Will a Maine court give effect to a clause barring assignment or requiring the other side's consent?
Against a lender taking a security interest the clause is largely ineffective, but far less usefully than it first looks; between the contracting parties themselves the only Maine appellate authority located construes a statute that was repealed in 1987. 11 M.R.S. § 9-1408(1) opens "Except as otherwise provided in subsection (2)" and then makes a term in a promissory note, or in an agreement between an account debtor and a debtor relating to a health-care-insurance receivable or a general intangible (a category the section expressly says includes "a contract, permit, license or franchise") ineffective to the extent it would impair the creation, attachment or perfection of a security interest, or would make the assignment a default, breach, termination right or remedy. Subsection (2) is the first limit: for a payment intangible or a promissory note, subsection (1) applies "only if the security interest arises out of a sale" of it, other than a disposition under § 9-1610 or an acceptance of collateral under § 9-1620. Subsection (4) is the second, and it takes most of the practical value back: where the term would be effective under other law but is ineffective under § 9-1408, the security interest "[i]s not enforceable against the person obligated on the promissory note or the account debtor", does not require that person to "recognize the security interest, pay or render performance to the secured party", and "[d]oes not entitle the secured party to enforce the security interest". The clause is overridden as between debtor and lender without giving the lender anything it can enforce against the obligor. Where the covenant is being enforced between the parties and no secured party is behind it, the only Maine appellate decisions located are the two Eastern of Maine, Inc. v. Vintners Group Ltd. appeals about a regulated liquor distributorship, and they apply 28 M.R.S.A. §§ 668 to 672: every one of which was repealed by PL 1987, c. 45, § A3, so the statutory bar on unreasonably withholding consent that those appeals enforced no longer exists. In the 1983 appeal the Law Court held the justice "did not err in concluding that Vintners 'reasonably refused' consent", affirmed the judgment against the three would-be assignees and vacated the judgment against the seller; in the 1985 appeal it affirmed a finding of good cause to terminate for an assignment made without consent.
The trap
The sentence practitioners quote for Maine ("Everyone has a right to select and determine with whom he will contract") is from Sprague v. Dugan, and the published decision there is entirely Dufresne, J., concurring in the result: it opens "DUFRESNE, Justice (concurring in result)." and carries no opinion of the Court at all. In the fifty-six years since, no later Maine decision located mentions that case under either its name or a citation. Do not serve the sentence as a holding. Second, the width of § 9-1408: the term is ineffective only "to the extent" it impairs a security interest or turns the assignment into a default, so a consent clause can still bite on an outright sale, a delegation of performance or a change of control with no lender behind it. Third, the parallel provision for accounts, chattel paper and payment intangibles is § 9-406 in the official numbering (a reader will find it printed with a trailing digit that is not part of the citation), and its override in subsection (4) comes with carve-outs the override does not survive: the section "does not apply to an assignment of a health-care-insurance receivable", it is "subject to law other than this Article that establishes a different rule for an account debtor who is an individual" who borrowed for personal, family or household purposes, and "Subsection (4) does not apply to the sale of a payment intangible or promissory note" unless the sale is a disposition under § 9-1610 or an acceptance of collateral under § 9-1620. Its account-debtor discharge rule is qualified too: a notification is ineffective "[i]f it does not reasonably identify the rights assigned", and if the assignee does not "seasonably furnish reasonable proof that the assignment has been made" on request the account debtor may go on paying the assignor. Fourth, on whether a transfer made in breach of a consent requirement is void or merely a breach: in the 1983 Vintners appeal the Law Court agreed with "the justice's correct statement that Eastern's attempted assignments failed" and said those transfers "were void", a conclusion the opinion draws from 3 Williston, Law of Contracts § 442, and one reached where the consent was required by the now-repealed statute rather than by an ordinary contract term, so treat it as the closest Maine authority and not as a general rule. Fifth, good cause did not end the matter even under that regime: in the 1985 appeal the supplier's "knowing violation of the notice provisions" was held not to establish bad faith only because the wholesaler "has not proven it suffered any harm", and the judgment was affirmed.
24 authorities
- statute11 M.R.S. § 9-1408enactment date not established
The words that state the rule
Except as otherwise provided in subsection (2) , a term in a promissory note or in an agreement between an account debtor and a debtor that 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:
- statute11 M.R.S. § 9-1406-2enactment date not established
The words that state the rule
Subject to subsections (2) to (10) , an account debtor on an account, chattel paper or a payment intangible may discharge its obligation by paying the assignor until, but not after, the account debtor receives a notification, signed by the assignor or the assignee, that the amount due or to become due has been assigned and that payment is to be made to the assignee. After receipt of the notification, the account debtor may discharge its obligation by paying the assignee and may not discharge the obligation by paying the assignor.
- statute11 M.R.S. § 9-1406-2enactment date not established
The words that state the rule
Subject to subsections (8) and (10) , notification is ineffective under subsection (1) : (a). If it does not reasonably identify the rights assigned;
- statute11 M.R.S. § 9-1406-2enactment date not established
The words that state the rule
Subject to subsections (8) and (10) , if requested by the account debtor, an assignee shall seasonably furnish reasonable proof that the assignment has been made. Unless the assignee complies, the account debtor may discharge its obligation by paying the assignor, even if the account debtor has received a notification under subsection (1) .
- statute11 M.R.S. § 9-1406-2enactment date not established
The words that state the rule
Except as otherwise provided in subsection (5) and sections 2‑1303 and 9‑1407 , 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
- statute11 M.R.S. § 9-1406-2enactment date not established
The words that state the rule
This section is subject to law other than this Article that establishes a different rule for an account debtor who is an individual and who incurred the obligation primarily for personal, family or household purposes.
