An assignment of an interest that can be acquired only in the future is called an assignment in equity. An equitable assignment does not fulfill all the requirements of a legal assignment but is valid and enforced by the courts in the interest of fairness and justice.
Equity courts distinguish certain agreements as valid equitable assignments. Equity courts do this only when it is necessary to effect the intention of parties to assign an interest. Courts of equity grant certain assignments validity when making them invalid will cause injustice.[i] Generally, an equitable assignment is not enforceable in a non equity court. However, courts of equity recognize and validate assignments which are just and equitable.[ii] An equitable assignment can be validated only through courts of equity. The equitable nature of an assignment should be clear and specific.[iii]
Courts of equity do not require specific words or certain instrument to effectuate an equitable assignment. If an agreement includes informal language that shows the intention of a party to assign a right or chose in action and the intention by another party to receive it and valuable consideration, the agreement can operate as an effective equitable assignment.[iv]
An equitable assignment can be considered valid by a court when it is clear that a debtor is justified in paying a debt to an assignee and not the original lender.
Courts of equity inquire into the language of an agreement to find out the intention of the parties to an assignment agreement. The intention of the parties should be defined clearly as well as the subject matter of the assignment.[v] An equitable assignment is implied from the conduct of the parties rather than from the express words of formal assignment.[vi]
[i] Allison v. Pearce, 59 S.W. 192 (Tenn. Ch. 1900)
[ii] Morrow v. Commonwealth Life Ins. Co., 118 Fla. 371 (Fla. 1935)
[iii] Fid. Nat’l Title Ins. Co. v. Miller, 215 Cal. App. 3d 1163 (Cal. App. 4th Dist. 1989)
[iv] Asphalt Paving, Inc. v. Ulery, 149 So. 2d 370 (Fla. Dist. Ct. App. 1st Dist. 1963)
[v] Caballo Coal Co. v. Fid. Exploration & Prod. Co., 2004 WY 6 (Wyo. 2004)
[vi] Farmers’ Bank v. Blount, 8 F.2d 443 (4th Cir. N.C. 1925)