notice of assignment section 136

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Delivering valid notices of assignment: s 136 in 2024

INTRODUCTION

The Law of Property Act 1925 (LPA 1925) was enacted 99 years ago in April 1925. A few years before the first commercial radio and telephone service. Historians might argue about the comparative economic and social significance, and value, of the ability to assign debts and/or the right to sue now and then. No one could argue that the form and content of commercial documentation and communications has not changed dramatically in those 99 years. Yet the wording of s 136(1) of the LPA 1925 has not changed at all. Electronic communications are now the norm in the commercial world. They have brought with them less formality and less time to think than pen and paper afforded us in the past. This article focuses principally on how we should understand that 1925 provision today in order to ensure valid, legal (or statutory) assignments that bind the debtor, or third parties are effected. This article is confined to the legal position in England and Wales.

Debts or other choses in action (intangibles) were not assignable at common law. As is so often the case equity intervened and where equity intervened statute followed. A general ability to assign such assets and interests was first introduced in 1873. Since 1 January 1926 there have been two ways to assign debts and choses in action: a legal or statutory assignment under s 136 of the LPA 1925 or an assignment taking effect in equity. Equitable assignments may arise because that is what the parties intended or had to do or because, although they intended to effect a legal assignment it was defective.

SECTION 136 LPA 1925

The advantage of a legal assignment is that there is no need to consider whether it is necessary to sue in the name of the assignor or join the assignor to any proceedings to enforce the assigned debt or chose in action. It follows compliance with s 136 streamlines the business of such enforcement.

Section 136(1) of the LPA 1925 is in these terms:

“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 other thing in action has notice-

(a) that the assignment is disputed by the assignor or any person claiming under him; or

(b) of any other opposing or conflicting claims to such debt or other thing in action; he may, if he thinks fit, either call upon the persons making the claim thereto to interplead concerning the same, or pay the debt or other thing in action into court under the provisions of the Trustee Act 1925.”

It follows to secure the benefit of s 136 and effect a legal assignment, the assignment must be:

• absolute and not by way of a charge;
• in writing;
• under the hand of the assignor; and
• express notice in writing, of the assignment, must be given to the debtor or trustee.

The essence of a legal assignment as described in s 136(1) is that the assignee is themself entitled to enforce the right and give discharge for its satisfaction and the debtor can confidently pay a new person, the assignee, without fear of the assignor seeking to enforce and rejecting the payment to the assignee as discharge. Seen in that way the need for both the assignment itself and the notice is unsurprising.

IN WRITING AND UNDER THE HAND OF THE ASSIGNOR: 1  THE FORM

Section 136 does not require an assignment to take a particular form.  Chitty on Contracts  (35th Edition para 23-016) has long described what is required as:

“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 will not by itself constitute an assignment unless there is evidence that the assignee has requested or consented to it … .”

That description highlights the bilateral nature of the assignment itself in that both assignee and assignor must agree. However, the requirement for writing relates to the debtor.

The words “under the hand of” is understood to simply mean written and signed. It does not require a document to be executed as a deed:  Trustee Solutions Ltd v Dubery  [2006] EWHC 1426.

The addition of the words “of the assignor” after “under the hand” have been applied strictly by the courts in both  Technocrats International Inc v Fredic Limited  [2004] EWHC 692 (QB) and  Frischmann v Vaxeal Holdings SA & ors  [2023] EWHC 2698 (Ch). In both cases it was successfully argued that the wording of s 136(1) requires the signature authenticating the written assignment to be that of the assignor themselves, and not an agent or attorney of the assignor. The fact that elsewhere in the LPA 1925, for instance s 40 (now repealed) and s 53, provisions expressly refer to the signatures of a person  or their agent  as being required and sufficient was a strong reason for the different language in s 136 to be construed as confined to the assignor. Accordingly, both Field J in  Technocrats  at paras 53-55 and Master McQuail in  Frischmann  at 61 conclude the assignor themselves must sign an assignment for it to comply with s 136 and so amount to a legal assignment.

That strict interpretation is helpful for practitioners against the background of the recent decision suggesting ordinary email signatures are signatures for the purpose of other formalities. In  Neocleous v Rees  [2020] 2 P.&C.R. 4 an automatic email signature of a solicitor was found to be sufficient for compliance with s 2 of the Law of Property (Miscellaneous Provisions) Act 1989 on a compromise involving a disposition of an interest in land. It follows for that purpose emails exchanged between solicitors, with their automated signatures, might all else being equal bind their clients (as s 2 permits signature by agents). An email signature that is automatically applied to authenticate a communication can be a signature for the purposes of most formalities. As a result,  Neocleous  sent shivers down the spines of many solicitors concerned that rapid email exchanges result in binding agreements they did not intend to make or have instructions for.

It follows, in the sphere of assignments, thanks to the words “under the hand of the assignor” solicitors are not at risk of unintentionally binding their clients. However, creditors and potential assignees communicating directly by email may effect a binding assignment without being clear that is what they meant to do.

