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 updated on February 01, 2023

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 assignor informing the assignee that they transferred a right to them
  • The assignor instructing the other party to release their obligation from the assignee and place it instead on the assignor

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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Debt Assignment: How They Work, Considerations and Benefits

Daniel Liberto is a journalist with over 10 years of experience working with publications such as the Financial Times, The Independent, and Investors Chronicle.

equitable assignment of debt

Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

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Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

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What Is Debt Assignment?

The term debt assignment refers to a transfer of debt , and all the associated rights and obligations, from a creditor to a third party. The assignment is a legal transfer to the other party, who then becomes the owner of the debt. In most cases, a debt assignment is issued to a debt collector who then assumes responsibility to collect the debt.

Key Takeaways

  • Debt assignment is a transfer of debt, and all the associated rights and obligations, from a creditor to a third party (often a debt collector).
  • The company assigning the debt may do so to improve its liquidity and/or to reduce its risk exposure.
  • The debtor must be notified when a debt is assigned so they know who to make payments to and where to send them.
  • Third-party debt collectors are subject to the Fair Debt Collection Practices Act (FDCPA), a federal law overseen by the Federal Trade Commission (FTC).

How Debt Assignments Work

When a creditor lends an individual or business money, it does so with the confidence that the capital it lends out—as well as the interest payments charged for the privilege—is repaid in a timely fashion. The lender , or the extender of credit , will wait to recoup all the money owed according to the conditions and timeframe laid out in the contract.

In certain circumstances, the lender may decide it no longer wants to be responsible for servicing the loan and opt to sell the debt to a third party instead. Should that happen, a Notice of Assignment (NOA) is sent out to the debtor , the recipient of the loan, informing them that somebody else is now responsible for collecting any outstanding amount. This is referred to as a debt assignment.

The debtor must be notified when a debt is assigned to a third party so that they know who to make payments to and where to send them. If the debtor sends payments to the old creditor after the debt has been assigned, it is likely that the payments will not be accepted. This could cause the debtor to unintentionally default.

When a debtor receives such a notice, it's also generally a good idea for them to verify that the new creditor has recorded the correct total balance and monthly payment for the debt owed. In some cases, the new owner of the debt might even want to propose changes to the original terms of the loan. Should this path be pursued, the creditor is obligated to immediately notify the debtor and give them adequate time to respond.

The debtor still maintains the same legal rights and protections held with the original creditor after a debt assignment.

Special Considerations

Third-party debt collectors are subject to the Fair Debt Collection Practices Act (FDCPA). The FDCPA, a federal law overseen by the Federal Trade Commission (FTC), restricts the means and methods by which third-party debt collectors can contact debtors, the time of day they can make contact, and the number of times they are allowed to call debtors.

If the FDCPA is violated, a debtor may be able to file suit against the debt collection company and the individual debt collector for damages and attorney fees within one year. The terms of the FDCPA are available for review on the FTC's website .

Benefits of Debt Assignment

There are several reasons why a creditor may decide to assign its debt to someone else. This option is often exercised to improve liquidity  and/or to reduce risk exposure. A lender may be urgently in need of a quick injection of capital. Alternatively, it might have accumulated lots of high-risk loans and be wary that many of them could default . In cases like these, creditors may be willing to get rid of them swiftly for pennies on the dollar if it means improving their financial outlook and appeasing worried investors. At other times, the creditor may decide the debt is too old to waste its resources on collections, or selling or assigning it to a third party to pick up the collection activity. In these instances, a company would not assign their debt to a third party.

Criticism of Debt Assignment

The process of assigning debt has drawn a fair bit of criticism, especially over the past few decades. Debt buyers have been accused of engaging in all kinds of unethical practices to get paid, including issuing threats and regularly harassing debtors. In some cases, they have also been charged with chasing up debts that have already been settled.

Federal Trade Commission. " Fair Debt Collection Practices Act ." Accessed June 29, 2021.

Federal Trade Commission. " Debt Collection FAQs ." Accessed June 29, 2021.

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Assigning debts and other contractual claims - not as easy as first thought

Updates to UK Money laundering rules - key changes

Harking back to law school, we had a thirst for new black letter law. Section 136 of the Law of the Property Act 1925 kindly obliged. This lays down the conditions which need to be satisfied for an effective legal assignment of a chose in action (such as a debt). We won’t bore you with the detail, but suffice to say that what’s important is that a legal assignment must be in writing and signed by the assignor, must be absolute (i.e. no conditions attached) and crucially that written notice of the assignment must be given to the debtor.

When assigning debts, it’s worth remembering that you can’t legally assign part of a debt – any attempt to do so will take effect as an equitable assignment. The main practical difference between a legal and an equitable assignment is that the assignor will need to be joined in any legal proceedings in relation to the assigned debt (e.g. an attempt to recover that part of the debt).

Recent cases which tell another story

Why bother telling you the above?  Aside from our delight in remembering the joys of debating the merits of legal and equitable assignments (ehem), it’s worth revisiting our textbooks in the context of three recent cases. Although at first blush the statutory conditions for a legal assignment seem quite straightforward, attempts to assign contractual claims such as debts continue to throw up legal disputes:

  • In  Sumitomo Mitsui Banking Corp Europe Ltd v Euler Hermes Europe SA (NV) [2019] EWHC 2250 (Comm),  the High Court held that a performance bond issued under a construction contract was not effectively assigned despite the surety acknowledging a notice of assignment of the bond. Sadly, the notice of assignment failed to meet the requirements under the bond instrument that the assignee confirm its acceptance of a provision in the bond that required the employer to repay the surety in the event of an overpayment. This case highlights the importance of ensuring any purported assignment meets any conditions stipulated in the underlying documents.
  • In  Promontoria (Henrico) Ltd v Melton [2019] EWHC 2243 (Ch) (26 June 2019) , the High Court held that an assignment of a facility agreement and legal charges was valid, even though the debt assigned had to be identified by considering external evidence. The deed of assignment in question listed the assets subject to assignment, but was illegible to the extent that the debtor’s name could not be deciphered. The court got comfortable that there had been an effective assignment, given the following factors: (i) the lender had notified the borrower of its intention to assign the loan to the assignee; (ii) following the assignment, the lender had made no demand for repayment; (iii) a manager of the assignee had given a statement that the loan had been assigned and the borrower had accepted in evidence that he was aware of the assignment. Fortunately for the assignee, a second notice of assignment - which was invalid because it contained an incorrect date of assignment - did not invalidate the earlier assignment, which was found to be effective. The court took a practical and commercial view of the circumstances, although we recommend ensuring that your assignment documents clearly reflect what the parties intend!
  • Finally, in Nicoll v Promontoria (Ram 2) Ltd [2019] EWHC 2410 (Ch),  the High Court held that a notice of assignment of a debt given to a debtor was valid, even though the effective date of assignment stated in the notice could not be verified by the debtor. The case concerned a debt assigned by the Co-op Bank to Promontoria and a joint notice given by assignor and assignee to the debtor that the debt had been assigned “on and with effect from 29 July 2016”. A subsequent statutory demand served by Promontoria on the debtor for the outstanding sums was disputed on the basis that the notice of assignment was invalid because it contained an incorrect date of assignment. Whilst accepting that the documentation was incapable of verifying with certainty the date of assignment, the Court held that the joint notice clearly showed that both parties had agreed that an assignment had taken place and was valid. This decision suggests that mistakes as to the date of assignment in a notice of assignment may not necessarily be fatal, if it is otherwise clear that the debt has been assigned.

