Will a Rhode Island court give effect to a clause barring assignment or requiring the other side's consent?
Yes as to the clause itself, and a contract that calls for personal service is unassignable even without one, but whether an assignment made in breach of a consent clause is void or merely a breach is a question that the authorities cited here do not answer, and the UCC receivables override that decides that question in most states cannot be reached in Rhode Island on the authorities located here at all. The common-law rule is Swarts v. Narragansett Electric Lighting Co., where the Court adopted the plaintiff's own statement of it as “correctly and concisely” put: a contract cannot be assigned “when its terms forbid an assignment, or when there is an implied intention that personal service is required by the contract.” The implied branch is real and does not need a clause: “It held that the restriction need not be expressed in the contract, but that it may appear from the implied intention of the parties. Following this rule the subsequent cases have depended chiefly upon the point whether personal service or liability was intended by the contract.” The Court's reason was that “[i]t would be quite unjust to a party to be bound to an assignee, with whom, possibly, he would not have made a contract in the first instance, simply because it had not occurred to him to mention in the contract that it could not be assigned.” A written consent clause is given effect: in Board of Governors for Higher Education v. Infinity Construction Services, Inc. the State's conditions of purchase provided that “the contractor shall not assign, transfer, convey, sublet or otherwise dispose of this contract or his right, title or interest therein … without the previous consent, in writing, of the Purchasing Agent”, and the Court held that “[t]his clause clearly prohibits the transfer of rights that the defendant attempted to carry out in its liquidation agreement”. That case also decides a point a reviewer will meet: “In effect, the right to settle disputes by arbitration is not an assignable right. Because plaintiffs never entered into an agreement to arbitrate with defendant, they cannot be compelled by defendant to enter into arbitration, nor can Hodess enter into an agreement that essentially assigns its own right to arbitrate an issue with plaintiffs.” Swarts also shows where the implied branch lands: the Court said “the court is unable to say, as a matter of law to what extent the personal service of Dr. Swarts may have been important”, held that “the contract seems to us to imply a personal service, not only from the nature of the work to be done, but also by its terms”, and concluded “that the demurrers to the plea should be overruled”, so the non-assignability plea stood.
The trap
Do not tell a Rhode Island client that the lender takes the receivable in spite of the clause. §§ 6A-9-406 and 6A-9-408 (the sections that in most states make an anti-assignment term ineffective against an assignment of accounts, payment intangibles and general intangibles) are absent from the Rhode Island statutes we publish and are mentioned in no Rhode Island opinion in the Rhode Island opinions we publish, so there is nothing located on which to build that advice. The second trap is the reverse: a Rhode Island contract can be unassignable with no clause at all, because Swarts makes the personal-service bar turn on implication, and although the Court was unable to say as a matter of law how far electrical installation work depended on the contractor personally, it held that the contract did imply personal service and overruled the demurrers to the plea. The third is the arbitration point above, a pass-through or liquidation agreement that hands a subcontractor the right to pursue the owner does not hand over the right to arbitrate with the owner, and a party that tries can be permanently enjoined. On whether consent may be withheld unreasonably, the only Rhode Island appellate word located on the point is Fishbein v. Pezza, a single-paragraph 1981 order in a LEASE case, in which the Court said only “[w]e are of the opinion that the decision of the trial court that the withholding of consent to the assignment of the lease was unreasonable is not clearly wrong”: a deferential affirmance on the facts of a lease, not a general commercial-contract rule.
11 authorities
The words that state the rule
The plaintiff states the general rule correctly and concisely, that a contract can not b'e assigned when its terms forbid an assignment, or when there is an implied intention that personal service is required by the contract.
The words that state the rule
It held that the restriction need not be expressed in the contract, but that it may appear from the implied intention of the parties. Following this rule the subsequent cases have depended chiefly upon the point whether personal service or liability was intended by the contract.
The words that state the rule
It would be quite unjust to a party to be bound to an assignee, with whom, possibly, he would not have made a contract in the first instance, simply because it had not occurred to him to mention in the contract that it could not be assigned.
- case795 A.2d 1127Board of Governors for Higher Education v. Infinity Construction Services, Inc.R.I.decided 2002read it at the source ↗
The words that state the rule
It is mutually understood and agreed that the contractor shall not assign, transfer, convey, sublet or otherwise dispose of this contract or his right, title or interest therein, or his power to execute such contract, to any other person, company or corporation, without the previous consent, in writing, of the Purchasing Agent.
- case795 A.2d 1127Board of Governors for Higher Education v. Infinity Construction Services, Inc.R.I.decided 2002read it at the source ↗
The words that state the rule
This clause clearly prohibits the transfer of rights that the defendant attempted to carry out in its liquidation agreement with Hodess.
- case795 A.2d 1127Board of Governors for Higher Education v. Infinity Construction Services, Inc.R.I.decided 2002read it at the source ↗
The words that state the rule
In effect, the right to settle disputes by arbitration is not an assignable right. Because plaintiffs never entered into an agreement to arbitrate with defendant, they cannot be compelled by defendant to enter into arbitration, nor can Hodess enter into an agreement that essentially assigns its own right to arbitrate an issue with plaintiffs.
The words that state the rule
We are of the opinion that the decision of the trial court that the withholding of consent to the assignment of the lease was unreasonable is not clearly wrong.
The words that state the rule
In the present case the court is unable to say, as a matter of law to what extent the personal service of Dr. Swarts may have been important.
The words that state the rule
In this case the contract seems to us to imply a personal service, not only from the nature of the work to be done, but also by its terms
The words that state the rule
We are, therefore, of opinion that the demurrers to the plea should be overruled.
- case795 A.2d 1127Board of Governors for Higher Education v. Infinity Construction Services, Inc.R.I.decided 2002read it at the source ↗
The words that state the rule
In summary, the defendant was not in privity with the plaintiffs and cannot invoke the pass-through doctrine. Therefore, the trial justice did not err in permanently enjoining the defendant from proceeding with arbitration against the plaintiffs.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.