may be set off against the assignee.’

It is important to note that if the set-off arises independently from the original contract between the assignor and the debtor , then it cannot be set off against the assignee if the liability (as distinct from the actual payment ) accrued after the date of receipt of a notice of assignment . The giving of notice of assignment is however irrelevant to claims by way of set-off or counterclaim that arise from the original contract or a contract which is closely connected to the original contract .

For example, A is the developer , B the architect appointed by A, C the first purchaser of the development from A and D the second purchaser from C. The contract between A and B provides for design works to be carried out by B and payment therefore to be made by A. B also enters into a collateral warranty undertaking to C that he will carry out his design works with reasonable skill and care . C assigns the benefit of the collateral warranty to D. A has not paid all of B's professional fees .

In the event that B is in breach of his collateral warranty , if D brings proceedings against B then B will be able to set off the amount of the unpaid fees against D's claims regardless of whether the entitlement to the fees arose after the date of D's notice of assignment to B. This is because the collateral warranty and the original contract between A and B are closely connected contracts .

In the above example the same right of set-off arises as between B and C if C were the ultimate purchaser who took an assignment of A's benefits under the original contract with C. In this latter example, the rights of set-off and counterclaim would arise from the same contract .

A counterclaim for unliquidated damages may be set off by the debtor against any claims brought by the assignee (see Phoenix Assurance Co Ltd v Earls Court Ltd).

The debtor's right to counterclaim against the assignee is limited to defending the claims brought by the assignee, the counterclaim being set off in extinction or diminution of the assignee's claims . It does not entitle the debtor to bring positive counterclaims against the assignee, i.e for sums in excess of the assignee's claims . This is because, as stated above, the assignee only takes the benefit and not the burden of the original contract .

[ edit ] Intermediate assignees

It would appear that where there have been successive assignments the debtor is not entitled to set off against claims brought by the ultimate assignee, counterclaims which the debtor has against intermediate assignees (see The Raven).

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Legal and equitable assignments

Brian Cantwell

Financiers and lessors often take an assignment over debts or certain rights under contracts as part of their security package. Depending on how this is done, an assignment can either be characterised as a legal or equitable assignment under English law. Stephenson Harwood’s Dipesh Bharania explains

A key difference between a legal and equitable assignment is the ability of the assignee, be it a financier or lessor, to bring proceedings in its own name against the debtor for payment of the debt owed, or to enforce rights in the contract.

A legal assignee has this right, but there is a question over whether an equitable assignee has this right or not.

In the case of General Nutrition Investment Company v Holland and Barrett International Ltd and another [2017] EWHC 746 Ch, the High Court held that the beneficiary of an equitable assignment did not have the right to bring proceedings in its own name, and had to do so jointly with the assignor which had assigned rights in the underlying contract.

This raises questions about the equitable assignment, as it appears to contradict other judgments which permit an equitable assignee to take proceedings in its own name. The predecessor company of General Nutrition Investment Company (GNIC) entered into a trade mark licence agreement in March 2003 with Holland and Barrett (H&B) allowing H&B to use certain trademarks in the UK.

After complex internal restructuring, the original contracting party had been dissolved and GNIC was the successor company, which as assignee had been assigned both the rights under the original trademark licence agreement, and the rights to the trademarks themselves. GNIC alleged that H&B was in breach of the licence agreement and served a number of notices of termination on H&B purporting to terminate the agreement.

The court had to decide whether any of these notices of termination were effective, and whether GNIC had the right to serve such notices, and bring and maintain proceedings against H&B in its own name.

The formalities for a legal assignment are set out in Section 136 of the Law of Property Act 1925, including that the assignment must be:

In writing and executed by the assignor “Absolute” and unconditional, Not be expressed to be “by way of charge”, and Notified in writing to the person against whom the assignor could enforce the assigned rights – usually the other contracting party.

It can often suit the assignor, the assignee and the third party to allow the assignor to deal with the third party, for notice not to be given (certainly initially) and the assignee to remain a silent party. This method is frequently used in financing documents, with notice only being given at a later date (rather than at the time of assignment) when there is a possibility of enforcement on the horizon.

