Will an Iowa court give effect to a clause barring assignment or requiring the other side's consent?
Not as to receivables and promissory notes. Except as subsections 5 and 10A and sections 554.9407 and 554.13303 provide, and subject to subsection 8, a term in an agreement between an account debtor and an assignor, or in a promissory note, is ineffective to the extent it prohibits, restricts or requires the consent of the account debtor or the person obligated on the note to the assignment or transfer of, or the creation, attachment, perfection or enforcement of a security interest in, the account, chattel paper, payment intangible or promissory note, and equally ineffective to the extent it provides that the assignment or transfer or the creation, attachment, perfection or enforcement of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination or remedy under the account, chattel paper, payment intangible or promissory note (Iowa Code § 554.9406(4)(a) and (b)); in that subsection "promissory note" includes a negotiable instrument that evidences chattel paper. Subsection 4 does not apply to the sale of a payment intangible or promissory note other than a sale on a disposition under § 554.9610 or an acceptance of collateral under § 554.9620 (§ 554.9406(5)); the section is subject to law other than article 9 that sets a different rule for an account debtor who is an individual and incurred the obligation primarily for personal, family or household purposes (§ 554.9406(8)); and subsections 4, 6 and 10 do not apply to a security interest in an ownership interest in a general partnership, limited partnership or limited liability company (§ 554.9406(10A)).
The trap
A consent-to-assign clause in the contract that generates the receivable does not stop the counterparty's lender from taking or enforcing a security interest in it, and neither does the drafter's usual fallback: paragraph (b) of the same subsection disables a term that makes the assignment or the creation, attachment, perfection or enforcement of the security interest an event of default, a breach, or a ground of recoupment, termination or remedy. What § 554.9406(4) does not disable is a restriction on rights that are not accounts, chattel paper, payment intangibles or promissory notes; a sale of a payment intangible or note outside § 554.9610 or § 554.9620; an individual consumer account debtor governed by other law; and a security interest in a partnership, limited partnership or LLC ownership interest. Subsection 4 is also expressly subject to §§ 554.9407 and 554.13303, and those two sections are where a LEASE of goods lands, on different terms. Section 554.9407(1) makes a term in a lease agreement ineffective to the same two extents, but § 554.9407(2) makes the event-of-default limb effective again "to the extent that there is: a. a transfer by the lessee of the lessee’s right of possession or use of the goods in violation of the term; or b. a delegation of a material performance of either party to the lease contract in violation of the term." Section 554.13303(2) runs the other way for a lease: a provision prohibiting a transfer, or making one an event of default, gives rise to the rights and remedies of subsection 4, "but a transfer that is prohibited or is an event of default under the lease agreement is otherwise effective." And in a consumer lease, to prohibit a transfer or make one an event of default, "the language must be specific, by a writing, and conspicuous" (§ 554.13303(7)). So the receivables answer does not carry across to a lease.
8 authorities
- statuteIowa Code § 554.9406enactment date not established
The words that state the rule
In this subsection, “promissory note” includes a negotiable instrument that evidences chattel paper. Except as otherwise provided in subsections 5 and 10A and sections 554.9407 and 554.13303, and subject to subsection 8, a term in an agreement between an account debtor and an assignor or in a promissory note is ineffective to the extent that it: a. prohibits, restricts, or requires the consent of the account debtor or person obligated on the promissory note to the assignment or transfer of, or the creation, attachment, perfection, or enforcement of a security interest in, the account, chattel paper, payment intangible, or promissory note; or b. provides that the assignment or transfer or the creation, attachment, perfection, or enforcement of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the account, chattel paper, payment intangible, or promissory note.
- statuteIowa Code § 554.9406enactment date not established
The words that state the rule
Subsection 4 does not apply to the sale of a payment intangible or promissory note, other than a sale pursuant to a disposition under section 554.9610 or an acceptance of collateral under section 554.9620.
- statuteIowa Code § 554.9406enactment date not established
The words that state the rule
This section is subject to law other than this Article which establishes a different rule for an account debtor who is an individual and who incurred the obligation primarily for personal, family, or household purposes.
- statuteIowa Code § 554.9406enactment date not established
The words that state the rule
Subsections 4, 6, and 10 do not apply to a security interest in an ownership interest in a general partnership, limited partnership, or limited liability company.
- statuteIowa Code § 554.9407enactment date not established
The words that state the rule
Except as otherwise provided in subsection 2, a term in a lease agreement is ineffective to the extent that it: a. prohibits, restricts, or requires the consent of a party to the lease to the assignment or transfer of, or the creation, attachment, perfection, or enforcement of a security interest in, an interest of a party under the lease contract or in the lessor’s residual interest in the goods; or b. provides that the assignment or transfer or the creation, attachment, perfection, or enforcement of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the lease.
- statuteIowa Code § 554.9407enactment date not established
The words that state the rule
Except as otherwise provided in section 554.13303, subsection 7, a term described in subsection 1, paragraph “b”, is effective to the extent that there is: a. a transfer by the lessee of the lessee’s right of possession or use of the goods in violation of the term; or b. a delegation of a material performance of either party to the lease contract in violation of the term.
- statuteIowa Code § 554.13303enactment date not established
The words that state the rule
Except as provided in subsection 3 and section 554.9407, a provision in a lease agreement which prohibits the voluntary or involuntary transfer, including a transfer by sale, sublease, creation or enforcement of a security interest, or attachment, levy, or other judicial process, of an interest of a party under the lease contract or of the lessor’s residual interest in the goods, or makes such a transfer an event of default, gives rise to the rights and remedies provided in subsection 4, but a transfer that is prohibited or is an event of default under the lease agreement is otherwise effective.
- statuteIowa Code § 554.13303enactment date not established
The words that state the rule
In a consumer lease, to prohibit the transfer of an interest of a party under the lease contract or to make a transfer an event of default, the language must be specific, by a writing, and conspicuous.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.