Does this no-assignment clause stop our customer's receivable from being assigned or pledged in New Jersey?
Not for an account, chattel paper or payment intangible. Subject to stated exceptions, 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 consent to the assignment or transfer of, or the creation, attachment, perfection or enforcement of a security interest in, that account, chattel paper, payment intangible or promissory note, or provides that such an assignment gives rise to a default, breach, right of recoupment, claim, defense, termination or remedy.
The trap
Two New Jersey-specific edges a drafter walks into. First, scope: § 12A:9-406 does not apply at all to an assignment of a health-care-insurance receivable, while subsection (f)'s override of legal restrictions is itself disapplied to workers' compensation claims (R.S.34:15-29), State lottery winnings and structured settlement agreements (subsection (i)). The whole section also yields to consumer law: subsection (h) makes it subject to law other than Chapter 9 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. Second, precedence: subsection (j) says this section PREVAILS over any inconsistent New Jersey statute, existing or future, unless that statute refers expressly to § 12A:9-406 and says it prevails, a rule about competing statutes: even a later New Jersey statute must name this section to beat it, while a contract term is already dealt with by subsection (d). Outside those four collateral types the general rule governs: contract rights are generally assignable subject to anti-assignment language (Investors Bank v. Torres, 2020), so a no-assignment clause can still bite on, say, a right to have services performed; subsection (d)'s own exceptions include the lease sections 12A:2A-303 and 12A:9-407, which were not read here. The same carve-out New Jersey shares with the other Article 9 states applies here: “Subsection (d) does not apply to the sale of a payment intangible or promissory note, other than a sale pursuant to a disposition under 12A:9-610 or an acceptance of collateral under 12A:9-620.” A restriction on selling a payment intangible or promissory note therefore survives that subsection unless the sale is a disposition or an acceptance of collateral under the sections named.
7 authorities
- statuteN.J. Stat. Ann. § 12A:9-406enactment date not established
The words that state the rule
(d) Term restricting assignment generally ineffective. Except as otherwise provided in subsection (e), 12A:2A-303 and 12A:9-407, and subject to subsection (h), 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.
- statuteN.J.S. 12A:9-406enactment date not established
The words that state the rule
(e) Inapplicability of subsection (d) to certain sales. Subsection (d) does not apply to the sale of a payment intangible or promissory note, other than a sale pursuant to a disposition under 12A:9-610 or an acceptance of collateral under 12A:9-620.
- statuteN.J. Stat. Ann. § 12A:9-406enactment date not established
The words that state the rule
(f) Legal restrictions on assignment generally ineffective. Except as otherwise provided in 12A:2A-303 and 12A:9-407 and subject to subsections (h), (i) and (j), a rule of law, statute, or regulation that prohibits, restricts, or requires the consent of a government, governmental body or official, or account debtor to the assignment or transfer of, or creation of a security interest in, an account or chattel paper is ineffective to the extent that the rule of law, statute, or regulation: (1) prohibits, restricts, or requires the consent of the government, governmental body or official, or account debtor to the assignment or transfer of, or the creation, attachment, perfection, or enforcement of a security interest in the account or chattel paper; 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 or chattel paper.
- statuteN.J. Stat. Ann. § 12A:9-406enactment date not established
The words that state the rule
(i) Inapplicability. This section does not apply to an assignment of a health-care-insurance receivable. Subsection (f) does not apply to an assignment or transfer of, or the creation, attachment, perfection or enforcement of a security interest in, a right the transfer of which is prohibited or restricted by any of the following statutes to the extent that the statute is inconsistent with subsection (f): R.S.34:15-29 (workers' compensation claims); section 13 of P.L.1970, c.13 (C.5:9-13) (State lottery winnings); and P.L.2001, c.139 (C.2A:16-63 et seq.) (structured settlement agreements).
- statuteN.J. Stat. Ann. § 12A:9-406enactment date not established
The words that state the rule
(j) Section prevails over specified inconsistent law. Except to the extent otherwise provided in subsection (i), this section prevails over any inconsistent provision of an existing or future statute, rule or regulation of this State, unless the provision is contained in a statute of this State, refers expressly to this section and states that the provision prevails over this section.
- statuteN.J. Stat. Ann. § 12A: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.
The words that state the rule
Case law underscores the principle that rights arising by contract are generally assignable, subject to exceptions for anti-assignment contractual language, statutes prohibiting the assignment of certain categories of contractual rights, and other expressions of public policy against the assignment of specific interests.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.