Understanding Equitable Interests, Assignments, And Transfer Of Property

Types of Equitable Interests

Mollie Lendrum [‘Mollie’] started her career as a teenage singing sensation on the Australian TV show ‘Kids Talent Time’ where she quickly achieved celebrity status. By the age of 20 she had released her first album ‘Mollie Unmasked’ complete with raunchy video clip. The album became an international hit; movie roles followed and today she tours the world presenting her glamorous stage show filled with music and dancers in exotic costumes.

Mollie has a contract with record label Polymer for royalty payments on all CDs sold and music downloads. She also owns 50,000 shares in Polymer. Polymer is a profitable company and has never failed to declare a dividend on its shares each June 30. The merchandising arm of Mollie’s
business empire sells her own range of clothing, make up and jewellry and is also very successful. This is jointly controlled by Mollie and her publicity manager Cyril, in a 50-50 partnership agreement. Presently the promoter Terry Hatchett [‘Terry’] also owes Mollie $1,000,000, being her appearance fee from her last highly successful tour.

However the years of touring and living the glamorous life of an international celebrity with the constant attention from the paparazzi have taken their toll. On a recent holiday Mollie sees a small bush hideaway for sale in the hinterland behind Summer Bay on the north coast of new
South Wales and on a whim decides to leave the glamour of show biz behind and retire to a simpler, back-to-nature lifestyle. She decides to purchase the property for $500,000 and to divest herself of most of her assets, which she decides would only distract her from her new, peaceful reflective existence.

Mollie telephones her legal team and says “I want to give Cyril half of the $1,000,000 currently owed to me by Terry Hatchett as he’s always looked after me so well, and anyway I only need $500,000 to buy my new house. And as I no longer need my waterfront Sydney house I want to give that to my sister Dominique. And I want to give my best friend Linda my half of the partnership in the merchandising arm of the business, and all my future royalties from Polymer as well as any dividends on the Polymer shares payable in the future. I am leaving for Summer Bay first thing tomorrow.” The lawyer replies “OK, we will prepare all the documents and you will need to drop into my office before you leave to sign some things. I also need you to bring the Certificate of Title ‘[CT] for the house you want to give to Dominique”.

The legal team duly prepare the documentation: a Memorandum of Transfer in prescribed form in relation to the Sydney house and a Deed of Assignment assigning to Cyril $500,000 of the one million dollars owed to Mollie by Terry Hatchett. They further prepare Deeds of Assignment in relation to the share dividends from the Polymer shares and the royalty payments from Polymer. However the legal team forget completely about Mollie’s instructions in relation to her share of the partnership agreement.

The next day Mollie arrives at the lawyers’ office. She signs the Deeds, and the Memorandum of Transfer in relation to the Sydney house. “Did you bring the Certificate of Title for the Sydney house”? askes the solicitor “Oh dear, I forgot” replies Mollie. “It’s in my safe at home and only I can access it…I’ll send it to you”… and at that she breezes out of the solicitors’ office and into her new life. She immediately forgets about the CT. However, Mollie quickly starts to miss all the glamour of ‘life in the fast lane’. Why, when she goes shopping into Summer Bay no-one so much as looks at her, let alone asks for an autograph!

Realizing that she has made a terrible mistake, she telephones the lawyers and says “I’m back! Forget all those instructions I gave you, I want my old life and all my property back”. What rights, if any, may Cyril, Dominique and Linda have acquired in Mollie’s property? Can any of these purported transfers be made binding if they are not already so?
 

In the present case study assignment, the issues involved are what rights being available to Cyril, Dominique and Linda as acquired by them in Mollie’s property. The second issue is whether any of those purported transfers can be made binding if they are not already so. In this analysis, the nature, creation and priority of equitable interests along with assignment of property in equity have been discussed.

Equitable interests usually arises in three ways; firstly in perusal to the intention of the creator of the interest or the assignor (example: express trusts); secondly by implication of law (example: resulting trusts) and lastly, by the operation of law (example: constructive trusts).  Equitable interests are mainly three types which are equitable proprietary interests, personal equities and mere equities. Mere equities in some cases are referred to as only equity to differentiate from other two branches of it.

No dealings to transfer any estate or interest in any land shall be effective until they are registered in the manner provided by Section 41 of the Real Property Act (NSW). Hence, unless such transfer is recorded in the register kept under the provisions of the said Act it is not valid. Similar observation is found in section 23B of the Conveyancing Act (NSW) 1919 which says that no assurance of land will be valid to pass an interest at law unless it is made in deed. 