An equitable assignment tends to be created when an assignment does not meet one or more of the requirements for a legal assignment. The main differences between a legal and an equitable assignment are priority (and the established principle that the assignee who serves notice first takes priority over any other assignee (where notice is not given)) and an equitable assignee needing to join the assignor as a party in any legal proceedings it brings against the third-party debtor.

However, two recent cases have lessened the distinction in practice between the two. In the Bexhill case the Court of Appeal recognised that an equitable assignee could take action in its own name without joining in the assignor. In the Ardila case, where notice had been given to the contracting party, the High Court looked at the terms of the notice and decided that what had seemed to be a legal assignment was in fact an equitable assignment because the wording of the notice seemed to retain rights for the assignor. The court used this reasoning to declare it an equitable assignment, despite the notice having been given as required.

Returning to the case in point, after the internal reorganisation and subsequent assignment of the trade mark licence agreement to GNIC, no notices of such assignment were served on H&B by the assignor prior to the purported termination of the agreement or the issue of proceedings. GNIC maintained that as it took the place of its predecessor as the “Licensor”, it became the body entitled to exercise rights of termination under the agreement. H&B’s contention was that, as an equitable assignee, GNIC did not have the right to terminate the agreement or bring proceedings in its own name.

It is widely accepted that, until a notice of assignment is given, and (i) the third party can validly discharge its obligations under the contract to the assignor, and (ii) the third party may raise against the assignee any defence or set-off which he could have raised against the assignor (provided that the matter on which the defence is based arose before notice was received) and the contracting party and assignor can amend the terms of the contract without the assignee’s consent.

The High Court considered that previous case law on this issue was binding as it had not been overruled or materially distinguished in any subsequent cases heard, and held that notice to the contracting third party is necessary to perfect the right of the assignee. Additional weight was given to the fact that a substantive contractual right (in this case, the right to terminate the licence agreement) had been assigned rather than just the assignment of a debt. Consequently, the contractual relationship between the parties was seeking to be amended and therefore the third party was entitled to see that such change was being effected by a party which had the right to do so and whom it knew to have such rights. The Court maintained that H&B cannot be expected to accept a notice of termination from an entity which turns out to be an assignee when it had never been given notice of that assignment.

While the High Court accepted that this decision may be appealed, this has raised a question about equitable assignments and the rights of the equitable assignee under English law. In the meantime, in practice, parties will have to scrutinise what type of right they are seeking, whether in security or as a full legal assignment and opt for the method which provides the clearest outcome possible as the law stands when they take the assignment. Anyone taking an assignment of the benefit of a contract should clearly ensure that notice is served on the other contracting party if it wants to be sure it can act in its own name under that contract against the other contracting party if need be.

Otherwise, there is a risk that an equitable assignee will be unable to enforce substantive contractual rights without having to join in the assignor in proceedings. That said, it may still be commercially preferable to have an equitable assignment for particular financing and leasing structures where it is not thought difficult to join the assignor at a later date if need be. In this case it was not possible, as the assignor had been dissolved. Advice should be sought about the type of assignment to be taken in each transaction pending further clarification from the courts.

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Assignments: why you need to serve a notice of assignment

It's the day of completion; security is taken, assignments are completed and funds move. Everyone breathes a sigh of relief. At this point, no-one wants to create unnecessary paperwork - not even the lawyers! Notices of assignment are, in some circumstances, optional. However, in other transactions they could be crucial to a lender's enforcement strategy. In the article below, we have given you the facts you need to consider when deciding whether or not you need to serve notice of assignment.

equitable assignment and legal assignment

What issues are there with serving notice of assignment?

Assignments are useful tools for adding flexibility to banking transactions. They enable the transfer of one party's rights under a contract to a new party (for example, the right to receive an income stream or a debt) and allow security to be taken over intangible assets which might be unsuitable targets for a fixed charge. A lender's security net will often include assignments over contracts (such as insurance or material contracts), intellectual property rights, investments or receivables.

An assignment can be a legal assignment or an equitable assignment. If a legal assignment is required, the assignment must comply with a set of formalities set out in s136 of the Law of Property Act 1925, which include the requirement to give notice to the contract counterparty.

