equitable assignment agreement

Equitable Assignment: Everything You Need to Know

An equitable assignment is one that does not fulfill the statutory criteria for a legal assignment, but is binding and upheld by the courts in the interest of equability, justice, and fairness. 3 min read updated on September 19, 2022

An equitable assignment is one that does not fulfill the statutory criteria for a legal assignment, but is binding and upheld by the courts in the interest of equability, justice, and fairness.

Equitable Assignment

An equitable assignment may not appear to be self-evident by the law's standard, but it presents the assignee with a title that is protected and recognized in equity. It's based on the essence of a declaration of trust; specifically, essential fairness and natural justice. As long as there is valuable consideration involved, it does not matter if a formal agreement is signed. There needs to be some sort of intent displayed from one party to assign and the other party to receive.

The evaluation of a righteous equitable assignment is completed by determining if a debtor would rationally pay the debt to another party alleging to be the assignee. Equitable assignments can be created by:

• The assignor informing the assignee that they transferred a right to them
• The assignor instructing the other party to release their obligation from the assignee and place it instead on the assignor

The only part of an agreement that can be assigned is the benefit. Generally speaking, there is no prerequisite for the written notice to be received or given. The significant characteristic that separates an equitable assignment from a legal assignment is that most of the time, an equitable assignee may not take action against a third party. Instead, it must rely on the guidelines governing equitable assignments. In other words, the equitable assignee must team up with the assignor to take action.

The Doctrine of Equitable Assignment in Wisconsin

In Dow Family LLC v. PHH Mortgage Corp ., the Wisconsin Supreme Court issued in favor of the doctrine of equitable assignment. The case was similar to many other foreclosure cases, except this one came with a twist. Essentially, Dow Family LLC purchased a property and the property owner insisted the mortgage on the property had been paid off. However, in actuality, it wasn't. 

Prior to the sale, the mortgage on the property was with PHH Mortgage Corp. When PHH went to foreclose on the mortgage, Dow Family LLC contested it. There was one specific rebuttal that caught the attention of the Wisconsin Supreme Court. The official mortgage on record was with MERS, an appointee for the original lender, U.S. Bank.

Dow argued that PHH couldn't foreclose on the property because the true owner was MERS. Essentially, Dow was stating that the mortgage was never assigned to PHH. Based on this argument, PHH utilized the doctrine of equitable assignment.

Based on a case from 1859, Croft v. Bunster, the court determined that the security for a note is equitably assigned when the note is assigned without a need for an independent, written assignment. Additionally, Dow contended that the statute of frauds prohibits the utilization of the doctrine, mainly because it claimed every assignment on a property must be formally recorded.

During the case, Dow argued that the MERS system, which stored the data regarding the mortgage, was fundamentally flawed. According to the court, the statute of frauds was satisfied because the equitable assignment was in accordance with the operation of law. Most importantly, the court avoided all consideration regarding the MERS system, concluding it was not significant in their decision. 

The outcome was a major win for lenders, as they were relying on the doctrine specifically for these types of circumstances.

Most experts agree that this outcome makes sense in the current mortgage-lending environment. This is due to the fact that it is still quite common for mortgages to be bundled up into mortgage-backed securities and sold on the secondary market.

Many economists claim that by not requiring mortgages to be recorded each time a transfer is completed, the loans are more easily marketed to investors. Additionally, debtors know who their current mortgage company is because the new lender must always notify the current borrower in order to receive payment. It was determined that recording and documenting the mortgage merely provides a signal to the rest of the world that the property owner secures a debt.

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equitable assignment - Meaning in Law and Legal Documents, Examples and FAQs

An equitable assignment is when someone gives their rights to receive money or benefits to another person, similar to a transfer of rights.

In normal language you would also say " transfer of rights " instead of " equitable assignment "

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What does "equitable assignment" mean in legal documents?