The conclusion from the above? Maybe it’s not quite as easy as first thought to get an assignment right. Make sure you follow all of the conditions for a legal assignment according to the underlying contract and ensure your assignment documentation is clear.

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English law assignments of part of a debt: Practical considerations

United Kingdom |  Publication |  December 2019

Enforcing partially assigned debts against the debtor

The increase of supply chain finance has driven an increased interest in parties considering the sale and purchase of parts of debts (as opposed to purchasing debts in their entirety).

While under English law part of a debt can be assigned, there is a general requirement that the relevant assignee joins the assignor to any proceedings against the debtor, which potentially impedes the assignee’s ability to enforce against the debtor efficiently.

This note considers whether this requirement may be dispensed with in certain circumstances.

Can you assign part of a debt?

Under English law, the beneficial ownership of part of a debt can be assigned, although the legal ownership cannot. 1  This means that an assignment of part of a debt will take effect as an equitable assignment instead of a legal assignment.

Joining the assignor to proceedings against the debtor

While both equitable and legal assignments are capable of removing the assigned asset from the insolvency estate of the assignor, failure to obtain a legal assignment and relying solely on an equitable assignment may require the assignee to join the relevant assignor as a party to any enforcement action against the debtor.

An assignee of part of a debt will want to be able to sue a debtor in its own name and, if it is required to join the assignor to proceedings against the debtor, this could add additional costs and delays if the assignor was unwilling to cooperate. 2

Kapoor v National Westminster Bank plc

English courts have, in recent years, been pragmatic in allowing an assignee of part of a debt to sue the debtor in its own name without the cooperation of the assignor.

In Charnesh Kapoor v National Westminster Bank plc, Kian Seng Tan 3 the court held that an equitable assignee of part of a debt is entitled in its own right and name to bring proceedings for the assigned debt. The equitable assignee will usually be required to join the assignor to the proceedings in order to ensure that the debtor is not exposed to double recovery, but the requirement is a procedural one that can be dispensed with by the court.

The reason for the requirement that an equitable assignee joins the assignor to proceedings against the debtor is not that the assignee has no right which it can assert independently, but that the debtor ought to be protected from the possibility of any further claim by the assignor who should therefore be bound by the judgment.

Application of Kapoor

It is a common feature of supply chain finance transactions that the assigned debt (or part of the debt) is supported by an independent payment undertaking. Such independent payment undertaking makes it clear that the debtor cannot raise defences and that it is required to pay the relevant debt (or part of a debt) without set-off or counterclaim. In respect of an assignee of part of an independent payment undertaking which is not disputed and has itself been equitably assigned to the assignee, we believe that there are good grounds that an English court would accept that the assignee is allowed to pursue an action directly against the debtor without needing the assignor to be joined, as this is likely to be a matter of procedure only, not substance.

This analysis is limited to English law and does not consider the laws of any other jurisdiction.

Notwithstanding the helpful clarifications summarised in Kapoor, as many receivables financing transactions involve a number of cross-border elements, assignees should continue to consider the effect of the laws (and, potentially court procedures) of any other relevant jurisdictions on the assignment of part of a debt even where the sale of such partial debt is completed under English law.

Legal title cannot be assigned in respect of part of a debt. A partial assignment would not satisfy the requirements for a legal assignment of section 136 of the Law of Property Act 1925.

If an assignor does not consent to being joined as a plaintiff in proceedings against the debtor it would be necessary to join the assignor as a co-defendant. However, where an assignor has gone into administration or liquidation, there may be a statutory prohibition on joining such assignor as a co-defendant (without the leave of the court or in certain circumstances the consent of the administrator).

[2011] EWCA Civ 1083

Tudor Plapcianu

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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 of debt

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:

  • If security is being taken over a large number of low value receivables or contracts, the time and cost involved in giving notice may be disproportionate to the additional value gained by obtaining a legal rather than an equitable assignment.
  • If enforcement action were required, the equitable assignee typically has the option to join in the assignor to any proceedings (if it could not be waived by the court) and provision could be made in the assignment deed for the assignor to assist in such situations. Powers of attorney are also typically granted so that a lender can bring an action in the assignor's name.
  • Enforcement is often not considered to be a significant issue given that the vast majority of assignees will never need to bring claims against the contract counterparty.

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.

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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

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

  • The assignor can inform the assignee that he transfers a right or rights to him.
  • The assignor can instruct the other party or parties to the agreement to discharge their obligation to the assignee instead of the assignor.
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What is an Assignment of Debt?

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By Vanessa Swain Senior Lawyer

Updated on February 22, 2023 Reading time: 5 minutes

This article meets our strict editorial principles. Our lawyers, experienced writers and legally trained editorial team put every effort into ensuring the information published on our website is accurate. We encourage you to seek independent legal advice. Learn more .

Perfecting Assignment

  • Enforcing an Assigned Debt 

Recovery of an Assigned Debt

  • Other Considerations 

Key Takeaways

Frequently asked questions.

I t is common for creditors, such as banks and other financiers, to assign their debt to a third party. Usually, an assig nment of debt is done in an effort to minimise the costs of recovery where a debtor has been delinquent for some time. This article looks at:

  • what it means to ‘assign a debt’;
  • the legal requirements to perfecting an assignment; and
  • common problems with enforcing an assigned debt. 

Front page of publication

Whether you’re a small business owner or the Chief Financial Officer of an ASX-listed company, one fact remains: your customers need to pay you.

This manual aims to help business owners, financial controllers and credit managers best manage and recover their debt.

