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Equitable Assignment In Malaysia Where Do They Sell



If a borrower acquires a property in which the individual title deed has not been issued and he intends to obtain a loan by using the property as a security, the financier will require the borrower to assign all his rights in the sale agreement with the developer/vendor in favour of the financier with notice of assignment to the former. Likewise, a creditor can obtain a loan by assigning all his rights over a debt to the factor by giving notice of assignment to the debtor. These assigned rights are also known as “choses in action” which simply means things recoverable by action as opposed to a “chose in possession” which entitles a person to have actual physical possession. In the words of Channell J in Torkington v Magee [1902] 2 KB 427 at 430, the expression “choses in action” means “all personal rights of property which can only be claimed or enforced by action, and not by taking possession.”

This paper, therefore, examines the rights of an assignor and an assignee in an assignment of rights particularly over the sale agreement in the event there should be a dispute between the assignor and the developer/vendor. A common clause in such a loan agreement cum assignment will look like this:

“In consideration of the Facility granted to the Assignor upon the terms and conditions contained in this Agreement, the Assignor as beneficial owner hereby absolutely assigns all of the Assignor's rights and title to and interest whatsoever in the Property including all rights and interest of the Assignor in the Sale and Purchase Agreement to the Bank.”

In this respect, one is often faced with the question of whether an assignor can found an action against the developer without involving the assignee. Likewise, can the assignee sue the developer directly without involving the assignor? The law in this area is at least settled after the date of coming into force of the Civil Law Act 1956 ("CLA") which is 7 April 1956 for West Malaysia and 1 April 1972 for East Malaysia as s 4(3) CLA provides that if the assignment is a statutory assignment under that section, then the assignee can sue the developer/debtor directly without the concurrence of the assignor which means the assignor cannot sue the developer/debtor directly without the concurrence of the assignee unless it is an assignment by way of charge.

Position of the English law prior to 1873

In fact, s4(3) CLA is similar to s 25(6) of the English Supreme Court of Judicature Act 1873. It is, therefore, relevant to examine the English position of an assignment and English authorities before and after the 1873 Act as courts in West Malaysia shall apply the common law of England and the rules of equity as administered in England on 7 April 1956; for Sabah as administered in England on 1 December 1951 and for Sarawak as administered in England on 12 December 1949 subject to local circumstances. (See s 3 CLA.)

In England prior to 1873, common law and equity were administered in different courts – the common law courts (the Court of Exchequer, Court of Common Pleas and the Court of King’s Bench) would enforce legal rights and the court of equity (Chancery Court), equitable rights. Hence, common law courts would only recognise legal rights, but not an assignment of legal choses in action save in the case of bills of exchange, bills of lading and stocks and shares in incorporated companies. It follows that in the case of assignment of equitable choses of action, the assignee could always bring an action in the Chancery Court in his own name if it is an absolute assignment of equitable choses or by joining the assignor if it is a non-absolute assignment of equitable choses in action.

On the other hand, an assignee of a legal assignment of rights, whether absolute or not, could not sue the debtor at common law since there is no privity of contract between the two – a legal principle, albeit the assignor could always sue the debtor for the recovery of the debt in the common law courts. There would be no problem if the assignor agreed to sue, but in most cases he would not be bothered after having assigned his legal rights over the debt. However, equity has always allowed the assignment of both legal and equitable choses of action. Thus in the case of an assignment of legal choses of action, the action had to be brought in the name of the assignor but equity would compel the assignor to lend his name to the assignee in the proceedings. As a result, a legal assignee had to go to two courts in order to enforce an assignment of legal choses of action – the court of equity to compel the assignor to lend his name to sue the debtor and the court of common law to commence the action against the debtor in the assignor’s name.

Position of the English law after 1873

The old courts of common law and equity were then abolished by the English Supreme Court of Judicature Act 1873 which established in their place a single Supreme Court of Judicature comprising now a High Court with three divisions – King’s Bench, Chancery and Family. Each of these divisions could now administer both law and equity, but the latter is to prevail in the event of a conflict.