Equitable assignment is a legal term that refers to the transfer of rights or property from one person to another. This transfer may not follow all the formal rules that usually apply, but it is still recognized by the courts as fair and just. Imagine you have a friend who promises to give you a portion of their future earnings from a business deal. Even if there’s no written contract, if your friend acts in a way that shows they intend to share those earnings with you, a court might still honor that promise. This is the essence of equitable assignment—it's about fairness rather than strict legal formalities.

In many cases, equitable assignment comes into play when someone has a future interest in something, like money or property, but hasn’t formally transferred it yet. For example, if a person is set to receive payments from a loan but hasn’t officially assigned those payments to someone else, a court might still recognize that the payments are meant for the other person if the circumstances suggest that was the intention. This approach helps ensure that justice is served, even if all the legal boxes aren’t checked.

The concept of equitable assignment is particularly important in situations where strict legal rules might lead to unfair outcomes. Courts often look at the intentions of the parties involved and the actions they took. If it seems clear that one party intended to transfer their rights or property to another, the court may enforce that transfer, even without a formal agreement. This focus on fairness helps protect individuals from being taken advantage of due to technicalities in the law.

Equitable assignment can also be relevant in business transactions. For instance, if a company is set to receive future profits but hasn’t officially assigned those profits to an investor, the court may still recognize the investor's claim if there’s evidence that the company intended to share those profits. This principle helps maintain trust in business relationships, ensuring that promises made are kept, even if the paperwork isn’t perfect.

In summary, equitable assignment is about ensuring fairness in the transfer of rights or property. It allows courts to step in and enforce agreements based on what seems just, rather than getting bogged down by legal formalities. This approach helps protect individuals and businesses alike, ensuring that intentions are honored and that justice prevails.

What are some examples of "equitable assignment" in legal contracts?

Loan Agreement: "Even without a formal assignment, the court recognized the equitable assignment of the loan repayments to the new lender based on the borrower's actions."

Partnership Agreement: "The judge acknowledged the equitable assignment of future profits to the departing partner, despite the absence of a written agreement."

Lease Agreement: "Although there was no formal transfer of the lease, the court upheld the equitable assignment of the tenant's rights to the new occupant."

Sales Contract: "The equitable assignment of the future payments from the sale was recognized by the court, even without a signed document."

Insurance Policy: "The court validated the equitable assignment of the insurance benefits to the beneficiary, despite the lack of a formal assignment form."

Employment Contract: "The equitable assignment of the employee's future commissions was accepted by the court, based on the employer's acknowledgment of the arrangement."

Real Estate Agreement: "The equitable assignment of the property rights was enforced by the court, even though the transfer was not documented."

Service Agreement: "The court recognized the equitable assignment of the service contract to the new provider, despite the absence of a formal assignment clause."

FAQs about "equitable assignment"

What is equitable assignment.

Equitable assignment is a legal term that refers to a situation where a person (the assignor) transfers their rights to receive benefits or payments from a contract to another person (the assignee) without formally changing the contract itself. This means the assignee can benefit from the contract even though they are not the original party to it.

What does equitable assignment mean in simple terms?

In simple terms, equitable assignment means that someone can pass on their right to receive money or benefits from a contract to someone else. It’s like saying, “I can’t take this money, so I’m letting you have it instead,” even if the contract doesn’t officially say so.

Who is involved in an equitable assignment?

In an equitable assignment, there are typically two main parties involved: the assignor, who is the person giving up their rights, and the assignee, who is the person receiving those rights. Sometimes, there may also be a third party, like the original contract holder, but they don’t have to agree for the assignment to be valid.

How is equitable assignment different from legal assignment?

Equitable assignment is different from legal assignment because it doesn’t require formal documentation or the consent of the original contract holder. Legal assignment usually involves a written agreement and must follow specific legal rules, while equitable assignment is more informal and based on fairness.

Can equitable assignment be used for any type of contract?

Equitable assignment can be used for many types of contracts, but it’s most commonly seen in contracts involving money, like loans or service agreements. However, some contracts may have specific rules that prevent assignment, so it’s important to check the terms of the contract.

How do I know if an equitable assignment is valid?

