Assignment and priorities 

Two related questions: how a right is transferred, and who prevails when two people claim inconsistent interests in the same subject matter. Both are dominated by the distinction between legal and equitable interests.

Assigning a chose in action

A chose in action — a debt, a contractual right, shares, an interest under a trust — cannot be handed over. It is transferred in one of two ways.

Statutory (legal) assignment. The property legislation of each jurisdiction provides for the legal assignment of a debt or other legal chose in action where the assignment is absolute, in writing signed by the assignor, and express notice in writing is given to the debtor. Satisfy those conditions and the assignee takes the legal right and may sue in their own name. Fail any of them — the assignment is by way of charge, or notice is never given — and the assignment is not void; it simply takes effect in equity.

Equitable assignment. No particular form is required. What is required is a clear manifestation of a present intention to assign, and the subject matter must be identifiable. Notice to the debtor is not a condition of validity, but giving it matters for three practical reasons: it prevents the debtor from discharging the debt by paying the assignor, it prevents new equities arising between debtor and assignor, and it fixes priority against later assignees.

An equitable assignee of a legal chose generally must join the assignor in proceedings, so that the debtor is not exposed twice.

Writing is separately required by statute for assignments of subsisting equitable interests, and for dispositions of interests in land.

Future property

Property not yet in existence or not yet owned — next year's royalties, an expectancy under a will, book debts of a business yet to trade — cannot be assigned at law, because there is nothing to assign. Equity treats a purported assignment as an agreement to assign, which attaches automatically when the property comes into existence.

The consequence is decisive: because it rests on agreement, it binds only where it was made for value. Equity will not assist a volunteer, so a gratuitous assignment of future property is ineffective, while a gratuitous assignment of existing property may be perfected by doing everything necessary to be done by the assignor.

Priorities

The competition is resolved by the character of the interests involved.

• Legal versus later equitable. The legal interest usually prevails.
• Equitable versus later legal. The bona fide purchaser of the legal estate for value without notice takes free — equity's darling. Notice includes actual, constructive (what reasonable inquiries would have revealed) and imputed (an agent's knowledge).
• Equitable versus equitable. Where the equities are equal, the first in time prevails. The equities are not equal where the earlier holder's conduct contributed to the later interest being created — arming another with the indicia of title, failing to lodge a caveat where that is expected, or leaving documents with an agent. This postponing conduct is where these problems are actually decided.
• Competing equitable assignments of a chose in action. Priority is determined, per Dearle v Hall (1828) 3 Russ 1,¹ by the order in which notice is given to the trustee or debtor, provided the later assignee took without notice of the earlier assignment — a rule that displaces first in time and is frequently missed.
• A mere equity, such as a right to rescind or rectify, ranks below a full equitable interest acquired for value without notice.

Land under Torrens

For land under the Torrens system the statutory scheme governs, and general law priority rules apply only where the statute leaves room. Registration confers indefeasible title subject to the exceptions in the relevant Act, fraud principally among them; unregistered interests take effect in equity and are protected in practice by caveat. Failing to caveat may amount to postponing conduct, though it is not automatically so. The detail is jurisdiction-specific and must be taken from the local Act.

Applying this in a problem question

1. Identify the subject matter, and whether it is existing or future property.
2. Test the assignment against the statutory requirements; if it fails, ask whether it is good in equity, and whether value was given.
3. Classify every competing interest as legal, equitable or a mere equity, and date each.
4. Apply the rule for that combination, then ask whether notice or postponing conduct displaces it.
5. For land, start with the Torrens statute rather than the general law.

Where the authority sits

The conveyancing or property law statute of the jurisdiction for statutory assignment and writing requirements, its Torrens legislation for land, and case law for equitable assignment, future property and the priority rules.