Case: Cotton v Heyl [1930] 1 Ch 510
Outcome: cited
The following summary account of general principles is in accord with his Lordship's affidavit. (1) The English legislation that made a "debt or other legal thing in action" assignable in law was s 25(6) of the Supreme Court of Judicature Act 1873 (UK) and the provision is now found in s 136(1) of the Law of Property Act 1925 (UK). (2) Although the common law did not recognise assignments of legal choses in action, equitable assignments of them were recognised. Lord Millett states that "[e]quitable assignments of legal choses in action are of great antiquity". I note that in his recent scholarly work, The Assignment of Contractual Rights (Hart Publishing, 2006), Dr Tolhurst states (at [2.16]): By the beginning of the eighteenth century, it was settled that equity would recognise the assignment of a legal chose in action and viewed the common law's position as "absurd" [ Master v Miller (1791) 4 TR 320 at 340 (100 ER 1042 at 1053) per Buller J]. (3) The statutory provision did not impair the efficacy of equitable assignments, and neither the equitable assignment nor notice of it to the debtor (if notice of it was given) was required to be expressed in any particular manner, and might be written or oral in form, so long as the intention to assign and (if notice of it was given) the intention to give notice of an assignment were plain: William Brandt's Sons &amp; Co v Dunlop Rubber Company Limited [1905] AC 454 at 462 per Lord Macnaghten. (4) Notice to the debtor was not a requirement of a valid equitable assignment, as it is in the case of a valid legal assignment under the statutory provision: Gorringe v Irwell India Rubber and Gutta Percha Works (1866) 34 Ch D 128; Ward and Pemberton v Duncombe [1893] AC 369 at 392. As between assignor and assignee, an equitable assignment is complete and binding from the time when it is made or when the assignor has agreed, for valuable consideration, to make it. (5) The debtor's state of mind is irrelevant. However, the debtor's liability will be discharged if it pays the assignor before receiving notice of the assignment. In such a case, the assignor will hold the amount paid to it upon trust for the assignee. (6) Notice to the debtor need not be in any particular form and may be given by any party. Lord Millett states: "The question is whether the debtor has notice of the assignment or has been put on enquiry whether there has been an assignment. If he goes ahead without enquiry and pays the assignor, he is at risk of having to pay twice." (7) Because a debt cannot be sold in a ready market elsewhere, a contract to assign a debt is, subject to impediments that may exist, specifically enforceable in equity. Accordingly, an equitable assignment need not purport to be an actual present assignment, and may take the form of a contract, for valuable consideration, to assign: see Cotton v Heyl [1930] 1 Ch 510 at 520 521; In Re Warren; ex parte Wheeler v The Trustee in Bankruptcy [1938] Ch 725 at 734 6; and see Tolhurst, op cit at [7.16]. (8) Whether or not it is correct to say that the assignor holds the legal chose in action on trust for the assignee before the promised consideration is paid, once the promised consideration is paid, it does. It will then hold the benefit of the obligor's undertaking upon a constructive trust for the assignee, even if specific performance of the contract to assign between assignor and assignee could not have been obtained by the assignee previously. As Lord Millett summarises the position, "[t]he trust ceases to be defeasible or contingent; the vendor becomes a fiduciary; and the purchaser has all the remedies of a beneficiary under an ordinary trust", citing Rose v Watson (1864) 10 HLCas 672 (11 ER 1187) esp per Lord Cranworth at 683 4 (ER 1192), and see also Lake v Bayliss [1974] 2 All ER 1114.