This article is a topic within the subject Equity and Trusts.
M.W. Bryan & V.J. Vann, Equity and Trusts in Australia (Cambridge University Press, 2012), pp. Textbook Chapter 9.
Conveyancing Act 1919 (NSW) s 12
Comptroller of Stamps v Howard-Smith (1936) 54 CLR 614 (per Dixon J)
William Brandt’s Sons & Co v Dunlop Rubber Co Ltd  AC 454 (per Lord Macnaughten)
Norman v FCT (1963) 109 CLR 9
Shepherd v Commissioner of Taxation (1965) 113 CLR 385 (per Barwick CJ and Kitto J)
Re Lind  2 Ch 345 per Phillimore LJ
Equity recognises as property certain assets which are not recognised at common law, such as a beneficiary’s interest in a trust. Property interests can also be created more informally in equity than in law. One aspect of this is equity’s attitude to assignments.
Assignments are transfers of property, either for consideration or as gifts.
The common law developed basic rules for the transfer of property. Equity acts as a “gloss” and recognises assignments in various cases where the common law would not. Many assignments are effected by statute as well.
- Common law assumes that people do not part with their wealth lightly or accidently. It treats assignments of property formally, in the sense that it does not recognise a transfer as effective until all formal requirements have been met.
- Equity may regard a transfer of property as complete in equity even though the law would regard the transfer as incomplete.
- Because equity has a wider definition of property, it may regard a transfer as effective even though the property is not transmissible at common law.
- Equity steps in when the assignor’s conscience ought to be bound by the assignment.
The interaction of these three sources of law has been criticised for its excessive complexity and because a lack of formality in equity can lead to uncertainty.
Real property is land and personal property is chattels or goods.
Choses in possession (tangible property) are things which can be physically held.
Chose in action (intangible property) cannot be ‘possessed’ and can only be enforced by legal action e.g. a debt.
Legal property is that which is recognised by the common law, whereas equitable property is recognised in the equitable jurisdiction. All equitable rights are intangible.
Property rights can fall into more than one category.
Assignment of legal property
Common law methods of transfer for different kinds of legal property developed as common-sense responses to the type of property in question and the relative importance of that property. For example:
- Ownership of banknotes generally passes with possession.
- Title to chattels (in the absence of statutory input) passes either by deed or delivery with the intention to confer ownership.
- Company shares sold off-market require a transfer form signed by the transferee and transferor to be registered in the company books.
- Legal choses in actions could not originally be assigned at law. This can now be done by statutory methods.
- Transfer of title to land has always required strict compliance with formalities, reflecting the historical importance of land.
Assignment methods are now frequently specified by statute. Unless every required step is completed, the law will not regard the transfer as effective.
Equity and legally ineffective assignments
Equity may regard the transfer of property as complete even if it is legally ineffective and can make orders giving effect to it. This depends on whether equity regards the assignor’s conscience as bound by the transaction. There are two situations to consider: where the assignee has given consideration and where the transaction is a gift.
Equity assists an assignee who has given consideration. Consideration is equity’s cue to do whatever may be required to enforce the transaction, so long as the contract can be specifically performed.
- Equity regards the assignor’s conscience as bound by the receipt of consideration. This is the converse of the maxim that equity will not assist a volunteer.
- Receipt of consideration also attracts equity’s intervention where the property assigned is future property. Once the future property comes into the hands of the assignor, equity will deem done that which ought to be done and will insist the assignor complete the transfer, so long as the contract can be specifically performed.
In the absence of consideration, equity regards the donor’s conscience as bound when the donor has done all that they alone must do to make the assignment effective. This is the rule in Milroy v Lord, as redefined for Australian purposes in Corin v Patton.
Milroy v Lord
- Facts: An uncle attempted to assign shares to a trustee to hold on behalf of his niece. He executed a deed assigning the shares and gave the intended trustee the share certificates, however, this was not the method required to assign shares. At law the shares were not transferred until the assignment was recorded in the company books, following a receipt of transfer executed by both the assignee and the assignor. Failure to comply with the relevant procedure was not discovered until after the uncle’s death.
- Issue: At what point will equity enforce the assignment of a gift?