To determine if an equitable assignment is valid, you should look for a clear intention from the assignor to transfer their rights to the assignee. This can be shown through written communication or actions that indicate the assignor wants the assignee to benefit from the contract.

What happens if the original contract holder doesn’t agree to the equitable assignment?

If the original contract holder doesn’t agree to the equitable assignment, the assignee may still have the right to receive benefits, but they might face challenges in enforcing those rights. The assignor is still responsible for fulfilling the contract, so it’s important for the assignee to communicate with both parties.

Can I revoke an equitable assignment once it’s made?

Generally, once an equitable assignment is made, it cannot be easily revoked. However, if the assignor and assignee agree to cancel the assignment, or if there are specific conditions in the original contract that allow for revocation, it may be possible. Always consult a legal professional for guidance in such situations.

What should I do if I’m involved in an equitable assignment dispute?

If you find yourself in a dispute over an equitable assignment, it’s best to seek legal advice. A lawyer can help you understand your rights and obligations, and guide you through the process of resolving the issue, whether through negotiation or legal action.

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Related Content

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Equitable assignment definition

What does equitable assignment mean.

assignment s can occur in equity when any of the requirements of legal assignment are not satisfied.

The assignor can inform the assignee that he transfers a right or rights to him or instruct the other party or parties to the agreement to discharge their obligations to the assignee. Only the benefit of an agreement may be assigned. There is no requirement for written notice to be given or received. The position of a party who wishes to be able to make an equitable transfer of obligations under the contract is the same as described under legal assignments.

View the related checklists about Equitable assignment

Perfecting security in real estate finance transactions—checklist.

Perfecting security in real estate finance transactions—checklist This Checklist sets out the steps which property lawyers need to take to perfect security in a real estate finance transaction. Real estate finance lenders will typically want to take a full security package over all of the assets relating to the real estate. A real estate lawyer in a multi-disciplinary team will likely be responsible for arranging or inputting into the following securities and documentation: • security over the land, rental income, insurance proceeds, development and construction and contractual rights • reviewing the management agreement and negotiating a duty of care agreement (although in a multi-disciplinary team, this is sometimes handled by the banking and finance lawyer) • dealing with completion undertakings and post completion registration of the legal charge at Companies House and HM Land Registry as well as giving third party notices regarding rent payment, notice of charge where necessary of assignment of contractual rights or warranties See Practice Notes: Security in real estate finance transactions, Taking security over land...

Checklist: Assignment of claims by insolvency office-holders

Checklist: Assignment of claims by insolvency office-holders What claims or causes of action can be assigned? Insolvency-office holders should keep in mind the distinction between assigning an ‘office-holder claim’ (ie any statutory claim the office-holder can bring under the Insolvency Act 1986 (IA 1986)) and a claim which vests in the insolvent company (ie a ‘company claim’) or the bankrupt individual. Claims which vest in the insolvent company or the bankrupt individual The primary duty of an insolvency office-holder is to recover the property of the insolvent company or the bankrupt individual and to realise the value of that property for the benefit of creditors. See Practice Notes: • Role, powers, functions and duties of an administrator • Role, powers, functions and duties of a liquidator • Role, powers, functions and duties of a trustee in bankruptcy As choses in action fall within the definition of property capable of realisation, insolvency office-holders can assign claims which vest in an insolvent company or a bankrupt individual at the onset of the...

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Contracts required to be in writing.

This Practice Note considers the specific situations where a contract is required by law to be in writing: assignments, contracts for the sale of land, equitable mortgages, assents, transfers of shares, transfers of intellectual property rights, and guarantees.When a written contract is beneficial or a necessityContracts can be formed in one of three ways:•orally•by conduct, or•‘under hand’ (in writing)For more information on contract formation, see: Formation and interpretation—overview.Simple contracts are created in any of the above manners in ‘simple form’, whereas deeds must be executed in ‘solemn form’. See Practice Notes: Deeds and Executing documents—deeds and simple contracts.There are certain situations when a written contract is required by law or is necessary to satisfy registration requirements. Contracts are required by statute to be made or evidenced in writing for:•assignments•contracts for the sale of land (as opposed to the actual conveyance, which must be by deed)•equitable mortgages•assents•transfers of shares•transfers of intellectual property rights•guarantees‘Writing’ is defined in schedule 1 to the Interpretation Act 1978 (IA 1978) to include:‘typing, printing, lithography, photography and...

