Does our no-assignment clause stop the other side from assigning (or pledging as collateral) its right to be paid, or its rights under a license or franchise?
Mostly no, for the categories Louisiana's enacted UCC secured-transactions article protects: Louisiana has adopted Chapter 9 of the Uniform Commercial Code (codified at La. R.S. 10:9-101 et seq.) even though it has NOT adopted UCC Article 2 (sales of goods), so this Chapter 9 override applies to accounts, chattel paper, payment intangibles, and general intangibles regardless of whether the underlying deal is itself governed by the Civil Code or the UCC. La. R.S. 10:9-406(d): "a term in an agreement between an account debtor and an assignor or in a promissory note is ineffective to the extent that it: (1) 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." That subsection does not stand alone, and the words it opens with are the ones to read first: "Except as otherwise provided in Subsections (e), (i), and (k) of this Section and R.S. 10:9-407 and 9-410, and subject to Subsection (h) of this Section". Five separate provisions can switch it off. La. R.S. 10:9-408(a) extends a narrower override to a general intangible "including a contract, permit, license, or franchise": the restriction is ineffective only "to the extent that the term: (1) would impair the creation, attachment, or perfection of a security interest," or makes one a default: it protects a lender's lien, not an outright assignment of the contract. A Louisiana Court of Appeal applied § 9-406(a)'s companion notification rule to an actual factoring dispute in Swift Energy Operating, LLC v. Plemco-South, Inc., rejecting a trial court's view that the statute reached only an outright ownership transfer: "the trial court equated an assignor/assignee relationship to constitute an actual 'transfer of interest' and concluded that because the Swift Energy accounts payable had not been transferred in ownership to Factor King and were nothing more than collateral security, La.R.S. 10:9-406(a) did not apply to the litigation. We find merit in Factor King's argument that this conclusion was error on the part of the trial court."
The trap
Both overrides are narrower than a blanket rule that no anti-assignment clause works in Louisiana. § 9-406(e) carves the override back OUT for a straight SALE of a payment intangible or promissory note (as opposed to a security interest arising from one): "Subsection (d) of this Section does not apply to the sale of a payment intangible or promissory note, other than a sale pursuant to a disposition under R.S. 10:9-610 ... or an acceptance of collateral under R.S. 10:9-620". Swift Energy is not authority on that carve-out: it was a § 9-406(a) NOTIFICATION case, in which the court corrected the trial court's view that only an ownership transfer counts as an assignment ("these definitions clearly establish that accounts receivable may be sold or made the subject of a security interest") and then held for the account debtor anyway because "the notice required by La.R.S. 10:9-406(a) was not effected prior to Swift Energy's payment to Plemco-South": the factor lost for want of notice, not on the sale/security-interest line, and the trial court judgment was affirmed in all respects. § 9-408(d) is a further trap in the anti-assignment drafter's favor even where subsection (a) makes the restriction "ineffective": the assignee still gets no enforcement right against the account debtor and the account debtor need not recognize or pay the assignee at all: the statute strips the anti-assignment clause of its power to create a DEFAULT, but does not force the account debtor to deal with a stranger. And because Louisiana never enacted UCC Article 2, do not assume this Chapter 9 override reaches every commercial contract; it speaks only to accounts, chattel paper, payment intangibles, promissory notes, and general intangibles as those terms are defined in Chapter 9: a Civil Code sale-of-goods contract's own anti-assignment clause is analyzed under ordinary Civil Code assignment rules (Book III, Title IV, Chapter 13), not this statute. Both sections carve out the same list, and it is longer than the health-care receivable everyone remembers: neither § 10:9-406 nor § 10:9-408 applies to an assignment of a pension, disability, annuity, retirement or other benefit, distribution or allowance right or payment from a governmental retirement system, pension fund or other governmental unit, nor to workers' compensation claims or payments, unemployment compensation benefits, public assistance payments, crime victim compensation, or lottery payments. So an anti-assignment clause over any of those is NOT rendered ineffective by these sections, and this rule says nothing about what does govern them. Three more carve-outs sit outside that list. Subsection (k) of § 10:9-406 and Subsection (h) of § 10:9-408 each take the override off "a claim or right to receive compensation for injuries or sickness as described in 26 U.S.C. 104(a)(1) or (2), as amended" and "a claim or right to receive benefits under a special needs trust as described in 42 U.S.C. 1396p(d)(4), as amended", and § 10:9-406(l) takes subsections (a), (b), (c) and (g) off "a controllable account or controllable payment intangible". Section 10:9-406 is also "subject to law other than this Chapter 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", so a consumer account debtor may be governed by something else entirely. And § 9-408(d) runs to six paragraphs, not three: beyond leaving the account debtor free not to recognise or pay the assignee, the security interest "does not entitle the secured party to use, assign, possess, or have access to any trade secrets or confidential information" of the account debtor and "does not entitle the secured party to enforce the security interest" at all.
13 authorities
- statuteLa. R.S. 10:9-406enactment 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 (e), (i), and (k) of this Section and R.S. 10:9-407 and 9-410, and subject to Subsection (h) of this Section, a term in an agreement between an account debtor and an assignor or in a promissory note is ineffective to the extent that it: (1) 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 (2) 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.
- statuteLa. R.S. 10:9-406enactment date not established
The words that state the rule
Subsection (d) of this Section does not apply to the sale of a payment intangible or promissory note, other than a sale pursuant to a disposition under R.S. 10:9-610 or an acceptance of collateral under R.S. 10:9-620.