This has brought a significant change in the position of an equitable assignee who can now enforce an equitable assignment in any of the courts unlike prior to 1873 when he could only do so at the Chancery Court. As regards the assignee of legal choses in action, now he need only to commence one legal action in any of the divisional courts by joining the assignor as a co-plaintiff. However, if the assignor refuses to be so joined, the assignee will still have to sue the assignor as a co-defendant with the debtor. The cause of action against the assignor would still be invoking the equitable jurisdiction to compel the assignor to lend his name to the assignee and the common law jurisdiction to enforce the legal rights against the debtor in the assignor’s name. Hence, even though the 1873 Act fused the administration of law and equity, it did not really fuse law and equity per se as the oft-quoted saying goes, “the two streams have met and now run in the same channel, but their waters do not mix.”

Statutory Assignment under s4(3) CLA

Apart from abolishing the old courts of common law and equity, the 1873 Act also introduced a statutory assignment. S 25(6) of the 1873 Act has now been replaced by s 136 of the Law of Property Act 1925 which is similar to our present s 4(3) CLA. In simple terms, an assignee of a valid statutory assignment can now sue the debtor in his own name. This is effectual in law to transfer to the assignee from the date of notice of assignment the legal right to a debt or chose in action, all legal and other remedies and the power to give a good discharge for the same without the concurrence of the assignor.

However, for the Clause to create a statutory assignment under s 4(3), four conditions must first be satisfied, namely (1) the assignment is in respect of a debt or other legal chose in action; (2) the assignment must be in writing under the hand of the assignor; (3) express notice in writing of the assignment must be given to the debtor, trustee or other person from whom the assignor would have been entitled to claim the debt or chose in action; and (4) the assignment must be absolute and not purporting to be by way of charge only. S 4(3) CLA further provides that such an assignment is subject to equities having priority over the assignee, that is, the assignee takes the assignment subject to any defects in the assignor’s title and all other claims the debtor may have against the assignor. The assignment takes effect from the date of receipt of the notice of assignment by the debtor, an exception to the postal rule that acceptance takes effect upon posting. (See Holt v Heatherfield Trust Ltd [1942] 1 All ER 404.)

As regards condition (1), the “debt or other chose in action” must be one that is existing at the time of assignment, albeit the debt is payable later. (Earle v Hemsworth [1928] All ER 602.) Also, the debt must be of an ascertained amount and it was held in Jones v Humphreys [1902] 1 KB 10 that whilst an assignment of so much of an income which “shall be necessary and requisite for payment to you of the sum of 22l.10s.” might define the sum, “any further or other sums in which I may at any time hereafter become indebted to you" is too indefinite and would fall outside the ambit of s 25(6) of the 1873 Act as an assignment by way of charge.

As respects condition (2), in order to be within s 4(3), the assignment has to be in writing under the hand of the assignor. In other words, if an agent signs the assignment, then this will be outside s 4(3). (Wilson v Wilson 1880 5 Ex D 155.) Whilst s 4(3) does not prescribe the exact form of assignment, the assignment must still be one of absolute assignment and not by way of charge.

Condition (3) requires an express notice of assignment in writing to be given to the debtor (Bank Bumiputra Malaysia Bhd & Anor v Lorrain Esme Osman & Ors [1987] 1 MLJ 502) even if the parties knew that he could not read and oral notice has been given (Hockley and Papworth v Goldstein [1920] 90 LJKB  111) so that the debtor knows to whom he must now pay the debt. Consent from the debtor to the assignment is not necessary. (Tan Ah Chim & Sons Sdn Bhd v Ooi Bee Tat & Anor [1993] 3 MLJ 633.) The date of assignment must also be stated correctly, (Stanley v English Fibres Industries Ltd (1899) 68 LJQB 839) albeit if no date is given at all, the notice is still not defective. (Van Lynn Development Ltd v Pelias Construction Co Ltd [1969] 1 QB 607) The notice will also be bad if the amount of debt has been stated incorrectly. (W F Harrison & Co v Burke [1956] 2 All ER 169.) Though s 4(3) does not prescribe a particular form of notice, where there is doubt, the notice should also specify that the assignee was to receive the money for itself as principal, not to account of or on behalf of the assignor or as its agent. (United Overseas Bank Ltd v Singapore Engineers Ltd  [1966] 2 MLJ 267.) Upon receipt of the notice, the debtor must make all payments of the debt to the assignee and not the assignor and if he pays the assignor without the consent of the assignee, he may have to pay the assignee all over again. (Malayawata Steel Berhad v Government of Malaysia & Anor [1980] 2 MLJ 103, even though it involved an equitable assignment. See also Malaysian International Merchant Bankers Bhd v Malaysian Airlines Sytem Bhd [1982] 2 MLJ 59.)

