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Restrictions on the Assignment of Contractual Rights

Published online by Cambridge University Press:  16 January 2009

Bob Allcock
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Extract

Over a hundred years have passed since the Judicature Acts rationalised the law relating to the assignment of choses in action and made it easier for an assignee to enforce his rights. Nowadays the assignability of contractual rights is important in both business and consumer affairs, since credit is commonly obtained on the security of insurance policies, hire-purchase contracts, and traders' and builders' book debts. Yet although the Judicature Acts facilitated these developments they did not deal with the possibility that a contract may expressly prohibit or restrict the assignment of rights arising under it. Many standard form contracts now incorporate a clause to this effect. Where an assignment is made in contravention of such a clause, does the transaction have no effect? If this is the case, non-assignment clauses would seem to pose a serious threat to current lending practices. The courts have had to consider this question in a number of cases and the result is a confusing array of Conflicting views.

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Articles
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The Cambridge Law Journal , Volume 42 , Issue 2 , November 1983 , pp. 328 - 346
Copyright
Copyright © Cambridge Law Journal and Contributors 1983

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References

1 For a summary of the changes made, see Vaines, Crossley, The Law of Personal Property, 5th ed., pp. 264–268Google Scholar. The early law relating to assignments is described by Holdsworth in “The History of the Treatment of Choses in Action by the Common Law” (1920) 33 Harv.L.Rev. 997, and by S. J. Bailey in “Assignments of Debts in England from the Twelfth to the Twentieth Century” (1931) 47 L.Q.R. 516 and (1932) 48 L.Q.R. 248, 547.

2 Certain types of contractual rights are by their nature unassignable, but in this article it will be assumed that the rights concerned are normally assignable. For an account of rights which can never be assigned, see Halsbury's Laws of England, 4th ed. (1974), Vol. 6, paras. 79–88.

3 The practice of making block discounts of hire-purchase contracts is described in Goode's, R. M.Hire-Purchase Law and PracticeM, 2nd ed., pp. 657–670. As to the assignment of trade debts generally, see P. M. Biscoe, Law and Practice of Credit Factoring.Google Scholar

4 See, e.g., cl. 3 of the I.C.E. Conditions, 5th ed.; cl. 17 of the J.C.T. Standard Form of Building Contract (July 1977, rev.); and cl. 15 of the General Conditions of Government Contracts for Building and Civil Engineering Minor Works (January 1980).

5 Per Darling, J. in Tom Shaw & Co. v. Moss Empires (Ltd.) (1908) 25 T.L.R. 190, 191.Google Scholar

6 Per Salmond, J. in Hodder & Tolley Ltd. v. Cornes [923] N.Z.L.R. 876, 878.Google Scholar

7 Per Croom-Johnson, J. in Helstan Securities Ltd. v. Hertfordshire County Council [1978] 3 All E.R. 262, 266.Google Scholar

8 See Lord Greene M.R. in Davies v. Collins [1945] 1 All E.R. 247, 249.

9 Norman v. Federal Commissioner of Taxation (1963) 109 C.L.R. 9, 26.

10 Gorringe v. Irwell India Rubber Works (1887) 34 Ch.D. 128.

11 Walker v. Bradford Old Bank (1884) 12 Q.B.D. 511; Olsson v. Dyson (1969) 43 A.L.J.R. 77.

12 The seller will normally be liable for breach of the implied condition that he has the right to sell, under s.12 of the Sale of Goods Act 1979.

13 Collen v. Wright (1857) 8 E. & B. 647.

14 s.176.

15 [1978] 3 All E.R. 262.

16 Cf. Chitty on Contracts, 25th ed. (1983), para. 1292 “If a person contracts to assign a right which (unknown to the other party) is by its terms incapable of assignment, there is no reason why an action for breach of this contract should not lie …” It is, of course, possible for the assignor to give an express undertaking to pass a good title to the debt. For an example, see Biscoe, op. cit., p. 190, cl. 9(a)(v).

17 (1908) 25 T.L.R. 190.

18 [1961] 2 All E.R. 498.

19 At pp. 501 and 503 respectively.

20 See Re Wallis [1902] 1 K.B. 719; Re Anderson [1911] 1 K.B. 896.

21 [1899] 1 Ch. 408.

22 (1907) 4 C.L.R. 1049.

23 [1919] 2 Ch. 104.

24 in Re Griffin and Re Westerton the courts made no mention of the clause, while in Anning v. Anning only Isaacs J. referred to it, and he simply stated that it was no bar to the assignee's claim.

25 (1889) 40 Ch.D. 5.

26 Cf. the American case of Oleska v. Kotur, 48 N.E. 2d 88 (1943).

27 There may, of course, be other grounds on which the trustee in bankruptcy or liquidator may be entitled to upset the assignment, e.g., because it formed part of a general assignment of book debts which was not registered, or it was in the assignor's reputed ownership.