In the case of Barry v Haider (1914) 19 CLR 197, Griffith CJ observed that equitable claims and interests are recognized in the Real Property Act, hence, section 41 while denying effect to an instrument unless registered, does not touch the rights that are behind it.

Assignment of property means the immediate transfer of an existing proprietary right, vested or contingent, from the assignor to the assignee. This definition was given by Windeyer J in the case of Norman v Federal Commissioner of Taxation [1963] HCA21; 109 CLR 9. Hence, “assignment” can include any of the following transfer of property like sale of real property, sale of personal property, intervivos gift and bequest or device of testamentary gift. It is nothing but a transfer of a right from one person to another. A chose in action is in most cases is deemed to be a chose of action that allows enforcing of rights.    

An assignment incorporates an ‘assignee’ who transfers some or all of his rights under an agreement of contract to an ‘assignee’. Thus the assignee is entitled to enforce those rights transferred to him, against the non- assigning party. Assignable contractual rights are choses in action and are a sub category of personal proprietary right. It can be transferred to a third party even at law or in equity according to provisions controlling such transfer of rights. All personal rights of property which can only be claimed or enforced by legal action and not by taking physical possession are choses in action. It is observed in Torkington v Magee. According to Butterworth’s Concise Australian Legal Dictionary, “ an intangible personal property right recognized and protected by law, which has no existence apart from the recognition given by law, or which confers no present possession of a tangible object’ is termed as chose in action. They can be legal as well as equitable. Examples of choses in action include shares, money sums due and owing, rights and benefits in a contract, equity of redemption of mortgagors, the rights and interests under a trust and the rights of a legatee under unadministered will or estate.  

Validity of Assignments at Common Law and Equity

According to section 12 of the Conveyancing Act 1919 (NSW), an assignee of a contractual right is entitled to take action in this regard under a legal assignment. However there are some properties that cannot be assigned are rights under a contract for personal services and rights to litigate. On the other hand, the proceeds of litigation can be assigned as held in Glegg v Bromley [1912] 3 KB 474. Section 12 of the said act has a very wide purview which is follows; the assignment must be absolute, the assignment must be written, assignor must sign the writing of the assignment and the debtor must be given the express notice in writing. S 12 has no application in future property. 

As it is known, the scope of equitable law is much broader than that of common law. A transfer which is ineffective at common law may be recognized in equitable law. Consideration plays an important aspect here to determine the scope of any transfer under equity and common law. In common law, the consideration is not sufficient, other conditions must be fulfilled. At equitable law, the assignor is bound by the consideration. Equity will go beyond its scope to enforce any transaction as long the property is assignable. Receipt of consideration attracts the intervention of equity where the concerned property is of future type.

In case of gifts where consideration is not given, equity refers the conscience of the donor as binding when the donor has done everything to ensure that the assignment becomes effective. It was observed in the case of Milroy v Lord (1862). This particular decision was refined by High court of Australia in the Corrin v Patton (1990) case.

In the case of Milroy v Lord, an uncle tried to assign his shares to a trustee to hold them on behalf of his niece. He executed the deed assigning the shares and gave the share certificates to the trustee. However, under the common law the shares will not be transferred until such transfer is not recorded in the company book followed by a receipt of transfer executed by both the assignor and assignee. The issue in this case was whether such transfer valid under equity. It was observed by the court that the assignor has not performed his part of duty properly. He did not take any steps to sign the relevant transfer. As a result he did not the assignment effectively.

Maxims Related to Assignments

In another case of Corin v Patton, this decision was refined. In this case, a dying lady tried to assign her interest in land, held by her as a joint tenant with her husband, to her brother on trust. She was to be the beneficiary and then would the beneficial interest to her children in her will. He motive was to ensure that her husband would not be entitled to the whole land as the only surviving tenant. She has done all the necessary documents for the transfer. But the land was mortgaged and the lady expired without making proper arrangements for producing the title deed by the mortgagee to allow the registration of the transfer to happen. Issue in the case is whether such transfer by the old lady was valid. It was held by the court that she did not perform all the tasks so as to recognize the transfer in the law of equity. Hence such transfer was not valid in equity too. 

