Chose in action

A chose in action is a personal property right to an intangible object. In the case of Torkington v Magee [1902] 2 KB 427 a chose in action was defined as “personal rights of property which can only be claimed or enforced by action, and not taking physical possession”. This means that the only way to obtain possession of the claimed intangible rights is through either legal or equitable action.

The main example of a chose in action is a debt. A debt owed to a creditor is incapable of being physically possessed and can only be enforced by suing. The economic value of debt is a right to sue for its recovery. A critical aspect of a chose in action is that any paper documentation supporting the right is not in and of itself the proprietary right.

A chose in action is capable of being assigned both at law and in equity. The transfer of property at law in NSW is governed by section 12 of the Conveyancing Act 1919 (NSW). In order for a chose in action to be validly assigned at law the transfer must:

  1. Be absolute, meaning that the transfer must be unconditional;
  2. Be in writing and signed by the assignor (section 23C);
  3. The person liable to the chose needs to be put on notice in writing of its assignment; and
  4. Not necessarily be supported by consideration.

If an assignment of a legal chose in action fails at law, there is protection in equity for the transfer to be valid. Parties will be bound in equity if “by reason of some fact or circumstance which a court of equity regards as binding the legal owner in conscience to hold the property upon trust for the assignee” (see Kitto J in Olsson v Dyson (1969) 120 CLR 365.

Equity will bind a legal owner in conscience if:

  1. The assignee has provided consideration for the assignment of the chose in action;
  2. The assignor has done everything required to effect the transfer, despite not complying with statutory requirements; or

In the absence of consideration, equity will regard an assignor’s conscience as bound if they induce the assignee to act to their own detriment in reliance on the inducement (equitable estoppel).