Transferring a loan by assignment

This Practice Note explains one of the key ways a lender can transfer a loan under English law to another lender by assignment.The other key ways are: •novation—see Practice Note: Transferring a loan by novation, and•sub-participation or risk–participation—see Practice Note: Selling a loan by sub-participationA loan (which is a debt) is a chose in action. A chose in action is something which is recoverable by legal action (as opposed to something which is physically possessed). As a basic principle, choses in action cannot be assigned at common law.Assignments of choses in action are therefore either:•statutory—often referred to as 'legal' assignments because they have an equivalent effect to legal assignments, or•equitableUnder English law, an assignment is a transfer of rights; it does not transfer obligations (in contrast to a novation—see Practice Note: Transferring a loan by novation).This Practice Note discusses:•requirements for a legal assignment•how legal assignments differ from equitable assignments•the advantages and disadvantages of assignments as a method of transfer, and •the approach taken to assignments in the Loan Market Association...

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Ireland—notice of assignment of contract—from assignor.

Ireland—Notice of assignment of contract—from assignor [Headed notepaper of the assignor] To: [Insert name and address of recipient (ie the other party to the contract that was assigned)] [Insert date] This Precedent is a letter notice of assignment, which informs a party to a commercial contract that the other party (the assignor) has assigned all or part of its rights, title, benefit and interest in the contract to a third party (the assignee). It assumes that the commercial contract which was assigned is governed by the laws of Ireland. In the case of an assignment of contractual rights, giving the contract counterparty written notice of the assignment is one of the key requirements for the creation of a statutory assignment under section 28 of the Supreme Court of Judicature Act (Ireland) 1877 (SCJA(I) 1877 (IRL)) (ie an assignment which takes effect as a legal assignment). Section 28 of SCJA(I) 1877 (IRL) does not include any specific requirements about the form of the notice which needs to be given. This Precedent...

Ireland—Debenture: single company chargor—bilateral—all monies

Bilateral debenture for a chargor incorporated as a limited company in Ireland to secure the chargor’s obligations to the lender on an all monies basis Using this Precedent Debenture This is a precedent bilateral Debenture which can be used to take security over all of the assets of a company. This drafting note explains the context in which this precedent Debenture might be used as well as the features of this precedent Debenture and the assumptions on which it is based. Negotiating a security package—general principles A lender's primary concern is that it is repaid. If a borrower fails to repay a loan the lender may have to go to court to obtain a judgment for payment of the sum owed to it. Even if it obtains such judgment this does not mean that the lender will be repaid in full or even in part. For example, if the borrower is insolvent, the lender may have to share the borrower's available assets with other creditors and will only receive part...

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If a tenant fails to complete the formalities for assigning a commercial lease to an assignee, and the assignee takes possession of the premises with the landlord’s knowledge and consent, would there be an equitable assignment of the lease.

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Person 1 is the freehold owner of Plot A and also had a lease of the neighbouring plot, Plot B. Person 1 grants a lease to Person 2 of Plots A and B. Person 1's leasehold tenure of Plot B comes to an end—Person 2 now ends up with a split reversion landlord situation, having Person 1 as landlord with control over Plot A and the original freehold owner of Plot B as its other landlord. Are the landlords jointly and severally liable for landlord covenants under the lease (which is holding over)?