The main difference between legal and equitable assignments (other than the formalities required to create them) is that with a legal assignment, the assignee can usually bring an action against the contract counterparty in its own name following assignment. However, with an equitable assignment, the assignee will usually be required to join in proceedings with the assignor (unless the assignee has been granted specific powers to circumvent that). That may be problematic if the assignor is no longer available or interested in participating.

Why should we serve a notice of assignment?

The legal status of the assignment may affect the credit scoring that can be given to a particular class of assets. It may also affect a lender's ability to effect part of its exit strategy if that strategy requires the lender to be able to deal directly with the contract counterparty.

The case of General Nutrition Investment Company (GNIC) v Holland and Barrett International Ltd and another (H&B) provides an example of an equitable assignee being unable to deal directly with a contract counterparty as a result of a failure to provide a notice of assignment.

The case concerned the assignment of a trade mark licence to GNIC . The other party to the licence agreement was H&B. H&B had not received notice of the assignment. GNIC tried to terminate the licence agreement for breach by serving a notice of termination. H&B disputed the termination. By this point in time the original licensor had been dissolved and so was unable to assist.

At a hearing of preliminary issues, the High Court held that the notices of termination served by GNIC , as an equitable assignee, were invalid, because no notice of the assignment had been given to the licensee. Although only a High Court decision, this follows a Court of Appeal decision in the Warner Bros Records Inc v Rollgreen Ltd case, which was decided in the context of the attempt to exercise an option.

In both cases, an equitable assignee attempted to exercise a contractual right that would change the contractual relationship between the parties (i.e. by terminating the contractual relationship or exercising an option to extend the term of a licence). The judge in GNIC felt that "in each case, the counterparty (the recipient of the relevant notice) is entitled to see that the potential change in his contractual position is brought about by a person who is entitled, and whom he can see to be entitled, to bring about that change".

In a security context, this could hamper the ability of a lender to maximise the value of the secured assets but yet is a constraint that, in most transactions, could be easily avoided.

Why not serve notice?

Sometimes it's just not necessary or desirable. For example:

Care should however, be taken in all circumstances where the underlying contract contains a ban on assignment, as the contract counterparty would not have to recognise an assignment that is made in contravention of that ban. Furthermore, that contravention in itself may trigger termination and/or other rights in the assigned contract, that could affect the value of any underlying security.

What about acknowledgements of notices?

A simple acknowledgement of service of notice is simply evidence of the notice having been received. However, these documents often contain commitments or assurances by the contract counterparty which increase their value to the assignee.

Best practice for serving notice of assignment

Each transaction is different and the weighting given to each element of the security package will depend upon the nature of the debt and the borrower's business. The service of a notice of assignment may be a necessity or an optional extra. In each case, the question of whether to serve notice is best considered with your advisers at the start of a transaction to allow time for the lender's priorities to be highlighted to the borrowers and captured within the documents.

For further advice on serving notice of assignment please contact Kirsty Barnes or Catherine Phillips from our Banking & Finance team.

equitable assignment and legal assignment

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An assignment of an interest that can be acquired only in the future is called an assignment in equity. An equitable assignment does not fulfill all the requirements of a legal assignment but is valid and enforced by the courts in the interest of fairness and justice.

Equity courts distinguish certain agreements as valid equitable assignments. Equity courts do this only when it is necessary to effect the intention of parties to assign an interest. Courts of equity grant certain assignments validity when making them invalid will cause injustice.[i] Generally, an equitable assignment is not enforceable in a non equity court. However, courts of equity recognize and validate assignments which are just and equitable.[ii] An equitable assignment can be validated only through courts of equity. The equitable nature of an assignment should be clear and specific.[iii]

Courts of equity do not require specific words or certain instrument to effectuate an equitable assignment. If an agreement includes informal language that shows the intention of a party to assign a right or chose in action and the intention by another party to receive it and valuable consideration, the agreement can operate as an effective equitable assignment.[iv]

An equitable assignment can be considered valid by a court when it is clear that a debtor is justified in paying a debt to an assignee and not the original lender.