An assignment of debt, in simple terms, is an agreement that transfers a debt owed to one entity, to another. A creditor does not need the consent of the debtor to assign a debt.

Once a debt is properly assigned, all rights and responsibilities of the original creditor (the assignor ) transfer to the new owner (the assignee ). Once an assignment of debt has been perfected, the assignee can collect the full amount of the debt owed . This includes interest recoverable under the original contract, as if they were the original creditor. A debtor is still responsible for paying the outstanding debt after an assignment. However, now, the debt or must pay the debt to the assignee rather than the original creditor.

Purchasing debt can be a lucrative business. Creditors will generally sell debt at a loss, for example, 20c for each dollar owed. Although, the amount paid will vary depending on factors such as the age of the debt and the likelihood of recovery. This can be a tax write off for the assignor, while the assignee can take steps to recover 100% of the debt owed. 

In New South Wales, the requirements for a legally binding assignment of debt are set out in the Conveyancing Act :

  • the assignment must be in writing. You do this in the form of a deed (deed of assignment) and both the assignor and assignee sign it; and
  • the assignor must provide notice to the debtor. The requirement for notice must be express and must be in writing. The assignor must notify the debtor advising them of the debt’ s assign ment and to who it has been assigned. The assignee will send a separate notice to the debtor, putting them on notice that the debt is due and payable. They will also provide them with the necessary information to make payment. 

The assignor must send the notices to the debtor’s last known address.  

Debtor as a Joined Party

In some circumstances, a debtor will be joined as a party to the deed of assignment . There can be a great benefit in this approach . This is because the debtor can provide warranties that the debt is owed and has clear notice of the assignment. However, it is not always practical to do so for a few reasons:

  • a debtor may not be on speaking terms with the assignor; 
  • a debtor may not be prepared to co-operate or provide appropriate warranties; and
  • the assignor or the assignee may not want the debtor to be made aware of the sale price . This occurs particularly where the sale price is at a significant discount.

If the debtor is not a party to the deed of assignment, proper notice of the assignment must be provided.  

An assignment of debt that has not been properly perfected will not constitute a legal debt owing to the assignee. Rather, the legal right to recover the debt will remain with the assignor. Only an equitable interest in the debt will transfer to the assignee.  

Enforcing an Assigned Debt 

After validly assigning a debt (in writing and notice has been provided to the debtor’s last known place of residence), the assignee is entitled to take any legal steps available to them to recover the outstanding debt. These recovery options include:

  • commencing court proceedings;
  • obtaining a judgment; and 
  • enforcement of that judgment.

Suppose court proceedings have been commenced or judgment already entered in favour of the assignor. In that case, the assignee must take steps to have the proceedings or judgment formally changed into the assignee’s name.  

In our experience, recovery of an assigned debt can be problematic because:  

  • debtors often do not understand the concept of debt assignment and may not be aware that their credit contract contains an assignment of debt clause;
  • disputes can arise as to whether a lawful assignment of debt has arisen. A debtor may claim that the assignor did not provide them with the requisite notice of the assignment, or in some cases, a contract will specifically exclude the creditor from legally assigning a debt;
  • proper records of the notice of assignment provided to the debtor must be maintained. If proper records have not been kept, it may be difficult to prove that notice has been properly given, which may invalidate the legal assignment; and
  • the debtor has the right to make an offsetting claim in defence to any recovery action taken by the assignee. A debtor may raise an offsetting claim which has arisen out of a previous arrangement with the assignor (which the assignee may not be aware of). For example, the debtor may have entered into an agreement with the assignor whereby the assignor agreed to accept a lesser amount of the debt owed by way of settlement. Because the assignee acquires the same rights and obligations of the assignor, the terms of that previous settlement agreement will bind the assignee. The court may find that there is no debt owing by the debtor. In this case, the assignee will have been assigned nothing of value. 

Other Considerations 

When assigning a debt, it is essential that the assignee, in particular, considers relevant statutory limitation periods for commencing proceedings or enforcing a judgment debt . In New South Wales, the time limit:

  • to file legal proceedings to recover debts is six years from the date of last payment or when the debtor admitted in writing that they owed the debt; and
  • for enforcing a judgment debt is 12 years from the date of judgment.

An assignment of a debt does not extend these limitation periods.  

While there can be benefits to both the assignor and the assignee, an assignment of debt will be unenforceable if done incorrectly. Therefore, if you are considering assigning or being assigned a debt, it is important to seek legal advice. If you need help with drafting or reviewing a deed of assignment or wish to recover a debt that has been assigned to you, contact LegalVision’s debt recovery lawyers on 1300 544 755 or fill out the form on this page.  

An assignment of debt is an agreement that transfers a debt owed to one entity, to another. A creditor does not need the consent of the debtor to assign a debt.

Once the assignee has validly assigned a debt, they are entitled to take any legal steps available to them to recover the outstanding debt. This includes commencing court proceedings, obtaining a judgment and enforcement of that judgment.

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Legal and equitable assignments

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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.

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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.

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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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The Interrelationship Between Set-off and Assignment

Louise Gullifer QC (Hon) Rouse Ball Professor of English Law, University of Cambridge

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A recent decision in the Court of Appeal, Bibby Factors Northwest Ltd v HFD Ltd [2015] EWCA Civ 1908 , concerns the extent to which an assignee of debts is bound by set-offs arising between the assignor and the debtor. 

The law in this area is reasonably clear, but somewhat complicated, and was summarised succinctly and accurately by the Court of Appeal in paragraphs [30] to [32] of the decision:

‘First the debtor may show that the money claimed is not due, in whole or in part, either because of some substantive defence or some right of abatement.

Second, the debtor may have a contractual right of set off.

Third, the debtor may have a cross claim which equity will regard him as entitled to set off against the debt such that only the balance may be claimed. If so, and subject to any question of estoppel, the factor, as assignee, can be in no better position than his assignor, whether the assignment takes effect as a statutory assignment or in equity. It is no matter that the cross claim had not accrued due before the debtor had notice of the assignment.

Fourth, the debtor may have a cross claim which is independent of the claim against him in the sense that it does not fall into the category of a claim which forms the subject of an equitable set off. In such a case the factor/assignee cannot successfully be met by a cross claim which arose after the Customer/debtor had notice of the assignment.’

Bibby deals with one matter of possible uncertainty in this area, but others remain, some of which were raised but not decided in Bibby .  One such matter is discussed later in this blog, and other matters, such as the interaction with insolvency set-off, will be discussed in a later blog.'