- Held: It was held that he had not done enough to transfer the shares. He had taken no steps to sign the relevant transfer and had not armed his agent with sufficient authority to sign it without further reference to him and had therefore not done all that he alone must do to make the assignment effective.
The issue then arises: has the assignor done all that they alone must do to make the assignment effective, even if that leaves some outstanding step to be done by the assignee or a third party? Or does it really mean, ‘all that can possibly be done to transfer the property’? The following case illustrates this distinction:
Re Rose, Rose v IRC
- Facts: A husband assigned shares to his wife. He executed all the necessary forms and forwarded them to the company. The transfer was eventually registered. The husband died soon afterwards, and the question arose as to which of the husband or wife had been entitled to the shares on a certain date some months prior to his death (for taxation purposes). On the relevant date, the transfer forms had been forwarded to the company but registration had not yet occurred.
- Held: If the test from Milroy meant that ‘all that had to be done by the assignor alone’, then the husband had done all that he had to do (as the remaining steps were to be taken by the company secretary) and the wife would be the owner of the shares in equity. However, if the test meant ‘all that could possibly be done to transfer the property’, the wife would not be the owner in equity until the company secretary registered the transfer.
The question was resolved in Corin v Patton:
Corin v Patton
- Facts: A dying woman attempted to assign her interest in land, held as joint tenant with her husband, to her brother on trust. She was to be the beneficiary and then would leave her beneficial interest to her children in her will. The aim was to ensure that her husband would not be entitled to the whole of the land as sole surviving joint tenant. She executed all the necessary transfer documents. However, the land was mortgaged, and the woman died without making arrangements for the production of the title deed by the mortgagee to allow registration of the transfer to occur.
- Issue: Meaning of Milroy v Lord test.
- Held: She had not done all that she alone had to do to allow the assignment to be recognised in equity. She had to arrange for the production of the title or at least arm her brother with the authority to request the title and complete the remaining steps himself.
- As long as the donee can complete any remaining steps without the assistance of the court, equity will regard the transfer as binding.
- Deane J adopted a more complex test, whereby in addition to the donor taking all steps that they alone must take to ensure the assignment, they also have to put the gift “beyond the recall or intervention of the donor”.
The Corin v Patton interpretation has the advantage of certainty. However, sometimes there can be factual doubts concerning whether the donee has yet been placed in a position where they can complete the gift without assistance. This kind of problem can arise where there is doubt about the extent of the authority given to a donor’s agent to complete a transaction.
Marchest v Apostolou
- Facts: One solicitor acted for both the transferor and the transferee in an attempted gift of land to a trustee. Transfer documents were executed but no other steps were taken. Never having been registered, the transfer was incomplete at law. It was argued that the transfer was complete in equity once the solicitor held the executed documents on behalf of the transferee; thereafter the transferee could have completed the assignment themself.
- Issue: Extent of authority given to a donor’s agent.
- Held: Jessup J held that, where a solicitor acted for both parties in a transaction, the solicitor would not hold the transfer documents on behalf of the transferee until he had the transferor’s authority to treat them as the property of the transferee. On the facts the solicitor did not have this authority.
Some assets or rights cannot be assigned at law or equity and therefore if the transaction in question is an attempted assignment of one of these kinds of rights the assignment will fail.
- The benefit of contracts of personal service cannot be assigned because the identity of the person for whom the service is to be performed may matter to the person who has to perform it.
- Public policy dictates that most assignments of bare rights of action are void unless the assignee has a genuine interest in the litigation.
- Contracts can stipulate that contractual rights are not assignable.
- Statutes may expressly or impliedly make an asset unassignable.
- In Re Bruynius legislation expressly forbade assignment of superannuation pensions. In Tasmanian Seafoods Pty Ltd v MacQueen the statute impliedly restricted assignments of abalone diving licences.
However, in equity:
- The holder of a contractual right, can by self-declaration, hold that right on trust for another.
- Rights that are really expectancies or hopescannot form the subject matter of a trust by self-declaration because they are in no sense property (Kennon v Spry).
Future property cannot be assigned at common law because the assignor has no title to assign. Future property cannot be effectively assigned without consideration in equity. Property can be future in two sense:
- a) The property may exist, but not yet be owned by the would-be assignor.
- b) Or the property may not yet be in existence.