Condition (4) is perhaps the most important, that is, the assignment must be absolute and not by way of charge. Generally, the requirements of an absolute assignment are: (1) the assignment must be in respect of the whole and not part of the debt (Jones v Humphreys Ibid.); the assignment must not be conditional and (3) the assignment must not be “by way of charge” and labels (BP (Sabah) Sdn Bhd v Syarikat Jubrin Enterprise (sued as a partnership firm & Ors) [1998] 4 MLJ 715) are not important in construction. Thus the oft-repeated question is if the assignor has a right to redeem the loan, is the assignment an absolute assignment? In this respect, it has been held more than a century ago that an assignment of a debt to secure a loan given to the assignor with the assignor’s right to reassignment upon redemption has been held to be an absolute assignment without affecting the absolute character of the assignment. (Tancred v Delagoa Bay Ry[1889] 23 QBD 239 and Hughes v Pump House Hotel Co. [1902] 2 KB 190.) This applies equally to the assignor under the Clause. An assignment by way of charge is different as it only entitles the chargee to the right of repayment without involving a transfer of title to the chargee. For example, in Durham Brothers v Robertson [1898] 1QB 765 where the assignment only states that it is a security for advances “until the money with added interest has been repaid” and silent on the point of reassignment to the assignor with notice to the debtor, it was held that such an assignment is not absolute but one by way of charge because the debtor would not be able to know when the loan has been repaid and when the assignment has ceased since such an assignment ceases upon repayment and not upon reassignment.

If the assignment fails to meet the above conditions of s 4(3), then the assignment will be an equitable assignment in which case the assignee has to join the assignor as a co-plaintiff or as a co-defendant, as the case may be, but the assignor is entitled to sue direct.

Locus Standi

Hence, where there is an absolute assignment under s 4(e), only the assignee can sue the developer/debtor, but not the assignor since the latter has already assigned all his rights and has no more right to sue. This works fine in a factoring agreement where the assignee factor can sue the debtor directly to recover the debt as the assignor creditor will not be interested in suing the debtor since he has already obtained the loan from the factor by divesting all his rights in the debt. (The Chartered Bank v Rashid Bin Mohadmed [1986] 2 MLJ 219.) Likewise, if the assignor defaults in his loan repayment, the absolute assignee bank can always dispose of the property by way of assignment to a third party with notice to the developer and without the concurrence of the assignor borrower. However, the assignment if given by a company requires registration as a charge under s 108(3)(e) of the Companies Act 1965 because it is an equitable mortgage (see Chuah Eng Khong v Malayan Banking Berhad [1998] 3 MLJ 97 and Ng Wei Teck Michael & Anor v Oversea-Chinese Banking Corp Ltd [1998] 1 SLR 55); otherwise the charge will be void against the liquidator and any creditor of the assignor. (s 108(1) Companies Act 1965.)

But problems arise if during the currency of the absolute assignment, the assignor has a dispute with the developer particularly in relation to late delivery and defective workmanship. The assignor will find that he has no locus standi to sue the developer and has to run to the assignee to persuade the latter to personally sue the developer or sue in the name of the assignor. In most cases, the assignee bank will be reluctant to do so and it is always a time-consuming process to get the assignee to agree to this course of action, much to the advantage of the developer.

The above legal position was well settled by the Malaysia’s highest court in Nouvau Mont Dor (M) Sdn Bhd v Faber Development Sdn Bhd [1984] 2 MLJ 268 and Hipparion (M) Sdn Bhd v Chung Khiaw Bank Ltd [1989] 2 MLJ 149 which held that a clause such as the Clause (above) is an absolute assignment under s 4(3) CLA notwithstanding that the assignment would later be converted into a legal charge under the National Land Code 1965 (“NLC”) upon issuance of the individual title. However, it is common knowledge in the housing industry that this is unfair to the assignor if the assignee refuses to sue the developer, a fortiori during the boom years of the nineties when thousands of apartment and condominium units without individual strata titles were sold in Malaysia, and loans were secured by loan agreements and assignment with clauses of assignment not dissimilar from the one in Nouvau Mont Dor. Also, it takes years before strata titles are issued when the assignments are then converted into a legal charge under the NLC which would then confer the assignor now a chargor the right to have direct recourse against the developer.