ABSOLUTE ASSIGNMENT:  THE CONTENT

The words “any absolute assignment” suggest the transfer of rights away from the assignor to the assignee so that it is the assignee who has the entire benefit of, and can enforce the rights, not the assignor. Indeed, that is likely to be the layperson’s view as well. A purchaser of leasehold property would have no doubt that the transaction they engaged in, which the lawyers refer to as an assignment, was an absolute transfer of the rights in and to the property and the contract (the lease) from the seller to them, as purchaser and the new proud owner.

At a high level that is the conventional modern view of both a legal and equitable modern assignment. The alternative view, at least in relation to equitable assignments is that there is no assignment of the rights, rather there is a carving out of new rights for the assignee which encumber the assignor’s rights, not unlike a declaration of trust.

However, that does not mean that in order for there to be an absolute assignment the assignor must relinquish all interest or possible benefit from the asset for all time. Transactions may involve the provision of security in some circumstances and/or an ability to require a further transaction by which assets are transferred back.

The concept of an absolute assignment, be it legal or equitable, involves a transaction that is complete in the sense of not being conditional and not by way of charge. The meaning of those concepts was considered by Waksmann J in  USAF Nominee No 18 Ltd & ors v Watkin Jones & Son Ltd  [2023] EWHC 1880 (TCC).

The court heard detailed arguments and carefully analysed the previous authorities including  The Halcyon  [1984] 1 Lloyds Rep. 283 and  Bexhill v Razzaq  [2012] EWCA Civ 1376. Waksmann adopted Aikens LJ’s characterisation of the nature of an assignment in  Bexhill  at paras 44 and 45:

“The assignee becomes either the legal or beneficial owner of the thing in action and its benefits. He does not become a party to any contract or deed which contains or gives rise to the right. The assignee will only become a party to the contract (or deed) if there is a novation of the instrument containing or giving rise to the right.”

And he then went on to approve the description of an absolute assignment given by Mathew J in  Hughes v Pump House Hotel Co  [1902] 2 KB 190 as:

“… if, on consideration of the whole instrument it is clear that the intention was to give a charge only, then the action must be in the name of the assignor; while on the other hand, if it is clear from the instrument as a whole that the intention was to pass all the rights of the assignor in the debt or chose in action to the assignee, then the case will come within section 25 and the action must be brought in the name of the assignee.”

Waksmann concluded at para 196 with the following observations:

“First, it is clear that the exercise of determining whether there has been an absolute assignment or not is highly fact sensitive. Further, … it may be that on a proper analysis, Clause 2.1(c) operates as an absolute assignment in relation to some of the relevant interests and not others. Further, there may be circumstances where, within a particular class of interests purportedly assigned, some would be the subject of an absolute assignment and others would not. It all depends on the exercise of contractual interpretation in the relevant context. In other words, this is not a ‘one size fits all’ exercise.”

It follows that the question whether there has been an absolute assignment or assignments for the purpose of s 136 is a multiple layered question which involves careful interpretation of the particular contract that effects the assignment and the subject matter. If the assignment is subject to satisfaction of a condition it is not an absolute assignment and it is not in compliance with s 136.

NOTICE IN WRITING TO DEBTOR: THE CONTENT, FORM AND MEANS

As discussed above the purpose of notice to be given to the debtor is that it enables the debtor to pay a new person (the assignee) without fear of the assignor seeking to enforce the debt against them, rejecting the payment to the assignee as discharge.

Consistent with that purpose as demonstrated by the Court of Appeal in  Van Lynn  Developments Ltd v Pelias Construction Co Ltd  [1969] 1 QB 607 approving Atkin J in  Denney, Gasquert and Metcalfe v Conklin  [1913] 2 KB 177 even before the LPA 1925, no particular form of notice is required. In  Denney  Lord Denning was clear that instead what was required was simply writing that brings “… to the notice of the debtor with reasonable certainty the fact that the deed does assign the debt due from the debtor so as to bind the debt in his hands and prevent him from paying the debt to the original creditor”.

In  Van Lynn  the Court of Appeal agreed that that continued to be the case so that the notice must expressly state three things. First that there had been an assignment, second the names and addresses of the assignees and finally what was assigned. Other details were not necessary. If other details are added and are erroneous in a way that undermines the three pieces of information that are required, then the notice is not valid. The notice must fulfil the obvious aim of ensuring that the debtor knows they should pay someone other than the assignor (who in most cases will be the person with whom the debtor has had all relevant dealings). That analysis was recently relied upon in  Bedford Investments Ltd v Sellman & ors  [2021] EWHC 799 (Comm).

Bedford  is an important modern case where notice of assignment was challenged. The notice which the court concluded contained the necessary information was sent by email. The judgment does not suggest the email had a formal notice attached to an email and makes no reference to notice being sent by any other means. There was no defence based on an allegation that the email was not in fact received.

It is clear that s 196(1) of the LPA 1925 applies to notices of assignment under s 136 of that Act:

“Any notice required or authorised to be served or given by this Act shall be in writing.”

Sub-sections 196(2), (3) and (4) contain provisions deeming certain forms of delivery as sufficient service. Sub-sections (5) allows parties to contract out of those deeming provisions.

Section 196 was not addressed in  Bedford , nor did it need to be.

