ASSIGNMENT OF CHOSES IN ACTION

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 Emmanuel Bassey

  1. INTRODUCTION

As a general rule and based on the doctrine of privity a contract cannot confer rights or impose obligations on any person except the parties to the contract. Accordingly, a contract cannot be enforced by or against a person who is a stranger to it even if the contract is made for his benefit and purports to give him the right to sue or to make him liable upon it. The main reason for this is that it is the parties’ contract, and they are always free to vary or discharge it by agreement. The creation of a third party right would impede this freedom unless an agreement for such third party involvement has been made part of the agreement.

As with every general rule, there is always an exception. One of the exceptions to the doctrine of privity of contract arises in the assignment of choses in action where the owner of a contractual right can transfer same to a third party without the consent of the debtor (the counter-party to the contract), thereby enabling the third party to enforce the right against the debtor. The process of transfer of such a right is known as “assignment” and the types of property which are susceptible to this type of transfer are known as “choses in action.”

This article sets out to trace the evolution, incidence, and the conditions precedent for a valid assignment of choses in action under Nigerian law.

  1. WHAT ARE CHOSES IN ACTION?

Choses in action is a legal expression used to describe all personal rights of property which can only be claimed or enforced by action and not by taking physical possession of them. They are also called “things in action” because they are things which a person is not possessed but has to bring an action in court in order to recover them. Choses in action may be legal or equitable. Legal choses in action are those which could historically only be enforced by an action at common law whilst equitable choses in action are choses in action which could only be enforced in the courts of equity- they arose out of property rights over which the Chancery Court formerly had exclusive jurisdiction. Examples of choses in action include debts, shares, negotiable instruments, policies of insurance, bills of lading, patents, copyrights, rights under trusts and legacies, benefit of a contract for sale of reversionary interest, rights to claim indefinite sums of money, as for compensation under Statute; damages for loss in which the assignee was the assignor’s insurer, a debt or benefit arising out of an existing contract, but payable at a future time and a claim for damages in tort. All these are intangible rights which cannot be physically possessed but only claimed or enforced by an action in court. They are in law permitted to be assigned by the holders (though they can neither be seen nor possessed) to third parties who would be able to enforce the rights against the debtors even though they were not parties to the original contract.

  1. ASSIGNMENT OF CHOSES IN ACTION

The term “assignment” refers to the act of transferring to another all or part of one’s property, interest, or rights. The term denotes not only the act of transfer, but also the instrument by which it is effected. In Julius Berger (Nig) Plc & Anor v. Toki Rainbow Community Bank Ltd the Court of Appeal held that “assignment means to give something to some body for their use or benefit. It also may mean to transfer right, property or title from the persons legally entitled to them to some body else for their benefit.”

The assignment of choses in action may be legal or equitable. Due to the vagaries of the historical evolution of law and equity, different considerations apply to the assignment of choses in action at law and in equity.

  1. ASSIGNMENT AT COMMON LAW

Historically, under common law contractual rights were hitherto not assignable without the consent of both contracting parties since they were things in action as opposed to things in possession. This common law rule stemmed from the difficulty of conceiving of transfer of an intangible, and the desire to avoid maintenance and champerty. The only methods of assigning contractual rights at common law were by novation and by procuring the debtor’s acknowledgment that he held for the assignee, both of which required the consent of the debtor, unless the assignment was done by the king or it involved the assignment of a mercantile chose in action like a negotiable instrument which are transferrable by mere delivery. Accordingly, legal choses in action could only be assigned at law with the consent of the debtor. The assignor was however, required to be joined as a party to any action to enforce the assignment (either as a plaintiff if he consented or as a defendant in the absence of consent) since there was no privity of contract between the debtor and the assignee.

Given the rigors of assignment of legal choses in action under the common law, the courts of equity developed more flexible requirements for the assignment of equitable choses in action. However, the most significant intervention was introduced by the enactment of the English Judicature Act of 1873 which introduced the concept of statutory assignment.

  1. STATUTORY ASSIGNMENT

The enactment of the Judicature Act, 1873 (a statute of general application in Nigeria) created an exception to the doctrine of privity of contract by introducing the concept of trust of a chose in action in section 25(6) of the Act, which provides as follows:

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; Provided that if the debtor, trustee or other person liable in respect of such debt or thing in action has notice:- i. That the assignment is disputed by the Assignor or any person under him or; ii. Of any other opposing or conflicting claim to such debt or thing in action, he may if he thinks fit either call upon the person making claim hereto to inter plead concerning the same, or pay the debt or other in action in Court.

 

By section 25(6) of the Judicature Act, a contractual party could assign his rights under the contract subject to the conditions stated in the Act without any need for a novation or acknowledgment by the debtor.

  1. CONDITIONS FOR A VALID ASSIGNMENT OF CHOSES IN ACTION

In order for Section 25(6) of the Judicature Act 1873 to apply, three conditions must be fulfilled:

6.1 The assignment must be absolute and not purport to be by way of charge only

An absolute transfer is a transfer of the whole not a part of the chose in action. The test to be applied in determining whether an assignment is absolute is whether the assignor has unconditionally transferred to the assignee for the time being, the sole right to the debt in question as against the debtor in which case the assignment is absolute. The fact that the assignee is to hold proceeds of the debts or the surplus proceeds beyond the stated amount, on trust for the assignor does not prevent the assignment from being absolute.