The maxims that are relevant to the assignments are as follows:

• Equity regards as done than which ought to be done;
• Equity look to the intent rather than the form;
• Equity will not assist a volunteer; and
• Equity will not perfect an imperfect gift.

Under the law of equity, some assets or rights are not assignable. If the assignment involves any of the following, such assignment will be invalid under equity. Such type of assignments include the following; contracts involving personal services, public pay to officials except public pay owed after death which is assignable (Arbuthnov v Norten 1946), contractual rights that create burden on the other party, liabilities, mere expectancies and right to litigate. Again some rights are unassignable by statutes; for example, the Superannuation Act 1916 (NSW) prohibits the assignment of one’s right to claim a pension.

The future property cannot be assigned under common law as the assignor has no right to assign. However future property can be assigned when it involves consideration. Future properties can be of two types; firstly when the property exists but it is not owned by the person who wants to assign and secondly, the property is not being in existence at the time of assignment. Examples of the future property are as follows:

1. Interest under the will of living person. Future inheritance is not only dependent on the person dying but also that such will can be modified by the person before he dies.
2. Damages of pending litigations. These are unliquidated claims.
3. Future book debts.
4. Royalties that can be earned on an artistic work in future.
5. Freight that can be earned when goods will be delivered that is yet to be delivered.
6. Rent which is payable under lease.
7. Interest accrued in a mortgage.

In case of equitable law, equitable property can only be assigned in equity as common law has no room for it. The only method of equitable assignment is the intention behind such assignment. In the case of Norman (1963), an assignment can be made by way of gift and except that writing is required according to Section 9 of the Statute of Frauds, no formality is required other than an intention to make the immediate transfer. The formality of writing is given under section 23C of the Conveyancing Act 1919. 

In the light of the above rules, the given case can analyze with respect to the transfer made by Mollie to Cyril, Dominique and Linda. Cyril was the publicity manager of Mollie. Both of them control Mollie’s business empire of clothing, make up and jewellery in a 50-50 partnership agreement. She wants to give Cyril half of the $1,000,000 currently owed to her by Terry Hatchett. In this type of assignment of debts, section 12 of the Conveyancing Act 1919 (NSW) is to be referred. Assignment of debts is valid only when the notice of such assignment has been given to the debtor in order to give legal effect to such assignment. In this case, though the legal team prepared a Deed of Assignment for Cyril, no notice of such assignment was given to the debtor, Terry about such assignment. Hence such transfer is not valid in equity in NSW. Hence Cyril acquired no right in such transfer.

The case study also involves the transfer of Mollie’s house to her sister Dominique. In order to transfer the ownership of the house, the Certificate of Title is required which Mollie failed to give to his lawyer. Hence under common law, such transfer has no validity. Under equity, when consideration is not given, such transfer is termed as gift. However a gift to be a valid transfer, equity regards the donor’s conscience as binding when the donor has performed all that required to make the transfer effective. In this case, Mollie did not bring the Certificate of Title. She lacks in his duty to perform everything to make the assignment valid. Hence such assignment is ineffective though the legal team prepared the Memorandum of Transfer in prescribed form for the Sydney house. Thus, Dominique has no right in the assignment.

The final part of the case study involves Morrie’s wish to transfer half of her partnership in the merchandising arm of her business plus any dividends on the Polymer shares payable in future. The legal team forgot about the partnership agreement and hence did not work on it. But they prepared Deeds of Assignment in relation to the share dividends from the Polymer shares and the royalty payments from Polymer. As discussed above, assignment of future right without consideration is not valid. Hence this transfer made by Morrie has no effect in the equitable law. Like Cyril and Dominique, Linda acquires no right from such assignment by Morrie.

None of the transfers are found to be binding as the assignments made by Morie have some loopholes. Even under equitable right, those transactions are not valid. 

References:

Arbuthnov v Norten (1946)

Barry v Haider (1914) 19 CLR 197

Corrin v Patton (1990) 169 CLR 540

Glegg v Bromley [1912] 3 KB 474

Milroy v Lord (1862) EWHC J78

Norman v Federal Commissioner of Taxation [1963] HCA21; 109 CLR 9

The Conveyancing Act (1919) s 23C

The Conveyancing Act (NSW) 1919 s 23B

The Conveyancing Act 1919 (NSW) s 12

The Real Property Act (NSW) 1990 s 41

The Statute of Frauds (1677) s 9 

The Superannuation Act (1916) (NSW)

Torkington v Magee (1902) 2KB 427