The Bibby case concerned a factoring agreement, which provided for the sale of all present and future debts.  The assignor, who had for many years supplied goods to the debtor, was in administration and the factor (Bibby) sued the debtor on outstanding invoices.  The debtor claimed to set off, inter alia, rebates to which it was entitled under its contracts with the assignor, which, it said, constituted equitable set-off, and therefore could be relied upon whether or not they accrued before notice of assignment (under the third principle set out above).    

The chief ground on which Bibby challenged this allegation was to argue that the degree of closeness between the claim (on the invoices) and the cross-claim (the rebates) was insufficient to establish equitable set-off (according to the test set out by Rix LJ in Geldof Metaalconstructie NV v Simon Carves Limited [2010] EWCA Civ 667 ).  This was because the debtor should have informed the factor about the rebates once they realised that the claims were assigned, and, therefore, it was not ‘manifestly unjust to allow [the factor] to enforce payment without taking into account the cross-claim’, despite the fact that the claims and cross-claims were otherwise closely connected.

The Court of Appeal upheld the judge’s decision that the test for equitable set-off was satisfied.  There was no duty on the debtor to inform the factor about the rebates, nor was there a sufficiently clear representation as to the absence of rebates to give rise to an estoppel.  The court confirmed what had been made clear in the Geldof case: that there was only one test, which had two elements:

  • the ‘close connection’ part was the formal element to the test, which was ‘to ensure that the doctrine of equitable set-off is based on principle and not discretion’; and
  • the ‘unjust’ part was the functional element and was ‘to remind litigants and courts that the ultimate rationality of the regime is equity’ ( Geldof [43]).  

In very many cases it will be the closeness of the connection which gives rise to the manifest injustice, but there are some situations in which this can be rebutted by other matters.  One (at least where the court is deciding whether to award summary judgment on the claim) is the strength and calculability of the cross-claim.  For example, in Star Rider Ltd v Inntrepreneur Pub Co [1998] 1 EGLR 53, the speculative quantum of the cross-claim was one reason for holding that it was just to award summary judgment on the claim.  Another is the conduct of the cross-claimant, who cannot rely on his own wrongful conduct to manufacture a cross-claim ( Bluestorm Ltd v Portvale Holdings Ltd [2004] EWCA Civ 289 ).   

This analysis shows that the relevant question is whether it is manifestly unjust as between the claimant and the cross-claimant not to allow the cross-claim to be set off.   The assignee, since he can be in no better position than the assignor, takes subject to any set-off.  The conduct of the debtor vis a vis the assignee is irrelevant, unless it gives rise to an estoppel.  The decision of the Court of Appeal in Bibby confirms this reasoning (see paragraphs [38] and [48]. 

As a result, sensible receivables financiers who wish to know about potential cross-claims will both make enquiries themselves before making their advances and will make sure that their contracts with assignors include an obligation to inform them of such.  In the absence of a separate agreement, a factor assignee cannot oblige a debtor to pass on information about cross-claims.  While the assignment, once notice is given, creates a relationship between the assignee and the debtor in that the debtor must pay the assignee to obtain a good discharge, it cannot, of itself, impose any further obligations on the debtor.

Having come to this conclusion, there was no need for the Court of Appeal to consider independent set-off.  Tantalisingly, a point on this type of set-off that had been raised and considered at first instance is one on which there is little authority and considerable academic debate.  This rest of this blog is devoted to discussion of this point.

Under the fourth principle listed above, an assignee is not bound by an independent set-off between the assignor and the debtor which arises after notice of assignment has been given to the debtor.  The rationale for this rule is that once the debtor knows about the assignment he should not be able to erode the assignee’s rights by allowing further set-offs to accrue.  Bibby made the argument that the debtor had been notified ‘of the assignment’ at the time of the initial factoring agreement, and that all independent set-offs arising after that time could not be relied upon by the debtor.   

This raises the contentious question of whether a notice of assignment given in relation to future debts can prevent the debtor relying on independent set-offs which arise after the date of the notice but before the debt arises.  An assignment of a future debt takes effect immediately as a contract to assign, but the assignment does not take place until the debt comes into existence.  There is remarkably little modern authority on the effect of a notice of such an assignment which is given before the debt actually arises.  

It seems that such a notice will not be sufficient to make the assignment a statutory one, on the grounds that the section itself does not refer to agreements to assign, but only assignments.  Further, there are a number of (mainly nineteenth century) cases which establish that a notice given of a ‘mere expectancy’ is ineffective to establish priority under Dearle v Hall , so that another notice must be given after the debt arises to protect the priority position of the assignee.  Many of these cases were in the context of an army officer’s expectancy of a fund were he to be gazetted out of the army: the fund was a mere expectancy until the day the notice in the Gazette appeared, at which point it was held on trust for the officer by the army.  Not surprisingly, army officers often raised money on the strength of this expectancy, but the incumbrancer(s) had to keep serving notices daily on the army agents to try and be the first to give notice on the day of the Gazette (see Re Dallas [1904] 2 Ch 385)!     

The only case to mention the effectiveness of a notice of an assignment of a future debt in the context of set-off is also an army officer case ( Roxburgh v Cox (1881) LR 17 Ch D 520).  Here, the set-off arose the moment the Gazette notice appeared, and the notice of assignment was not given until the next day, so the point was not in issue (the assignee clearly took subject to the set-off).   Thus, Baggally LJ’s dictum that ‘any notice given by [the assignee] before the money came into the possession of [the army agents asserting the set-off] would have been ineffectual’ was obiter.    

The point is therefore an open one.  Opinion is divided.  Oditah (at 8.3 of Legal Aspects of Receivables Financing ) supports the view of Baggally LJ, as did the judge in Bibby at first instance.  However, Derham (at 17.29 of his magisterial book on set-off) and Philip Wood (at 16-119 of English and International Law of Set-Off , where he describes the view of Baggally LJ as ‘arbitrary and out of accord with realities’) support the view that notice given of an assignment of future debts marks the moment after which the accrual of independent set-offs do not bind the assignee.

There are also some obiter judicial remarks: Andrew Smith J at first instance in Dry Bulk Handy Holding Inc v Fayette International [2012] EWHC 2107 (Comm) [66] firmly supports Philip Wood’s view.  Mance J in Marathon Electrical Manufacturing Corp v Mashreqbank PSC [1997] 2 BCLC 460 at 466-467 appears to implicitly accept the Oditah’s view in relation to true future receivables (where the contract under which the receivable arises has not yet been entered into), but his discussion is focused on the fact that English law has a wide interpretation of ‘present receivables’ which includes any debts arising from existing contracts, even though they have not yet accrued.