Most problems arise over what can generally be called “income cases”. Here it is crucial to determine whether:
- a) The assignor is attempting to assign only the income not yet earned, which is future property. E.g. an unborn foal.
- b) Or is the assignor trying to assign the underlying property that gives rise to the income, which is presently existing property. E.g. the horse pregnant with the foal.
Norman v Federal Commissioner of Taxation
- Facts: A taxpayer tried to assign income. The deed of assignment voluntarily assigned dividends to be earned on shares. Another clause of the deed attempted to assign interest earned on a loan. Interest only became payable on the loan on an annual basis but the borrower could repay the loan at will, meaning that if the borrower chose to repay the loan in a particular year, no interest would become payble in the following year. It could not be said at the time of the assignment that the interest would ever be payable.
- Issue: Assignment of future property.
- Held: The High Court held that the yet-to-be declared dividends were future property and could not be assigned without consideration. They were ‘future’ in that the dividend did not yet exist and indeed might never be declared by the company. The interest on the loan was also an assignment of future property because it was uncertain whether it would exist and therefore, because there was no consideration, it was also ineffective.
Contrast with: Shepherd v Federal Commissioner of Taxation
- Facts: The inventor of a furniture castor granted a licence to produce the castors to a manufacturer who was to pay him royalties based on the number produced. He attempted to assign voluntarily a percentage of royalties. The Commissioner argued that this was an assignment of future property. As the manufacturer was no obliged to produce any castors at all, it could not be said with certainty that any royalties would be earned under the agreement.
- Issue: Assignment of future property.
- Held: The High Court held that the transaction was an assignment of part of the contractual right to receive royalties (akin to underlying property), rather than the assignment of the as yet unearned royalties. Shepherd therefore, appears to be good authority for the proposition that assignments of assets that may produce income in the future can be made voluntarily.
If who has a mere expectancy or an interest that is “future property” attempts to assign it to another for valuable consideration, equity treats the transaction as a contract to assign. If and when the assignor receives the property, equity deems done that which ought to be done, and regards the property as owned beneficially by the assignee.
Assignment of equitable property
Property that is only recognised in equity can only be assigned in equity. As the beneficiary’s interest in land can only be enforced in equity, it can also only be assigned in equity.
Equity does not differentiate between varieties of equitable property. There is only one method of equitable assignment:
- “Assignment can be by way of gift; and except that writing is required by s 9 of the Statute of Frauds, no formality is necessary beyond a clear expression of an intention to make an immediate disposition.”
A gift is effective when the assignor has manifested an immediate, irrevocable intention to assign property. Without the necessary writing prescribed by statute the assignment may be rendered invalid or at least unenforceable.
Many kinds of legal choses in action such as bills of exchange and insurance policies have specific statutory methods of transfer but additionally the legislature had provided a ‘default’ mechanism for other legal choses. The current Victorian provision, in s 134 of the Property Law Act 1958 is an example.
While there is no particular form of assignment dictated by the above legislation, the instrument must be in writing and signed by the assignor.
- The assignment takes effect when the express notice in writing has been given to the person who is liable to pay the assignor.
- There are no statutory time limitations on the giving of notice but it has been said that receipt of notice is not technically required because under evidence legislation a presumption will arise that the notice was received a certain time after posting unless evidence is presented that this was not so.
It is unclear whether the statutory method of assignment was intended to apply to equitable choses in action.
- The better view is that the legislatures did not intend that statutory methods should be the only transfer mechanism for equitable choses in action.
- It is not a compulsory formality but an optional method.
- Compliance would be a very clear manifestation of an immediate intention to assign.
- The better view is that the legislatures did not intend that statutory methods should be the only transfer mechanism for equitable choses in action.
Legal property that can only be assigned in equity
The statutory assignment method above only applies to absolute assignment of legal choses in action, the law still does not allow partial assignments of a legal chose in action.
Equity may be able to recognise a partial assignment. It will be treated in the same manner as equitable property for assignment purposes and therefore it will be sufficient if there is a clear expression of an intention to make an immediate disposition on the part of the chose.
An assignment may still be void if it fails to comply with relevant statutory formalities. An interest in land must be reduced to writing at the time of disposition or the assignment will be invalid at law and in equity. There are several exceptions to this rule:
- Dispositions of by land by will, or by resulting, implied or constructive trusts are explicitly excluded.
