Head 12: Transfer of Incorporeals

Question 1

Are incorporeal rights capable of transfer? If so, when can this be done?

Answer 1

Certain types of rights (incorporeal property) may not be capable of transfer because of delectus
personae or express exclusion of assignation.

Usually transfer is by:
⁃ 1) assignation[ An assignation is for incorporeals what a disposition is for land.Does not have to be in writing - it can be oral.]
⁃ 2) Intimation (or some other act) [Intimation for personal rights
- 3) Something else (e.g. registration) for real rights]

Question 2

Who is the cedent? Who is the assignee?

Answer 2

The person transferring the incorporeals is known as the cedent (assignor).

The person who is receiving the assignation is known as the assignee.

Question 3

Is writing required for the transfer of incorporeals?

Answer 3

Writing is not required for assignation of incorporeal moveable property (RW(S)A 1995 s 11(3)(a)), but the practice is to use attested (or equivalent) writing in all cases.

However note that a style is given in the Transmission of Moveable Property (Scotland) Act 1862 but it is not mandatory

And note that for some rights a special statutory form is provided. For example:

1. Policies of Assurance Act 1867 s 5 & Sch (life assurance policies)
2. CFRA 1970 s 14 & Sch 4 forms A & B (standard securities)
3. Registration of Leases (Scotland) Act 1857 s 3(1) & Sch A (long leases) which must be used

Question 4

When does the transfer of a claim on land take place?

Answer 4

on ‘intimation’ (formal notice) to the debtor.

The classic case is where A (A is a creditor) has a contractual right to receive money from W (W is a debtor). This right is incorporeal moveable property which A can assign. If A transfers the right to B then the effect is that W now owes the money to B. But B [It is usually the assignee who must intimate.] must also intimate to W that the right has been assigned so that W knows to pay B rather than A. Assignation without intimation is like a disposition without registration - the rights are not transferred.

So, personal rights are transferred by assignation completed by intimation [there is also the possibility of registration as an optional alternative to intimation as under discussion by the SLC].

Question 5

Does the cedent take on all the duties of the assignee?

Answer 5

All exceptions competent against the cedent before the assignation or intimation are relevant against the assignee, as payment, compensation etc.

Question 6

How is intimation achieved?

Answer 6

Intimation is a formal process. There are a number of ways to achieve intimation:

⁃ (a) Certified copy of assignation sent by post[ This is the most common method of achieve intimation.]. 1862 Act s 2.

⁃ (b) Certified copy formally delivered by notary public[ Hardly ever done these days.]. 1862 Act s 2.

⁃ (c) Acknowledged letter eg Libertas-Kommerz GmbH 1978
[In this case the debtor (i.e. W) was sent a letter (as opposed to a copy of the assignation) explaining that an assignation had taken place. W then wrote back and it was clear from the terms of his reply that he understood that assignation had occurred. It was held that this was sufficient to constitute intimation, even though it did not conform to the normal rule, since W had acknowledged the informal letter.].

⁃ (d) Performance or part performance[ If W starts performing the obligation to B rather than to A then this is regarded as if intimation has taken place] by debtor for the benefit of assignee.

⁃ (e) Other methods [Not important for this course.]:

⁃ (f) Special rule for life assurance policies: Policies of Assurance Act 1867 s 3.

Question 7

How is title to a real rights transferred?

Answer 7

There cannot be intimation because it is a right in a thing, so there is no-one to intimate to. Instead, title is completed in the same way as in the original grant of the right[ So the same method that is used for the creation of the right in the first place is needed to assign the right.].

Usually this means either registration of assignation in the Register of Sasines or the Land Register (standard securities and long leases) or taking possession[ Certain rights are created by taking possession of the thing.] of the thing in respect of which the right is held (short leases and pledges of corporeal moveables).

Question 8

What happens if you go through assignation but it is not followed by intimation?

Answer 8

If you fail to go through intimation then there is no transfer of the right.

Question 9

When are rights not transferrable?

Answer 9

1. Where a debt arises from a contract, this may forbid assignation. This is called delectus personae creditoris (choice of the person of the creditor) and may be an express or implied term in a contract.
2. Contractual rights can be assigned but contracts cannot be assigned.
3. Moreover, a debtor cannot assign the obligation to pay; however, it can take place where X consents. This is called “delegation”.

Question 10

Which types of incorporeal property cannot be transferred by assignation?

Answer 10

1. Shares: transferred by (1) stock transfer form or other written deed + (2) registration in register of members. See Stock Transfer Act 1963, Companies Act 2006 ss 544, 770-2, and Tennant’s Trs v Tennant 1946 SC 420. In some cases electronic transfer is available.
2. Negotiable instruments: (eg cheques) transferred in accordance with Bills of Exchange Act 1882 s 31. See course on Commercial Law.
3. Bank notes are promissory notes payable to the bearer on demand and transferred by delivery. See eg Bell, Principles § 1337.
4. Rights under life assurance contracts are assignable - although whether this applies in Scotland is doubtful
5. Intellectual Property (IP) rights such as copyright and patents are patrimonial rights and can be sold, donated etc. They are transferred by assignation.

Question 11

Does the nemo plus rule apply to the transfer of incorporeal property?