The view that notice of an assignment of future debts is enough to prevent further independent set-offs being asserted against an assignee certainly accords with common sense, given the rationale for the rule mentioned earlier (that it is unconscionable for the debtor to reduce the assignee’s rights once he knows about the assignment).  It also accords with the practice of taking an assignment or a security interest over present and future debts: any notice would normally not differentiate between the two categories.

Further, as mentioned, the category of present debts is very wide, including debts which are payable, but also unearned rights to payment arising out of present obligations.  To distinguish between these and debts arising under future contracts seems perverse.  There is one qualification: the notice has to be of an ‘assignment’ (albeit inchoate, under the principle in Holroyd v Marshall ) rather than of a general agreement to assign, or of a floating charge.   There is authority establishing that it is only after the floating charge has crystallised (and notice given) that the debtor can no longer set off independent set-offs against the charge ( Biggerstaff v Rowatt’s Wharf Ltd [1896] 2 Ch 93).

The position argued for is also that which pertains under UCC Article 9 (9-404(a)(2) , the Canadian and New Zealand PPSAs, and the UNCITRAL draft Model law .  Under those instruments, notice (or knowledge) is of the ‘assignment’ or ‘security interest’ which can be given over future property.  Only under the Australian PPSA is the position potentially different, since section 80(1) provides that the cut-off point is ‘before the first time when payment by an account debtor to the transferor no longer discharges the obligation of the account debtor under subsection (8) to the extent of the payment’.  Presumably this point cannot arise until the relevant account has accrued, since only at that point can payment be made.

While it is a shame that the Bibby case did not prove a vehicle for deciding this point, the fact that it has not arisen directly for decision in an English law case shows that it does not cause all that many problems in practice.  This is, probably, partly because of the wider definition of ‘present debts’ and also partly because many set-offs relied upon in are equitable set-offs, which can be asserted against an assignee irrespective of the timing of notice.

In the context of notification receivables financing, notice of a facultative master agreement is unlikely to have any effect on set-off, as this would be merely a general agreement to assign (if that: it may be unilateral and therefore only binding if under seal) and not an assignment of future debts, that is, it would not have immediate effect once a debt came into existence.

Notice of a ‘whole turnover’ agreement, however, is more likely to raise the issue discussed above, as this agreement would be seen as an assignment in equity, taking effect as soon as the debts come into existence.  Of course, the terms of the contract are likely to be determinative.

Where financing is based on a fixed charge over receivables, this is likely to cover future debts, but notice to the debtors is unlikely to be given, except as a prelude to enforcement.

The issue discussed, therefore, is not an everyday problem, but a definitive answer (as provided in the codified systems mentioned) would improve certainty for assignees of debts (in whatever context) who wish to protect their value from future set-offs.

This article was first posted on the Commercial Law Centre blog. The original post can be found here .

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equitable assignment of debt

Statutory Assignment vs Equitable Assignment

This article attempts to provide a brief overview of the differences between statutory assignment and equitable assignment. The actual application of the general rules described here would be subject to the applicable distinct facts and circumstances.

What is Assignment?

An assignment is a transfer of rights or liabilities such as those that arise under an instrument, chose in action 1 , or debt. An assignment can either be a statutory assignment or an equitable assignment.

In Malaysia, an assignment complying with Section 4(3) of the Civil Law Act 1956 was described as a ‘statutory assignment’ and an assignment not complying with Section 4(3) of the Civil Law Act 1956 was a ‘non-statutory assignment’ i.e., an equitable assignment. 2 The conditions of a statutory assignment are as follows: 3

(a) it must be absolute and did not purport to be by way of charge only;

(b) the assignment was in writing under the hand of the assignor; and

(c) express notice in writing thereof had been given to the debtor or trustee.

Meanwhile, an equitable assignment gives the assignee a right enforceable only in equity. The mode or form of assignment is absolutely immaterial provided the intention of the parties is clear. 4

Rules that Govern Assignments

Written notice is an essential part of a statutory assignment. Therefore, it is ineffective unless strictly accurate – accurate, for instance, as regards the date of the assignment and the amount due from the debtor. 5

However, notice is not necessary to perfect an equitable assignment. Even without notice to the debtor the title to the assignee is complete, not only against the assignor personally, but also against the persons who stand in the same position as the assignor, as, for instance, his trustee in bankruptcy, a judgement creditor or a person claiming under a later assignment made without consideration. 6

In regard to the form of notice, as mentioned earlier, a statutory assignment must comply with the form of notice required under Section 4(3) of the Civil Law Act 1956, whilst for an equitable assignment, no particular form is required to constitute a valid equitable assignment.

Additionally, it must be noted that although notice is not required for equitable assignments, an assignee must give notice to the debtor in order to get priority over other assignee(s). In this regard, the Federal Court in Public Finance Bhd v Scotch Leasing Sdn Bhd (In Receivership) (Perwira Habib Bank Malaysia, Intervener) [1996] 2 MLJ 369 explained in detail about the importance of notice:

“ We need to say a few words more about the great desirability of giving notice of assignment of a debt by an assignee to the debtor, even though absence of such notice does not affect the validity of the equitable assignment as between the assignor and the assignee. If notice is not given, the assignee must give credit for any payment made to the assignor by the debtor. This rule means that, by extension, even if the assignor assigns once more the debt to another person in fraud or otherwise on the earlier assignee, and that other person gives notice to the debtor; and if the debtor pays that other person or the second assignee, then the earlier assignee must still give credit to the debtor for his payment thus, for the debtor cannot be blamed for doing lawfully in ignorance of the title of the earlier assignee who has failed to give notice of the assignment to the debtor. Notice to debtor is for the protection of the assignee himself. It is this effect of what the debtor does lawfully as described that dims the view of the true role of the nemo dat rule in the resolution of disputed claims to a same debt. The money paid to the ‘second assignee’ can, of course, be recovered by the earlier assignee on the nemo dat principle. ”

(b) An assignee takes subject to equities

For both statutory assignment and equitable assignment, the assignee takes ‘subject to equities’, that is, subject to all such defences as might have prevailed against the assignor.

The general rule, both at law and in equity, is that no person can acquire title to a chose in action…from one who has himself no title to it. 7 In other words, the assignee can be in a no better position than the assignor was prior to the assignment. 8

(c) Rights incapable of assignment

Some choses in action are not assignable, and not every right which arises under or out of a contract can be assigned. 9 An example of rights incapable of assignment is where the nature of the contract is intended to be personal, therefore, it will be meaningless if it is assigned to another person.