It is clear that an email is “writing” so whether the email was a covering email with a notice attached or the body of the email contained the information needed to give notice it would have complied with s 196(1).

Sub-sections 196(2), (3) and (4) contain deeming provisions relating only to “notices required or authorised by this Act to be served”. They do not refer to notice being given as opposed to served. However, the court have been consistent in concluding giving notice is service.

The view of most commentators as detailed by Hugh Sims KC previously in this Journal (2020) 8 JIBFL 523 is that the requirement under s 136(1) of the LPA 1925 for written notice of assignment will be satisfied by an electronic communication. That was clearly the position adopted in  Bedford .

Arnold J in  E.ON UK plc v Gilesports Ltd  [2012] EWHC 2172 (Ch); [2013] 1 P & CR 4; [2013] 3 EGLR 23 came to a view about the effect of s 196 and its deeming provisions in the context of an application for consent to assign a lease that calls the view that written notice of assignment will be satisfied by an electronic communication into question. Arnold J rejected the argument that the deeming provisions in s 196 were sufficient means of service as opposed to the required means of service. In other words, on the basis the lease expressly incorporated s 196, the judgment concluded that notice of the assignment had to be served on the landlord by one of the two methods in ss 196(3) and (4) and as neither method had been used, the relevant application had not been served. It appears from the judgment that s 196 was expressly incorporated in a clause dealing with notices without any other means of service or delivery of an application for consent being provided for.

It appears Arnold J had not referred to the earlier decision of Nicholas Strauss KC sitting as a Deputy High Court Judge  in Michael Gerson Leasing Ltd v Greatsunny Ltd  [2010] Ch 558. In  Gerson  the court took a very different view as to the effect of the deeming provisions in s 196. Strauss J concluded:

“Section 196(2) to (4) contains a series of provisions, the general import of which is to provide a liberal regime as to the contents and mode of service of any notice required or authorised by this Act to be served. It is to be noted that these provisions do not say “to be served or given”, but this makes no difference, since there is no difference, as regards a written notice, between serving and giving it. As shown by the authorities cited above, both mean putting a written notice before the party to whom the notice is to be given.  …

The purport and effect of subsection (5) is not, in my judgment, to impose a stringent requirement for writing, where this is not required by the contract or other instrument affecting property. Rather, it is to relax the requirements as to the mode of service and contents of notices, where the notices are already, by the terms of the instrument, required to be served or (which is the same thing) to be in writing.”

The E.ON approach if applied to notice under s 136 leads to a very curious situation. The need to give written notice under s 136 is a statutory requirement. The statute refers to two methods of sending the required written notice. There is no express wording providing that those two methods are the only methods or media by which notice can be sent or given. The two sub-sections are deeming provisions. They deem sufficient service to have happened so that the method of sending is deemed to have achieved delivery to the debtor, whether or not notice reaches the debtor. That means the sender can send the necessary written notice by one of those methods safe in the knowledge that, whether or not it is actually delivered to the debtor, notice will be treated as given. The E.ON approach operates to treat the debtor to whom notice was in fact given as if the required notice did not reach the debtor, because a different method of sending succeeded in delivery to the debtor. Much of the argument in favour of s 196 imposing methods of service or giving notice rest on the requirement for “writing”. The court historically understood something that was writing to be a physical item that would necessarily be delivered to the receiving party’s location by hand or by post. However, since we are now in a world where emails are accepted by the courts to be writing that logic is flawed.

In reality, until the point is taken to the Court of Appeal notice given by email for the purpose of s 136 of the LPA 1925 cannot be treated as sufficient “giving” with certainty. However, it would be surprising if the Court of Appeal came to a different conclusion faced with that question now.

With the introduction of company registered email addresses under s 29 of the Economic Crime and Corporate Transparency Act 2023 another opportunity and another risk arise. A registered email address for a company should not be mistaken for an electronic version of the company’s registered physical address. Rather it equates to the requirement for directors’ addresses to be recorded. The purpose of the registered email address for the company is to facilitate communications between Companies House and the company. It should not be assumed by third parties that communications via that address will be sufficient communication or come to the attention of the company for other purposes. However, it is always open to parties when contracting, given the required existence of that address, to expressly provide for notice to be given or served by being sent by email to that address.

DEFECTIVE NOTICES AND EQUITABLE ASSIGNMENT

Where assignor and assignee have effected a valid assignment but no valid notice has been given to the debtor, as required by s 136 of the LPA 1925, the assignment takes effect in equity as between assignor and assignee.

An equitable assignment arises where there is the intention to assign, the subject matter is described so that it can be identified, and the assignor does something showing he is transferring the debt or chose in action to the assignee. Writing is not required until the chose in action (the contract) requires it. If the chose in action is a future right rather than an existing one consideration is necessary.

When a statutory assignment fails to take effect in law simply because the requirements of s 136 were not complied with the first question should be has the assignment taken effect in equity.

Where the non-compliance is confined to the giving of notice to the debtor the answer will be that the assignment is equitable. The failure to notify the third party to the assignment, the debtor, is not a requirement for the creation of a binding assignment as between assignor and assignee.

