EQUITY 1.4 NOVATION AND ASSIGNMENT

• Isochukwu
• 5
• Equity and Trust I

ASSIGNMENT OF CHOSES IN ACTION.

A chose in action is a personal intangible right in property which can only be enforced by taking legal proceedings and not by taking physical possession. A cursory appreciation of property is necessary for a proper understanding. Property can be classified into:

1. Realty: immovable
2. Personal: Movable property further classified into:

• 1 Tangible: chose in possession capable of being physically possessed and stolen.
• 2 Intangible: these are choses in action incapable of physical possession. Rights over them can be enforced only through legal action. A chose in action may be:
• 2.1 Legal Chose in Action: Recoverable by action at common-law. for example debt, copyright, shares, and so on.
• 2.2 Equitable Chose in Action: only enforced by proceeding in equity like fund, or legacy under a will.

At common-law, only a legal chose could be assigned provided the consent of the debtor was obtained. Except assignment was done by the king, or as regards mercantile choses in action (like negotiable instruments which are transferrable by mere delivery). To prevent a floodgate of suits.

Classification of Assignment.

Section 25 of the Judicature Act removed the common-law rule against assignment. An assignment of choses in action has been classified into legal and equitable above, however for further elucidation they can be classified into four categories viz:

• Legal (statutory) assignment of Legal Chose: an assignment of a legal chose according to prescribed formalities.
• Legal (statutory) Assignment of Equitable Chose: an assignment of equitable chose in action according to formalities.
• Equitable assignment of Legal Chose: assignment of legal chose without full compliance with formalities.
• Equitable Assignment of Equitable Chose: assignment of an equitable chose without complying with formalities.

Note however that on grounds of public policy, certain choses cannot be assigned like Pension right (section 18 of the Pensions Act 1979), alimony, maintenance, salary, moto insurance policy and the likes.

To amount to STATUTORY ASSIGNMENT: The court in Udukason Enterprises V Robinson Olisa noted that the assignment must be[1]:

• Absolute: not an assignment of part of a fund or by way of charge. In Western Nigerian Finance Company V West Coast Builders, an assignment of 25 percent of debt was held to be an assignment in part.
• In writing and signed by the assignor.
• Written notice must be given to the debtor which takes effect from the time of receipt.

A statutory assignment of chose enables the assignor to sue in his name.

EQUITABLE ASSIGNMENT: Arises due to non-compliance with formalities stipulated in the law. The following are guiding requirements

• An intention to assign.
• A sufficiently identified chose (out of a specified fund).
• Consideration must be furnished as Equity would not aid a volunteer.
• The assignment Need NOT be in writing.
• Need NOT be absolute: the assignee would have to join the assignor in a suit where the assignment is not absolute.
• Notice may or may not be given to the debtor. Notice may however be relevant in the following situations:
• To determine priority. (the rule in Dearle V Hall (discussed later)).
• To ensure payment to the assignee.
• An assignee cannot take a better title except notice has been received by the debtor or it is a negotiable instrument and a holder in due course for value takes a good title.
• A notice in writing may make an absolute equitable assignment a legal assignment.

The rule in Dearle V Hall.

Where the owner of an equitable interest in pure personalty assigns same to more than one assignees, the priority does NOT depend on dates of creation but on the dates on which the trustee (debtor) receives notice. Except an assignee has notice of a previous assignment. (Not verbatim)

In this case (Dearle V Hall), one Brown assigned his interest first to Dearle, Sherring (second) and Hall (third) in 1808, 1809 and 1812 respectively. Hall (the last assignee) served the executors notice of the assignment. The court held that Hall was entitled since notice of his assignment reached the executors first and he had no notice of previous dealings.

Where notice is received at the same time, priority shall be determined in the order which the interests were created.

Notice can be oral or in writing. In Lloyds V Bank, notice received through newspaper was sufficient. Section 152 Property and Conveyancing Law (Ogun State) preserved this rule provided notice is given in writing (similar provisions can be found in the laws of other states).

DISTINCTION BETWEEN NOVATION AND ASSIGNMENT.

A novation occurs where contracting parties (by agreement) shift the burden of repaying a debt. In simple terms: Where A owes B #50 and B owes C #50, both A, B and C can agree that A should pay C the money due. See GB Olivant V Effioms.

1. Consideration: Novation must be supported by consideration. While (as stated above) a legal assignment of chose in action does not need to be supported by consideration.
2. Consent: Under novation, all the parties must consent while under Assignment of choses in action, the consent of the debtor may not be required.
3. Notice: under novation, notice must be given to the debtor and creditor while under equitable assignment, notice is not essential.
4. Absolute: Unlike an equitable assignment, novation requires that the original debt must be totally extinguished.

 

[1] See also Section 25 judicature act 1873, section 150 Property and Conveyancing Law (Ogun State).