Future Contractual Interests

The assignment of a contract allows a person to transfer his/her rights and obligations under a contract to someone else.  A contractor can assign money which has been substantially earned on a contract.  It is the complete transfer of the right to receive the benefits accruing under a contract to a third person.  The fact that the benefits which are assigned have not yet accrued and that the assignor has not performed his part of the contract when he makes the assignment does not invalidate the assignment.

The general rule of assignment of future contractual interest is that a mere possibility or a right expected to arise under a contract not performed at the time of assignment cannot be assigned.  To make a valid assignment, an assignee must have an existing vested interest in the property sought to be conveyed.  Mere possibility or expectancy of acquiring property not coupled with an interest is insufficient to assign property.[i] In order to make an assignment valid, the thing assigned must be the product, growth or increase of property on which the assignor holds a present vested interest. For example, a man may sell the wool to grow upon his own sheep, however, not upon the sheep of another; or the crops to grow upon his own land, however, not upon land in which he has no interest.  This is because in the counter examples, the future earnings are a mere possibility.

However, a right which is expected to arise in the future upon a contract which existed at the time of assignment can be assigned.  An anticipated future right under an executory contract can be assigned and such an assignment is operative against the receiver of the assignor.

An assignment of wages made in reference to a contract of employment not in existence at the time of assignment is not valid.[ii] Moreover, an assignment of future wages where there is no contract for services is invalid.  However, a person can assign his/her earnings under an existing contract for service.  As such, an assignment of future earnings from a certain employment or trade, has been treated as an assignment of wages under an existing contract of employment.  Here, the possibility of future earnings is coupled with an interest, ie., there is the existence of a vested right.[iii] An assignment of wages to be earned in the future under an existing employment, even though the employment is for an indefinite time, is not against public policy and is valid if made for valuable consideration and without fraud.  An assignment of wages to be earned, made in good faith and for valuable consideration, is valid.[iv]

According to Restatement of the Law, Second, Contracts, “[a]n assignment of a right to payment expected to arise out of an existing employment or other continuing business relationship is effective in the same way as an assignment of an existing right”.[v] However, “a purported assignment of a right expected to arise under a contract not in existence operates only as a promise to assign the right when it arises and as a power to enforce it.”[vi]

Choses in action, except in torts, are assignable.[vii] A chose in action is the right to bring an action to recover a debt, money, or thing.[viii] Although an executory contract is not assignable, once the contract has been executed to the extent that nothing remains to be done except the payment of money by one of the parties to the other, the claim becomes a chose in action which is assignable.[ix]

Additionally, a contract to perform a personal skill cannot be assigned.  However, the money due on contract involving personal skill or service or a confidential relationship can be assigned.[x]

[i] In re Estate of Nelson, 211 Iowa 168, 174 (Iowa 1930)

[ii] M. G. Ogle Co-operative House Furnishing Co. v. Shauman, 188 Ill. App. 4, 5 (Ill. App. Ct. 1914)

[iii] Low v. Pew, 108 Mass. 347, 350 (Mass. 1871)

[iv] Rodijkeit v. Andrews, 74 Ohio St. 104, 118 (Ohio 1906)

[v] Restat 2d of Contracts, § 321(1)

[vi] Restat 2d of Contracts, § 321(2).

[vii] Bolz v. State Farm Mut. Auto. Ins. Co., 274 Kan. 420, 423 (Kan. 2002)

[viii] Black’s Law Dictionary 234 (7th ed. 1999).

[ix] Steel Sys. v. Auger Constr., Inc., 22 Va. Cir. 332, 332-333 (Va. Cir. Ct. 1990)

[x] Du Pont de-Bie v. Vredenburgh, 490 F.2d 1057, 1060 (4th Cir. Md. 1974)


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