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Contracts With, or Claims Against, Governmental Bodies

In the absence of statute prohibiting assignments, claims against the Government are freely assignable.[i] In Gordon v. Jefferson, 111 Mo. App. 23 (Mo. Ct. App. 1905), the court held that claims arising out of contracts against a municipality are transferable by assignment unless there is some statute or ordinance forbidding it.  Similarly, in Puget Sound Nat’l Bank v. Dep’t of Revenue, 123 Wn.2d 284 (Wash. 1994), the court held that the legislature has not prohibited the assignment of claims against the state.

Thus, contracts with the state and with municipal corporations are, in the absence of statutory limitation or restriction, assignable.[ii] In Puget Sound Nat’l Bank v. Dep’t of Revenue, 123 Wn.2d 284 (Wash. 1994), the court held that all contracts are assignable unless such assignment is expressly prohibited by statute or is in contravention of public policy.

Where a contract with a municipality expressly provides that it should not be assigned such provision is enforceable, and an assignee thereof cannot recover the money due thereunder or any part thereof.[iii] In De Vita v. Loprete, 77 N.J. Eq. 533, 535 (E. & A. 1910), the court held that provision that the contract is not assignable is valid.

A municipality has a dual capacity, one for the exercise of powers of government, and the other more in the nature of a private capacity whereby it contracts for its own betterment; and an ordinance prohibiting the assignment of their wages by its employees is a valid exercise of the latter power.[iv] A provision in a contract of an employee with a municipality that a claim for wages arising thereunder should not be assigned, is valid.[v]

The federal anti-assignment statute provides that an assignment of a claim against the U.S. may be made only after:[vi]

  • a claim is allowed,
  • the amount of the claim is decided, and
  • a warrant for payment of the claim has been issued.

The statute further provides that the assignment should specify the warrant should be:

  • made freely,
  • attested by two witnesses, and
  • must be certified.

No contract should be transferred by the party to whom contract is given to any other party, and so far as the U.S. is concerned, any such transfer causes the annulment of the contract.[vii]

Anti-assignment statute prohibits the voluntary assignment of a compensation claim against the government for the taking of property.[viii] Similarly, an assignment of a claim for compensation for work injury is void.[ix]

In United States v. Dow, 357 U.S. 17 (U.S. 1958), the court held that assignments of claims which it would otherwise nullify are valid if they are freely made and executed in the presence of at least two attesting witnesses, after the allowance of such a claim, the ascertainment of the amount due, and the issuing of a warrant for the payment thereof.

Anti-assignment statutes do not apply to assignments by operation of law, as distinguished from voluntary assignments.[x] The provisions of the statute governing assignments of claims against the government are for the protection of the government and not for the regulation of the equities of the claimants as between themselves.[xi]

There are two types of voluntary assignments that are recognized as exceptions to the broad sweep of the anti-assignment statute: transfers by will and general assignments for the benefit of creditors.[xii]

The primary purpose of the anti-assignment statute is to prevent persons of influence from buying up claims against the U.S., which might then be improperly urged upon officers of the government, and secondarily its purposes are to prevent possible multiple payment of claims, to make unnecessary the investigation of alleged assignments, and to enable the government to deal only with the original claimant.[xiii]

In Bernert Towboat Co. v. USS Chandler (DDG996), 666 F. Supp. 1454 (D. Or. 1987), the court held that the anti-assignment statute provides that voluntary assignments of claims against the government are void.  The statute’s three main objectives are to:

  • prevent the buying up of claims against the government,
  • to avoid multiple payment of claims, and
  • to preserve government defenses and counterclaims which might not be available against an assignee.

Numerous exceptions to the Act exist when these purposes are not served.  The Act does not apply to:[xiv]

  • involuntary assignments,
  • assignments by operation of law,
  • assignments for the benefit of creditors, or
  • subrogation.

Assignments of claims against the U.S. may be enforced as between the parties according to the equities, without regard to whether the U.S. has paid or allowed the claim.[xv] Transfer of a claim for accrued rent to a transferee of property under lease to the U.S. is held to be transfers by operation of law and exempt from the operation of the federal anti-assignment statutes.[xvi] Similarly, the final distribution of the assets of the estate constitutes an assignment by operation of law.[xvii]

However, in United States v. Aetna Casualty & Surety Co., 338 U.S. 366 (U.S. 1949), the court held that the subrogation of an insurer to an insured’s claim against the U.S. as a result of paying an insured’s claim is an involuntary transfer that does not violate the federal anti-assignment statutes.

In Pittman v. United States, 127 Ct. Cl. 173 (Ct. Cl. 1953), the court held that when a contract voluntarily entered into for an attorney’s services creates in the attorney a property interest in the proceeds of a claim against the U.S. the contract falls within the provisions of the federal anti-assignment statutes.  Similarly, a transfer of a debtor’s claims against the U.S. to the debtor-in-possession falls within the federal anti-assignment statutes.[xviii]

[i] Antilles Industries, Inc. v. Government of Virgin Islands, 529 F.2d 605, 609 (3d Cir. V.I. 1976)

[ii] Puget Sound Nat’l Bank v. Dep’t of Revenue, 123 Wn.2d 284 (Wash. 1994

[iii] Murphy v. Plattsmouth, 78 Neb. 163 (Neb. 1907)

[iv] State ex rel. Kansas City Loan Guarantee Co. v. Kent, 98 Mo. App. 281 (Mo. Ct. App. 1903)

[v] id

[vi] 31 USCS § 3727

[vii] 41 USCS § 15

[viii] United States v. Dow, 357 U.S. 17 (U.S. 1958)

[ix] 5 USCS § 8130

[x] United States v. Shannon, 342 U.S. 288 (U.S. 1952)

[xi] McKenzie v. Irving Trust Co., 323 U.S. 365 (U.S. 1945)

[xii] United States v. Shannon, 342 U.S. 288 (U.S. 1952)

[xiii] id

[xiv] Bernert Towboat Co. v. USS Chandler (DDG996), 666 F. Supp. 1454 (D. Or. 1987)

[xv] In re Lagerstrom, 300 F. Supp. 538 (S.D. Ill. 1969)

[xvi] Oakland Steel Corp. v. United States, 33 Fed. Cl. 611 (Fed. Cl. 1995)

[xvii] Pettengill v. United States, 253 F. Supp. 321 (N.D. Ill. 1966)

[xviii] In re Hartec Enterprises, Inc., 117 B.R. 865 (Bankr. W.D. Tex. 1990)

Inside Contracts With, or Claims Against, Governmental Bodies