- statute11 M.R.S. § 9-1406-2enactment date not established
The words that state the rule
This section does not apply to an assignment of a health-care-insurance receivable.
The words that state the rule
Section 670 provides: “[n]o certificate of approval holder shall unreasonably withhold consent to any assignment, transfer or sale of the wholesaler’s business whenever the wholesaler to be substituted meets the material and reasonable qualifications and standards required of its wholesalers.”
- case455 A.2d 936Eastern of Maine, Inc. v. Vintners Group Ltd.me-medecided 1983read it at the source ↗
The words that state the rule
Based on these facts, the justice did not err in concluding that Vintners “reasonably refused” consent to Eastern’s transfer of business to three wholesalers unable to meet the geographical coverage qualification.
- case455 A.2d 936Eastern of Maine, Inc. v. Vintners Group Ltd.me-medecided 1983read it at the source ↗
The words that state the rule
Because we agree that Vintners’s refusal of consent was reasonable, we also agree with the justice’s correct statement that Eastern’s attempted assignments failed. 3 Williston, Law of Contracts § 442 at 302 (3d ed. 1960). Those transfers by Eastern to Dirigo, Colonial, and United were void; the transfer by Vintners to Pine State was not invalidated by any provision of the Act.
- case455 A.2d 936Eastern of Maine, Inc. v. Vintners Group Ltd.me-medecided 1983read it at the source ↗
The words that state the rule
Judgment for Vintners Group Ltd. against Dirigo Distributors, Colonial Distributors, Inc., and United Distributors of Maine, Inc. affirmed. Judgment for Vintners Group Ltd. against Eastern of Maine, Inc. vacated and remanded for further proceedings consistent with this opinion.
The words that state the rule
The Superior Court found Vintners had good cause to terminate the distributorship agreement based on Eastern's first assignment without Vintners’ consent, splitting the sales territory and permitting the unapproved assignee to commence distribution of Vintners’ products. Reviewing the court’s finding by the clearly erroneous standard, we determine there is competent evidence in the record to support it.
- statute28 M.R.S. § 670enactment date not established
The words that state the rule
§670. Assignment, transfer or sale of business (REPEALED) SECTION HISTORY PL 1979, c. 270 (NEW). PL 1987, c. 45, §A3 (RP).
- case495 A.2d 318Eastern of Maine, Inc. v. Vintners Group Ltd.me-medecided 1985read it at the source ↗
The words that state the rule
We agree that Vintners’ knowing violation of the notice provisions might be evidence of bad faith. On the basis of this record, however, we conclude that the Superior Court did not clearly err in finding that Vintners did not terminate the agreement in bad faith.
- case495 A.2d 318Eastern of Maine, Inc. v. Vintners Group Ltd.me-medecided 1985read it at the source ↗
The words that state the rule
Eastern has not proven it suffered any harm by Vintners’ failure to give 90 days notice of termination. Indeed, Eastern forged ahead single-mindedly with its plan to sell the Sebastiani distribution rights to three buyers in the face of Vintners’ express disapproval of dividing the sales territory. There is no error in the Superior Court’s finding that Eastern was not entitled to equitable relief. The entry is: Judgment affirmed.
- case(Me. Aug. 4, 1970)Sprague v. DuganMe.decided 1970
The words that state the rule
Everyone has a right to select and determine with whom he will contract and the obligee of a contract cannot be deprived of that security of performance anticipated by him from the character, ability, honesty *471 and financial stability of the named obli-gor by the mere assignment of the contract without the obligee’s consent. The assignment to Peninsula, without the consent of the Dugans, could only operate as an assignment of the benefits of the contract, and not of the conjoined personal obligations of Sprague.
- statute11 M.R.S. § 9-1406-2enactment 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 9‑1610 or an acceptance of collateral under section 9‑1620 .
- statute11 M.R.S. § 9-1408enactment date not established
The words that state the rule
(a). Would impair the creation, attachment or perfection of a security interest; or
- statute11 M.R.S. § 9-1408enactment date not established
The words that state the rule
(b). 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.
- statute11 M.R.S. § 9-1408enactment date not established
The words that state the rule
Subsection (1) applies to a security interest in a payment intangible or promissory note only if the security interest arises out of a sale of the payment intangible or promissory note, other than a sale pursuant to a disposition under section 9‑1610 or acceptance of collateral under section 9‑1620 .
- statute11 M.R.S. § 9-1408enactment 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 that relates to a health-care-insurance receivable or general intangible or a rule of law, statute or regulation described in subsection (3) would be effective under law other than this Article but is ineffective under subsection (1) or (3) , the creation, attachment or perfection of a security interest in the promissory note, health-care-insurance receivable or general intangible: (a). Is not enforceable against the person obligated on the promissory note or the account debtor;
- statute11 M.R.S. § 9-1408enactment date not established
The words that state the rule
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;
- statute11 M.R.S. § 9-1408enactment date not established
The words that state the rule
Does not entitle the secured party to enforce the security interest in the promissory note, health-care-insurance receivable or general intangible.
- case(Me. Aug. 4, 1970)Sprague v. Duganme-medecided 1970
The words that state the rule
DUFRESNE, Justice (concurring in result). In my view the assignor-buyer, Bruce B. Sprague, lost his standing to appeal from the decision below when his assignee, First Peninsula Company, did not appeal and the judgment against it became final.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.