Assignment Of Choses In Action

• Published date: 08 January 2024
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law
• Law Firm: S.P.A. Ajibade & Co.
• Author: Mr Emmanuel Abasiubong Bassey

1. INTRODUCTION

As a general rule and based on the doctrine of privity a contract cannot confer rights or impose obligations on any person except the parties to the contract. Accordingly, a contract cannot be enforced by or against a person who is a stranger to it even if the contract is made for his benefit and purports to give him the right to sue or to make him liable upon it. The main reason for this is that it is the parties' contract, and they are always free to vary or discharge it by agreement. The creation of a third party right would impede this freedom unless an agreement for such third party involvement has been made part of the agreement.²

As with every general rule, there is always an exception. One of the exceptions to the doctrine of privity of contract arises in the assignment of choses in action where the owner of a contractual right can transfer same to a third party without the consent of the debtor (the counter-party to the contract), thereby enabling the third party to enforce the right against the debtor. The process of transfer of such a right is known as "assignment" and the types of property which are susceptible to this type of transfer are known as "choses in action."³

This article sets out to trace the evolution, incidence, and the conditions precedent for a valid assignment of choses in action under Nigerian law.

2. WHAT ARE CHOSES IN ACTION?

Choses in action is a legal expression used to describe all personal rights of property which can only be claimed or enforced by action and not by taking physical possession of them. They are also called "things in action" because they are things which a person is not possessed but has to bring an action in court in order to recover them.⁴ Choses in action may be legal or equitable. Legal choses in action are those which could historically only be enforced by an action at common law whilst equitable choses in action are choses in action which could only be enforced in the courts of equity- they arose out of property rights over which the Chancery Court formerly had exclusive jurisdiction.⁵ Examples of choses in action include debts, shares, negotiable instruments, policies of insurance, bills of lading, patents, copyrights, rights under trusts and legacies,⁶ benefit of a contract for sale of reversionary interest, rights to claim indefinite sums of money, as for compensation under Statute; damages for loss in which the assignee was the assignor's insurer, a debt or benefit arising out of an existing contract, but payable at a future time⁷ and a claim for damages in tort.⁸ All these are intangible rights which cannot be physically possessed but only claimed or enforced by an action in court. They are in law permitted to be assigned by the holders (though they can neither be seen nor possessed) to third parties who would be able to enforce the rights against the debtors even though they were not parties to the original contract.

3. ASSIGNMENT OF CHOSES IN ACTION

The term "assignment" refers to the act of transferring to another all or part of one's property, interest, or rights. The term denotes not only the act of transfer, but also the instrument by which it is effected.⁹ In Julius Berger (Nig) Plc & Anor v. Toki Rainbow Community Bank Ltd¹⁰ the Court of Appeal held that "assignment means to give something to some body for their use or benefit. It also may mean to transfer right, property or title from the persons legally entitled to them to some body else for their benefit."

The assignment of choses in action may be legal or equitable. Due to the vagaries of the historical evolution of law and equity, different considerations apply to the assignment of choses in action at law and in equity.¹¹

4. ASSIGNMENT AT COMMON LAW

Historically, under common law contractual rights were hitherto not assignable without the consent of both contracting parties since they were things in action as opposed to things in possession. This common law rule stemmed from the difficulty of conceiving of transfer of an intangible, and the desire to avoid maintenance and champerty.¹² The only methods of assigning contractual rights at common law were by novation and by procuring the debtor's acknowledgment that he held for the...