Answer 11

⁃ Unlike registered land, the nemo plus rule almost always applies. So if Alan purports to assign to Betty a right held by Tom, the assignation is ineffective and the right continues to be held by Tom. Nonetheless:
⁃ If Alan acquires the right after the purported assignation, Betty’s title is perfected by accretion.

Question 12

Does the doctrine of accretion apply to the transfer of incorporeal property?

Answer 12

⁃ Buchanan v Alba Diagnostics 2004
⁃ Tayplan Ltd v D & A Contracts Ltd 2005[ In theses two cases the doctrine of accretion was extended to incorporeal property.]

Question 13

When is a voidable title no longer a good title?

Answer 13

A voidable title is good unless or until it is avoided (by an action of reduction of the assignation).
⁃ If Alan’s title to a right is voidable (eg at the instance of Tom) he can still transfer the right to Betty. And as with other types of property (for land see Head 6), if Betty is (i) a purchaser (ii) in good faith, then she receives an unchallengeable title. If these conditions are not met, Betty’s title is voidable too and can be reduced by Tom.

Question 14

Is incorporeal property subject to the offside goals rule?

Answer 14

Like other types of property, incorporeal property is subject to the rule prior tempore potior jure (first in time first in right) and to the offside goals rule.

Question 15

What is the rule assignatus utitur jure auctoris?

Answer 15

This is specific to incorporeal property.

This rule applies to personal rights only and concerns the internal relationship of debtor and cedent. Contrast the nemo plus rule (above) which is an external rule concerned with the cedent’s title to the right.

⁃ The rule is that assignation is not to worsen the position of the debtor. So any pleas which were good against the cedent prior to intimation of the assignation are good against the assignee.

⁃ See eg Scottish Widow’s Fund v Buist (1876)[ This concerned a policy of life insurance. The person filled in the forms relating to their health but they were dishonest. He then sold the insurance policy - to fund his drinking sprees - to Mr Buist. He then died. Mr Buist contacted the insurer asking for them to pay out on the insurance policy.

It is a principle of insurance law that if you tell lies in negotiations then the contract is voidable.

So the insurers refused to pay because the insured person had lied, thus they could reduce the contract. Mr Buist argued that this shouldn’t affect him. The court held that Mr Buist had taken the insurance policy on the same basis as the cement held it - thus he could have no better right than the cedent had.

Since the insurers could have used this defence against the cement, they could also use it with the assignee - so Buist did not receive the money.]

⁃ This includes a plea of compensation (set-off although liabilities are not assigned as such:
⁃ Alex Lawrie Factors Ltd v Mitchell Engineering Ltd 2001.
⁃ The right to payment under a contract was being assigned from A to B. When B came to claim the money from the customer, W, W refused to pay because the service provided (painting) by A was so bad. This was a defence under the contract. It was held that this defence was also available against B - so B could not claim payment.
⁃ However, W also claimed damages because the painting was so bad. W tried to claim damages off B (the assignee). This raised the question whether liabilities could be assigned. It was held that liabilities could not be assigned - the worst that could happen was the value could become worthless because of set off, but they cannot end up with a negative asset (i.e. a liability)

Question 16

What is a plea of compensation (set-off)? How does it work?

Answer 16

The Scottish term is compensation - it works in the following way:

Supposing W owes A £10k under a contract of loan. Supposing there is then a loan the other way of A to W for £3k. A then enforces the contract against W for £10k. To this claim, W has a defence: that A owes W £3k. The law allows W to deduct the £3k - this is known as ‘setting off’ the £3k. So W only has to pay A £7k.

However, supposing A assigns the right of payment of £10k to B. B then tries to enforce against W. The principle is that W’s position is not to be made worse by the assignation - thus because W could have set off £3k with A, W can set off the same £3k in a question with B.

From B’s perspective this isn’t very fair. But from W’s point of view this is fair because he shouldn’t be affected by the assignation, over which they have no control.

This is very common in commercial practice - companies will owe each other money all the time.

NB once B intimates to W, there can be no future ‘set off’ liability. This means that after intimation, if A borrows more money from W, this COULD NOT be set off.),

Question 17

Is warrandice applied in assignation of incorporeal property?

Answer 17

Yes - Warrandice debitum subesse is implied in assignations

The cedent is presumed to grant warrandice debitum subesse which means that the debt subsists. This is a guarantee that the claim being assigned does indeed exist in the form that it appears to have. Thus if M assigns to Nick a claim for £10000 but in fact £2000 has already been paid off, she is in breach of her warrandice to Nick.

Question 18

What does Warrandice debitum subesse guarantee?

Answer 18

(i) The right being assigned still exists[ Because one of the dangers is that rights have been extinguished by discharge, prescription etc.] (but not that the debtor is solvent or able to perform)
(ii) the cedent’s own title to the right.
The details are obscure.

Question 19

Is the warrandice an enforceable right to be paid?

Answer 19

No - this default type of warrandice is only that the claim is payable to the cement, not that it will be paid. For example, O owes money to P and P assigns the claim to R. When R seeks to collect from O she finds he has become bankrupt. R has no reedy against P in terms of the warrandice debitum subesse.