UNIT 3:ASSIGNMENT OF CHOSES IN ACTION

CONTENTS

1.0      Introduction

2.0      Objectives

3.0      Main content

3.1       Definition of a chose in action

3.2       Distinction between a chose in action and a chose in possession

3.3       Assignment

3.4       Types of Assignment

4.0      Conclusion

5.0      Summary

6.0      Tutor-Marked Assignments

7.0      References / Further Reading

1.0     INTRODUCTION

In the last unit, we examined. In this unit, we will consider the assignment of choses in action.

The subject, assignment of choses in action, provides another illustration of the distinction be- tween the rigid approach of the common law court and the flexible approach of the Chancery court in the administration of justice before 1873.

2.0     OBJECTIVES

By the end of this unit you should be able to:

(i)       Define a chose in action;

(ii)      Distinguish between a chose in action and a chose in possession; and

(iii)     Discuss the various types of Assignment.

3.0     MAIN CONTENT

3.1     Definition of a chose in action

A chose in action has been defined as ‘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 posses- sion’. See Torkington v. Magee (1902) 2 K.B. 427 at 430. It is a proprietary right in property; a right of recognisable economic value, though it has no tangible or physical existence and therefore not capable of being physically possessed. Being an abstract right in property, if it is infringed or wrongfully or unlawfully detained, it can only be protected, claimed or enforced by action and not by taking physical possession.

Examples of choses in action include rights to debts, shares in a joint stock company and in/or in partnership property, debentures in a limited company (see In  Re  Pryce,  Ex  Parte  Rensburg (1877) 4 Ch.D. 685), policies of assurance, negotiable instruments, bills of lading, patent rights. copyrights, trade mark, rights of action arising from a contract e.g. right to damages for its breach, rights arising by reason of the commission of tort or other civil wrong e.g. right of liquidator against directors of a company for misfeasance;4 rights of a beneficiary in a trust fund and rights under legacies. Generally the expression 'choses in action' denotes incorporeal personal property. See Colonial Bank v. Whinney (1885) 30. Ch.D. 261.

3.2     Distinction between a chose in action and a chose in possession

'All personal things are either in possession or in action. The law knows no tertium quid between the two.' See Colonial Bank v. Whinney (supra) at 285 per Fry, L.J. A chose in possession sub- sists only where the owner has both the right to enjoy and the occupation of the chose itself. See Colonial Bank v. Whinney (supra) at 275, 286.

Therefore, choses in possession may be said to consist of corporeal chattels which by their nature can be the subject of physical possession and enjoyment. A chose in possession, being a tangible object, with actual physica1 existence, its possession and, if intended, ownership will pass by phys- ical delivery. For example, a fountain pen is a chose in possession; if it is wrongfully or unlawfully detained, the, owner may recover it in specie; similarly furniture, cattle, motor-car; are all choses in possession; possession and ownership in them may pass by physical delivery. Again they may be taken and sold in execution of a judgment in a personal action.

On the other hand, if A lends B N20 and B refuses to repay A, A can no longer seize the N20 in specie, all he can lawfully do is to sue B for the debt. The right to the debt created by the loan transaction between and B is a chose in action. As Farwell J. pointed out in British Mutoscope v. Homer (1901)  1 Ch.671,  a chose in action has no physical existence, it cannot be found upon a demised premises, it has no locality arid is incapable of manual seizure; thus it could not, at common law, be taken by execution under a writ of fieri facias or levari facias.

Classification of Choses in Action

A chose in action may be either legal or equitable. A legal chose in action is a right enforceable and recoverable by an action at law e.g. a debt or benefit under a contract.

An equitable chose in action or a chose in equity is a right which owes its existence to a subject matter which before 1873 would have been recognised only by the Chancery Court. Such right was enforceable and recoverable only by what was formally called a suit in equity. Examples are rights and interests of a beneficiary in trust fund, interest under a legacy and right to a relief against forfeiture of a lease for non-payment of rents, beneficial interest in a partnership and, re- versionary interest under a will. Generally these choses arise out of proprietary rigi1ts in respect of which the Chancery court formally exercised exclusive jurisdiction.

