In re Pioneer Ford Sales, Inc. - 729 F.2d 27 (1st Cir. 1984)

Rule:

The language of 11 U.S.C.S. § 365(c)(1)(A) does not limit its effect to personal service contracts. It refers generally to contracts that are not assignable under non-bankruptcy law.

Facts:

The federal district court allowed a bankrupt Ford dealer (Pioneer Ford Sales, Inc.) to assign its Ford franchise over the Ford Motor Company’s objection to a Toyota dealer (Toyota Village, Inc.). Notwithstanding the existence of 11 U.S.C.S. § 365(c)(1)(A), which prohibited dealers to assign the franchise without the consent of the manufacturer, except that such consent shall not be unreasonably withheld, the district court did not apply the aforementioned statute, believing that the same applied only to traditional personal service contracts. The Ford Motor Company appealed.

Issue:

Did the prohibition in 11 U.S.C.S. § 365(c)(1)(A) apply only to traditional personal service contracts, thereby justifying the district court’s decision to allow the bankrupt Ford dealer to assign the Ford franchise over Ford Company’s objection?

Answer:

No.

Conclusion:

The court reversed, holding that the 11 U.S.C.S. § 365(c)(1)(A), which prohibited the assignment of executory contracts if such assignment violated non-bankruptcy law, made the franchise non-assignable because, under Rhode Island law, the franchise contract was non-assignable. Thus, the district court erred when the statute's applicability was held to apply only to personal service contracts.