The consequence of the failure to give valid notice to the debtor is that it is arguable that the assignee can bring a claim in its own name as assignee but it may be necessary to join the assignor. 2  The easier course is to give notice, or further notice if there is a challenge to the validity of the alleged prior notice. It is clear from decisions such as  Van Lynn , discussed above, that a demand or letter of claim sent on the basis notice has already been given can amount to notice itself.

Article by Brie Stevens-Hoare – first published by LexisNexis (JIBFL)

Brie Stevens-Hoare KC

This content is provided free of charge for information purposes only. It does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.

Please note that we do not give legal advice on individual cases which may relate to this content other than by way of formal instruction of a member of Gatehouse Chambers . However, if you have any other queries about this content please contact:

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Deed of Assignment and the Notice of Assignment -What is the Difference?

In this article, Richard Gray barrister takes a brief look at the differences between a Deed of Assignment and a Notice of Assignment and the effect of the assignment on the contracting party

At the end of 2020, Elysium Law were instructed to act for a significant number of clients in relation to claims made by a company known as Felicitas Solutions Ltd (an Isle of Man Company) for recovery of loans which had been assigned out of various trust companies following loan planning entered into by various employees/contractors.

Following our detailed response, as to which please see the article on our website written by my colleague Ruby Keeler-Williams , the threatened litigation by way of debt claims seem to disappear. It is important to note that the original loans had been assigned by various Trustees to Felicitas, by reason of which, Felicitas stood in the shoes of the original creditor, which allowed the threatened action to be pursued.

After a period of inertia, Our Clients, as well as others, have been served with demand letters by a new assignee known as West 28 th Street Ltd . Accompanying the demand letters is a Notice of Assignment, by reason of which the Assignee has informed the alleged debtor of the Assignees right to enforce the debt.

Following two conferences we held last week and a number of phone call enquiries which we have received, we have been asked to comment upon the purport and effect of the Notice of Assignment, which the alleged debtors have received. Questions such as what does this mean (relating to the content) but more importantly is the ‘Notice’ valid?

Here I want to look briefly at the differences between the two documents.

There is no need for payment to make the assignment valid and therefore it is normally created by Deed.

 The creation of a legal assignment is governed by Section 136 of the Law of Property Act 1925:

136 Legal assignments of things in action.

(1)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:

Some of the basic requirements for a legal assignment are;

• The assignment must not be subject to conditions.
• The rights to be assigned must not relate to only part of a debt, or other legal chose in action.
• The assignment must be in writing and signed by the assignor.
• The other party or parties to the agreement must be given notice of the assignment.

Notice of assignment

To create a legal assignment, section 136 requires that express notice in writing of the assignment must be given to the other contracting party (the debtor).

Notice must be in writing

Section 136 of the LPA 1925 requires “express notice in writing” to be given to the other original contracting party (or parties).

 Must the notice take any particular form?

The short answer is no. Other than the requirement that it is in writing, there is no prescribed form for the notice of assignment or its contents. However, common sense suggests that the notice must clearly identify the agreement concerned.

Can we  challenge the Notice?

No. You can challenge the validity of the assignment assignment by ‘attacking the Deed, which must conform with Section 136. In this specific case, the Notice sent by West 28 th Street in itself is valid. Clearly, any claims made must be effected by a compliant Deed and it is that which will require detailed consideration before any right to claim under the alleged debt is considered.

Can I demand sight of the assignment agreement

On receiving a notice of assignment, you may seek to satisfy yourself that the assignment has in fact taken place. The Court of Appeal has confirmed that this is a valid concern, but that does not give an automatic right to require sight of the assignment agreement.

In Van Lynn Developments Limited v Pelias Construction Co [1969]1QB 607  Lord  Denning said:

“After receiving the notice, the debtor will be entitled, of course, to require a sight of the assignment so as to be satisfied that it is valid…”

The Court of Appeal subsequently confirmed this  stating the contracting party is entitled to satisfy itself that a valid absolute assignment has taken place, so that it can be confident the assignee can give it a good discharge of its obligations

The important document is the Deed of Assignment, which sets out the rights assigned by the Assignor. The Notice of Assignment is simply a communication that there has been an assignment. The deed is governed by Section 136 of the LP 1925. It should be possible to obtain a copy of the Deed prior to any action taken in respect of it.

For more information on the claims by West 28 th Street or if advice is needed on the drafting of a Deed, then please call us on 0151-328-1968 or visit www.elysium-law.com .

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136 Legal assignments of things in action. E+W

(1) 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—

(a) that the assignment is disputed by the assignor or any person claiming under him; or

(b) of any other opposing or conflicting claims to such debt or thing in action;he may, if he thinks fit, either call upon the persons making claim thereto to interplead concerning the same, or pay the debt or other thing in action into court under the provisions of the M1 Trustee Act, 1925.

(2) This section does not affect the provisions of the M2 Policies of Assurance Act, 1867.