- The sections have no effect on the law relating to part performance of contracts.
- A trust of an interest in land can be created orally and later reduced to writing. Until it is manifested in writing it will be unenforceable. (The writing is of evidentiary value only).
- The legislation is not concerned with the creation of new equitable interests, only of assignments of existing interests.
This is the end of this topic. Click here to go back to the main subject page for Equity & Trusts.
Textbook refers to M.W. Bryan & V.J. Vann, Equity and Trusts in Australia (Cambridge University Press, 2012).
- ↑ Textbook, pp 131-2.
- ↑ Textbook, pp 132-4.
- ↑ Textbook, pp 134.
- ↑ Textbook, pp 134.
- ↑ Textbook, pp 134-8.
- ↑ (1862) 4 Dec G F & J 264.
- ↑  Ch 449.
- ↑ (1990) 169 CLR 540.
- ↑  FCA 986.
- ↑ Textbook, pp 138-9.
- ↑  1 Qd R 492.
- ↑  TASSC 36.
- ↑ (2008) 238 CLR 366.
- ↑ Textbook, pp 140-1.
- ↑ (1963) 109 CLR 9.
- ↑ (1965) 113 CLR 385.
- ↑ Textbook, pp 141-2.
- ↑ Windeyer J in Norman’s case. Norman v Federal Commissioner of Taxation (1963) 109 CLR 9.
- ↑ Textbook, pp 143-5.
- ↑ Textbook, pp 145.
- ↑ Textbook, pp 145-7.
That was the holding of the Wisconsin Supreme Court in an opinion issued on Thursday in Dow Family, LLC v. PHH Mortgage Corporation, 2014 WI 56. The facts of the case are similar to thousands of foreclosure cases prosecuted in Wisconsin every year, but with a couple of interesting twists, which we summarized in a prior post. Essentially, in 2009 the owner of the property, Dow Family, LLC, had relied on the sellers’ inaccurate representations that a mortgage had been satisfied. When PHH Mortgage sought to foreclose that mortgage, Dow looked for ways to contest the foreclosure.
Only one of Dow’s arguments caught the Supreme Court’s attention. When PHH commenced the foreclosure, the mortgagee of record was MERS, as nominee for U.S. Bank, the original lender. Dow contended that PHH could not foreclose because the mortgage had not been formally assigned to it. PHH relied on the doctrine of equitable assignment.
Relying principally on an 1859 case, Croft v. Bunster, 9 Wis. 503 (*457), the court held that the security for a note is equitably assigned when the note is assigned, without the need for a separate, written assignment. The court noted that Wisconsin’s UCC governing secured transactions codifies the doctrine of equitable assignment in Wis. Stat. § 409.203(7).
Dow also argued that the statute of frauds prevents application of the doctrine. Every assignment of an interest in property must be recorded, unless the assignment is otherwise effected in law or equity. The court held that equitable assignment works by operation of law, satisfying the statute of frauds.
Finally, and perhaps most importantly, the court sidestepped any consideration of the MERS system. Dow had argued that the system, in which MERS holds the mortgage as nominee for the holder of the note, is fundamentally flawed. The court held that the issues regarding MERS were not material to the opinion.
Although she joined the conclusion that the mortgage was valid and had been equitably assigned, to whomever held the note, Chief Justice Abrahamson questioned the propriety of the MERS system. She said that there is a “disparity that exists between the recording statute and the modern-day electronic mortgage industry” and invited the legislature or other litigants to address the MERS system.
This decision is a major victory for lenders, who have been regularly relying on the doctrine of equitable assignment in these circumstances. The decision makes good sense in today’s mortgage-lending marketplace. Despite the volatility of the market in the past few years, it is still common for loans to be bundled and sold on the secondary market. The notes, as negotiable instruments, are often bought and sold several times before a default. Not requiring mortgage assignments to be recorded each time makes the loans more marketable, ultimately benefitting consumers.
And borrowers already know who holds their mortgage note because other laws require lenders to provide of a loan assignment. See, e.g., 15 U.S.C. § 1641(g). Recording the mortgage only provides notice to the world that the property secures a debt. Indeed, the facts here demonstrate that Dow had plenty of notice that this condo secured a note given by the Sullivans.
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