Key Takeaways

  • An equitable assignment is a transfer of rights that doesn’t meet statutory criteria for a legal assignment but is still recognized by courts based on fairness.
  • Unlike legal assignments, equitable assignments usually do not give the assignee the ability to sue third parties directly; cooperation with the assignor is often required.
  • Courts assess equitable assignments based on intent, fairness, and whether valuable consideration was exchanged.
  • Common contexts include debts, insurance benefits, and mortgage transfers, where written formalities are missing but equity still enforces the assignment.
  • Case law, such as Dow Family LLC v. PHH Mortgage Corp. in Wisconsin, shows how courts apply the doctrine to uphold lender rights and market efficiency.

An equitable assignment is one that does not fulfill the statutory criteria for a legal assignment, but is binding and upheld by the courts in the interest of equability, justice, and fairness.

Equitable Assignment

An equitable assignment may not appear to be self-evident by the law's standard, but it presents the assignee with a title that is protected and recognized in equity. It's based on the essence of a declaration of trust; specifically, essential fairness and natural justice. As long as there is valuable consideration involved, it does not matter if a formal agreement is signed. There needs to be some sort of intent displayed from one party to assign and the other party to receive.

The evaluation of a righteous equitable assignment is completed by determining if a debtor would rationally pay the debt to another party alleging to be the assignee. Equitable assignments can be created by:

  1. The assignor informing the assignee that they transferred a right to them
  2. The assignor instructing the other party to release their obligation from the assignee and place it instead on the assignor

The only part of an agreement that can be assigned is the benefit. Generally speaking, there is no prerequisite for the written notice to be received or given. The significant characteristic that separates an equitable assignment from a legal assignment is that most of the time, an equitable assignee may not take action against a third party. Instead, it must rely on the guidelines governing equitable assignments. In other words, the equitable assignee must team up with the assignor to take action.

Equitable Assignment vs. Legal Assignment

A key distinction between an equitable assignment and a legal assignment is the level of enforceability against third parties.

  • Legal assignment (as defined under statutes such as the Law of Property Act 1925 in the UK) requires strict compliance with written notice, express wording, and proper documentation. Once valid, it allows the assignee to sue the debtor directly without the assignor’s involvement.
  • Equitable assignment, by contrast, may be created informally, without written notice, as long as there is clear intent and consideration. Courts enforce these assignments based on fairness, even if the statutory requirements are not satisfied.
  • Because equitable assignments are rooted in equity, remedies often require the assignee to work with the assignor to enforce rights.

This distinction is critical in areas such as debt recovery, mortgage transfers, and insurance claims, where an assignment may exist in practice even if statutory requirements were overlooked.

Common Uses of Equitable Assignments

Equitable assignments frequently arise in practice when parties transfer benefits informally. Some common examples include:

  • Insurance claims: Policyholders may equitably assign benefits (such as payments under a homeowner’s or health policy) to contractors or medical providers, even if the insurer has not received formal notice.
  • Debt obligations: A creditor may informally transfer the right to receive payment from a debtor to a third party, with courts recognizing the transfer in equity if intent is clear.
  • Mortgage transfers: As seen in foreclosure litigation, lenders often rely on equitable assignments when mortgages have been bundled or sold without formal re-recording.
  • Business contracts: Parties sometimes assign the benefit of a contract (like receivables) without completing statutory notice, which still creates enforceable equitable rights.

These scenarios highlight how equitable assignments ensure fairness and prevent unjust enrichment, even where procedural steps were missed.

Requirements for a Valid Equitable Assignment

Although equitable assignments are more flexible than legal ones, courts generally require:

  1. Clear intent – The assignor must show a genuine intent to transfer rights.
  2. Identifiable subject matter – The rights being assigned must be certain and specific (for example, a particular debt).
  3. Consideration – Some form of value must be exchanged, though it may be nominal.
  4. Notice – While not mandatory for validity, giving notice to the debtor protects the assignee by preventing double payment to the assignor.