[ F1 (3) The county court has jurisdiction (including power to receive payment of money or securities into court) under the proviso to subsection (1) of this section where the amount or value of the debt or thing in action does not exceed [ F2 £30,000 ] . ]

Textual Amendments

F1 S. 136(3) added by County Courts Act 1984 (c. 28, SIF 34) , s. 148(1) , Sch. 2 Pt. II para. 4

F2 Words in s. 136(3) substituted (1.7.1991) by S.I. 1991/724 , art. 2(8) , Sch. Pt. I (with art. 12 )

Modifications etc. (not altering text)

C1 S. 136 excluded (12.2.1992) by S.I. 1992/225 , reg. 18(2)(c) ; and (19.12.1995) by S.I. 1995/3272 , reg. 32(5)

S. 136 excluded (26.11.2001) by S.I. 2001/3755 , reg. 38(5)

S. 136 excluded (26.12.2003) by The Financial Collateral Arrangements (No. 2) Regulations 2003 (S.I. 2003/3226) , reg. 4(3)

C2 S. 136(1) proviso extended (1.7.1991) by S.I. 1991/724 , art. 2(5) (with art. 12 )

C3 S. 136(3) modified by County Courts Act 1984 (c. 28, SIF 34) , s. 24(2) ( c )

Marginal Citations

M1 1925 c. 19 .

M2 1867 c. 144 .

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Assigning debts and other contractual claims - not as easy as first thought

Harking back to law school, we had a thirst for new black letter law. Section 136 of the Law of the Property Act 1925 kindly obliged. This lays down the conditions which need to be satisfied for an effective legal assignment of a chose in action (such as a debt). We won’t bore you with the detail, but suffice to say that what’s important is that a legal assignment must be in writing and signed by the assignor, must be absolute (i.e. no conditions attached) and crucially that written notice of the assignment must be given to the debtor.

When assigning debts, it’s worth remembering that you can’t legally assign part of a debt – any attempt to do so will take effect as an equitable assignment. The main practical difference between a legal and an equitable assignment is that the assignor will need to be joined in any legal proceedings in relation to the assigned debt (e.g. an attempt to recover that part of the debt).

Recent cases which tell another story

Why bother telling you the above?  Aside from our delight in remembering the joys of debating the merits of legal and equitable assignments (ehem), it’s worth revisiting our textbooks in the context of three recent cases. Although at first blush the statutory conditions for a legal assignment seem quite straightforward, attempts to assign contractual claims such as debts continue to throw up legal disputes:

• In  Sumitomo Mitsui Banking Corp Europe Ltd v Euler Hermes Europe SA (NV) [2019] EWHC 2250 (Comm),  the High Court held that a performance bond issued under a construction contract was not effectively assigned despite the surety acknowledging a notice of assignment of the bond. Sadly, the notice of assignment failed to meet the requirements under the bond instrument that the assignee confirm its acceptance of a provision in the bond that required the employer to repay the surety in the event of an overpayment. This case highlights the importance of ensuring any purported assignment meets any conditions stipulated in the underlying documents.
• In  Promontoria (Henrico) Ltd v Melton [2019] EWHC 2243 (Ch) (26 June 2019) , the High Court held that an assignment of a facility agreement and legal charges was valid, even though the debt assigned had to be identified by considering external evidence. The deed of assignment in question listed the assets subject to assignment, but was illegible to the extent that the debtor’s name could not be deciphered. The court got comfortable that there had been an effective assignment, given the following factors: (i) the lender had notified the borrower of its intention to assign the loan to the assignee; (ii) following the assignment, the lender had made no demand for repayment; (iii) a manager of the assignee had given a statement that the loan had been assigned and the borrower had accepted in evidence that he was aware of the assignment. Fortunately for the assignee, a second notice of assignment - which was invalid because it contained an incorrect date of assignment - did not invalidate the earlier assignment, which was found to be effective. The court took a practical and commercial view of the circumstances, although we recommend ensuring that your assignment documents clearly reflect what the parties intend!
• Finally, in Nicoll v Promontoria (Ram 2) Ltd [2019] EWHC 2410 (Ch),  the High Court held that a notice of assignment of a debt given to a debtor was valid, even though the effective date of assignment stated in the notice could not be verified by the debtor. The case concerned a debt assigned by the Co-op Bank to Promontoria and a joint notice given by assignor and assignee to the debtor that the debt had been assigned “on and with effect from 29 July 2016”. A subsequent statutory demand served by Promontoria on the debtor for the outstanding sums was disputed on the basis that the notice of assignment was invalid because it contained an incorrect date of assignment. Whilst accepting that the documentation was incapable of verifying with certainty the date of assignment, the Court held that the joint notice clearly showed that both parties had agreed that an assignment had taken place and was valid. This decision suggests that mistakes as to the date of assignment in a notice of assignment may not necessarily be fatal, if it is otherwise clear that the debt has been assigned.

The conclusion from the above? Maybe it’s not quite as easy as first thought to get an assignment right. Make sure you follow all of the conditions for a legal assignment according to the underlying contract and ensure your assignment documentation is clear.

Contact our experts for further advice

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Legal and Equitable Assignments; Validity of Notice of Assignment

Readers will be aware that it is very rare for a reported case in the higher courts dealing with invoice finance to emerge, so we were interested to see a report of a recent case in another area of financial services which raised squarely 2 legal concepts which are fundamental to invoice financiers:

• the difference between the legal assignment and equitable assignment of a debt; and
• whether notice of assignment requires the debtor to receive a copy of the instrument of assignment.

