Does this no-assignment clause actually stop the transfer of the contract and of the money due under it?
Two different regimes, and the clause's own words decide which one it meets. At common law, absent language clearly indicating that a contractual right shall be nonassignable, a prohibitory clause is interpreted as a personal covenant not to assign; where the clause uses clear, definite and appropriate language making any attempted assignment 'void' as against the obligor, the Court of Appeals holds it a valid and effective restriction of the right to assign (Allhusen). For receivables the statute overrides the drafting: under UCC 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 it prohibits, restricts or requires consent 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 doing so gives rise to a default, breach, right of recoupment, claim, defense, termination or remedy. Subsection (d) does not apply to the SALE of a payment intangible or promissory note (§ 9-406(e)). What actually decides who may be paid is the notification machinery the section opens with: the account debtor may keep paying the assignor "until, but not after" it receives a notification signed by the assignor or assignee identifying the assignment, and after that may discharge only by paying the assignee (§ 9-406(a)); a notification that does not reasonably identify the rights assigned is ineffective (§ 9-406(b)(1)); and if the account debtor asks, the assignee must seasonably furnish reasonable proof of the assignment or the account debtor may still discharge by paying the assignor (§ 9-406(c)); and none of that machinery, subsections (a), (b), (c) and (f), applies to a controllable account or controllable payment intangible (§ 9-406(i)). For rights that are not money (a contract, permit, licence or franchise), the section is § 9-408, and it cuts the other way: such a term is ineffective only to the extent it would impair the creation, attachment or perfection of a SECURITY INTEREST (§ 9-408(a)(1)) or provides that the assignment or the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination or remedy (§ 9-408(a)(2)), and subsection (a) is itself subject to § 9-408(b), which applies it to a security interest in a payment intangible or promissory note only if the security interest arises out of a sale of that payment intangible or promissory note. Section 9-408(c) then strips the security interest of every right against the obligor: it is not enforceable against the person obligated on the note or the account debtor, imposes no duty or obligation on them, does not require them to recognise it or to pay or render performance to the secured party, does not entitle the secured party to use or assign the debtor's rights or to reach the obligor's trade secrets or confidential information, and does not entitle the secured party to enforce the security interest at all.
The trap
New York is the state where 'shall be void' is not surplusage. The Allhusen clause itself read: 'The assignment by the second party [Kroc] of this contract or any interest therein, or of any money due or to become due by reason of the terms hereof without the written consent of the first party [defendant] shall be void.' A clause that merely prohibits assignment is read as a personal covenant not to assign (Allhusen describes the earlier decisions as treating such covenants as limiting the covenantee to a claim for damages for breach); the clause that says a non-conforming assignment 'shall be void' as against the obligor restricts the right to assign itself. The second trap runs the other way: however the clause is drafted, UCC 9-406(d) makes it ineffective against an assignment of, or a security interest in, an account, chattel paper, payment intangible or promissory note, subject, in the published section, to the sections subsection (d) itself excepts (§§ 2-A-303 and 9-407, neither of which is among the New York statutes available for this research), to subsection (e) (sales of payment intangibles and promissory notes), subsection (g) (a different rule under other law for an individual account debtor who incurred the obligation for personal, family or household purposes) and subsection (h) (health-care-insurance receivables in the stated cases, personal-injury compensation claims under 26 U.S.C. § 104(a)(1)-(2), and special-needs-trust benefits). Drafters who rely on an anti-assignment clause to control who collects the money are relying on the half of the clause the UCC has already voided.
16 authorities
The words that state the rule
Their contracts contained the following prohibitory provision: “ The assignment by the second party [Kroc] of this contract or any interest therein, or of any money due or to become due by reason of the terms hereof without the written consent of the first party [defendant] shall be void.”
The words that state the rule
We have now before us a clause embodying clear, definite and appropriate language, which may be construed in no other way but that any attempted assignment of either the contract or any rights created thereunder shall be “ void ” as against the .obligor. One would have to do violence to the language here employed to hold that it is merely an agreement by the subcontractor not to assign. The objectivity of the language precludes such a construction. We are therefore compelled to conclude that this prohibitory clause is a valid and effective restriction of the right to assign.