28 Cf. the American case of Mclaughlin v. New England Telephone Co., 188 N.E. 2d 552 (1963).

29 [1923] N.Z.L.R. 876.

30 [1932] N.Z.L.R. 1332.

31 Hodder & Tolley Lid. v. Cornes at p. 878.

32 Holt v. Heatherfield Trust Ltd. [1942] 1 All E.R. 404, 412.

33 Badeley v. Consolidated Bank (1888) 38 Ch.D. 238.

34 See, e.g., Portuguese-American Bank of San Francisco v. Welles, 37 S.Ct. 3 (1916); Staples v. City of Somerville, 57 N.E. 380 (1900).

35 41 N.E. 572 (1895).

36 57 S.Ct. 531 (1937).

37 (1823) 3 Russ. 1.

38 See Re Dallas [1904] 2 Ch. 385.

39 Per Buckley J. in Re Dallas, supra, at p. 396.

40 Hill v. Peters [1918] 2 Ch. 273.

41 B. S. Lyle, Ltd. v. Rosher [1958] 3 All E.R. 597.

42 Cf. D. W. McLauchlan, “Priorities—Equitable Tracing Rights and Assignment of Book Debts” (1980) 96 L.O.R. 90.

43 Holroyd v. Marshall (1862) 10 H.L.C. 191, 209; Tailby v. Official Receiver (1888) 13 App.Cas. 523.

44 See James v. Smith [1891] 1 Ch. 384 where, however, the claim failed for lack of any memorandum in writing.

45 See Corbin on Contracts, Vol. 4, p. 497: “Even though the prohibited assignment is held inoperative to create any enforceable right in the assignee that the obligor shall pay the assignee, the assignment transaction may be operative as between the assignor and the assignee, making it the duty of the former to hold in trust any amount that he receives from the obligor” (citing Staples v. Somerville, 57 N.E. 380 (1900)). See also Martin v. National Surety Co., 57 S.Ct. 531 (1937). Where there is no prohibition on assignment and the obligor pays the assignor it seems that the assignor holds the money on trust for the assignee: see G. E. Crane Sales Pty. Ltd. v. Commissioner of Taxation (1971) 46 A.L.J.R. 15.

46 See R. M. Goode, “The Right to Trace and its Impact in Commercial Transactions” (1976) 92 L.Q.R. 360, 528.

47 Choses in action are expressly excluded from the definition of “personal chattels” for the purposes of these Acts: s.4 of the 1878 Act.

48 s.4 of the 1878 Act.

49 ss.8 and 9 of the 1882 Act.

50 s.8 of the 1878 Act.

51 (1878)3 Q.B.D. 569, 581.

52 Re Cousins (1885) 30 Ch.D. 203.

53 Carter v. Hyde (1923) 33 C.L.R. 115; Griffith v. Pelton [1958] Ch. 205, 225.

54 [1955] 2 All E.R. 557. a Note, however, that the Court of Appeal subsequently decided in Wickham Holdings Ltd. v. Brooke House Motors Ltd. [1967] 1 All E.R. 117 that an owner of goods let out on hirepurchase can never recover more than the amount outstanding under the agreement, since this represents his maximum loss. A non-assignment clause is therefore now irrelevant for the purposes of measuring damages in such a situation.

56 [1978] 3 All E.R. 262.

57 From Tom Shaw & Co. v. Moss Empires (Ltd.) (1908) 25 T.L.R. 190 and Hodder & Tolley Ltd. v. Cornes [1923] N.Z.L.R. 876.

58 (1887) 22 L.R. Ir. 68.

59 177 N.E. 702, 704 (1931), per Orr J. Cf. Attwood & Reid Ltd. v. Stephens [1932] N.Z.L.R. 1332.

60 Other American cases have held that attempts to prohibit the assignment of a claim under an insurance policy are void if the assignment is made after the event insured against has occurred. See, e.g., Ocean Accident & Guarantee Corp. v. S.W. Bell Telephone Co., 100 F. 2d 441 (1939).

61 258 N.Y.S. 254, 261 (1932).

62 For an account of the rule against restraints on alienations, see Charles Sweet, “Restraints on Alienation” (1917) 33 L.Q.R. 236, and Glanville Williams, “The Doctrine of Repugnancy” (1943) 59 L.Q.R. 343.

63 See Arthur L. Corbin, “Assignment of Contract Rights” (1926) U. of Pa.L.Rev. 207; Edwin C. Goddard, “Non-assignment Provisions in Land Contracts” (1932) 31 Mich.L.Rev. 1; R. J. K., “Assignment of Money Claims” (1932) 31 Mich.L.Rev. 236; Garrard Glenn, “The Assignment of Choses in Action: Rights of Bona Fide Purchaser” (1933) 20 Virginia L.Rev. 621; Grover C. Grismore, “Effect of a Restriction on Assignment in a Contract” (1933) 31 Mich.L.Rev. 299; Grant Gilmore, “The Commercial Doctrine of Good Faith Purchase” (1954) 63 Yale L.J. 1057, 1118; Merrill I. Schnebly, “Restraints upon the Alienation of Legal Interests” (1935) 44 Yale L.J. 961; Grant Gilmore, Security Interests in Personal Property, Vol. 1,210–228.

