equitable assignment practical law

Assignment | Practical Law

Practical Law UK Glossary 1-107-6442  (Approx. 4 pages)

Assignment of contractual rights

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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 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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Practical Law

Construction blog, legal and equitable assignment arguments delivered through the mail.

• by Matt Molloy

Gosh, O’Farrell J’s judgment in Mailbox (Birmingham) Ltd v Galliford Try Construction Ltd is enough to make your head hurt.

While the adjudication enforcement principles appeared relatively simple, the court had to grapple with the question of whether Mailbox had the right to refer a dispute to adjudication in the first place. That means there is a lot in the judgment about legal and equitable assignment (had Mailbox assigned the benefit of the building contract to its funder, and then taken a re-assignment of those rights, or not), so reading it was a bit like being back studying law!

Mailbox v Galliford Try

Mailbox (Birmingham) Ltd (the developer) is an SPV set up to develop a mixed use site in Birmingham. It looks rather swanky now , with its Malmaison hotel and high-end shops and restaurants. However, clearly there were issues on site because, in March 2016, Galliford Try’s (the contractor) employment under the contract was determined. It sounds like what followed was a rather typical construction dispute , with issues such as who was responsible for delay, liability for liquidated damages , lawfulness of the termination and the proper valuation of the contractor’s final account.

This all led to an adjudicator’s decision dated 6 November 2016. In it, Mr Curtis (the adjudicator), ordered the contractor to pay to the developer just under £2.5 million in liquidated damages. He also decided that the developer was entitled to interest on that sum. There is nothing unusual in that, except he awarded interest under the Late Payment of Commercial Debts (Interest) Act 1998 (Late Payments Act). I’ll come back to this point later.

Enforcement proceedings followed when the contractor failed to pay. In those proceedings, the contractor argued that the adjudicator’s decision should not be enforced because of its jurisdictional argument: the adjudicator did not have jurisdiction because the developer had assigned the benefit of the building contract to its funder. Therefore, it did not have the right to start an adjudication when it issued the notice on 19 August 2016.

Did the adjudicator have jurisdiction?

It seems to me that the court had to answer two distinct questions:

• Was there an effective assignment to the funder of the rights under the building contract (a JCT Design and Build, 2011 Edition), which was entered into with the contractor in December 2013?
• Was there an effective re-assignment of those rights in time for the notice of adjudication to be issued on 19 August 2016?

I guess if the answer to the first part was no (which is what the developer argued), then the re-assignment issue fell away.

To reach a conclusion on this, the court had to address the detail of the various documents that the parties had entered into and the notices that were served. It also looked at section 136(1) of the Law of Property Act 1925. As I’m sure it isn’t often than any of us need to consult that provision, it is perhaps worth setting out what it says:

“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 – (a) the legal right to such debt or thing in action; (b) all legal and other remedies for the same; and (c) the power to give a good discharge for the same without the concurrence of the assignor…”

What I found helpful from the judgment is how it identifies the conditions that need to be satisfied for there to be a legal assignment (which are set out in paragraph 19-008 of Chitty on Contracts ), and then looked at three questions:

• Were the rights under the building contract capable of being the subject of an assignment under clause 3.3 of the debenture (which the developer had executed in favour of the funder)?
• What was the nature of any assignment under clause 3.3? (That is, was it an absolute assignment or an assignment by way of charge?)
• Were the rights under the building contract the subject of an assignment under clause 3.3 and, if so, what was the nature of the assignment?

In turn, the court answered these questions yes, absolute and yes, there was a legal assignment because the contractor had been given notice of it by 2 January 2014.

To my mind, this is a really clear and helpful example of how to approach the analysis of this type of issue.

When it came to the re-assignment, the issue the court had to decide was much more straightforward. The evidence suggested that the re-assignment occurred when the funder executed the deed of assignment, which was “on or before 17 August 2016”. That meant there had been an equitable assignment before the notice of adjudication was given on 19 August. That assignment took effect as a legal assignment when notice was given to the contractor on 26 August. Consequently, the developer was the beneficial owner of all rights and benefits under the building contract and was in a position to refer the dispute to adjudication.

Pausing there, I think the assignment point is a good example of how complex identity issues can be in adjudication and how important it is for adjudicators to understand the law and relevant legal principles. Some might argue that this is reason enough why certain disputes should be referred to a lawyer-adjudicator, rather than a construction professional-adjudicator. All I would say in response to that is those of us who are dual-qualified are well placed to deal with these issues.

No Late Payment Act interest on liquidated damages

Although the adjudicator’s decision was held to be valid, it was not enforced in its entirety. That is because the parties agreed that liquidated damages are not a “qualifying debt” under the Late Payments Act, and therefore asked the court to determine the question of Mailbox’s entitlement to interest on the liquidated damages. After some discussion as to the appropriate interest rate to apply, the court opted for the Commercial Court rate of 2% over base from the date the cause of action accrued, which was when the adjudicator’s decision was not complied with (Lord Mance in Aspect v Higgins ).

Two thoughts spring to mind about this:

• I liked the way the court dealt with interest even though there was no formal Part 8 application before it. It was a pragmatic approach from all concerned.
• It is a reminder that an adjudicator’s power to award interest are more limited than, say, an arbitrator or the court.

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The Law of Assignment (3rd Edition)

Marcus smith, nico leslie.

This book is the leading text on the law relating to intangible property or choses in action. Its clear and approachable structure covers all forms of intangible property (debts, rights under contract, securities, intellectual property, leases, rights/causes of action, and equitable rights), considering the nature of intangible property, how it comes into being, and how it is transferred or assigned. The first part of the book analyses the general principles regarding intangibles and their transfer, and the second examines the practical considerations relating to particular types of intangibles, securities, insurance contracts, leases, and intellectual property under the law. This new edition includes new chapters on powers of attorney and factoring, areas particularly important to legal practice. Other significant developments include the expansion of the chapter on leases to include leasing of chattels, and more material on securities, especially regarding the operation of settlement systems.

Bibliographic Information

Affiliations are at time of print publication..

Marcus Smith, author

Nico Leslie, author

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• Foreword to The Third Edition
• Foreword to the Second Edition
• Foreword to the First Edition
• Preface to The Third Edition
• Preface to the First Edition
• Summary Contents
• Detailed Contents
• Table of Cases
• Statutory Instruments
• Netherlands
• United States
• Conventions
• Regulations
• International Conventions
• List of References
• List of Authority Abbreviations
• Preliminary Material
• Part III.01
• [66.249.64.20|185.66.14.133]
• 185.66.14.133

Legal assignment

Practical law uk glossary 9-107-6754  (approx. 3 pages).

• Only the benefit of an agreement may be assigned.
• The assignment must be absolute.
• The rights to be assigned must be wholly ascertainable and must not relate to part only of a debt.
• The assignment must be in writing and signed under hand by the assignor.
• Notice of the assignment must be received by the other party or parties for the assignment to take effect.
• General Contract and Boilerplate

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Laura is a 2L interested in a career in litigation. She completed her undergraduate degree in Government Law at Lafayette College, where she worked at the college's writing center with primarily first-year students. Laura decided to go to law school after a summer internship with the Consumer Protection division of the Connecticut Office of the Attorney General in 2020. This summer, she was a judicial extern for Judge Zipps at the U.S. District Court, District of Arizona in Tucson. Here, she helped the law clerks with legal research, drafted orders, and attended court hearings. 

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