As a result, many High Court judges attempted to circumvent s 4(3) by holding that such assignment is outside s 4(3) CLA by applying a different construction to the principle laid down in Nouvau Mont Dor which is whether an assignment is an absolute one is to be gathered only from the four corners of the instrument itself even though the clauses of assignment were similar to the one in Nouvau Mont Dor. Further, some judges were of the view Nouvau Mont Dor had been overruled by the later Federal Court case in Chooi Siew Cheong v Lucky Height Development Sdn Bhd & Anor [1995] 1 MLJ 513 which held that when construing a document, one must look at the “surrounding circumstances” and not at one clause in isolation. By doing so, the judges were able to hold that the assignment is by way of charge which entitles the assignor to sue the developer in his own name.

The High Courts in Loh Hoon Looi & Ors v Viewpoint Propertues (Sabah) Sdn Bhd [1995-4 MLJ 804], Lim Hock Lai v Hwa Kwong Development Sdn Bhd [2001] 5 CLJ 515, Max-Benefit Sdn Bhd v Phuah Thean An & Anor [2001] 1 MLJ 553 and Sakinas Sdn Bhd v Siew Yik Hau & Anor [2002] 5 MLJ 498 all held that whether an assignment was an absolute one would depend on the aim of the transaction, and if it was intended as a security for a loan, it could not be absolute and therefore the assignor was entitled to sue in his own name! Another judge in Pak Ki Yau & Anor v Kumpulan Promista Sdn Bhd [1999] 6 MLJ 220 held that as repayment of the loan as well as the execution and registration of the subsequent charge is an uncertain event, the result of which had made the assignment conditional and not absolute!

In Chan Min Swee v Melawangi Sdn Bhd [2000] 7 CLJ 1, the judge went even further to hold that even if the assignment was not absolute, the assignee bank must still be made a party to the action either as a co-plaintiff or a co- defendant on the ground that the assignee bank has an interest in the matter. The court also held that a letter of consent with reservation of rights from the assignee bank is not a good consent for the assignor to sue in his name.

To further protect the assignor purchaser, the Court of Appeal in Phileo Allied Bank (Malaysia) Bhd v Bupinder Singh Avatar Singh & Anor[1999] 3 MLJ 157 held that as an absolute assignment is an equitable charge or mortgage, the assignee bank could only dispose of the property by way of a court order pursuant to Order 83 of the Rules of High Court (“RHC”), triggering off a deluge of foreclosure cases being filed in the courts.

Finally, the Federal Court put an end to all these upon appeal in Phileo Allied Bank (Malaysia) Bhd v Bupinder Singh Avatar Singh & Anor[2002] 2 MLJ 513 which reinstated the law in Nouvau Mont Dorand also held that the RHC could not extend into an area of substantive law and in the absence of any statutory provisions or common law requiring the equitable mortgagee to obtain a court order to realise its security under an absolute assignment of rights to land, the court should recognise the contractual rights of the parties. Hence, the assignee bank is once again entitled to foreclose the property by way of public auction without a court order. (Ngoi Thiam Woh v Maxwell, Kenion, Cowdy & Jones (sued as a firm) & Anor[2002] 3 MLJ 341.)

However, this still does not solve the problem of the poor assignor purchaser who is still incompetent to sue the developer. But his position has improved substantially if he is a homebuyer when Parliament passed the Housing Developers (Control and Licensing) Amendment Act 2002.The 2002 amending Act seeks to insert a new section 22C in the Housing Developers (Control and Licensing) Act 1966 which has the effect of overriding s 4(3) CLA and the decision of Nouvau Mont Dor if it involves a homebuyer who is a purchaser of a housing accommodation or has a dealing with a licensed housing developer under the 1966 Act. This new section will allow the assignor homebuyer to sue the developer directly unless a contrary intention is expressed in any assignment between the homebuyer and his financier in which case the prior written consent of his financier must first be obtained. This section operates “notwithstanding anything contained in any written law or any rule of law” and applies retrospectively to every assignment.


In conclusion, it cannot be gainsaid that a statutory assignment under our s 4(3) CLA is a common security for a loan if there is no individual title to the property, but not an assignment by way of charge. Therefore, there is a need for the legislature to look at the predicament of an assignor purchaser as particularised above just as what it did for the assignee under s4(3) CLA and a homebuyer under the Housing Development (Control & Licensing) Act 1966.

