Execution of Legal Assignments under Section 136 of the Law of Property Act 1925
Legal assignments under section 136 of the Law of Property Act 1925 (LPA 1925) are used in many financing transactions, including secured lending transactions and transactions involving receivables purchase arrangements, and it is commonplace for finance documents to be signed by companies and limited liability partnerships (LLPs) using attorneys.
In this legal update, we summarise Frischmann v Vaxeal Holdings SA1, which raised some uncertainty about the execution of legal assignments by attorneys, and the recent guidance note issued by The City of London Law Society Financial Law Committee (FLC)2, which sets out their view of the position vis-à-vis companies and LLPs.
Frischmann case
This High Court case concerned the assignment by Dr Frischmann to his son of two loans and a guarantee. The loans had been provided by Dr Frischmann to IDM Ventures Limited (IDM) to support IDM's participation in a joint venture with Britannia's Gold Limited to salvage and recover precious metal cargoes from two identified shipwrecks. The second loan was supported by a guarantee from Mr Samuelson in respect of IDM's liability under such loan.
The assignment of Dr Frischmann's rights under the two loans and the guarantee to his son was executed by the son as Dr Frischmann's attorney under a lasting power of attorney, relying on section 7(1) of the Powers of Attorney Act 1971 (PoAA 1971), which provides that an instrument executed by an attorney on behalf of the donor is as effective as if executed by the donor personally.
The court held that the requirement in section 136 of the LPA 1925 for a legal assignment to be "by writing under the hand of the assignor" was not satisfied in this case, where the son had signed as his father's attorney. In making its decision, the court was made aware of an earlier decision in Technocrats International Ltd v Fredic Ltd (No. 1)3, which also involved an individual assignor and where it was held that section 136 LPA 1925 did not allow for the possibility of someone other than the assignor (in that case, a wife acting as agent for her husband) signing in the assignor's name. The court in the Frischmann case also rejected the argument that section 7(1) of the PoAA 1971 should be treated as rewriting section 136 of the LPA 1925 in the absence of any express reference to the earlier statute. The court, therefore, held that the assignment took effect as an equitable assignment, not a legal assignment.
The decision in the Frischmann case has caused some concern in the banking and finance market because, although the facts of the Frischmann case involve an individual using an attorney and not a company or LLP using an attorney, it has raised doubts about the validity of legal assignments executed by attorneys on behalf of companies and LLPs.
FLC note
In light of this uncertainty, the FLC issued a note on 30 January 2025 which expresses their view that the requirement in section 136 of the LPA 1925 for a legal assignment to be "by writing under the hand of the assignor" is satisfied where the assignment is executed by an English company, English LLP or an overseas company acting by its attorney. This view is informed by the following factors:
- A company cannot write its own name and has a general power to appoint and act by agents, as reflected in the execution provisions in the Companies Act 2006 (CA 2006). In particular, the CA 2006 provides that a deed or other document executed by an attorney on behalf of a company has effect as if executed by the company.
- There is case law recognising that a legal entity can sign a document by its duly authorised agent, even where the statute requires the document to be "under the hand" of the entity, such as in Re Diptford Parish Lands4.
- The LPA 1925 contains specific provisions of general application on execution by corporations, which includes the execution of instruments by an attorney to convey interests in property.
- There is other legislation which indicates that section 136 of the LPA 1925 does not preclude a company from executing a legal assignment using an authorised signatory such as an attorney, e.g. The Financial Collateral Arrangements (No.2) Regulations 2003.
- With respect to overseas companies, the execution provisions in the CA 2006 apply to overseas companies, with modifications, by virtue of the Overseas Companies (Execution of Documents and Registration of Charges) Regulations 2009.
- With respect to English LLPs, the execution provisions in the CA 2006 apply to LLPs, with modifications, by virtue of regulation 4 of the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009.
Please do be aware that the FLC note is not intended to give legal advice and is only intended to make suggestions.
We hope that this legal update is helpful and informative. If you have any questions or comments, please do not hesitate to contact us.
