Notes - Sillman v. Twentieth Century-Fox Film Corp | Kessler, Gilmore & Kronman | November 01, 2012


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1. Why did the Chemical Bank refuse to act as distribution agent? What reason could Twentieth Century have had for refusing to recognize the rights of the plaintiffs? In the Allhusen case, as the facts are stated in Judge Fuld's dissent, why should the contractor have refused to recognize the subcontractor's assignment of the proceeds of the subcontract?

2. Both the Sillman and the Allhusen cases were actions by an assignee against an obligor. Anti-assignment clauses have also been discussed in cases which involve contests for priority between an assignee, who has taken an assignment of proceeds in violation of the clause, and an adverse claimant who is not affected by the clause (e.g., a subsequent judgment creditor or a subsequent assignee who has obtained the obligor's consent to his assignment). In Portuguese-American Bank of San Francisco v. Welles, 242 U.S. 7 (1916) the Supreme Court gave priority to an assignee over a subsequent lien creditor. With respect to the anti-assignment clause, Justice Holmes remarked that a "covenantor" (the obligor) may make his contractual undertaking as narrow as he pleases but that

. . . when he has incurred a debt, which is property in the hands of the creditor, it is a different thing to say that as between the creditor and a third person the debtor can restrain his alienation of that, although he could not forbid the sale or pledge of other chattels. When a man sells a horse, what he does, from the point of view of the law, is to transfer a right, and a right being regarded by the law as a thing, even though a res incorporalis, it is not illogical to apply the same rule to a debt that would be applied to a horse.

Does that seem to mean that, in Holmes' opinion, the anti-assignment clause would have been invalid even between the assignee and the obligor? In Fortunato v. Patten, 147 N.Y. 277, 41 N.E. 572 (1895), the New York Court of Appeals assumed that the anti-assignment clause would have been effective between assignee and obligor ("for the reason that they are parties to the contract") but nevertheless gave priority to the assignee over adverse claimants.

3. Despite the assumption, in the Fortunato case and in many others, of the validity of an anti-assignment clause between assignee and obligor, the 1952 Allhusen case was the first in which the New York Court of Appeals held that such a clause was fatal to the assignee's action against an obligor. In earlier cases, which are reviewed in the Allhusen opinion, the holdings had been either that the clause in question was not intended to prohibit an assignment of proceeds or that, if the prohibition was clear, the clause had been intended, not to defeat the assignee's action, but to give the obligor a damage claim against the assignor for violation of the clause. With respect to the latter type of holding (which was sometimes referred to as the "personal covenant" doctrine), what damages do you think an obligor could recover from the other party to the contract who had breached it by assigning proceeds? Could the obligor, if he learned that the other party was about to assign proceeds, secure a restraining order forbidding the assignment? Would he want to?

4. The Uniform Commercial Code has two provisions that are relevant to the anti-assignment problem. Section 2-210(2) provides:

Unless otherwise agreed all rights of either seller or buyer can be assigned except where the assignment would materially change the duty of the other party, or increase materially the burden or risk imposed on him by his contract, or impair materially his chance of obtaining return performance. A right to damages for breach of the whole contract or a right arising out of the assignor's due performance of his entire obligation can be assigned despite agreement otherwise.

Section 9-318(4) provides:

A term in any contract between an account debtor and an assignor is ineffective if it prohibits assignment of an account or prohibits creation of a security interest in a general intangible for money due or to become due or requires the account debtor's consent to such assignment or security interest.

Do you think these two provisions are consistent with each other?

5. New York has now adopted the Code. Article 2 of the Code applies to contracts for the sale of goods, and §2-210(2) applies to the assignment of rights arising under such contracts. Article 9 applies to security transfers of all kinds of personal property, tangible and intangible, and also to sales of "accounts." (There is no provision that makes Article 9 applicable to sales of the type of intangible property that the §9-106 definition, supra p. 1457, calls "general intangibles.")

Assume that the facts of the Sillman case are duplicated in a New York case to which the Code provisions are applicable, except that Twentieth Century succeeds in establishing that it has not waived its rights under the anti-assignment clause. What result?

6. There was at one time a considerable controversy over the effectiveness of "partial" assignments that is, assignments of less than the entire claim. The Sillman case, which assumes without discussion that partial assignments are exactly as valid as total assignments, is typical of the modern approach. Restatement Second §326(1) provides that "an assignment of a part of a right, whether the part is specified as a fraction, as an amount, or otherwise, is operative as to that part to the same extent and in the same manner as if the part had been a separate right." Subsection 2 states, however, that if the obligor has not contracted for separate performance of the assigned part of the right, "no legal proceeding can be maintained by the assignor or assignee against the obligor over his objection, unless all the persons entitled to the promised performance are joined in the proceeding, or unless joinder is not feasible and it is equitable to proceed without joinder." What is the point of this qualification? Did the courts in the Sillman case respect its spirit? (Section 156 of the Restatement First contained a nearly identical provision.)


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