Legal and equitable assignment

In Frischmann v Vaxeal Holdings SA [2023] EWHC 2698 , the court was concerned with a challenge to the assignment of rights under two loan agreements and a guarantee. The first point considered by the court related to the requirements for a legal assignment as set out in section 136 of the Law of Property Act 1925 (“LPA”).

Section 136 of the LPA provides:

“ (1)  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—

(a)  that the assignment is disputed by the assignor or any person claiming under him; or

          (b)  of any other opposing or conflicting claims to such debt or thing in action;

he may, if he thinks fit, either call upon the persons making claim thereto to interplead concerning the same, or pay the debt or other thing in action into court under the provisions of the Trustee Act 1925”.

The defendants contended, among other things, that the assignment here was ineffective and void because it was not in writing under the hand of (signed by) the assignor, as required by section 136 of the LPA. The assignment had been signed on behalf of the assignor by an attorney acting under a power of attorney.

The court found that there was not a valid legal assignment because of the particular provisions of the Powers of Attorney Act 1971, and held that because an effective assignment under section 136 must be in writing and under the hand of the assignor, an assignment signed by the assignor’s attorney did not satisfy this requirement. The court did not accept that the wording of the Powers of Attorney Act 1971 should be treated as rewriting the LPA without express reference to the earlier statute.

Although the court found that there was not a valid legal assignment, the court went on to find that the assignment took effect as an equitable assignment, relying on the case of Technocrats International Ltd v Fredic Ltd (No. 1) [2004] EWHC 692 (QB) [57], in which Field J explained that for there to be an effective equitable assignment:

“ all that is needed is some transaction that sufficiently manifests an intention by the owner of an identified [debt] to assign it to another”.

Validity of notice of assignment

An equitable assignment does not require notice to the debtor, but the judge went on to deal with this issue in case it would later be found by a court on appeal that he was wrong about the finding that the assignment did not qualify as a legal assignment, and he gave short shrift to this argument:

“The defendants’ next line of defence is that although they [in] the Re-Amended Defence that they “admit receipt of a letter purporting to give notice of the alleged assignment; nevertheless, [they] cannot plead to whether or not they were given notice of “the Assignment” as no assignment was enclosed with the letter of 18 June 2020 and [they] are not aware if any assignment was in fact executed…

There is no legal requirement that an obligor is to be provided with a copy of the Assignment itself. I conclude that the letter of 18 June 2020 would have amounted to a good notice had section 136 been complied with and was a good notice of the equitable assignment which I have concluded is what had taken place”.

Although this case does not establish any new principle of law, it is a useful example of the court taking a sensible view of what can sometimes be highly technical legal doctrines relating to assignment and the requirements for notice of assignment.

These issues are highly relevant to invoice financiers:

Equitable assignments can be informal

Any assignment in which the intention of the parties is clear has long been recognised as a valid equitable assignment: there need be no writing, and no notice to the debtor, but the effect of an absolute transfer of ownership of a debt is the same.

There is therefore very little practical difference between legal and equitable assignments: in practice a technical rule requiring Court proceedings to enforce equitable assignments to be brought by both the Financier and the Client is almost universally ignored with no adverse consequences.

Effect of Notice on the Debtor

Receipt of notice of assignment by the debtor has the following important legal consequences:

• it prevents discharge of the debt by subsequent payment to the Client;
• it prevents future changes in the terms of the contract of sale being enforceable against the Financier; and

(3) it fixes the rights of the parties in relation to some aspects of set-off.

Here the court sensibly rejected the debtor’s argument that merely being told about the fact of assignment did not equate to notice, and that it was incumbent upon the assignee to provide a copy of the document or instrument effecting the assignment.

Contact our Invoice Finance Team.

Assignments: why you need to serve a notice of assignment

Catherine phillips.

PSL Principal Associate

It's the day of completion; security is taken, assignments are completed and funds move. Everyone breathes a sigh of relief. At this point, no-one wants to create unnecessary paperwork - not even the lawyers! Notices of assignment are, in some circumstances, optional. However, in other transactions they could be crucial to a lender's enforcement strategy. In the article below, we have given you the facts you need to consider when deciding whether or not you need to serve notice of assignment.

What issues are there with serving notice of assignment?

Assignments are useful tools for adding flexibility to banking transactions. They enable the transfer of one party's rights under a contract to a new party (for example, the right to receive an income stream or a debt) and allow security to be taken over intangible assets which might be unsuitable targets for a fixed charge. A lender's security net will often include assignments over contracts (such as insurance or material contracts), intellectual property rights, investments or receivables.

An assignment can be a legal assignment or an equitable assignment. If a legal assignment is required, the assignment must comply with a set of formalities set out in s136 of the Law of Property Act 1925, which include the requirement to give notice to the contract counterparty.