[edit]Common law and equity

There are four types of assignment:

A brief knowledge of English legal history is helpful in understanding the dichotomy between legal and equitable assignments. Legal rights derive from the common law of England which was conceived and developed during the period between the Norman Conquest and the fourteenth century. The common law was administered by the King's Justices on circuit through the three common law courts of King's Bench, Common Pleas and Exchequer. There were no courts of equity.

However, because of restrictions placed on the continued development of the common law, not least the baronial intimidation of the common law courts and their juries, plaintiffs in search of justice began to petition the King in Council for a resolution of their disputes pursuant to the King's inherent judicial powers. Eventually this practice led to the petitions being referred to the King's Chancellor who initially discharged this function in the name of the King but who subsequently established the Courts of Chancery as an independent tribunal from the King in Council.

The jurisdiction of the Courts of Chancery were based on the cannon law concept of ‘conscience’ and ultimately developed into the rules of equity. England therefore had two court systems, the Common Law Courts and the Courts of Chancery, each developing their own rules of law. This separation was abolished by statute in 1875, which replaced the old court structure with the present day structure of the Supreme Court of Judicature. Nevertheless the rules of equity remain distinct from the common law.

[edit] Legal assignments of choses in action

The right to make a legal assignment is now governed by statute – section 136 of the Law of Property Act 1925. Sub-section 1 of section 136 provides:

'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.’

It will be apparent from the wording of the sub-section that certain legal formalities must be complied with if an assignment is to be an effective legal assignment. These formalities are:

  • An absolute assignment in writing signed by the assignor;
  • A debt or other legal thing in action; and
  • Express notice in writing to the debtor.

An absolute assignment does not include the assignment of part of a debt of thing in action whether or not the part assigned is ascertained or unascertained.

In Walter and Sullivan Ltd v J Murphy & Sons Ltd, WS were plasteringsub-contractors who commenced legal proceedings against M for the sum of £1808 alleged to be due in respect of a sub-contract for plastering works. After the commencement of the proceedings, WS, who were indebted to a third party H & Co, notified M that M were 'to pay to H & Co the sum of £1558 17s 8d from monies owing by you to us.. the receipt of H & Co shall be good and sufficient discharge to you in respect of payment made hereunder'.

By a second document, H & Co agreed with WS that in consideration of the irrevocable authority given by them to M ‘we will pay over to you any monies which are paid to us by (the Defendants)... after your debt to us … has been fully repaid .’ The court held that the arrangement between WS and H & Co was an assignment of part of a debt and therefore did not satisfy the requirements of sub-section 1 of section 136 of the Act.

An assignment that purports to be by way of charge only is not an absolute assignment. This is a complex legal concept. Suffice it to say that the relevant test is to decide whether the assignment merely gives a right to the assignee to payment out of a particular fund by way of security rather than an unconditional transfer of the fund to the assignee. In the Walter and Sullivan case, as well as being an assignment of part of a debt the court also held that the assignment purported to be by way of charge.

By way of contrast, it was held in Tancred v Delagoa Bay Company that an assignment by way of mortgage was absolute because there was a condition for re-assignment on payment of the loan. It is the substance of the transaction and not the titles of documents that determines the nature of the assignment.

An assignment which is qualified by conditions cannot be a legal assignment. In Re Williams, Williams v Ball the assignor purported to transfer the benefit of a life insurance policy but made it conditional upon the assignee surviving the assignor. This was held to be a conditional assignment falling outside section 136 of the Act. The judicial reasoning behind the requirement for an absolute assignment is that the debtor should not be put in doubt or jeopardy by the arrangements between the assignor and the assignee as to whom he is to discharge his obligations. In the cases of Walter and Sullivan and Williams there were such doubts, but not in the case of Tancred where the re-assignment on repayment of the loan would have to be notified to the debtor.

To create a legal assignment there must be a written document signed by the assignor. Signature by an agent would not appear to be sufficient. Any form of wording may be used provided there is a clear intention to make an absolute assignment. The assignment may be a document passing between the assignor and the assignee, or a written demand from the assignor to the debtor that the debtor pays or discharges his obligations to the assignee.