There is also future chose in action. This may either be legal or equitable. It is a right in respect of property which has not fallen into possession but which is to be acquired at a future date. Thus, the interest upon which the chose depends for its existence has not come into possession, for example, right of a beneficiary to a legacy under his father's will when the father is still alive, copyright of a book which is to be written at a future date.

SELF ASSESSMENT EXERCISE 1

How can we classify a chose in action?

3.3     Assignment

Simply put, is a transfer of a right. Where A is indebted to B for a sum of money, B's right to re- cover the money from A is a chose in action. If B assigns the right to C, B becomes the assignor while C becomes the assignee of the right which C can enforce against A. Such assignment need not be with the consent of A, who is liable to discharge the liability to C, the assignee.

The question of consent brings out the fundamental distinction between assignment and novation. A valid assignment of a debt may be made between the assignor and the assignee without the con- sent or even knowledge of the debtor, but in the case of novation, consent of the debtor is a sine qua non to its validity, that is, all the parties concerned must give their consent, since the effect of novation which is a tripartite agreement, is to rescind the original agreement between two parties and replace it by a new contract. Thus a new creditor may be substituted for the original creditor or a new debtor for the original debtor. In all cases the original contract will cease to exist.

In G.B. Ollivant & Co. v. Effioms Transport (1934)  2 W.A.C.A. 91, the West African Court of Appeal held that the defendants, a party to the original contract, could not be held liable under the contract because there had been novation, a new contract between the plaintiffs and a new firm, (known at first as 'Effioms Transport and Engineering Company' and later, after the necessary for- malities had been completed, as 'Effioms Transport and Engineering Co. Ltd.') having been substi- tuted for the original contract between the plaintiffs and the defendants with the consent of all the parties.

SELF ASSESSMENT EXERCISE 2

Distinguish between Assignment and Novation.

3.4     Types of Assignment

Common Law

At common law, no debt or other chose in action could be validly assigned, unless the debtor or the person to discharge the liability assented to the assignment. One of the reasons for the rule against assignment at common law was that assignment 'would be the occasion of multiplying of contentious and suits of great oppression of the people ... and the subversion of the due and equal execution of justice. 'See Lampet's Case (1613) 10 Co. Rep. 46(b) at 48(a); 77 E.R. 994.

Another ground for non-recognition and non-enforcement of assignment was to avoid the risk of maintenance and champerty. See Bailey, 'Assignments of Debts in England from the 12th Cen- tury to the 20th Century, (1931) 47 L.Q.R. 516; (1932) 48 L.Q.R. 248 and 547. Thus, at common law a debt presently due and payable was looked upon as a strictly personal obligation, and an assignment of it was regarded as a mere assignment of a right to bring an action at law against the debtor. Hence, the assignment was looked upon as open to the objection of maintenance. However, anyone who had a pecuniary interest in the debt was allowed to sue in the name of the creditor. See Fitzroy v. Cave (190.5) 2 K.B. 364.

Nevertheless, Farewell, L.J. in Defries v. Milne (1913) 1 Ch. 98 at 110-111, expressed the risk of maintenance and blackmail in assignment. He said 'It would be exceedingly bad policy to allow a person to sell rights of action for tort which he did not care to run the risk of enforcing himself; as for example to allow a liquidator to put such rights up for auction and sell them to someone who might buy for a small sum of money the chance of recovering a larger sum or possibly of blackmailing.'

The personal nature and character of the obligation upon which the right assigned depends and the fear of the debtor's prison was another reason for the disinclination of the common law to recognise or enforce assignment. Common law emphasised the possibility of each of the two par- ties to the obligation having reposed confidence in the personal character of the other and as such might not have envisaged dealings in respect of the obligation with any other party. Thus a deb- tor usually reposed some confidence in his creditor, believing that the creditor would normally refrain from proceeding to extremities; this accounted for the common law view of a debt as a personal relation. 'In general Common Law uncompromisingly viewed any attempted assignment as an intrusion by a third party into a quarrel between two others.' See Hanbury, Modern Equity. (8th Ed.) 1962 p. 73.

Exceptions

The Common Law permitted exception from its general prohibition of assignment. First, the King could assign or receive a chose in action. Second, the common law recognised and adopted the rule of the Law Merchant whereby a negotiable instrument in a negotiable state was assigna- ble. Apparent exceptions were the enforcement of tripartite agreement, that is, novation and, as- signment of a debt provided such assignment was coupled with an irrevocable power of attorney to sue for it.