The words that state the rule
But these decisions are not to be read as meaning that there can be no enforcible contractual prohibition against the assignment of a claim; indeed, they are authority only for the proposition that, in the absence of language clearly indicating that a contractual right thereunder shall be nonassignable, a prohibitory clause will be interpreted as a personal covenant not to assign.
- statuteN.Y. UCC Law § 9-406enactment date not established
The words that state the rule
(d) Term restricting assignment generally ineffective. For purposes of this subsection, "promissory note" includes a negotiable instrument that evidences chattel paper. Except as otherwise provided in subsection (e) and Sections 2-A-303 and 9--407, and subject to subsection (g), 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.Y. UCC Law § 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.
The words that state the rule
Our courts have not construed a contractual provision against assignments framed in the language of the clause now before us. Such kindred clauses as have been subject to interpretation usually have been held to be either (1) personal covenants limiting the covenantee to a claim for damages in the event of a breach (as, e.g., Manchester v. Kendall, 19 Jones & Sp. 460, affd. 103 N. Y. 638 ; Sacks v. Neptune Meter Co., 144 Misc. 70 , affd. 238 App. Div. 82 ), or (2) ineffectual because of the use of uncertain language (State Bank v. Central Mercantile Bank, 248 N. Y. 428 ).
The words that state the rule
In the Manchester case (supra) it was held (p. 463) that the words, “ 1 This contract not to be assigned, or any part thereof, or any installments to grow due under the same ’ ”, must be construed as an agreement not to assign, the breach of which would give rise to a claim for damages by the covenantee.
The words that state the rule
The judgment should be affirmed, with costs. Loughran, Ch. J., Lewis, Conway, Desmond, Dye and Fuld, JJ., concur. Judgment affirmed.
- statuteN.Y. UCC Law § 9-406enactment date not established
The words that state the rule
(a) Discharge of account debtor; effect of notification. Subject to subsections (b) through (i), 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.
- statuteN.Y. UCC Law § 9-406enactment date not established
The words that state the rule
(b) When notification ineffective. Subject to subsections (g) and (i), notification is ineffective under subsection (a): (1) if it does not reasonably identify the rights assigned; (2) to the extent that an agreement between an account debtor and a seller of a payment intangible limits the account debtor's duty to pay a person other than the seller and the limitation is effective under law other than this article; or (3) at the option of an account debtor, if the notification notifies the account debtor to make less than the full amount of any installment or other periodic payment to the assignee, even if: (A) only a portion of the account, chattel paper, or payment intangible has been assigned to that assignee; (B) a portion has been assigned to another assignee; or (C) the account debtor knows that the assignment to that assignee is limited.
- statuteN.Y. UCC Law § 9-406enactment date not established
The words that state the rule
(c) Proof of assignment. Subject to subsections (g) and (i), 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 (a).
- statuteN.Y. UCC Law § 9-406enactment date not established
The words that state the rule
(g) Rule for individual under other law. This section is subject to a rule of law, statute, rule or regulation 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. (h) Inapplicability. This section does not apply to: (1) an assignment of a health care insurance receivable to the extent such assignment conflicts with other law or the parties have otherwise agreed in writing that such receivable is non-assignable, (2) a claim or right to receive compensation for injuries or sickness as described in 26 U.S.C. § 104(a)(1) and (2), as amended from time to time, or (3) a claim or right to receive benefits under a special needs trust as described in 42 U.S.C. § 1396p (d)(4), as amended from time to time.
- statuteN.Y. UCC Law § 9-406enactment date not established
The words that state the rule
(i) Inapplicability of certain subsections. Subsections (a), (b), (c) and (f) do not apply to a controllable account or controllable payment intangible.
- statuteN.Y. UCC Law § 9-408enactment date not established
The words that state the rule
(a) Term restricting assignment generally ineffective. Except as otherwise provided in subsection (b), 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.
- statuteN.Y. UCC Law § 9-408enactment date not established
The words that state the rule
(b) Applicability of subsection (a) to sales of certain rights to payment. Subsection (a) 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.
- statuteN.Y. UCC Law § 9-408enactment date not established
The words that state the rule
(c) Limitation on ineffectiveness under subsection (a). 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 would be effective under law other than this article but is ineffective under subsection (a), 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.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.