An assignment that purports to be by way of charge only is not an absolute assignment. 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. 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.

No particular form or mode is prescribed or required by law for a legal assignment as long as the assignor absolutely and unequivocally indicates the transfer of the benefit, interest or title to the assignee.

6.2 It must be in writing under the hand of the assignor

No particular mode or form is necessary as the writing can be informal, as for instance, a direction in writing by a creditor to his debtor to pay the assignee, handed to the assignee, may amount to an assignment but such a direction handed to the debtor may not by itself constitute an assignment unless there is evidence that the assignee has requested or consented to it. It is also the law that even if the debtor has the direction, it may not constitute more than authority to pay, and gives the assignee no rights unless the instructions can be said to amount to an irrevocable mandate to the debtor.

6.3 Express notice in writing thereof must be given to the debtor or trustee

This notice is not required to be in a separate document purposely prepared as a notice and described as such. What is needed is that information relative to the assignment shall be conveyed to the debtor, and that it shall be conveyed in writing. A written demand for payment sent by the assignee to the debtor has been held to be sufficient once the notice is unconditional and given to the debtor personally before the assignee commences his action. It has also been held that since a creditor can assign by directing his debtor to pay the assignee, a single written document would suffice to constitute both the Assignment as well as the notice envisaged by the Act. Furthermore, 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.

  1. LEGAL EFFECT OF A STATUTORY ASSIGNMENT

Once the above conditions have been fulfilled, certain legal consequences immediately follow:

    1. The assignee can sue the debtor in his own name instead of having to sue in the name of the assignor and perhaps to go to the Court of equity to compel his joinder in the action.
    2. Consideration is not required for the assignment.
    3. The consent of the assignee is not required for the assignment. However, where it is the liabilities or the burdens under a contract that are to be assigned to a debtor, the consent of the assignee is required.
    1. EQUITABLE ASSIGNMENT OF CHOSES IN ACTION

    An equitable assignment of a chose in action arises in the event of an assignment of an equitable chose in action and where there has been a failure to comply with the statutory conditions for a valid assignment of a legal chose in action. Such an assignment which fails to comply with the requirements of the statute will not become invalid but will operate as an equitable assignment.

    An equitable assignment may be in writing or oral. It may operate by way of a charge only or be part of the debt or chose. If there is an equitable assignment of an equitable chose in action the assignment being absolute, then the assignee is entitled to sue in his own name.

    Any words will suffice provided they are unambiguous to the effect that an identifiable debt has been made over by the creditor to some third person. No privity of contract or consideration is required for equitable assignment provided that the assignor has, at the material time, done all that he can to perfect the gift.

    An equitable assignment is binding even without notice to the debtor. However, as a matter of practice, notice to the debtor is very important for three reasons:

        1. 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.
        2. The giving of notice to the debtor has an effect on prior equities. The general rule as regards assignment of choses in action is that an assignee takes subject to the equities that already apply to the property in question. Thus, anyone who has a prior interest (legal or equitable) in an assigned chose is entitled to a higher priority than that of the assignee. The reason for this is that the assignee cannot acquire a better title than that of the assignor. What he essentially gains by virtue of the assignment is a right to continue in the stead of the assignor in respect of that chose and nothing better.Claims of equities that arise after notice of the assignment has been given to the debtor would not affect the assignee, except where the claim is very closely related to the original transaction upon which the chose came into existence. The rule that the assignee takes subject to equities will not apply where the trustee is estopped, either by conduct or deed, from setting up equities against the assignee. It would not also apply where the agreement occasioning the original transaction includes a clause that the assignees of the assignor would take free from all equities.
        3. The date of notice establishes the order of priority as between successive assignees. Thus, where there are two or more assignees of the same chose in action, the first to give notice has priority over the other assignees even if they were first in time.
        1. CONCLUSION

        Assignment of choses in action provides a veritable avenue for the exchange of contractual rights, especially when the assignor does not have the wherewithal to enforce the right in court. This creates a win-win situation for the assignor and the assignee, as the assignor is immediately able to receive value for his rights and the assignee is able to enforce the right to receive whatever benefit he has contracted for whilst the debtor’s position is not adversely affected. The parties, however, need to understand the applicable principles so that they would know the extent of any rights that they acquire in any given transaction.