In the latter case, in order to be an effective assignment rather than merely an authority to pay a third party, there must be evidence that the assignee consented to the arrangement between the assignor and the debtor (see Curran v Newpark Cinemas Ltd). Unlike an assignment, an authority to pay can be revoked prior to the actual payment.

A debt or other legal thing in action includes both legal choses and equitable choses. The purpose of section 136 of the Act, which replaced but substantially re-enacted section 25, sub-Section 6 of the Judicature Act 1873, was procedural and not intended to create new forms of choses or things in action.

To create a valid legal assignment, written notice of the assignment must be given to the debtor. No particular form of wording is required; indeed a document can constitute notice even though it was not intended to be a notice.

In Van Lynn Developments Ltd v Pelias Construction Co Ltd P's bank overdraft was paid off by Van Lynn in consideration of P assigning the debt to Van Lynn. The assignment was dated 26 June. By a letter dated 27 June, Van Lynn demanded payment from P. In their letter Van Lynn stated, incorrectly, that notice of the assignment had previously been given to P. The court held that a notice of assignment was still good notice to the debtor even though it did not refer to the date of the assignment.

Further, as regards Van Lynns letter dated 27 June, the incorrect statement as to a notice could be ignored as 'an inaccurate surplusage' and it was immaterial that the letter was not written with the intention that it should perform the function of giving notice under the Act. It is not necessary for the notice to the debtor to be given by the assignor or the assignee; it may be given by a third party. In Bateman v Hunt, a valid notice was given by the executor of a deceased sub-assignee. In Herkules Piling Ltd and Another v Tilbury Construction Ltd, purported notice to the debtor by way of disclosure of documents in legal proceedings in which the debtor was a party, was considered to be insufficient notice of a legal or equitable assignment.

Once there has been an assignment which complies with the formalities of section 136, there is a transfer to the assignee of the legal right to the chose in action and the assignee can give good discharge upon payment or satisfaction by the debtor. It follows that the assignor has no right to sue in respect of the chose in action unless of course there is a re-assignment to the assignor. The same rules apply to intermediate assignments, thus creating a potential problem where a tenantassigns to a sub-tenant part of the demised property.

An assignment within the statute does not require consideration, thus voluntary assignments are enforceable between the assignor and the assignee and between the assignee and the debtor.

[edit] Equitable assignments

A failure to comply with the formalities of section 136 of the Act is not necessarily fatal to the transaction; a defective legal assignment may operate as an equitable assignment (see William Brandts Sons & Co v Dunlop Rubber Co). Indeed a defective legal assignment which takes effect as an equitable assignment may subsequently become a legal assignment if the defect is removed; for example, where an equitable assignee of a defective legal assignment subsequently serves written notice on the debtor to perfect the legal assignment.

There may be an equitable assignment of an equitable chose or an equitable assignment of a legal chose. No consideration is required for the assignment of an equitable chose provided that the assignor has, at the material time, done all that he can to perfect the gift (see Letts v Inland Revenue Commissioners). It is suggested that the better view is that the same rule applies to equitable assignments of legal choses although there are judicial dicta to the contrary.

An equitable assignment may be in writing or oral. Any words will suffice provided they are unambiguous. Referring to the form of an equitable assignment Lord Macnaghten in the William Brandts case stated:

'It may be addressed to the debtor. It may be couched in the language of commerce. It may be a courteous request. It may assume the form of mere permission. The language is immaterial if the meaning is plain. All that is necessary is that the debtor should be given to understand that the debt has been made over by the creditor to some third person.’

Lord Macnaghten's judgment in William Brandt referred to notice to the debtor. In law there may be a binding equitable assignment between assignor and assignee without notice to the debtor. However, as a matter of practice, notice to the debtor is very important for three reasons. Firstly, in the absence of notice the debtor is entitled to discharge his obligations to the assignor and not to the assignee, whereas if he has notice he does so at his own peril and he may well be required to discharge the obligation a second time to the assignee with no entitlement to recovery from the assignor (see Walter & Sullivan Ltd).

Secondly, the giving of notice to the debtor has an effect on prior equities (see below). Thirdly, the date of notice establishes the order of priority as between successive assignees (see Dearie v Hall). The notice may be written or oral and the wording of the notice may be informal, although casual conversations may not be sufficient notice (Re Croggon ex parte Carbis). Indeed in the case of Lloyd v Banks, the court held that a newspaper article was sufficient notice to the debtor.