The main difference between legal and equitable assignments (other than the formalities required to create them) is that with a legal assignment, the assignee can usually bring an action against the contract counterparty in its own name following assignment. However, with an equitable assignment, the assignee will usually be required to join in proceedings with the assignor (unless the assignee has been granted specific powers to circumvent that). That may be problematic if the assignor is no longer available or interested in participating.

Why should we serve a notice of assignment?

The legal status of the assignment may affect the credit scoring that can be given to a particular class of assets. It may also affect a lender's ability to effect part of its exit strategy if that strategy requires the lender to be able to deal directly with the contract counterparty.

The case of General Nutrition Investment Company (GNIC) v Holland and Barrett International Ltd and another (H&B) provides an example of an equitable assignee being unable to deal directly with a contract counterparty as a result of a failure to provide a notice of assignment.

The case concerned the assignment of a trade mark licence to GNIC . The other party to the licence agreement was H&B. H&B had not received notice of the assignment. GNIC tried to terminate the licence agreement for breach by serving a notice of termination. H&B disputed the termination. By this point in time the original licensor had been dissolved and so was unable to assist.

At a hearing of preliminary issues, the High Court held that the notices of termination served by GNIC , as an equitable assignee, were invalid, because no notice of the assignment had been given to the licensee. Although only a High Court decision, this follows a Court of Appeal decision in the Warner Bros Records Inc v Rollgreen Ltd case, which was decided in the context of the attempt to exercise an option.

In both cases, an equitable assignee attempted to exercise a contractual right that would change the contractual relationship between the parties (i.e. by terminating the contractual relationship or exercising an option to extend the term of a licence). The judge in GNIC felt that "in each case, the counterparty (the recipient of the relevant notice) is entitled to see that the potential change in his contractual position is brought about by a person who is entitled, and whom he can see to be entitled, to bring about that change".

In a security context, this could hamper the ability of a lender to maximise the value of the secured assets but yet is a constraint that, in most transactions, could be easily avoided.

Why not serve notice?

Sometimes it's just not necessary or desirable. For example:

• If security is being taken over a large number of low value receivables or contracts, the time and cost involved in giving notice may be disproportionate to the additional value gained by obtaining a legal rather than an equitable assignment.
• If enforcement action were required, the equitable assignee typically has the option to join in the assignor to any proceedings (if it could not be waived by the court) and provision could be made in the assignment deed for the assignor to assist in such situations. Powers of attorney are also typically granted so that a lender can bring an action in the assignor's name.
• Enforcement is often not considered to be a significant issue given that the vast majority of assignees will never need to bring claims against the contract counterparty.

Care should however, be taken in all circumstances where the underlying contract contains a ban on assignment, as the contract counterparty would not have to recognise an assignment that is made in contravention of that ban. Furthermore, that contravention in itself may trigger termination and/or other rights in the assigned contract, that could affect the value of any underlying security.

What about acknowledgements of notices?

A simple acknowledgement of service of notice is simply evidence of the notice having been received. However, these documents often contain commitments or assurances by the contract counterparty which increase their value to the assignee.

Best practice for serving notice of assignment

Each transaction is different and the weighting given to each element of the security package will depend upon the nature of the debt and the borrower's business. The service of a notice of assignment may be a necessity or an optional extra. In each case, the question of whether to serve notice is best considered with your advisers at the start of a transaction to allow time for the lender's priorities to be highlighted to the borrowers and captured within the documents.

For further advice on serving notice of assignment please contact Kirsty Barnes or Catherine Phillips  from our Banking & Finance team.

NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Gowling WLG professionals will be pleased to discuss resolutions to specific legal concerns you may have.

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Section 136 The Law of Property Act 1926 - Deed of Assignment

Georgios Christodoulou made this Freedom of Information request to Southwark Borough Council This request has been closed to new correspondence . Contact us if you think it should be reopened.

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Dear Southwark Borough Council,

We understand that, The Law of Property Act 1925, Section 136 is up to date with all changes known to be in force on or before 15 December 2019:

136 Legal assignments of things in action. (1) 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— (a) that the assignment is disputed by the assignor or any person claiming under him; or (b) of any other opposing or conflicting claims to such debt or thing in action;he may, if he thinks fit, either call upon the persons making claim thereto to interplead concerning the same, or pay the debt or other thing in action into court under the provisions of the Trustee Act, 1925. (2) This section does not affect the provisions of the Policies of Assurance Act, 1867. [(3)The county court has jurisdiction (including power to receive payment of money or securities into court) under the proviso to subsection (1) of this section where the amount or value of the debt or thing in action does not exceed [£30,000].]

1. We will be grateful if you would kindly confirm, that, with regards using third parties to collect unpaid council tax, if Southwark Borough Council provides the said third party with a Deed of Assignment, as per the above mentioned, Section 136 of The Law of Property Act 1925.

2. And if Southwark Borough Council, does not provide the Deed of Assignment, please confirm where the exemption is stated.

We understand that for any third party interest in an alleged debt, there needs to be an assignment of the interest, from the principal to the third party.

We understand that Southwark Borough Council should firstly provide a Notice of intended assignment, to the alleged debtor.

We understand that the third party has to possess a Deed of Assignment that is both signed by the assignor and assignee; and the deed must contain all the details purporting to the alleged debt.

