Does our no-assignment clause stop the other side from assigning its right to be paid, or its rights under a license, permit, or franchise?
Mostly no, for the categories North Dakota's secured-transactions article protects. N.D.C.C. § 41-09-68 (UCC 9-406) provides that, subject to listed exceptions, "a term in an agreement between an account debtor and an assignor or in a promissory note is ineffective to the extent that it: [p]rohibits, 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" it makes the assignment trigger a default or similar remedy. N.D.C.C. § 41-09-70 (UCC 9-408) extends a parallel override to promissory notes, health care insurance receivables, and general intangibles (expressly including "a contract, permit, license, or franchise"), to the extent a restriction "[w]ould impair the creation, attachment, or perfection of a security interest; or" trigger a default.
The trap
Both overrides are narrower than a blanket rule that every anti-assignment clause is unenforceable. Section 41-09-68(5) carves the override back out for an outright SALE of a payment intangible or promissory note (as opposed to a security interest arising from one), other than a sale under the statute's own disposition or acceptance-of-collateral provisions, so a straight sale of a note can still be blocked by a no-assignment clause in a fact pattern the override does not reach. Section 41-09-70(2) is narrower still on its own terms: its override of a promissory-note or general-intangible anti-assignment term applies "only if the security interest arises out of a sale" of the payment intangible or promissory note. And even where a restriction is made "ineffective," § 41-09-70(4) strips the override of most of its practical force for the assignee: the resulting security interest is still "not enforceable against" the account debtor, imposes no duty on the account debtor to recognize it, pay the assignee, or accept the assignee's performance, and gives the secured party no right to the debtor's related information, trade secrets, or confidential materials. Neither section governs a security interest in an ownership interest in a general partnership, limited partnership, or limited liability company. Two more carve-outs sit inside § 41-09-68: it "does not apply to an assignment of a health care insurance receivable," which is § 41-09-70's subject, and it 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," so a consumer account debtor may be governed by something else entirely. No North Dakota decision construing either section was found: every published North Dakota opinion was searched for both section numbers, in the hyphenated and the spaced spelling, and for the uniform numbers 9-406 and 9-408, and the only hit was a reference to a different section of the North Dakota Code. Treat the rule as statute-only until a decision is found.
10 authorities
- statuteN.D.C.C. § 41-09-68enactment 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 11 and sections 41-02.1-33 and 41-09-69, 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:
- statuteN.D.C.C. § 41-09-68enactment date not established
The words that state the rule
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 - 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.
- statuteN.D.C.C. § 41-09-68enactment 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 41-09-107 or an acceptance of collateral under section 41-09-115.
- statuteN.D.C.C. § 41-09-68enactment 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.
- statuteN.D.C.C. § 41-09-70enactment date not established
The words that state the rule
Except as otherwise provided in subsections 2 and 6, 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:
- statuteN.D.C.C. § 41-09-70enactment date not established
The words that state the rule
Would impair the creation, attachment, or perfection of a security interest; or - Provides that the assignment, transfer, 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. - Subsection 1 applies
- statuteN.D.C.C. § 41-09-70enactment 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 41-09-107 or an acceptance of collateral under section 41-09-115.
- statuteN.D.C.C. § 41-09-70enactment 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 a rule of law, statute, or regulation described in subsection 3 would be effective under law other than this chapter 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: - Is not enforceable against the person obligated on the promissory note or the account debtor; - Does not impose a duty or obligation on the person obligated on the promissory note or the account debtor; - 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; - 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; - 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 - Does not entitle the secured party to enforce the security interest in the promissory note, health care insurance receivable, or general intangible.
- statuteN.D.C.C. § 41-09-70enactment date not established
The words that state the rule
This section does not apply to a security interest in an ownership interest in a general partnership, limited partnership, or limited liability company.
- statuteN.D.C.C. § 41-09-68enactment date not established
The words that state the rule
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. - This section does not apply to an assignment of a health care insurance receivable. - This section prevails over any inconsistent statute, rule, or regulation.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.