- caseNo. 14-598 (La. Ct. App. 3d Cir. Feb. 4, 2015)Swift Energy Operating, LLC v. Plemco-South, Inc.La. Ct. App.decided 2015
The words that state the rule
the trial court equated an assignor/assignee relationship to constitute an actual “transfer of interest” and concluded that because the Swift Energy accounts payable had not been transferred in ownership to Factor King and were nothing more than collateral security, La.R.S. 10:9-406(a) did not apply to the litigation. We find merit in Factor King’s argument that this conclusion was error on the part of the trial court.
- caseNo. 14-598 (La. Ct. App. 3d Cir. Feb. 4, 2015)Swift Energy Operating, LLC v. Plemco-South, Inc.La. Ct. App.decided 2015
The words that state the rule
these definitions clearly establish that accounts receivable may be sold or made the subject of a security interest.
- caseNo. 14-598 (La. Ct. App. 3d Cir. Feb. 4, 2015)Swift Energy Operating, LLC v. Plemco-South, Inc.La. Ct. App.decided 2015
The words that state the rule
we find that the notice required by La.R.S. 10:9-406(a) was not effected prior to Swift Energy’s payment to Plemco-South.
- statuteLa. R.S. 10:9-406enactment date not established
The words that state the rule
This Section does not apply to an assignment of a health-care-insurance receivable. This Section further does not apply to an assignment of any pension, disability, annuity, retirement or other benefit, distribution or allowance right or payment from any governmental retirement system or pension fund or any other governmental unit, workers' compensation claims or payments, unemployment compensation benefits, public assistance payments, crime victim compensation, or lottery payments.
- statuteLa. R.S. 10:9-408enactment date not established
The words that state the rule
This Section does not apply to an assignment of any pension, disability, annuity, retirement or other benefit, distribution or allowance right or payment from any governmental retirement system or pension fund or any other governmental unit, workers' compensation claims or payments, unemployment compensation benefits, public assistance payments, crime victim compensation, or lottery payments.
- statuteLa. R.S. 10:9-408enactment date not established
The words that state the rule
Except as otherwise provided in Subsections (b) and (f) and R.S. 10:9-410, a term in a promissory note or in an agreement between an account debtor and a debtor which relates to a health-care-insurance receivable or a general intangible, including a contract, permit, license, or franchise, and which term prohibits, restricts, or requires the consent of the person obligated on the promissory note or the account debtor to, the assignment or transfer of, or creation, attachment, or perfection of a security interest in, the promissory note, health-care-insurance receivable, or general intangible, is ineffective to the extent that the term: (1) would impair the creation, attachment, or perfection of a security interest; or (2) provides that the assignment or transfer or the creation, attachment, or perfection of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the promissory note, health-care-insurance receivable, or general intangible.
- statuteLa. R.S. 10:9-408enactment date not established
The words that state the rule
To the extent that a term in a promissory note or in an agreement between an account debtor and a debtor which relates to a health-care-insurance receivable or general intangible or statute or regulation described in Subsection (c) would be effective under law other than this Chapter but is ineffective under Subsection (a) or (c), the creation, attachment, or perfection of a security interest in the promissory note, health-care-insurance receivable, or general intangible: (1) is not enforceable against the person obligated on the promissory note or the account debtor; (2) does not impose a duty or obligation on the person obligated on the promissory note or the account debtor; (3) does not require the person obligated on the promissory note or the account debtor to recognize the security interest, pay or render performance to the secured party, or accept payment or performance from the secured party; (4) does not entitle the secured party to use or assign the debtor's rights under the promissory note, health-care-insurance receivable, or general intangible, including any related information or materials furnished to the debtor in the transaction giving rise to the promissory note, health-care-insurance receivable, or general intangible; (5) does not entitle the secured party to use, assign, possess, or have access to any trade secrets or confidential information of the person obligated on the promissory note or the account debtor; and (6) does not entitle the secured party to enforce the security interest in the promissory note, health-care-insurance receivable, or general intangible.
- statuteLa. R.S. 10:9-406enactment date not established
The words that state the rule
(k) Subsections (d) and (f) do not apply to the assignment or transfer of or creation of a security interest in: (1) a claim or right to receive compensation for injuries or sickness as described in 26 U.S.C. 104(a)(1) or (2), as amended; or (2) a claim or right to receive benefits under a special needs trust as described in 42 U.S.C. 1396p(d)(4), as amended. (l) Inapplicability of certain Subsections. Subsections (a), (b), (c), and (g) of this Section do not apply to a controllable account or controllable payment intangible.
- statuteLa. R.S. 10:9-406enactment date not established
The words that state the rule
(h) Rule for individual under other law. This Section is subject to law other than this Chapter 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.
- statuteLa. R.S. 10:9-408enactment date not established
The words that state the rule
(g) "Promissory note." In this Section, "promissory note" includes a negotiable instrument that evidences chattel paper. (h) Subsections (a) and (c) of this Section do not apply to the assignment or transfer or creation of a security interest in: (1) a claim or right to receive compensation for injuries or sickness as described in 26 U.S.C. 104(a)(1) or (2), as amended; or (2) a claim or right to receive benefits under a special needs trust as described in 42 U.S.C. 1396p(d)(4), as amended.
- caseNo. 14-598 (La. Ct. App. 3d Cir. Feb. 4, 2015)Swift Energy Operating, LLC v. Plemco-South, Inc.La. Ct. App.decided 2015
The words that state the rule
Accordingly, we find no merit in Factor King’s two assignments of error. DISPOSITION For the foregoing reasons, we affirm the trial court judgment in all respects. We assess all costs of this appeal to Factor King, LLC. AFFIRMED.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.