The Principles that Govern Equitys Recognition of Assignment - Essay Example

Name Tutor Course Date Equity Law Introduction Assignment of property refers to immediate transfer of a proprietary right that is existing, contingent or vested from one person known as the assignor to the receiver, known as the assignee. An assignment that is equitable would be interpreted to simply mean recognition in equity of property transfer. This is a recognition that can be granted even without the completion of some prescribed assignment method by the law; like registration. As long as the rules of equity are satisfied, a court of law will overlook the any failure to comply with the statutory requirements. This implies that there are certain principles that govern the equity law and these can be referred to as the maxims of equity. These principles can allow for individuals to transact against the statutory requirements. For instance, future property expectancies and possibilities can be assignable in value equity. This has been the trend in many years and going by the case of Shepherd v Commissioner of Taxation (Cth) (1965) 113 CLR 385, a present right to reception of property in future could be assigned in equity voluntarily (Guest, 2012). It is also worth noting that assignment of a mere expectancy cannot be done for value or voluntarily in equity or at law. This paper shall discuss the principles that relate to assignment of future property, expectancies and mere expectancies. It will also show the extent to which these principles reflect the history and nature of equity. The principles that govern equity’s recognition of assignments show the operation of some maxims of equity. One of these maxims purports that equity considers done anything that should be done. Another maxim states that equity cannot assist a volunteer. The third principle of equity states that an assignment would take effect when the item to be assigned is brought into existence, so long as the assignment had been made fairly, and there is sufficient consideration that supports it. In addition, it should not be against public policy and there should not arise any superior right in the meantime. While validating assignments, courts usually consider small considerations. Looking at the first theory of equity, it is vital to identify what form the transaction was done. This implies that it is important to identify precisely how and may be when the donor wanted the gift to be given and to take effect. In such a case, the assignor’s intention is to first determine of there was a gift and then find out the day that the gift was meant to take effect. Reference can be made on the case of Smith v Perpetual Trustee Co Ltd (1910) 11 CLR 148. In this case, Higgins J argued that he did not know how assignment of property could be done while neglecting the operation of the law, and without the assignor’s intention to assign property to someone else (Credit Ombudsman Service, 2013). Therefore, this means that the intention of the donor on when the gift should take effect is crucial since it determines when the equity will be effective. An example would be the intentional assignment of equitable property through direction of a trustee. This will require communication of a direction that is binding to the trustee. Assigning the same interest by declaring trust, that is creating a sub-trust, will be effected even without communication to the trustee. Future property refers to the property that does not exist at the time of the assignment. Assignment of this property is not recognised by the law. However, equity recognises this law, as long as the value has been given. Reference can be made to the case of Federal Commissioner of Taxation v Everett (1980) 143 CLR 440. This case dealt with assigning a share in partnership, while having the right to get a proportion of the profits of the partnership. An argument in this case gave broader understanding of the assignment of future property when it stated that assigning present property for value, equitably, carries the right to any income that will be generated in future. This assignment takes effect immediately. For the case of assignment of income of the mere future that is not associated with interest of the proprietary that has been associated ordinarily, this assignment takes effect after crystallization of entitlement to the stated income. It does not take effect before this time. This argument formed the basis for the ruling since the judgment held that assigning the right of the assignor to the interests of the future together with future dividends should be considered as assignment of a mere expectancy with no certainty of whether the dividends would be declared or the interests earned. The court’s judgement held that this assignment was not effective because there was no consideration and because the assigned item was a just a mere possibility or a mere expectancy. Based on this judgement, it is clear that a mere expectancy cannot be granted unless otherwise stated by the assignor (Gillies, 2004). In the case of Lord Shaw in Lord Strathcona Steamship Co. Ltd v Dominion Coal Co. Ltd (1926) AC 108 at 124, it was stated that the scope of recognising trusts in equity was unlimited. This gave the probability of a chattel’s trust or obligation under a contract at ordinary level, just like in the trust of land. The scope of this proposition was further broadened by the case of Don King Productions Inc v Warren (1998) 2 All ER 608. In this case, Lightman cited Lord Shaw’s dicta and held that although a purported contract assignment that involved the execution of personal services was ineffective by its nature, it would not stop the value of the contract that is held on trust with the assumption that the intention would be identified. This implies that the subject of trust varies in the same manner that the property interest ranges (Moffat and Bean, 2005). When considering the law, a deed that assigned future property to would be void in law to the property’s extent. For the case of equity, the present assignment of any future property is treated as a promise made so as