Notes of Cases

Date01 September 1979
Published date01 September 1979
DOIhttp://doi.org/10.1111/j.1468-2230.1979.tb01553.x
NOTES
OF
CASES
INALIENABLE
RIGHTS?
THE
decision of Croom-Johnson
J.
in
Helstan Securities Ltd.
v.
Hertjordshire County Council
raises again the vexed question of
the effect of assignment of a contract right (in this case, a right to
money) where the contract itself prohibits such an assignment.
The debtor was the defendant council, for whom Renhold Road
Surfacing Ltd.
(“
Renholds
”)
had undertaken to execute certain
roadworks. The contract, in addition to restricting sub-letting of the
contract works, provided that Renholds should not assign the
contract or any part thereof or any benefit or interest therein or
thereunder without the written consent of the employer,
i.e.
the
council. In breach of this stipulation, Renholds, being in financial
difficulty, assigned to the plaintiffs the sum of
€46,437
allegedly
owed by the council for works carried out. The council refused to
pay the plaintiffs, and when sued alleged fraud on the part of
Renholds and also relied on the contractual prohibition against
assignment. Upon trial of the latter ground of defence as a pre-
liminary issue, the judge rejected the plaintiffs’ argument that the
effect of the prohibition was merely to preclude the assignment of
the contract and certain choses in action arising from it but not
debts, and dismissed the action.
Now in
so
far as the case decided that the assignment was
ineffective as between the plaintiffs and the defendant it is unexcep-
tionable.
If
A,
when contracting to pay money to
B,
makes it clear
that his undertaking to
B
is of a personal character and that
payment will be made to
B
alone, there is no reason why he should
be compelled to accept a variation of the contract by being required
to pay
B’s
assignee,
C.
Though the payment of money to one party
rather than another may not seem a particular hardship, the debtor
may have perfectly good commercial reasons for stipulating that
he will not recognise the title of an assignee of the debt. In the first
place,
a
debtor who overlooks receipt of a notice of assignment (a
not uncommon event in a busy office) and pays the assignor does
not get a good discharge and can be compelled to pay a second time,
to the assignee.l
So
it is understandable that the debtor may wish
to safeguard himself against the consequences of a slip of this kind.
Secondly, an assignment to some extent restricts the cfflcacy
of
mutual dealings between the debtor and the assignor in that the
debtor cannot set up against the assignee equities arising after
receipt by him of notice of assignment.8 Again, it is natural that
the debtor should want to avoid being fettered
in
his ability to set
up defences against the assignee.
1
{lWE]
3
All
E.R.
262.
s
Christie
V.
Taunton,
Delmnrd
Latte
d
Co.
[I8931
2
Ch.
175.
2
Brice
V.
Batrnlsfer
(1878)
3
Q.B.D.
569.
553
VOL.
42
(5)
3
(1)
554
THE
MODERN
1,AW
KEVIliW
[Vol.
42
Whether, and to what extent,
a
contract is effective
to
preclude
assignment of the creditor’s rights under it is in the first instance
a
matter of construction of the contract itself,
A
contract term by
which a party undertakes not to assign his rights
is
capable of at
least four alternative interpretations. The first is that the term con-
stitutes a mere personal undertaking, the breach of which does not
render the assignment ineffective against the debtor but merely
exposes him to a claim for damages for breach of contract. The
second is that the assignment is
to
be ineffective as against the
debtor
(so
that he is to remain free to pay the assignor, despite
notice of assignment, and to set up equities against the assignor
as
if
no assignment had taken place) but without affecting the
creditor’s right to enter into an agreement for the transfer of the
fruits of the contract after he has received these from the debt0r.l
The third is that the person giving the undertaking is not to be
entitled to assign the fruits of the contract even as between himself
and the intended assignee, that is, under a transfer intended to take
place only after the assignor has himself received the fruits from
the debtor. The fourth interpretation is that a purported assignment
is to constitute a breach of contract entitling the debtor not merely
to
claim damages but to terminate the contract and thereby reduce
or extinguish the assignor’s own right of payment. A contract term
bearing the first interpretation calls for no comment.
A
term bearing
the second interpretation is valid and has the effects discussed below.
It will be argued later that a term having the third interpretation
is
as a matter of law devoid
of
effect, and that a term having the
fourth interpretation is to be tested by reference to rules
of
equity
governing forfeiture.
