Choses in Action

Intangible Property

Most intangible property rights are so-called “choses in action”. A chose in action is a right asserted by legal action. The classic type of chose in action is a debt or an incontrovertible contractual obligation. It also includes a wide range of assets such as stocks, shares, insurance policies. The rights of a beneficiary under its trust is an equitable chose in action. The essential right of a partner is to an account of the partnership assets generally, on winding up.

Intellectual property rights cover a range of rights, which are protected by statute or common law. Copyright consists of a bundle of rights in respect of original works. They protect against copying. A patent protects an inventor of an invention for a period of 20 years. A trademark protects the goodwill associated, with particular goods. Other rights, such as industrial designs and semiconductor chip designs, enjoy similar statutory protection.

A range of other rights, such as confidential information and goodwill are protected by common law. Various rights and remedies are available from the courts to counter interference with such rights.


Nature of Chose in Action

A chose in action is a quasi-property right which may be ultimately asserted by legal action.  The expression embraces a wide variety of assets and quasi-assets. The classes of chose in action vary in respect of their assignability and the nature of the rights and property concerned.

In broad terms, choses in action are divided into legal choses in action and equitable choses in action.  However, there are choses in action outside of these categories and choses in action which are not enforceable in court but depend for their existence on other circumstances and factors.

A legal chose in action is one which was historically enforced by action at law (as opposed to in equity). Rights enforceable by action at law include rights under contracts, claims for unliquidated damages for breach of contract or a right of action based on tort. The right of the trustee to recover trust assets is a legal chose in action.

Equitable choses were those originally enforced by the courts of equity.  They arise out of property rights over which the Chancery Court formerly had exclusive jurisdiction, including, in particular, equitable interests in property, shares in partnership and shares in funds.

Equitable rights to the property include beneficial interest under trusts, many interests in funds, reversionary interest in estates and shares in partnerships. Equitable choses in action include claims in equity for misfeasance, breach of trustee and relief against forfeiture.


Examples of Choses in Action

The following are examples of choses in action;

  • debts whether by contract or by instrument under seal;
  • mortgage debts;
  • debentures;
  • rights to rents;
  • tithes and annuities;
  • many interests in funds,
  • negotiable instruments,
  • promissory notes;
  • bills of exchange.
  • shares;
  • insurance policies;
  • charterparties.

A chose in action need not be evidenced by an instrument; such as for example;

  • pensions;
  • patent rights;
  • copyright;
  • dividends due;
  • contractual rights from a verbal contract.

Debts, Accounts and Policies

Certain types of assets are effectively legal claims, which can only be enforced by Court Action.  A debt, insurance policy or bank account can be mortgaged by being assigned to the mortgagee as security. In order to complete the security, notice should be given to the debtor or the party who has the obligation to pay, who should in turn confirm and acknowledge such assignment.

An assignment and notice in writing is essential to give the assignee the right to sue and enforce the obligation in its own name.  Failure to give notice does not render the assignment void.  Instead, it means that it can only be enforced indirectly.   The priority of assignments is determined by the date of notice to the debtor/covenanting party. Therefore, failure to give notice may cause priority to be lost, if a later assignment is notified first.


Security Assiignments

A security assignment may be taken over rents receivable, in the same manner as over any debt or third party liability. A formal security assignment is the best way to procure effective security. The tenant should be notified to pay the rent to a nominated account. This can be a very effective security, in the case of an investment property.

It is possible to create a fixed charge over monies due, such as accounts receivable (e.g. unpaid invoices).  It is necessary that the borrower does not control the account and only makes withdrawals with the lender’s specific consent. It is often desirable for a lender to create a fixed charge over a borrower’s debtors as these may constitute a significant asset.

Many attempts to create a fixed charge over a receivable, leave the borrower with too much control, so that the such charges take effect if at all, as floating charges, with the consequent weaknesses and vulnerability. Certain Irish Revenue debts have priority over fixed charges over book debts.