to give the goods. This can be treated with the maxim of done that which should have been done. Under this maxim, equity perceives the agreement to assign the goods as an assignment that is perfected immediately it has the ability to fasten on the goods; that is the coming to existence of the goods. Even in the event that this occurs during the insolvency of the assignor, equitable assignment would still be effected. An issue that has not been resolved adequately is the issue of whether a promise made to convey was supposed to be linked to the assignment that had been completed through compliance with specific performance doctrines. In Holroyd v Marshal, it was stated by Lord Westbury that the assignee had the entitlement to relief so long as the contract stated that the equity court would direct that it be performed specifically. From the surface, this limitation is seen to provide little scope on equitable assignment in contracts of commercial sales. Additionally, the law has been reluctant in granting the specific performance outside the cases associated with ascertained or specific goods (Goldring). When a future assignment of property is done, it can be considered to be a licence to the property provided the specified date when the assignment should take effect arrives. This licence in equity will be operating as an assignment to future property. The case of Everett v Commissioner of Taxation (1980) 143 CLR 440; 28 ALR 179 would further explain the case of future assignment of property. In this case, a tax payer arguably assigned part of his share in partnership plus the right to receive a proportional share from the profits in the partnership. Majority of the Australian high court held that this assignment had involved present property. In the case of Booth v Federal Commissioner of Taxation (1987) 164 CLR 159; 76 ALR 375, the Australian high court held that the landlord’s assignment of part of the right to get rent payable with respect to certain premises also involved present property and further held that this assignment was similar to the facts that were stated in the case of Shepherd and Norman, relating more to the facts by Shepherd and not Norman. Considering the case of Norman v Federal commissioner of Taxation, some taxpayer attempted to assign income. This deed of assignment assigned dividends voluntarily so that they could be earned with shares. In this case, the High Court ruled unanimously that the dividends that were yet to be declared were future property and they could not be assigned to the assignee without consideration. This ruling regarded the assignment as future because the dividends had not yet been existed and the company might never declare them. Another clause related to the assignment deed tried to voluntarily assign interest that would be earned from a loan. This loan had some features that were unusual. The interest would only be payable annually; although the borrower could pay the loan at his will. The implication was that if the borrower decided to repay this loan in a particular year, then no interest would be payable in the subsequent year. At the time of this assignment, it was not possible to tell if the interest would be payable at all. The court’s majority ruled that this was an assignment of future property and was not considered since it was ineffective (Bryan and Vann, 2012). Expectancy cannot be given any consideration in a trust. A trust is only created based on property that is existing. In the case of Re Ellenborough (1903) 1 Ch 697, HC, a decision was made stating that creation of trust cannot be done with respect to expectancy or even future property; like in an anticipated interest that is under a will at the time of the testator. The reason for this is that there can be no property that is capable of being subjected to protection by equity. Under the case of Re Ellenborough, Emily Law had been entitled to property under her brother’s will (Lord Ellenborough). Before the death of her brother, Emily had voluntarily made a covenant to convey the inheritance that she anticipated to inherit to trustees based on trust. On the death of the brother, she changed her mind and refused to transfer the property to the trustees. The trustees brought a case that would force Emily to honor the covenant. In the ruling, it was held that there was no trust that had been created by the covenant and therefore the agreement could not be enforced since it lacked consideration. This was ruled to have been an expectancy of the trustees after they received the word from Emily (Ramjohn, 1998). At common law, transfer of a mere expectancy or possibility that is not tied to any interest is considered to be void. For mere expectancy, it is not possible for it to be sold or to be assigned. Assignment through a prospective heir with the expectation of acquiring an estate through devise or descent is considered to be unenforceable at law and is therefore invalid. Mere expectancy can be related to cases when there is uncertainty. For instance, when income tax liability has an uncertain subject, where the subject is not ascertainable, the case would be considered to be invalid. In the case of Williams v Commissioner of Inland Revenue, it was purported that some money was assigned from a certain trust fund and it was not considered to be a trust declaration. Since the amount of money that was present under the trust was not ascertainable during the stated assignment, this money was considered as a mere expectancy and the property could therefore not be assigned. This case was an appeal that was made from the judgment by Hardie Boys. At first, the judge upheld the commissioner’s assessment and made the decision that the assignment that was purported by Mr. Williams about four yearly £500 sums from the entitled income under the trust was not effective enough in divesting the sums before his entitlement to the sum. Mr. Williams was therefore stated to be liable to the assignment as income that assessable in his hands. Turner J insisted that the interest that was held by Mr. Williams in the trust had ben an existing interest and was capable