        ______________________________

        For further information on this article and area of law,
        please contact Emmanuel Bassey at:
        S. P. A. Ajibade & Co., Lagos by
        Telephone (+234 1 472 9890), Fax (+234 1 4605092)
        Mobile (+234.703.805.9736, +234.815.088.2839)
        Email: ebassey@spaajibade.com
        www.spaajibade.com

        Footnote

          1. Emmanuel Abasiubong Bassey, Senior Associate in the Dispute Resolution Department of S.P.A. Ajibade & Co., Lagos, Nigeria.
          2. Makwe v. Nwukor & Anor (2001) LPELR-1830(SC) (pp 25 – 25 paras D – E).
            See, Ben Electronic Co. (Nig) Ltd v. ATS & Sons & Ors. (2013) LPELR-20870(CA) (pp 62 – 98 paras A – E). It was however, held that the benefit of a contract is only assignable in cases where it can make no difference to the person on whom the obligation lies to which of two persons he is to discharge it. See, Tolhurst v. Associated Portland Cement Manufacturers Ltd (1902) 2 K.B. 660 at 668, (1903) A.C. 414 cited in Julius Berger (Nig) Plc & Anor v. Toki Rainbow Community Bank Ltd (2009) LPELR-4381(CA) (pp 24 – 25 paras E – C).
          3. I. E. Sagay, Nigerian Law of Contract (first published 1985, 2nd Edn, Spectrum Books Limited, Ibadan, 2000) 516.
          4. See, https://mcmahonsolicitors.ie/choses-in-action/ [accessed on 14th December 2023.]
            Supra.
          5. See, Ben Electronic Co. (Nig) Ltd v. ATS & Sons & Ors (supra).
          6. See, FCMB v. Essien (2022) LPELR-58699(CA) (pp 6 – 6 paras E – F).
          7. See, FCMB v. Essien (supra).
          8. Julius Berger (Nig) Plc & Anor v. Toki Rainbow Community Bank Ltd (2009) LPELR-4381(CA) (pp 24 – 25 paras E – C).
          9. The following choses are however not assignable: (1) Salaries of public officials. This is because it is perceived that if allowed to assign their salaries, they may deprive themselves of their means of sustenance and thereby impair the efficiency which is most desirable for the public service; (2) Alimony- because the money is meant for the maintenance of the spouse and (3) Rights arising out of a contract for personal service.
          10. Maintenance occurs when a third-party provides support for litigation without a just cause, by providing, for example, financial assistance. Champerty is an aggravated form of maintenance, where a third-party pays some or all of the litigation costs in return for a share of the proceeds.
          11. (36 & 37 Vict.) CHAPTER 66.
          12. In Nigeria, a statute of general application refers to refers to statutes which were in force in England on the 1st of January, 1900. They were to be applied by the courts in Nigeria as far as local circumstances permit. However, the Western Region is now exempted by virtue of Law of England (Application) Law of 1959. The West African Court of Appeal stated in Young v. Abina that it was not necessary for the statute to be in force in all of the United Kingdom, but it only had to be in force in England. See, https://www.learnnigerianlaw.com/learn/legal-system/englishlaw accessed on 12th December 2023.
          13. Section 25 (6) of the Judicature Act i873 which has now been repealed and replaced substantially by Section 136 of the English Law of Property Act, 1925, in England.
          14. See, Ben Electronic Co. (Nig) Ltd v. ATS & Sons & Ors. (supra). It has been held that the benefit of a contract is only assignable in cases where it can make no difference to the person on whom the obligation lies to which of two persons he is to discharge it. See, Tolhurst v. Associated Portland Cement Manufacturers Ltd (1902) 2 K.B. 660 at 668, (1903) A.C. 414 cited in Julius Berger (Nig) Plc & Anor v. Toki Rainbow Community Bank Ltd (2009) LPELR-4381(CA) (pp 24 – 25 paras E – C).
          15. See, https://www.designingbuildings.co.uk/wiki/Legal_and_equitable_assignment [accessed on 14th December 2023].
          16. See, Julius Berger (Nig) Plc & Anor v. Toki Rainbow Community Bank Ltd (2009) LPELR-4381(CA) (pp 25 – 26 paras D – D).
          17. See, Ben Electronic Co. (Nig) Ltd v. ATS & Sons & Ors (supra).
          18. Supra
          19. See, Bateman v. Hunt, 20 T. L. R. 628.
          20. See, Ben Electronic Co. (Nig) Ltd v. ATS & Sons & Ors (supra).
          21. Supra.
          22. See, Julius Berger (Nig) Plc & Anor v. Toki Rainbow Community Bank Ltd (supra).
          23. See, https://www.designingbuildings.co.uk/wiki/Legal_and_equitable_assignment [accessed on 14th December 2023].
          24. See, William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454.
          25. If it is incomplete, consideration may be required. Consideration will also be required where the assignment concerns some future chose as the agreement in such instance can only be a contract to assign and all contracts must be backed by consideration. See, Ben Electronic Co. (Nig) Ltd v. ATS & Sons & Ors (2013) LPELR-20870(CA) (pp 62 – 98 paras A – E).
          26. The notice may be written or oral and the wording of the notice may be informal. A newspaper article may be a sufficient notice to the debtor. See, Lloyd v Banks (1868) LR 3. Ch App 488.
          27. Re Knapman (1881) 18 Ch. D 300.
          28. https://djetlawyer.com/assignment-of-choses-in-action/#:~:text=An%20assignment%20of%20a%20chose,legal%20(statutory)%20or%20equitable [accessed on 5 December 2023].
          29. See, the rule in Dearle v Hall 3 Russell 1, 38 ER 475.

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