Again, as Ames (The Disseisin of Chattels (1890) 3 Harv. L.Rev. 337-339) noted, certain obliga- tions, by the tenor of which the obligor expressly bound himself to the obligee and his assigns, could be enforced at common law, by an assignee or a transferee. In his view, the significance of this exception lies in the fact that it goes to show the reason for the rule which prohibits the as- signment of rights action in general. This was to discourage 'the multiplying of contentious and suits'. Bailey also noted that before the 18th century, if a debtor paid his creditor knowing that the latter had assigned the debt, the assignee could sue him, even at law by using the creditor's name, on the ground of fraud.

Assignment in Equity

Here equity did not follow the law. From the early times courts of equity have always permitted and enforced assignments of all kinds of choses in action. Thus in Rodick v. Gandell (1852) 1 De G.M. & G. 763 at 777, Lord Truro said 'An agreement between a debtor and a creditor that the debt owing shall be paid out of a specific fund coming to the debtor, or an order given by a deb- tor to his creditor upon a person owing money or holding funds belonging to the giver of the or- der, directing such person to pay such funds to the creditor, will create a valid equitable charge upon such fund; in other words, will operate as an equitable assignment of the debts or fund to which the order refers. '

The reason for the Chancery's flexible attitude towards recognition and enforcement of assignment of choses in action can be seen in the observation of Cozens-Hardy, L.J. in Fitzroy v. Cave (1905) 2 K.B. 364 at 372. 'At common law a debt was looked upon as a strictly personal obligation, and an assignment of it was regarded as a mere assignment of a right to bring an action at law against the debtor. Hence the assignment was looked upon as open to the objection of main- tenance .... But the Courts of Equity took a different view. They admitted the title of an assignee of a debt, regarding it as a piece of property, an asset capable of being dealt with like any other asset, and treating the necessity of an action at law to get it in as a mere incident '.

Here equity makes a distinction between matters of substance and matters of form. The transaction between the assignor and the assignee confers right of property on the latter, because in equity an assignment operates by way of agreement binding the conscience of the assignor, and so binding the property, the subject-matter of the assignment, from the moment when the contract becomes capable of being performed. See Tailby v. Official Receiver (1888) 13 App. Cas. 523 at 546.

This right of property is, in equity, a matter of substance to be distinguished from the assignor's common law right of action to get in the right of property assigned. This right of action is, in the eye of equity a matter of form being incidental to the right of property. Much as equity recognis- es the assignor's right of action at law, it would not permit the assignor to make use of this right to defeat the right of property conferred on the assignee. Thus, the rule is clearly laid down that in a suit to enforce an equitable assignment of a legal chose in action, the assignee must join the name of the assignor as co-plaintiff. This is in recognition of the legal right of the assignor to demand the chose. If the assignor refused his consent, he would be joined as defendant and could be further restrained in equity from exercising his right of action at law. On the other hand where the chose assigned is equitable the assignee could bring the action in his own name.

Assignment  and Mandate

Before a transaction can be regarded as an assignment, there must have been a specific direction given as to how a particular subject-matter of the transaction has to be disposed of. Such direction must give right or interest to a third party in the subject-matter of the transaction. On the other hand, a mandate is more of an intimation or the mere giving of an information by one party to the other as to the disposition of a subject-matter. This form of direction merely constitutes a mandate which does not give right or interest to a third party in the subject-matter of the mandate.

In Scott v. Porcher (1817) 3 Mer. 652 at 664, H. & Co. made a consignment of pearls to B with directions to sell and pay the proceeds to P on account. B acknowledged the receipt of the con- signment and undertook to comply with the directions but no notice was given by either party to P. H. & Co. subsequently wrote to B requesting that the pearls be sent to America, and there dis- posed of; and afterwards being insolvent H. & Co. made an assignment of all their effects in trust for the benefit of their creditors. The question was whether there was an assignment to P. It was held that the directions accompanying the consignment did not constitute an irrevocable appropriation but amounted to no more than a mere mandate which can give no right or interest to a third party in subject-matter of the mandate. It may also be revoked at any time before it is executed or at least before any engagement is entered into with a third person to execute it for his benefit.