of being assigned effectively. It was held that had Williams purported to have assigned the whole interest in this trust, then this assignment would have been considered to be valid in equity. However, since he had stated to have assigned a specific amount from the trust’s income, then the assignment was not effective. The reason as to why they held this allegation was that equity would not recognize assignment of interest that did not exist during the time of the assignment but one that would arise at some point in future (Everett, 2003). When a beneficiary shows some interest in mere expectancy, the interest that this beneficiary has is stated to be in unquantifiable property and is therefore considered to have no real interest. The interest held by the beneficiary is said to be a property type in itself and is named a chose in action. It is not possible to assign some rights and neither can some rights form part of the subject matter of any trust through self declaration. This is because they are considered to be in no sense associated with property. Such rights are considered to be mere expectancies. Although the assignor-to-be may receive the property at some point, the right is not assignable. For instance, an object that has discretionary trust or has the power of appointment will only be considered to be mere expectancy. An illustration of this can be best made in the case of Kennon v Spry (2008) 238 CLR 366 (Hallen and Bennett, 2011). While making the ruling on this case, the case of Gartside v Inland Revenue Commissioners was used and it was stated that Lord Reid and Wilberforce alleged that there was no proprietary interest in assets with respect to the object of bare appointment power. This was ruled to be a mere expectancy (Bryan and Vann, 2012). In cases where a life insurance’s beneficiary is a debtor who is involved in a bankruptcy case, it would be held that the expectancy interest of the beneficiary is not the property of the estate facing bankruptcy. In the case of Wornick v. Gaffney, 2008 WL 4349810 (2d Cir.), the court found that the beneficiary of any life insurance policy had a mere expectancy in the policy and this was dependent on the will of the person who had been insured. Owing to this, the beneficiary is taken to have no equitable interest in a policy that could be a potion of the property that belonged to the bankruptcy estate of the beneficiary. Therefore, the beneficiary was ruled to have had only a mere expectancy in terms of right to the proceeds and not an interest that was vetted (Glenn, 2009). This implies that courts do not enforce contracts to assign any expectancy except when valuable consideration has been made. Further reference can be made to the case of Northumberland (Duke) v Inland Revenue Comrs where the court ruled that the case was ineffective and stated that the respondents could not be forced to allow the trustees to keep hold of the sum that was appointed (Ramjohn, 1998). Going by the allegation by Gilmore (1999), mere expectancy can be stated to be the assignment that is made on future intangibles. Conclusion From the principles governing the various rulings on assignment of future property, expectancies and mere expectancies, it is clear that the principles have been built from cases that have occurred in previous years. The principles have indicated the difference that exists between equity law and the legal law. For instance, it ha been revealed that there are times when the equity law can be used regardless of whether the legal law is upheld or not. These principles indicate that equity law has been used in a long time and in many cases. At times, the law was used to solve cases that individuals made agreements and later changed their minds. The nature of this law has been presented as being considerate in in making its judgment. The various cases that have been mentioned were categorised accordingly based on the consideration that was made on the cases. The ruling on whether the cases were expectancies, mere expectancies or they showed assignment of future property was made based on consideration made from the various parties view point and from the arrangements that had been made by the parties. Works Cited Books Bryan, Michael and Vann, Vicki. Equity and Trusts in Australia. New York: Cambridge University Press. 2012. Credit Ombudsman Service. Determination, No.13. Sydney South. 2013. Everett, Anna. An Analysis of the Concepts of 'Present Entitlement. Revenue Law Journal: Vol. 13: Iss. 1, Article 9. 2003. Gillies, Peter. Business Law. Ed. 12. Sydney: Federation Press. 2004. Glenn, Paul. United States Bankruptcy Court Middle District of Florida Tampa Division. Chief Bankruptcy Judge. USA. 2009. Gilmore, Grant. Security Interests in Personal Property 1965. New Jersey:The Lawbook Exchange, Ltd. 1999. Goldring, John. Consumer Protection Law in Australia. Sydney: Federation Press. 1998. Guest, Anthony. Guest on the Law of Assignment. London: Sweet & Maxwell. 2012. Hallen, Philip and Bennett, Hayley. Kennon v Spry and the elephant in the room: women, divorce, and discretionary trusts in the 21st Century: Oxford Journals. Australia. Oxford University Press. 2011. Moffat, Graham & Bean, Gerard. Trusts Law: Text and Materials. 4th Edition. New York: Cambridge University Press. 2005. Ramjohn, Mohamed. Source Book on Trusts Law. 2nd Edition. UK: Cavendish Publishing Limited. 1998. USLegal. Expectancy of Prospective Heir. Retrieved on April 1, 2013. Available at: http://assignments.uslegal.com/subject-matter-of-assignments/expectancy-of-prospective- heir/. 2013. Cases Smith v Perpetual Trustee Co Ltd (1910) 11 CLR 148 Taxation v Everett (1980) 143 CLR 440 Lord Shaw in Lord Strathcona Steamship Co. Ltd v Dominion Coal Co. Ltd (1926) AC 108 at 124, it Don King Productions Inc v Warren (1998) 2 All ER 608 Everett v Commissioner of Taxation (1980) 143 CLR 440; 28 ALR 179 Booth v Federal Commissioner of Taxation (1987) 164 CLR 159; 76 ALR 375 Norman v Federal commissioner of Taxation Kennon v Spry (2008) 238 CLR 366 Wornick v. Gaffney, 2008 WL 4349810 (2d Cir.). Northumberland (Duke) v Inland Revenue Comrs Read More