An equitable assignment may operate by way of a charge only or be of part of the debt or chose (see Walter & Sullivan Ltd). Thus, where a developer wishes to dispose of the completed building to more than one purchaser or tenant, it is submitted that he will only be in a position to give each individual purchaser or tenant an equitable assignment of the benefits arising under the principal design and construction contracts.

If a legal assignment is required, then the draftsman of the principal contracts should take care to impose an obligation on the designers and contractors to provide a sufficient number of collateral warranties to satisfy the requirements of multi-occupation.

[edit] Procedural differences between legal and equitable assignment

Substantively legal and equitable assignments (provided notice has been given to the debtor) are essentially the same. In the Herkules Piling case, it was considered that an arbitration clause in the FCEC form of sub-contract could be assigned by a legal assignment by reason of the wording of section 136 of the Law of Property Act 1925, which stipulated that all attendant remedies were transferred, but not by an equitable assignment as the arbitration clause conferred discrete rights and obligations between the original contracting parties. There are however important procedural differences.

A legal assignment within the Act transfers a legal right in the chose to the assignee. Consequently the assignee sues the debtor in his own name. If there is an equitable assignment of an equitable chose in action the assignment being absolute, then again the assignee is entitled to sue in his own name. However, if there is an equitable assignment of a legal chose in action or an equitable chose which is not absolute, for example a part of the debt, the assignor must be joined into the action either as claimant, if he co-operates, or as defendant if he does not.

If the assignor is not joined as a party, the assignee's action may well fail although it is important to stress that these requirements are procedural and are not substantive, therefore the courts have a discretion to dispense with joinder of the assignor if they are satisfied that there is no prospect of a further claim by the assignor (see The Aiolos). Also note that under the Civil Procedure Rules Part 19, the Supreme Court has a wide discretion to order that additional parties should be joined to an action.

[edit] Prior equities

The effect of an assignment, whether it is a legal assignment or an equitable assignment, is to place the assignee in the shoes of the assignor in respect of the benefits (but not the burdens) arising under the original transaction with the debtor. Consequently the assignee cannot by the assignment obtain a more advantageous position vis-à-vis the original debtor than that which was occupied by the assignor. In Business Computers Ltd v Anglo African Leasing Ltd, Templeman J stated that:

'a debt which accrues due before notice of an assignment is received, whether or not it is payable before that date, or a debt which arises out of the same contract as that which gives rise to the assigned debt, or is closely connected with that contract, may be set off against the assignee.’

It is important to note that if the set-off arises independently from the original contract between the assignor and the debtor, then it cannot be set off against the assignee if the liability (as distinct from the actual payment) accrued after the date of receipt of a notice of assignment. The giving of notice of assignment is however irrelevant to claims by way of set-off or counterclaim that arise from the original contract or a contract which is closely connected to the original contract.

For example, A is the developer, B the architect appointed by A, C the first purchaser of the development from A and D the second purchaser from C. The contract between A and B provides for design works to be carried out by B and payment therefore to be made by A. B also enters into a collateral warranty undertaking to C that he will carry out his design works with reasonable skill and care. C assigns the benefit of the collateral warranty to D. A has not paid all of B's professional fees.

In the event that B is in breach of his collateral warranty, if D brings proceedings against B then B will be able to set off the amount of the unpaid fees against D's claims regardless of whether the entitlement to the fees arose after the date of D's notice of assignment to B. This is because the collateral warranty and the original contract between A and B are closely connected contracts.

In the above example the same right of set-off arises as between B and C if C were the ultimate purchaser who took an assignment of A's benefits under the original contract with C. In this latter example, the rights of set-off and counterclaim would arise from the same contract.

A counterclaim for unliquidated damages may be set off by the debtor against any claims brought by the assignee (see Phoenix Assurance Co Ltd v Earls Court Ltd).

The debtor's right to counterclaim against the assignee is limited to defending the claims brought by the assignee, the counterclaim being set off in extinction or diminution of the assignee's claims. It does not entitle the debtor to bring positive counterclaims against the assignee, i.e for sums in excess of the assignee's claims. This is because, as stated above, the assignee only takes the benefit and not the burden of the original contract.

[edit] Intermediate assignees

It would appear that where there have been successive assignments the debtor is not entitled to set off against claims brought by the ultimate assignee, counterclaims which the debtor has against intermediate assignees (see The Raven).

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