Person 1 is the freehold owner of Plot A and also had a lease of the neighbouring plot, Plot B. Person 1 grants a lease to Person 2 of Plots A and B. Person 1's leasehold tenure of Plot B comes to an end—Person 2 now ends up with a split reversion landlord situation, having Person 1 as landlord with control over Plot A and the original freehold owner of Plot B as its other landlord. Are the landlords jointly and severally liable for landlord covenants under the lease (which is holding over)? A split reversion (also known as a severed reversion) most commonly arises when a landlord, after granting a lease of a property, disposes of their reversionary interest in part of the property by selling part of the property to a third party. As a result of that dealing, the tenant (who remains in occupation of the whole property under the original lease) finds themselves with two landlords in respect of different parts of the property...

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After the gold rush—chasing debts (alphier capital llp v blyvoor gold capital ltd).

Commercial analysis: in this High Court judgment concerning two cross applications for strike-out and adding a party, the primary dispute related to an unpaid debt for investment consultancy services and the assignment of the sums due. The court decided that the prohibition of assignment clauses were valid and enforceable but that the claimant’s application to join the original assigning party should proceed thereby allowing the claim to continue. Written by Alexander Whatley, barrister at 3PB Chambers.

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Legal Framework of Equitable Assignments in Finance

Financiers and lessors often take an assignment over debts or certain rights under contracts as part of their security package. Depending on how this is done, an assignment can either be characterised as a legal or equitable assignment under English law. Stephenson Harwood’s Dipesh Bharania explains

A key difference between a legal and equitable assignment is the ability of the assignee, be it a financier or lessor, to bring proceedings in its own name against the debtor for payment of the debt owed, or to enforce rights in the contract.

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A legal assignee has this right, but there is a question over whether an equitable assignee has this right or not.

In the case of General Nutrition Investment Company v Holland and Barrett International Ltd and another [2017] EWHC 746 Ch, the High Court held that the beneficiary of an equitable assignment did not have the right to bring proceedings in its own name, and had to do so jointly with the assignor which had assigned rights in the underlying contract.

This raises questions about the equitable assignment, as it appears to contradict other judgments which permit an equitable assignee to take proceedings in its own name. The predecessor company of General Nutrition Investment Company (GNIC) entered into a trade mark licence agreement in March 2003 with Holland and Barrett (H&B) allowing H&B to use certain trademarks in the UK.

After complex internal restructuring, the original contracting party had been dissolved and GNIC was the successor company, which as assignee had been assigned both the rights under the original trademark licence agreement, and the rights to the trademarks themselves. GNIC alleged that H&B was in breach of the licence agreement and served a number of notices of termination on H&B purporting to terminate the agreement.

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The court had to decide whether any of these notices of termination were effective, and whether GNIC had the right to serve such notices, and bring and maintain proceedings against H&B in its own name.

The formalities for a legal assignment are set out in Section 136 of the Law of Property Act 1925, including that the assignment must be:

In writing and executed by the assignor “Absolute” and unconditional, Not be expressed to be “by way of charge”, and Notified in writing to the person against whom the assignor could enforce the assigned rights – usually the other contracting party.

It can often suit the assignor, the assignee and the third party to allow the assignor to deal with the third party, for notice not to be given (certainly initially) and the assignee to remain a silent party. This method is frequently used in financing documents, with notice only being given at a later date (rather than at the time of assignment) when there is a possibility of enforcement on the horizon.

An equitable assignment tends to be created when an assignment does not meet one or more of the requirements for a legal assignment. The main differences between a legal and an equitable assignment are priority (and the established principle that the assignee who serves notice first takes priority over any other assignee (where notice is not given)) and an equitable assignee needing to join the assignor as a party in any legal proceedings it brings against the third-party debtor.

However, two recent cases have lessened the distinction in practice between the two. In the Bexhill case the Court of Appeal recognised that an equitable assignee could take action in its own name without joining in the assignor. In the Ardila case, where notice had been given to the contracting party, the High Court looked at the terms of the notice and decided that what had seemed to be a legal assignment was in fact an equitable assignment because the wording of the notice seemed to retain rights for the assignor. The court used this reasoning to declare it an equitable assignment, despite the notice having been given as required.