64 See Restatement of Contracts, s.151; Corbin on Contracts, s.873; Williston on Contracts, 3rd ed., s.422.

65 Cf. Grover C. Grismore, “Effect of a Restriction on Assignment in a Contract” (1933) 31 Mich.L.Rev. 299; R. M. Goode (1979) 42 M.L.R. 553, 554.

66 Cf. the position in respect of exemption clauses. Where a non-assignment clause is introduced by the obligor, the contra proferentum rule will lead to a restrictive interpretation.

67 Grant Gilmore, “The Commercial Doctrine of Good Faith Purchase” (1954) 63 Yale L.J. 1057, 1118.

68 258 N.Y.S. 254 (1932).

69 The Uniform Commercial Code provides that “Unless the circumstances indicate the contrary a prohibition of assignment of ‘the contract’ is to be construed as barring only delegation to the assignee of the assignor's performance” (Art. 2–210(3), 1978 text).

70 See, e.g., Trubowitch v. Riverbank Canning Co., 182 P. 2d 182, 185 (1947).

71 See, e.g., Francis v. Ferguson, 159 N.E. 416 (1927).

72 See, e.g., Inter-Southern Life Insurance Co. v. Humphrey, 84 S. 625 (1919); Aetna Insurance Co. v. Smith, 78 S. 289 (1918).

73 See, e.g., Dixon-Reo Co. v. Horton Motor Co., 191 N.W. 780 (1922).

74 Allhusen v. Caristo Const. Corp., 103 N.E. 2d 891 (1952). The Tentative Draft (No. 3) of the Restatement, Second, Contracts provides in s.154 that a contractual prohibition of assignment is to be construed, unless a different intention is manifested, (a) to bar only the delegation to an assignee of the performance by the assignor of a duty or condition; (b) not to forbid assignment of a right to damages for breach of the whole contract or a right arising out of the assignor's due performance of his entire obligations; (c) to give the obligor a right to damages in the event of an assignment but not to render the assignment ineffective.

75 [1914] 1 K.B. 244.

76 This case was concerned with the damages payable by the assignee to the owner of the goods. The restrictive interpretation of the clause led to a decision that the assignee was only liable for the amount outstanding under the agreement, not the full value of the goods. However, according to the later Court of Appeal decision in Wickham Holdings Ltd. v. Brooke House Motors Ltd. (1967] 1 All E.R. 117, the owner can never recover more than the amount outstanding, regardless of any non-assignment clause.

77 Ken v. Hastings Mutual Insurance Co. (1877) 41 U.C.Q.B. 217.

78 [1978] 3 All E.R. 262.

79 William Brandt's Sons & Co. v. Dunlop Rubber Co. [1905] A.C. 454.

80 An exception exists in the case of an absolute assignment of an equitable chose, in respect of which an assignee may sue in his own name without joining the assignor. See Halsbury's Laws of England, 4th ed., Vol. 6, para. 69.

81 The ambiguity of certain standard form non-assignment clauses is revealed by other commentators: see Keating, Building Contracts, 4th ed. (1978), p. 331; Hudson's Building and Engineering Contracts, 10th ed. (1970), pp. 734–735; Walker-Smith and Close, The Standard Forms of Building Contract, p. 63.

82 Cf. defendant counsel's argument in Re Griffin [1899] 1 Ch. 408.

83 This is clear from the principle that an attempted assignment of a chose in action which fails is not to be treated as a declaration of trust: Antrobus v. Smith (1806) 12 Ves. 39; Searle v. Law (1846) 15 Sim. 95.

84 (1889) 40 Ch.D. 5.

85 Vandepitte v. Preferred Ace. Ins. Corp. of N.Y. (1933] A.C. 70, 79.

86 Subject to what has been said earlier concerning the applicability of the Bills of Sale Acts: see the text to n. 48. For an example of an express trust in favour of the assignee, see Biscoe, op. cit., p. 188, cl. 5(d).

87 Gerard v. Lewis (1867) 2 C.P. 305.

88 For an example of such a power, see Biscoe, op. til., p. 193, cl. 16.

89 Brice v. Bannister (1878) 3 Q.B.D. 569.

90 It is said that a celebrated engineering action was brought and lost, at great expense to both parties, at the insistence of an assignee of the contract payments: see Abrahamson, Engineering Law and the I.C.E. Contracts, 4th ed. (1979), p. 39.

91 See Utermyer J. in Sacks v. Neptune Meter Co., 258 N.Y.S. 254 (1932).

92 Uniform Commercial Code, Art. 9–318(3).

93 See “The Commercial Doctrine of Good Faith Purchase” (1954) 63 Yale L.J. 1057, 1119.

94 Security Interests in Personal Property, Vol. 1, 212–213.