Failure to meet statutory requirements for legal assignment does not invalidate the transfer—it simply means the assignment will only be recognized in equity

The Doctrine of Equitable Assignment in Wisconsin

In Dow Family LLC v. PHH Mortgage Corp., the Wisconsin Supreme Court issued in favor of the doctrine of equitable assignment. The case was similar to many other foreclosure cases, except this one came with a twist. Essentially, Dow Family LLC purchased a property and the property owner insisted the mortgage on the property had been paid off. However, in actuality, it wasn't. 

Prior to the sale, the mortgage on the property was with PHH Mortgage Corp. When PHH went to foreclose on the mortgage, Dow Family LLC contested it. There was one specific rebuttal that caught the attention of the Wisconsin Supreme Court. The official mortgage on record was with MERS, an appointee for the original lender, U.S. Bank.

Dow argued that PHH couldn't foreclose on the property because the true owner was MERS. Essentially, Dow was stating that the mortgage was never assigned to PHH. Based on this argument, PHH utilized the doctrine of equitable assignment.

Based on a case from 1859, Croft v. Bunster, the court determined that the security for a note is equitably assigned when the note is assigned without a need for an independent, written assignment. Additionally, Dow contended that the statute of frauds prohibits the utilization of the doctrine, mainly because it claimed every assignment on a property must be formally recorded.

During the case, Dow argued that the MERS system, which stored the data regarding the mortgage, was fundamentally flawed. According to the court, the statute of frauds was satisfied because the equitable assignment was in accordance with the operation of law. Most importantly, the court avoided all consideration regarding the MERS system, concluding it was not significant in their decision. 

The outcome was a major win for lenders, as they were relying on the doctrine specifically for these types of circumstances.

Most experts agree that this outcome makes sense in the current mortgage-lending environment. This is due to the fact that it is still quite common for mortgages to be bundled up into mortgage-backed securities and sold on the secondary market.

Many economists claim that by not requiring mortgages to be recorded each time a transfer is completed, the loans are more easily marketed to investors. Additionally, debtors know who their current mortgage company is because the new lender must always notify the current borrower in order to receive payment. It was determined that recording and documenting the mortgage merely provides a signal to the rest of the world that the property owner secures a debt.

Broader Judicial Treatment of Equitable Assignments

Courts in multiple jurisdictions continue to uphold equitable assignments to balance commercial realities with fairness. For example:

  • In insurance disputes, courts have limited or scrutinized “assignments of benefits” to prevent abuse, but they still recognize equitable assignments where fairness requires enforcement.
  • In property law, equitable assignments help maintain fluidity in the secondary mortgage market, where frequent transfers occur without re-registration.
  • In contract law, equitable principles allow parties to enforce rights even if statutory technicalities are missed, avoiding unjust results.

This judicial approach reflects equity’s role as a safety net: ensuring that substance prevails over form when fairness and justice demand it. 

Frequently Asked Questions

1. What is the difference between an equitable assignment and a legal assignment?

A legal assignment follows statutory rules and allows the assignee to sue third parties directly. An equitable assignment is informal, recognized by courts based on fairness, but usually requires cooperation with the assignor.

2. Can an equitable assignment be made without written notice?

Yes. Unlike a legal assignment, equitable assignments can be created orally or informally, though giving notice to the debtor protects the assignee.

3. What types of rights can be equitably assigned?

Typically, the benefits of contracts—such as debts, insurance claims, or receivables—can be equitably assigned. Obligations or burdens cannot.

4. Why do courts enforce equitable assignments?

Courts enforce them to prevent unjust enrichment and uphold fairness, especially when one party has clearly intended to transfer rights and consideration has been given.

5. How are equitable assignments used in mortgage cases?

They are often invoked when mortgages are bundled and transferred without re-recording. Courts recognize the assignee’s rights in equity, ensuring lenders can enforce obligations.

If you need help with an equitable assignment, you can post your job on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.