Effect of Assignment

A statutory assignment has the sole intended effect of facilitating an assignee to sue in his own name directly irrespective of whether the chose in action is an equitable chose in action or a legal chose in action. 10

Meanwhile, the effect of an equitable assignment depends on whether the assignment is absolute or not. An absolute assignment of an equitable chose in action entitles the assignee to bring an action in his own name. 11 But a non-absolute assignment of an equitable chose in action does not entitle the assignee to sue in his own name but requires him to join the assignor as a party. 12

  • ‘Chose in action’ is a known legal expression used to describe all personal rights of property which can only be claimed or enforced by action, and not by taking physical possession (Associated Tractors Sdn Bhd v Woo Sai Wa [1997] 5 MLJ 441 (High Court)).
  • MBF Factors Sdn Bhd v Tay Hing Ju (T/A New General Trading) [2002] 5 MLJ 536 (High Court).
  • Williams Brandt Sons & Co v Dunlop Rubber Co [1905] AC 454 (House of Lords).
  • Leong, A. P. B. (1998). Cheshire, Fifoot and Furmston’s Law of Contract (2nd ed.). Butterworths Asia, at page 861.
  • Guest, A. G. (1984). Anson’s law of contract, at page 400.
  • Meagher, R. P., Heydon, J. D., & Leeming, M. J. (2022). Meagher, Gummow and Lehane’s Equity Doctrine and Remedies (4th ed., p. 284). Butterworths LexisNexis.
  • Guest, A. G. (1984). Anson’s law of contract, at page 402.
  • Lim Chon Jet @ Lim Chon Jat & Ors v Wee Ai Hua & Anor [2022] 6 MLJ 243 (Court of Appeal).

Written by:

Nur Izzatie Azlan & Narina Aireen Hilmy Zaini  ( [email protected] )

Corporate Communications Azmi & Associates 28 November 2023

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What is the significance of an equitable assignment in the context of the assignment of future rights under a contract (or a chose in action)?

An assignment is the transfer of a right or an interest vested in one party (assignor) to another party (assignee). The effect of a valid assignment is to entitle the assignee to demand performance of a contractual obligation.

Assignments may be legal or equitable.

A legal assignment is one which meets the requirements set out in section 136(1) of the Law of Property Act 1925 (LPA 1925). It must be:

absolute and unconditional and not purport to be by way of charge only

made in writing and signed by the assignor

expressly notified in writing to the obligor

Equitable assignments may arise in the following circumstances:

where there is an intention to assign, but not all of the formalities of a legal assignment are met under LPA 1925, s 136(1), the assignment may still be valid as an equitable assignment . The formalities for an equitable assignment to be effective are far less stringent

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Key definition:

Equitable assignment definition, what does equitable assignment mean.

Assignments can occur in equity when any of the requirements of legal assignment are not satisfied.

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Assigning and enforcing debt

By David Asker on Thursday 30 April 2020

Debts may be assigned by the creditor to another party, the assignee, who may then proceed with further legal action to recover the debt.

There are two forms of assignment of a contract or debt – legal assignment and equitable assignment.

Legal assignment

The Law of Property Act 1925 s 136 sets out three criteria that must be met before a “chose in action”, may be legally assigned. The assignment must be:

  • Made in writing
  • Notified in writing to the debtor
  • Absolute and not by way of a charge

If these are all met, then the assignee takes over the benefit of the debt from the original creditor, the assignor, and becomes the only person who can enforce it. The assignment may be made for financial consideration, but this doesn’t have to be the case.

The assignee acquires the same rights as the assignor had had, including the right to present a winding-up petition, or obtain judgment and instruct a High Court Enforcement Office (HCEO - a form of bailiff) to enforce it under a writ of control. The debtor will now have to pay the assignee – paying the assignor does not discharge the debt.

If the debtor enters into insolvency, the assignee will be considered to be the creditor for dividend purposes.

Equitable assignment

An equitable assignment is where only the benefit of an agreement is assigned. The equitable assignee may not be able to bring an action in his own name against the debtor and may have to join the assignor as party to the action.

An equitable assignment may be made in one of two ways:

  • The assignor can inform the assignee that he transfers a right or rights to him
  • The assignor can instruct the debtor to pay the assignee instead of the assignor

equitable assignment of debt

David Asker

David is an authorised High Court Enforcement Officer and our Director of Corporate Governance

The statements and opinions expressed in this article are those of the author and do not necessarily reflect those of SHCE Ltd, trading as The Sheriffs Office. SHCE Ltd does not take any responsibility for the views of the author. The author will not be held responsible for any comments posted by visitors to this site. Please note that this article does not constitute legal advice. The author has used his best endeavours to make this article as accurate and complete as possible at the date of writing, but requests that the reader be aware that the law of England and Wales frequently changes. The author strongly advises the reader to take legal advice before embarking on any enforcement action. Please see the website terms and conditions regarding reproduction of this article.

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There are two types of assignment of debt: legal and equitable. An equitable assignment can be loosely defined as any assignment that cannot be categorized as a legal assignment. A legal assignment is set out in section 53 in the Conveyancing and Law of Property Act . The key prerequisite to any legal assignment is that written notice of the assignment be given to the debtor.

The case of Lee v. Korea Exchange Bank of Canada (1999), 44 O.R. (3d) 366 (SCJ) discussed this concept in a mortgage context.

Power of Sale

A mortgagee issued a notice of sale in January 1984. It assigned the mortgage to an assignee in May. The assignee entered into an agreement to sell the property and completed the sale in August. Neither the mortgagee nor the assignee gave notice of the assignment to the mortgagor. The assignee did not issue a new notice of sale.

All of the statutory declarations completing the sale were sworn as if the assignee did not exist. The solicitor for the mortgagee was the deponent in a statutory declaration in which he referred to the original notice of sale and stated that to the best of his knowledge and belief, the sale complied with the Mortgages Act . An officer of the mortgagee deposed that monies were still owing on the mortgage debt.

The 1984 purchasers attempted to sell the property in 1988. The transaction fell through because the new purchasers requisitioned proof of the issuance of a notice of sale issued by the assignee. We gather that no litigation arose out of that aborted transaction.

The 1984 purchasers brought an application seeking an order that they had good title to the property. The respondent to the application was the new mortgagee of the property. Obviously, the respondent was quite content that the application be granted and did not attend the hearing of the application.

Section 30 of the Mortgages Act requires that a mortgagee shall not exercise a power of sale unless an appropriate notice exercising the power has been given to the mortgagor.