Contracts

There are very little limitations on what might be contained in a contract. Usually there are rights and obligations on the respective parties. One person’s rights are equivalent to the other person’s obligation. The obligations or rights “receivable” are often capable of assignment. This might comprise a right to payment or the right to require performance

The developer’s rights under a building contract and various associated contracts may be assigned by way of security to a bank. More commonly, the lender acquires direct rights that allow the lender or its nominee the option of assuming the rights and obligations of the borrower under the contracts.

Many contracts are not capable of assignment. There is a presumption that a contract may be assigned, unless it is expressed or implied otherwise. An assignment involves an outright transfer of the benefit of the contract. It is not possible to transfer the burdens or obligations under a contract.

It is possible to subcontract their performance to a third party. However it is a fundamental principle that a person who has undertaken obligations cannot get rid of his obligations by transferring or assigning them.


Bank Accounts

A bank account is a debt owed by the bank to the customer. The customer does not “own” the deposit as such and it is not property. Rather it is a claim against the bank. A debt, asset or receivable is mortgaged by assignment in writing followed by notice to the debtor.

Certain difficulties arise with a charge over a deposit with the lender itself. Generally, it is not possible to take a security charge over the mortgagee’s own debt (which is what the deposit is). There is a mechanism to avoid this difficulty and EU regulations have assisted and simplified this type of security.


Insurance Policies

The Policy of Insurance Act provides that an assignment of an insurance policy must be in writing, either by endorsing the policy or by a separate instrument. Written notice of the assignment must be given to the insurance company at their principal place of business.  The company should acknowledge receipt of a notice.

A mortgage of an insurance policy takes the form of an assignment with a provision for re-assignment.  The assignments take effect in order of notice.


Shares

A “legal” mortgage may be taken over shares by making a transfer of them to the mortgagee, subject to an agreement to re-transfer.  The mortgagee will be registered as shareholder.  It is not possible to note a mortgage on the register of shares of a company.

An “equitable” mortgage of shares can be taken by way of a transfer executed by the mortgagor, leaving the name of the transferee blank. The share certificate should also be delivered.  It is possible to give a company a stop notice that entitles the mortgagee to notice of an application to transfer and gives the mortgagee the opportunity to obtain a restraining order.


Intellectual Property

A mortgage over intellectual property, which comprises patents or trade marks must be signed, transferred and registered on the Register.  A mortgage is registered in the Patents  Office. Mortgages have priority in order of registration.

The grant of security over the  following assets must be registered in the Patents Office;

  • patents;
  • trade marks;
  • registered designs.

There is no register of copyright. A mortgage of copyright is taken by way of a transfer subject to an obligation to re-transfer upon redemption.


Assignability of Rights

It is possible to assign some, but not all, intangible rights. They are usually assigned by written assignment, followed by notice to the obligor (other party). Equitable interests may be created over intangible rights.

A right to sue for an indefinite amount, such as a right to compensation, is usually non-transferable on public policy grounds. Where, however, the transferee has a genuine interest in the litigation, an assignment may be permitted.


References and Sources

Irish Texts

Modern law of personal property in England and Ireland 1989  Bell

Consumer Law Rights & Regulation 014       Donnelly & White

Commercial Law White           2012 2nd ed

Commercial & Economic Law in Ireland        2011 White

Commercial Law 2015 Forde 3rd ed

Irish Commercial Precedents (Looseleaf)

Commercial & Consumer Law: Annotated Statutes 2000  O’Reilly

Irish Tort Legislation    Fahey  Irish Tort Legislation    2015

Personal Property Law: Text and Materials  2000  Sarah Worthington

Personal Property Law (Clarendon Law Series) 2015 Michael Bridge

The Law of Personal Property 2017   Professor Michael Bridge and Prof. Louise Gullifer

The Principles of Personal Property Law 2017  Duncan Sheehan

Crossley Vaines on Personal Property 1967 by J C Vaines

The Law of Bills of Sale 2017 James Weir

Palmer on Bailment 2009  Norman Palmer

The Reform of UK Personal Property Security Law: Comparative Perspectives  2012 John de Lacy

The Law of Personal Property Security 2007  Hugh Beale and Michael Bridge