Assuming that as a matter of construction the contract is
intended not merely to place the assigning creditor in breach, ancl
thus expose him to a claim for damages, but to render the assign-
ment of the creditor’s rights ineffective against the debtor, the law
will give effect to this intention. The result is that the offending
assignment does not rank as
a
statutory assignment for the purpose
of section
136
of the Law of Property Act
1925
(for that section,
which gives the assignee the right to sue in his own name for
recovery
of
the debt, would
be
inconsistent with the contract), and
the debtor is entitled to ignore the existence of the assignee and
to make payment to the assignor despite having received notice of
assignment,
As
a corollary, he remains entitled to assert against the
assignor defences and rights of set-off available to him under the
normal rules, even
if
arising under transactions entered into after
receipt
of
the notice
of
assignment.
Up to this point, no difflculty is caused by
Helstan Securities
Ltd.
v.
Hertfordshire
County Council.
But the defendants in that case
went further and asserted that the effect of the prohibition against
4
The
intcrprchlion
placed
on the contract in
He
Tirrrou
(1888)
40
Ch.D.
5.
Sept.
19791
NOTES
01:
CASES
555
assignment was to render the purported assignment ineffective even
as between assignor and assignee; and though such a contention
was not necessary for their success, the learned judge appears to
have considered it well founded and to have treated the assignment
as
totally void.
If
this is indeed the purport of his judgment, it is
open to serious objection both
as
a matter of law and
on
grounds
of policy.
It is commonly asserted that contracts
of
a personal character
cannot be as~igned.~
If
this be true, then it ought to apply
to
contracts prohibiting assignment, for such a prohibition is simply
a
way of making it clear that the contract is intended to be personal
to the ob1igee.O But when one examines the rationale of the
proposition that rights arising under personal contracts cannot be
assigned, two things become apparent. First, there is a failure to
distinguish transfer of the benefit
of
the contract from delegation
of
the duty to perform.
If
B
contracts to write
a
book for
A
for
a
fee
of
€500
and then purports to assign the contract to
C,
who writes
it instead and then claims the fee,
A
is entitled to refuse payment,
not because the right to the fee is non-assignable but because
a
book by
C
is not the performance stipulated by the contract. Where,
on the other hand,
B
assigns to
C
the right to fee but writes the
book
himself and tenders it to
A,
there
is
no reason why the
personal character of the contract should preclude
C
from claiming
payment unless the contract itself
so
provides. What is non-
transferable is the duty to perform, not the fruits of performance.‘
Secondly, there is a failure to differentiate between ineffectiveness
of
the assignment
vis-d-vis
the debtor and its invalidity as between
assignor and assignee. It is perfectly legitimate for
A
to stipulate
not merely that he
will
accept performance only from
B
but that
he
will
make payment to
B
alone and not to
Bs
assignee; but the
entitlement to the money after it reaches
B’s
hands is no concern
of
A’s,
and terms prohibiting assignment ought not readily to be
construed as precluding
a
transfer which does not in any way affect
his interests or alter his own obligations but is merely to operate
as
between assignor and assignee. The prohibition is for the benefit
of the debtor, not the assignor or his trustee in bankruptcy; and
if
the debtor does not seek to invoke it, or has no legitimate interest
in so doing, it is not for the assignor or those claiming in right of
the assignor to do
SO.^
The assignor, being still the legal owner
of
5
See, for example,
Chif/y
ou
Co~rfrncts
(24111 ctl.),
Vol.
1,
pnra.
1175;
Halsbury’s
Imus
of
Englartd
(4th
ed.),
para.
88.
0
Rnther curiously the matter
is
never put this way in
the
textbooks. The insertion
of
a clause prohibiting assignment is not mentioned as a method
of
establishing the
personal Character of the right
but
is regnrdetl as a distinct, albeit less certain, ground
of
non-assignability,
7
Russell
&
Co.
Ltd.
V.
Ausriri
Fryers
(1909)
25
T.L.R.
414.
8
For two lcading American decisions
to
this cflect, see
Re
#!hwSllwl,
45 F.
2tl
193
(1930);
Porfirgireso-Arrier~c~~i
Bnrik
of
Snrr
I;r.nrrcisco
V.
Welles,
242
U.S.
7,
61
L.Etl.
116
(1916).

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