The applicants relied upon section 35 of the Mortgages Act . This states that the title of a purchaser is not liable to be impeached if a notice of sale has been issued in professed compliance with the Act. Of course, any person prejudiced as a result of the non-compliance, would still have remedies against the mortgagee issuing the improper notice.

The judge noted that the purpose of section 30 was to allow the mortgagor the ability to redeem the property. He also noted that if the mortgagor did not know who was the owner of the mortgage debt, the mortgagor would not know whom to contact to redeem. The judge therefore held that a basic right of the mortgagor had been breached as a result of the failure of the parties to notify the mortgagor of the assignment of the mortgage debt. That basic right was so important that section 35 would not save the transaction.

Notwithstanding that there was no opposition to the application, the applicants were unsuccessful.

Do you think, perhaps, that the 1984 purchasers might be a wee bit unhappy with the solicitors who represented them in the purchase of the property?

A Little Effort

     An assignee does not have to issue a new notice of sale. It can rely upon the assignor’s notice if either the assignor or assignee notifies the mortgagor in writing of the assignment. This notification results in a legal assignment of the debt and the assignee can then step into the assignor’s shoes. Unfortunately, neither the assignor nor the assignee, in the Lee case, gave the requisite notice.

The sale papers in support of the sale under the power of sale would recite the details of the assignment. Normally, both in Registry and Land Titles, the sale papers do not refer to notice of the assignment. As a matter of caution, particularly in Registry, they should.

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equitable assignment of debt

Malaysia – Statutory Assignment Vs Equitable Assignment.

December 12, 2023 by Rohin Pujari

This article attempts to provide a brief overview of the differences between statutory assignment and equitable assignment. The actual application of the general rules described here would be subject to the applicable distinct facts and circumstances.

What is Assignment?

An assignment is a transfer of rights or liabilities such as those that arise under an instrument, chose in action 1 , or debt. An assignment can either be a statutory assignment or an equitable assignment. 

In Malaysia, an assignment complying with Section 4(3) of the Civil Law Act 1956 was described as a ‘statutory assignment’ and an assignment not complying with Section 4(3) of the Civil Law Act 1956 was a ‘non-statutory assignment’ i.e., an equitable assignment. 2 The conditions of a statutory assignment are as follows: 3

  • it must be absolute and did not purport to be by way of charge only;
  • the assignment was in writing under the hand of the assignor; and
  • express notice in writing thereof had been given to the debtor or trustee.

Meanwhile, an equitable assignment gives the assignee a right enforceable only in equity. The mode or form of assignment is absolutely immaterial provided the intention of the parties is clear. 4

Rules that Govern Assignments

Written notice is an essential part of a statutory assignment. Therefore, it is ineffective unless strictly accurate – accurate, for instance, as regards the date of the assignment and the amount due from the debtor. 5

However, notice is not necessary to perfect an equitable assignment. Even without notice to the debtor the title to the assignee is complete, not only against the assignor personally, but also against the persons who stand in the same position as the assignor, as, for instance, his trustee in bankruptcy, a judgement creditor or a person claiming under a later assignment made without consideration. 6

In regard to the form of notice, as mentioned earlier, a statutory assignment must comply with the form of notice required under Section 4(3) of the Civil Law Act 1956, whilst for an equitable assignment, no particular form is required to constitute a valid equitable assignment.

Additionally, it must be noted that although notice is not required for equitable assignments, an assignee must give notice to the debtor in order to get priority over other assignee(s). In this regard, the Federal Court in Public Finance Bhd v Scotch Leasing Sdn Bhd (In Receivership) (Perwira Habib Bank Malaysia, Intervener) [1996] 2 MLJ 369 explained in detail about the importance of notice:

“ We need to say a few words more about the great desirability of giving notice of assignment of a debt by an assignee to the debtor, even though absence of such notice does not affect the validity of the equitable assignment as between the assignor and the assignee. If notice is not given, the assignee must give credit for any payment made to the assignor by the debtor. This rule means that, by extension, even if the assignor assigns once more the debt to another person in fraud or otherwise on the earlier assignee, and that other person gives notice to the debtor; and if the debtor pays that other person or the second assignee, then the earlier assignee must still give credit to the debtor for his payment thus, for the debtor cannot be blamed for doing lawfully in ignorance of the title of the earlier assignee who has failed to give notice of the assignment to the debtor. Notice to debtor is for the protection of the assignee himself. It is this effect of what the debtor does lawfully as described that dims the view of the true role of the nemo dat rule in the resolution of disputed claims to a same debt. The money paid to the ‘second assignee’ can, of course, be recovered by the earlier assignee on the nemo dat principle. ”

  • An assignee takes subject to equities

For both statutory assignment and equitable assignment, the assignee takes ‘subject to equities’, that is, subject to all such defences as might have prevailed against the assignor.

The general rule, both at law and in equity, is that no person can acquire title to a chose in action…from one who has himself no title to it. 7 In other words, the assignee can be in a no better position than the assignor was prior to the assignment. 8

  • Rights incapable of assignment

Some choses in action are not assignable, and not every right which arises under or out of a contract can be assigned. 9 An example of rights incapable of assignment is where the nature of the contract is intended to be personal, therefore, it will be meaningless if it is assigned to another person.

Effect of Assignment

A statutory assignment has the sole intended effect of facilitating an assignee to sue in his own name directly irrespective of whether the chose in action is an equitable chose in action or a legal chose in action. 10

Meanwhile, the effect of an equitable assignment depends on whether the assignment is absolute or not. An absolute assignment of an equitable chose in action entitles the assignee to bring an action in his own name. 11 But a non-absolute assignment of an equitable chose in action does not entitle the assignee to sue in his own name but requires him to join the assignor as a party. 12

equitable assignment of debt

Nur Izzatie Azlan, Azmi & Associates

[email protected]

  • ‘Chose in action’ is a known legal expression used to describe all personal rights of property which can only be claimed or enforced by action, and not by taking physical possession (Associated Tractors Sdn Bhd v Woo Sai Wa [1997] 5 MLJ 441 (High Court)).
  • MBF Factors Sdn Bhd v Tay Hing Ju (T/A New General Trading) [2002] 5 MLJ 536 (High Court).
  • Williams Brandt Sons & Co v Dunlop Rubber Co [1905] AC 454 (House of Lords).
  • Leong, A. P. B. (1998). Cheshire, Fifoot and Furmston’s Law of Contract (2nd ed.). Butterworths Asia, at page 861.
  • Guest, A. G. (1984). Anson’s law of contract, at page 400.
  • Meagher, R. P., Heydon, J. D., & Leeming, M. J. (2022). Meagher, Gummow and Lehane’s Equity Doctrine and Remedies (4th ed., p. 284). Butterworths LexisNexis.
  • Guest, A. G. (1984). Anson’s law of contract, at page 402.
  • Lim Chon Jet @ Lim Chon Jat & Ors v Wee Ai Hua & Anor [2022] 6 MLJ 243 (Court of Appeal).