Returning to the case in point, after the internal reorganisation and subsequent assignment of the trade mark licence agreement to GNIC, no notices of such assignment were served on H&B by the assignor prior to the purported termination of the agreement or the issue of proceedings. GNIC maintained that as it took the place of its predecessor as the “Licensor”, it became the body entitled to exercise rights of termination under the agreement. H&B’s contention was that, as an equitable assignee, GNIC did not have the right to terminate the agreement or bring proceedings in its own name.

It is widely accepted that, until a notice of assignment is given, and (i) the third party can validly discharge its obligations under the contract to the assignor, and (ii) the third party may raise against the assignee any defence or set-off which he could have raised against the assignor (provided that the matter on which the defence is based arose before notice was received) and the contracting party and assignor can amend the terms of the contract without the assignee’s consent.

The High Court considered that previous case law on this issue was binding as it had not been overruled or materially distinguished in any subsequent cases heard, and held that notice to the contracting third party is necessary to perfect the right of the assignee. Additional weight was given to the fact that a substantive contractual right (in this case, the right to terminate the licence agreement) had been assigned rather than just the assignment of a debt. Consequently, the contractual relationship between the parties was seeking to be amended and therefore the third party was entitled to see that such change was being effected by a party which had the right to do so and whom it knew to have such rights. The Court maintained that H&B cannot be expected to accept a notice of termination from an entity which turns out to be an assignee when it had never been given notice of that assignment.

While the High Court accepted that this decision may be appealed, this has raised a question about equitable assignments and the rights of the equitable assignee under English law. In the meantime, in practice, parties will have to scrutinise what type of right they are seeking, whether in security or as a full legal assignment and opt for the method which provides the clearest outcome possible as the law stands when they take the assignment. Anyone taking an assignment of the benefit of a contract should clearly ensure that notice is served on the other contracting party if it wants to be sure it can act in its own name under that contract against the other contracting party if need be.

Otherwise, there is a risk that an equitable assignee will be unable to enforce substantive contractual rights without having to join in the assignor in proceedings. That said, it may still be commercially preferable to have an equitable assignment for particular financing and leasing structures where it is not thought difficult to join the assignor at a later date if need be. In this case it was not possible, as the assignor had been dissolved. Advice should be sought about the type of assignment to be taken in each transaction pending further clarification from the courts.

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Equitable Assignment Law and Legal Definition

An equitable assignment is such an assignment as gives an assignee a title which, though not cognizable at law, is recognized and protected in equity. It is in the nature of a declaration of trust, and is based on principles of natural justice and essential fairness, without regard to form. No particular form is necessary to constitute an equitable assignment, and any words or transactions which show an intention on the one side to assign and an intention on the other to receive, if there is a valuable consideration, operates as an effective equitable assignment. The true test of an equitable assignment is said to be whether a debtor would be justified in paying the debt to the person claiming to be the assignee. [Player v. Player, 240 S.C. 274 (S.C. 1962)].

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• Equitable Distribution

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An equitable assignment is one in which one has a future interest and is not valid at law but valid in a court of equity.  In National Bank of Republic v. United Sec. Life Ins. & Trust Co. , 17 App. D.C. 112 (D.C. Cir. 1900), the court held that to constitute an equitable assignment of a chose in action, the following has to occur generally: anything said written or done, in pursuance of an agreement and for valuable consideration, or in consideration of an antecedent debt, to place a chose in action or fund out of the control of the owner, and appropriate it to or in favor of another person, amounts to an equitable assignment.  Thus, an agreement, between a debtor and a creditor, that the debt shall be paid out of a specific fund going to the debtor will operate as an equitable assignment.

In Egyptian Navigation Co. v. Baker Invs. Corp. , 2008 U.S. Dist. LEXIS 30804 (S.D.N.Y. Apr. 14, 2008), the court stated that an equitable assignment occurs under English law when an assignor, with an intent to transfer his/her right to a chose in action, informs the assignee about the right so transferred.

An executory agreement or a declaration trust are also equitable assignments if unenforceable as assignments by a court of law but enforceable by a court of equity exercising sound discretion according to the circumstances of the case .

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