We understand that without the required Notice of Assignment, and the required Deed of Assignment, the third party will be acting illegally, and committing fraud and harassment.

Yours faithfully,

Georgios Christodoulou

Southwark Council - Information request

Our reference: 1706744

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Mx Georgios Christodoulou,

Please find a response to your information request attached.

Kind regards,

Crystal Norbert Corporate Information Governance Officer Southwark Council | Finance & Governance | Information Governance 0207 525 4184 [ email address ] Southwark Council - Finance and Governance, 2nd floor hub 1, PO Box 64529, London, SE1P 5LX

The email you received and any files transmitted with it are confidential, may be covered by legal and/or professional privilege and are intended solely for the use of the individual or entity to whom they are addressed.

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Where opinions are expressed in the email they are not necessarily those of Southwark Council and Southwark Council is not responsible for any changes made to the message after it has been sent.

Dear Norbert, Crystal,

Thank you for confirming the following:

1. You treat third party agents as your own employees as enforcers. 2. You do not obliged to comply with The Law of Property Act 1926 Section 136.

Yours sincerely,

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The Importance of a Notice of Assignment in Factoring

Factoring is a financial transaction where a business sells its accounts receivable to a third party, known as a factor, to improve cash flow and manage credit risks. One critical element in the factoring process is the Notice of Assignment. This document serves as a formal notification to debtors that their debt has been assigned to the factor. Understanding the importance and implications of the Notice of Assignment is essential for the smooth execution of a factoring agreement.

What is a Notice of Assignment?

A Notice of Assignment is a formal document sent to a debtor informing them that their obligation to pay an invoice has been transferred from the original creditor to a factor.

Key Reasons for the Importance of a Notice of Assignment

• Legal Clarity and Enforceability
• The Notice of Assignment legally establishes the factor’s right to collect the receivables. Without this notice, debtors might still consider the original creditor as the entity entitled to payment.
• Priority in Payment. In the case of multiple claims on the same receivable, the notice helps establish the factor’s priority in receiving payment.
• Preventing Double Payments
• The notice provides clear payment instructions to the debtor, reducing the risk of double payment to the original creditor and to the factor.
• It minimises confusion by clearly informing the debtor of the change in payment instructions and the new party entitled to receive the payment.
• Legal Compliance
• Regulatory Requirements. Many jurisdictions have specific legal requirements mandating the issuance of a Notice of Assignment for the assignment to be legally effective. Complying with these requirements protects the interests of the factor.
• Contractual Obligations. Factoring agreements often include clauses that require the client to notify debtors of the assignment. Adhering to these contractual obligations is crucial for maintaining the integrity of the agreement.
• Improved Collection Efficiency
• Direct Communication. By notifying debtors directly, factors can establish a line of communication to manage and streamline the collection process.
• Early Intervention. If there are any disputes or issues with the receivables, the factor can address them promptly, improving the chances of timely payment.
• Mitigating Credit Risk
• Awareness of Assignment. Debtors who are aware of the assignment and the involvement of a professional factoring company may be more diligent in making payments, reducing the risk of defaults.
• Legal Recourse. The notice ensures that factors have the legal recourse to take action against debtors in case of non-payment, enhancing their ability to manage credit risk effectively.
• Maintaining Professional Relationships
• Providing a Notice of Assignment maintains transparency between the client, the factor, and the debtor, fostering trust and professionalism.
• It ensures a smooth transition of responsibilities from the client to the factor, helping maintain positive business relationships.

Key Elements of a Notice of Assignment

  Legal Framework: The Law of Property Act 1925

The Law of Property Act 1925 is a key piece of legislation that governs the assignment of receivables, a central aspect of invoice finance. The Act sets out the requirements for a legal assignment, ensuring that the transfer of rights is clear, enforceable, and provides protection to all parties involved.

• Legal Assignment
• For an assignment to be considered enforceable under section 136 of the Law of Property Act 1925, it must meet the following criteria:

In Writing : The assignment must be documented in writing and signed

Absolute : The assignment must be absolute, meaning the entire interest in the receivable is transferred without conditions.

Notification . Written notice of the assignment must be given to the debtor.

• Failure to meet these criteria results in an equitable assignment, which, while still valid, does not offer the same level of legal protection and enforceability as a legal assignment.

  Best Practice: The contents of the Notice

• Identification Details

Names and contact information of the original creditor, the factor, and the debtor.

• Assignment Details

Specific information about the receivables assigned, including invoice numbers, dates, and amounts or confirmation that all present and future invoices will be assigned.

• Payment Instructions

Clear instructions on how and where to make payments, including bank account details.

• Contact Information

Contact details for any queries or disputes, ensuring the debtor knows whom to contact for clarification.

Take Away Points

The Notice of Assignment is a critical document in the factoring process, ensuring legal clarity, preventing double payments, improving collection efficiency, and mitigating credit risk.

By formally notifying debtors of the assignment, factors can assert their rights, comply with legal and contractual requirements, and maintain professional relationships. Understanding the importance of this notice helps ensure a smooth and effective factoring arrangement, benefiting all parties involved.

Joanna Buckley, Associate Director

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