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  1. Debt Assignment and Assumption Agreement

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  1. Disparities in Debt: Understanding the case for economic equity

  2. Debt Or Assets?

  3. ZOMBIE DEBT ASSIGNMENT AND ASSUMPTION AGREEMENT FORMS FOR CPN!

  4. Week 6 Part 3. Equitable Assignment

COMMENTS

  1. Equitable Assignment: Everything You Need to Know

    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 assignor informing the assignee that they transferred a right to them. The assignor instructing the other party to release their ...

  2. Debt Assignment: How They Work, Considerations and Benefits

    Debt Assignment: A transfer of debt, and all the rights and obligations associated with it, from a creditor to a third party . Debt assignment may occur with both individual debts and business ...

  3. Assigning debts and other contractual claims

    The main practical difference between a legal and an equitable assignment is that the assignor will need to be joined in any legal proceedings in relation to the assigned debt (e.g. an attempt to recover that part of the debt). ... EWHC 2410 (Ch), the High Court held that a notice of assignment of a debt given to a debtor was valid, even though ...

  4. English law assignments of part of a debt: Practical considerations

    Can you assign part of a debt? Under English law, the beneficial ownership of part of a debt can be assigned, although the legal ownership cannot. 1 This means that an assignment of part of a debt will take effect as an equitable assignment instead of a legal assignment. Joining the assignor to proceedings against the debtor

  5. FAQs on assignments in finance transactions

    legal assignment are broadly equally available to an assignee under a notified equitable assignment for value. These benefits are: a. once the debtor has received notice of an absolute assignment, it must pay or perform the assigned rights in favour of the assignee; b. notice to the debtor is capable of establishing the priority of the assignment

  6. Assignment and novation

    Legal and equitable assignment. The Law of Property Act creates the ability to legally assign a debt or any other chose in action where the debtor, trustee or other relevant person is notified in writing. If the assignment complied with the formalities in the Act it is a legal assignment, otherwise it will be an equitable assignment.

  7. St. John's Law Review

    "The test of an equitable assignment is the inquiry whether or not an assignment makes an appropriation of the fund so that the debtor would be justified in paying the debt or assigned part to the person claiming to be the assignee." Hinkle Iron Company v. Kohn, 229 N. Y. 179, 183, 128 N. E.

  8. PDF Assignments of Book Debts

    It will be suggested that an equitable assignment of a debt does not transfer absolute ownership rights to the assignee but merely creates an equitable charge over the debt. 6. An equitable charge is a form of security interest where no title, legal or equitable, passes to the assignee. If it is not registered under the Companies Act

  9. Assignment (law)

    An equitable assignment is an assignment, or transfer of rights, in equity. ... Absolute assignment (an unconditional transfer: conditions precedent or part of a debt are not absolute) and the assignment must be made in writing and signed by the assignor, and in particular, this applies to real property.

  10. Assignments: why you need to serve a notice of 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). ... 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 ...

  11. 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. ... 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 ...

  12. Equitable assignment

    An equitable assignment may be made in one of two ways: The assignor can inform the assignee that he transfers a right or rights to him. The assignor can instruct the other party or parties to the agreement to discharge their obligation to the assignee instead of the assignor. Only the benefit of an agreement may be assigned.

  13. What is an Assignment of Debt?

    An assignment of debt, in simple terms, is an agreement that transfers a debt owed to one entity, to another. A creditor does not need the consent of the debtor to assign a debt. Once a debt is properly assigned, all rights and responsibilities of the original creditor (the assignor) transfer to the new owner (the assignee).

  14. 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 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 ...

  15. The Interrelationship Between Set-off and Assignment

    The only case to mention the effectiveness of a notice of an assignment of a future debt in the context of set-off is also an army officer case (Roxburgh v Cox (1881) LR 17 Ch D 520). Here, the set-off arose the moment the Gazette notice appeared, and the notice of assignment was not given until the next day, so the point was not in issue (the ...

  16. PDF EQUITABLE ASSIGNMENTS

    1. that there was a complete and perfect assignment of the debt in equity. 2. that, even assuming the assignment was imperfect, equity would recognize it because there was sufficient consideration for it. 3. that the defendant gained a legal right to sue for the debt because the debtor had assented #to the assignment.

  17. Statutory Assignment vs Equitable Assignment

    An assignment is a transfer of rights or liabilities such as those that arise under an instrument, chose in action 1, or debt. An assignment can either be a statutory assignment or an equitable assignment.

  18. Priorities: Equitable versus Legal Assignments of Book Debts

    a legal assignment remains equitable for purposes of priority, and though the assignment is statutory, the assignee does not become the legal owner of the book debts in the full sense.13 The argument is ingenious but incorrect for at least three reasons. First, contrary to what has been widely assumed, section 136(1) LPA 1925 11 See n 9, above ...

  19. What is the significance of an equitable assignment in the context of

    An assignment is the transfer of a right or an interest vested in one party (assignor) to another party (assignee). The effect of a valid assignment is to entitle the assignee to demand performance of a contractual obligation.. Assignments may be legal or equitable. A legal assignment is one which meets the requirements set out in section 136(1) of the Law of Property Act 1925 (LPA 1925).

  20. Assigning and enforcing debt

    There are two forms of assignment of a contract or debt - legal assignment and equitable assignment. Legal assignment. The Law of Property Act 1925 s 136 sets out three criteria that must be met before a "chose in action", may be legally assigned. The assignment must be: Made in writing; Notified in writing to the debtor

  21. Speigel Nichols Fox LLP: Assignment

    There are two types of assignment of debt: legal and equitable. An equitable assignment can be loosely defined as any assignment that cannot be categorized as a legal assignment. A legal assignment is set out in section 53 in the Conveyancing and Law of Property Act. The key prerequisite to any legal assignment is that written notice of the ...

  22. Malaysia

    An assignment is a transfer of rights or liabilities such as those that arise under an instrument, chose in action, or debt. An assignment can either be a statutory assignment or an equitable assignment. In Malaysia, an assignment complying with Section 4 (3) of the Civil Law Act 1956 was described as a 'statutory assignment' and an ...