Also in Watson v. Duke of Wellington (1830) 1 R. & M. 602, where there was only an intimation that particular persons where claimants upon a fund and not a direction that the debt should be paid, Sir John Leach M.R. held that in order to constitute an equitable assignment, there must be an engagement to payout of a particular fund. Neither will a letter from a banker stating that a special credit for a specified amount had been opened, under instruction, in favour of the person to whom the letter was addressed, constitute an equitable assignment. See Morgan v. Lariviere (1875) L.R. 7 H.L. 423. This was nothing but a mere statement by bankers that they have opened a credit, under instructions which they have received, in favour of a particular person.

Form

The validity of an equitable assignment does not depend on any particular form in as much as the intention to assign is clear. Since equity looks on the intent rather than to the form, the form of words used in the transaction is immaterial so long as they show an intention that the assignee is to have the benefit of the right assigned under the transaction. See Gorringe v. Invell India Rubber Works (1886) 34 Ch.D. 128. Once the intent to assign is ascertained such assignment becomes effective in equity even if it is made by word of mouth. It is immaterial whether the subject- matter is a legal or equitable chose.

In William Brandts Sons and Co. v. Dunlop Rubber Co. Ltd. (1905) A.C 454 at 462, the Court of Appeal had decided that certain transaction was not an assignment on the ground that the docu- ment did not on the face of it purport to be an assignment nor did it use the language of an as- signment. The House of Lords took a different view. And in response to the decision of the Court of Appeal, Lord Macnaghten stated that an equitable assignment does not always take that form. It may be couched in the language of command. It may be a courteous request. It may assume the form of mere permission. The language is immaterial if the meaning is plain.

Thus, in London and Yorks Bank v. White (1895) 11 T.L.R. 570, where there was a verbal agreement to assign, as security, the assignor's interest in certain goods, such was held to be ef- fective as an equitable assignment. In Thomas v. Harris (1947) 1 ALL E.R. 444, Lord Scott, in the Court of Appeal held that under the binding oral contract between the father and the son, the father intended to give to the son a charge on certain life assurance policies and that such a charge amounted to an assignment in equity of the policies to the extent of the charge on them.

However, by statute, disposition of certain interest is required to be in writing. Section 9 of the Sta- tute of Fraud 1677, (a statute of general application) and section 78(1)(c) of the Property and Con- veyancing Law (Western Nigeria) 1959 provide that 'A disposition of an Equitable Interest or Trust subsisting at the time of the disposition must be in writing signed by the person disposing of the same or by his agent thereinto lawfully authorised in writing or by will'. This provision is equivalent to Section 53(1)(c) of the United Kingdom Law of Property Act, 1925. Here equity follows the law.

Therefore, an oral assignment of a right or interest arising under a subsisting trust will not be effec- tive as it will offend this statutory provision. In Grey v. L.R.C (1959) 3 W.L.R. 758, certain shares in a company were held in trust for B who orally directed that the shares be held for another person. Lord Radcliffe held that the assignment was ineffective because it was a disposition within Section 53(1)(c) of the Law of Property Act 1925 which required such assignment to be in writing. See fur- ther Oughtred v. I.R.C. (1959) 3 W.L.R. 898.

4.0     CONCLUSION

The validity of an equitable assignment does not depend on any particular form in as much as the intention to assign is clear. Since equity looks on the intent rather than to the form, the form of words used in the transaction is immaterial so long as they show an intention that the assignee is to have the benefit of the right assigned under the transaction.

5.0 SUMMARY

In this unit, we have considered assignment of choses in action. You should be able to define a chose in action; distinguish between a chose in action and a chose in possession; and discuss the various types of Assignment.

6.0     TUTOR-MARKED ASSIGNMENT

(i) Distinguish between common law assignment and assignment in equity. (ii) Distinguish between a chose in action and a chose in possession.

7.0     REFERENCES / FURTHER READING

Hackney J., (1987) Understanding Equity and Trusts; London: Fontana press Jegede M. I. (2007rep.) Principles of Equity; Ibadan: Unique Design/Prints Megarry and Wade, Law of Real Property, 3rd edition et seq.