Courts of equity inquire into the language of an agreement to find out the intention of the parties to an assignment agreement. The intention of the parties should be defined clearly as well as the subject matter of the assignment.[v] An equitable assignment is implied from the conduct of the parties rather than from the express words of formal assignment.[vi]

[i] Allison v. Pearce, 59 S.W. 192 (Tenn. Ch. 1900)

[ii] Morrow v. Commonwealth Life Ins. Co., 118 Fla. 371 (Fla. 1935)

[iii] Fid. Nat’l Title Ins. Co. v. Miller, 215 Cal. App. 3d 1163 (Cal. App. 4th Dist. 1989)

[iv] Asphalt Paving, Inc. v. Ulery, 149 So. 2d 370 (Fla. Dist. Ct. App. 1st Dist. 1963)

[v] Caballo Coal Co. v. Fid. Exploration & Prod. Co., 2004 WY 6 (Wyo. 2004)

[vi] Farmers’ Bank v. Blount, 8 F.2d 443 (4th Cir. N.C. 1925)

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What Is an Equitable Assignment?

An equitable assignment is a transfer of future interest that doesn’t fully meet legal standards, but will still be honored by courts. This is an example of a situation covered by equity, or fairness, rather than specific legal doctrine. Courts will enforce such agreements when they are not covered by existing laws, as long as they appear reasonable, fair, and without coercion. The standards for an equitable assignment to pass court scrutiny can depend on the region and the situation.

In such assignments, people can reassign future income in several different ways. One option can be to transfer interest, like part of a trust, to another person; the trust is guaranteed income, but the assignor waives the right to it, allowing the assignee to benefit from it. Another way to perform an equitable assignment is to have third parties transfer anticipated payments to the assignee. In all cases, the transfer involves future income or benefits, not current ones.

Expectations do not count as an equitable assignment. If a child believes she will inherit her father’s house, for example, she cannot transfer her interest in the house to another party. This is because the inheritance is an expectation, not a guarantee. In the event she does not inherit the house, the person she transferred the interest to has no recourse. Thus, someone cannot ask to have a debt written off in exchange for a future expectation.

Due consideration also needs to be part of an equitable assignment transaction to prevent fraud and ensure a transaction is legitimate. In the example of assigning rights to a trust, for instance, the assignor would need to receive something in exchange. That might be a bulk payment to buy the right to proceeds from the trust later. If due consideration is not present, the court may not uphold the agreement, on the grounds that it could be suspect. A special concern can be attempts to transfer rights to future earnings for the purpose of avoiding tax liability , in which case the assignee might be planning to transfer the funds back or allow the assignor to use them.

Specific legal standards for equitable assignments can depend on the nation. People with concerns can consult an attorney for advice in these situations. Attorneys with expertise in this area are familiar with actions in equity courts and can determine whether a transaction is likely to hold up in court.

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a MyLawQuestions researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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Equitable Assignment: Everything You Need to Know
An equitable assignment is one that does not fulfill the statutory criteria for a legal assignment, but is binding and upheld by the courts in the interest
Equitable assignment
The only significant difference between a legal assignment and an equitable assignment is that an equitable assignee often cannot bring an action in its own
Equitable assignment
The only significant difference between a legal assignment and an equitable assignment is that an equitable assignee often cannot bring an action in its own
What Is the Difference between Legal and Equitable Assignment
Equitable assignments can be created by: An assignment as security is simply an assignment, whether legal or equitable, of a development
Legal and equitable assignment
A legal assignment within the Act transfers a legal right in the chose to the assignee. Consequently the assignee sues the debtor in his own
Legal and equitable assignments
A key difference between a legal and equitable assignment is the ability of the assignee, be it a financier or lessor, to bring proceedings in
Creation of an Equitable Assignment
forced in a court of law or a court of equity. It has been said that an equitable assignment is such an assign- ment as creates in the assignee a title
Why do you need to serve a notice of assignment?
The main difference between legal and equitable assignments (other than the formalities required to create them) is that with a legal assignment
Equitable Assignments
An assignment of an interest that can be acquired only in the future is called an assignment in equity. An equitable assignment does not fulfill all the
What Is an Equitable Assignment?
An equitable assignment is a transfer of future interest that doesn't fully meet legal standards, but will still be honored by courts.