UNIVERSITY INSTITUTE OF LEGAL STUDIES

SUBJECT : LAW OF EQUITY, TRUST & SPECIFIC

DISCOVER . LEARN . EMPOWER

Course Outcome

CO Title
Number
CO1 The students will better appreciate the
concept of equity, justice and good con-
science

Will be covered in this

TOPIC: EQUITABLE
ASSIGNMENT AND
CONVERSION

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 EQUITABLE ASSIGNMENT
At the very outset, in order to enumerate the law of equitable
assignment, reference must be made to one of the earliest case law in
time. In Palmer v Carey (1926), it was held that “the extent of the
principle to be deduced is that an agreement between a debtor and a
creditor that the debt owing shall be paid out of a specific fund coming
to the debtor, or an order given by a debtor to his creditor upon a
person owing money or holding funds belonging to the giver of the
order, directing such person to pay such funds to the creditor, will
create a valid equitable charge upon such fund, in other words, will
operate as an equitable assignment of the debts or fund to which the
order refers.”
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• In common law, an equitable assignment is not recognized as a
regular assignment but a right is vested in the assignee which is
enforceable in equity. Therefore, in equitable assignment the debtor
must to be notified regarding the transfer of debt from the creditor to
the third party otherwise it would be meaningless for the party
claiming assignment (Corporation Bank v. Lalitha H. Holla & Ors
(1997).

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• Subsequently, regarding the power to collect monies by way of assignment
the Apex Court in Bharat Nidhi Ltd. v Takhatmal & Ors. (1969) held that
appropriate construction of all the documents must lead to the inevitable
conclusion that according to the agreement between the lender and borrower
the debt of the former would be discharged out of the money’s receivable
under the bill. Also, the powers of attorney along with endorsement of bill
sufficiently indicate that this case is equitable assignment by way of security.
It was further held that if a transfer is not covered within the ambit of Section
130 of the Act, 1882 then it may independently and separately operate as an
equitable assignment of actionable claim. Similarly, in Seth Loon Karan Sethiya
v Ivan E. John & Ors (1969), the Supreme Court of India held that a power of
attorney, executed in favour of the bank, which specifically earmarks a
particular special fund for the purpose to discharge debt towards the bank,
shall constitute an equitable assignment of the amount due or the amount
necessary to discharge the debt. However, not every power of attorney would
amount to equitable assignment.

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• In Corporation Bank v Lalitha H. Holla & Ors (1997) it was held that in
equitable mortgage, that is, creation of mortgage by deposit of title
deeds the security is property and not the rents. Therefore, the
existence of power of attorney is only an authorisation to demand
rents and perform certain acts as mentioned therein but there is
absence of any agreement by which obligation to discharge the debt
of the bank by appropriate of rents or income from mortgaged
property. Therefore, in such situation there is no equitable
assignment of funds in favour of the bank.

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 EQUITABLE ESTOPPEL
• Generally, an assignee can have no rights superior to those held by his assignor. This is
because law presumes that an assignee simply stands in the shoes of the assignor. However, at
times, it becomes inevitable to confer some greater rights to the assignee than his/her assignor
because of an estoppel arising against the obligor. Thus, the principle of equitable estoppel
may be raised in favor of an assignee of a nonnegotiable chose in an action to protect his/her
rights against equity of the debtor. The general rule that an assignee acquires no greater rights
than his assignor is subject to the qualification that the debtor may, by his/her representations
or conduct, estop himself /herself to set up against the assignee, defenses which were available
to him/her against the assignor (Thorp Finance Corp. v. Le Mire, 1953).
• A debtor may be estopped by representations or conduct from asserting against the assignee
any counterclaims, setoffs, or defenses that otherwise would have been available to the debtor
against the assignor. For instance, if the debtor had expressly waived all rights of action, setoff,
and counterclaim he/she may have had against the assignor, the debtor is estopped from
proceeding against the assignee. Similarly, a debtor is estopped by representations or recitals
in the original assigned instrument and retaining the benefit of the assigned instrument. A
debtor is also prohibited from executing a new agreement with the assignee.

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• Similarly, public policy considerations will not allow a debtor to
interpose a defense available against his /her original creditor against
an assignee of that creditor (Gooch v. Gooch, 1916).
• However, the doctrine of estoppel does not always come to the
rescue of the assignee, especially if he/she fails to exercise good faith
in the transaction. Courts have held that the doctrine of estoppel is
founded upon principles of morality and fair dealing and is available
only for the protection of claims made in good faith. Good faith
requires the exercise of reasonable diligence to learn the truth, and,
accordingly, estoppels is denied where the party claiming it had
available means for ascertaining the truth of the transaction, at least
where the element of actual fraud is absent (Thorp Finance Corp. v. Le
Mire, 1953).

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• Thus, an assignee is precluded from assigning the defense of estoppel,
when the assignee has knowledge of a possible defense by the debtor
against the assignor or when he/ she is a principal in the originating
transaction. Also, an assignee of a nonnegotiable chose of action has
a right of equitable estoppels against the equity of a prior owner of
the chose from whom an assignment was obtained by his/ her
immediate assignor by fraud or for a limited purpose.

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THANK YOU