Will a Virginia court give effect to a clause barring assignment or requiring the other side's consent?
As a contract term, yes, but the authorities located do not establish that a transfer made in breach of one is void, and it does not hold Virginia's receivables rule at all. Daugherty v. Diment construed a land contract that permitted free assignment together with a deed of trust containing a due-on-sale clause and held the documents consistent: the assignment was effective, "The assignor was not required to obtain the consent of anyone", and "in the event of an assignment, the original sellers had certain rights that they could exercise at their option", a consent or due-on-sale term operating as the other side's contractual remedy rather than as a nullity; the due-on-sale clause "in no way impeded the free assignability of the land contract", and the Court affirmed the refusal to declare the deed of trust invalid "as being in violation of the assignee's contract rights". Franklin Plant Farm, Inc. v. Nash holds that a mortgage on a leasehold "is never construed as such an assignment of a leasehold interest as to cause a forfeiture under a covenant in the lease prohibiting assignment" unless the mortgagee has an absolute right to enter or to sell the lessee's estate and actually exercises it; the same opinion records that in Virginia the deed of trust "has almost entirely taken the place in this State of a mortgage as a security for the payment of a debt". We could not verify a Virginia rule making an anti-assignment term ineffective as to accounts, chattel paper, payment intangibles or promissory notes: the text of Va. Code § 8.9A-406 was not available for review here, and no Virginia appellate opinion located cites that section.
The trap
The first gap is receivables, and neither Virginia authority here reaches them: Daugherty construes a land contract with a deed of trust, and Franklin Plant Farm a mortgage of a leasehold. A Virginia rule making a no-assignment term ineffective as to accounts, chattel paper, payment intangibles or promissory notes would sit at Va. Code § 8.9A-406, and that section is not among the Virginia law we hold (we can neither quote it nor confirm what it says), so this rule does not tell you that a Virginia consent clause defeats an assignment of receivables, and you should not read its silence as saying the clause works. The second gap is remedial: we found no Virginia decision holding that an assignment made in breach of a consent clause is VOID as opposed to a breach, and Daugherty points the other way on facts where the contract expressly permitted assignment.
3 authorities
The words that state the rule
The LeGallo group, clearly agreeing that the property was burdened by the deed of trust, had the right under the land contract to make the assignment. The assignor was not required to obtain the consent of anyone. However, in the event of an assignment, the original sellers had certain rights that they could exercise at their option. One of those rights was the privilege to call note 2. But the “due on sale” clause in no way impeded the free assignability of the land contract.
The words that state the rule
The deed of trust, which dispenses with the necessity of a foreclosure suit, has almost entirely taken the place in this State of a mortgage as a security for the payment of a debt. The authorities seem to hold with unanimity that a mortgage is never construed as such an assignment of a leasehold interest as to cause a forfeiture under a covenant in the lease prohibiting assignment, unless it be that the mortgagee has an absolute right to enter on the property or to sell the estate of the lessee in the leasehold, and actually exercises such authority.
The words that state the rule
we hold that the trial court did not err in refusing to grant specific performance of the land contract and in refusing to declare the deed of trust invalid as being in violation of the assignee’s contract rights. Accordingly, the judgment below will be Affirmed.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.