Does the no-assignment clause in this agreement stop the counterparty transferring its rights to somebody else?
The Ohio authority verified here answers the question for two specific settings, not for contract rights generally. Under an occurrence-based insurance policy, a chose in action arises at the time the loss occurred, and the Supreme Court of Ohio answered that such a chose in action is transferable despite the existence of an anti-assignment provision contained in the policy as to the duty to indemnify; the Court was unable to answer definitively whether the same is true of the duty to defend (Pilkington). For assigned accounts, R.C. 1309.406(A), as the Second District set it out, lets an account debtor discharge its obligation by paying the assignor until, but not after, it receives an authenticated notification that the amount has been assigned and that payment is to be made to the assignee; after that notification the debtor may discharge only by paying the assignee. The Supreme Court of Ohio has held that R.C. 1309.406(A) does not apply at all to payments made by an account debtor that is a governmental unit, because R.C. 1309.109(D)(14) puts a transfer by a government, state or governmental unit outside the chapter (MP Star Financial).
The trap
Both holdings are narrower than the clause they defeat. Pilkington's answer is expressly conditioned on the covered loss having already occurred under an occurrence-based policy, it reaches only the duty to indemnify, and the passage discussing the duty to defend is the separate view of two justices rather than an answer of the Court, so an anti-assignment clause in an ordinary commercial agreement is not shown by this rule to be ineffective. R.C. 1309.406(A) as quoted governs who the account debtor may safely pay, not whether an anti-assignment term is enforceable: the Second District read the subsection as not precluding a lawsuit by an assignee to collect an unpaid debt. No Ohio decision read for this rule sets out the rest of Ohio's version of UCC 9-406, including the subsection that makes an anti-assignment term ineffective as to an account; of the seven Ohio decisions located that mention R.C. 1309.406, the only one to touch another division quotes four words of it in a parenthetical. So this rule does not state it. A further warning for a lender: a governmental account debtor is outside the chapter altogether, so a notified assignee has no R.C. 1309.406(A) claim against one.
10 authorities
- case112 Ohio St.3d 482Pilkington North America, Inc. v. Travelers Casualty & Surety Co.Ohiodecided 2006read it at the source ↗
The words that state the rule
As to the second question, we answer that such a chose in action is transferable despite the existence of an anti-assignment provision contained in the policy as to the duty to indemnify. We are unable to answer definitively whether such a chose in action is transferable as to the duty to defend.
- case2014-Ohio-5799Credit Invests., Inc. v. ObanionOhio Ct. App. 2d Dist.decided 2014
The words that state the rule
[A]n account debtor on an account * * * may discharge its obligation by paying the assignor until, but not after, the account debtor receives a notification, authenticated 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.
- case112 Ohio St.3d 482Pilkington North America, Inc. v. Travelers Casualty & Surety Co.Ohiodecided 2006read it at the source ↗
The words that state the rule
The distinction between Ray and Henkel is that under Ray, the chose arises at the time of the loss, whereas in Henkel, the chose arises when the claim has been reduced to a sum of money owed.
- case2014-Ohio-5799Credit Invests., Inc. v. ObanionOhio Ct. App. 2d Dist.decided 2014
The words that state the rule
we do not read the statute as precluding a lawsuit by an assignee to collect an unpaid debt. The statute simply provides that a debtor may continue to make scheduled payments to the original creditor
- case112 Ohio St.3d 482Pilkington North America, Inc. v. Travelers Casualty & Surety Co.Ohiodecided 2006read it at the source ↗
The words that state the rule
We adopt the same principle and hold that a chose in action arises under an occurrence-based insurance policy at the time of the covered loss.
- case112 Ohio St.3d 482Pilkington North America, Inc. v. Travelers Casualty & Surety Co.Ohiodecided 2006read it at the source ↗
The words that state the rule
The duty to indemnify implicates both property damage and bodily injury. The losses are fixed at the time of the occurrence. We see no reason to deviate from the standard rule on this issue, and thus we hold that the chose in action as to the duty to indemnify is unaffected by the anti-assignment provision when the covered loss has already occurred.
- case2014-Ohio-5799Credit Invests., Inc. v. ObanionOhio Ct. App. 2d Dist.decided 2014
The words that state the rule
receiving notice of an assignment. Here, however, Obanion did not pay anyone. If her claim about a lack of notice of the assignment is true, she may have been justified in continuing to pay Premier Athletic Center. Given her failure to do so, however, she now is required to pay Credit Investments, the assignee.
- case107 Ohio St.3d 176MP Star Financial, Inc. v. Cleveland State UniversityOhiodecided 2005read it at the source ↗
The words that state the rule
This case requires us to decide whether R.C. 1309.406(A) applies to payments made by an account debtor that is a governmental unit. R.C. 1309.109(D)(14) states, “This chapter does not apply to * * * [a] transfer by a government, state, or governmental unit.”
- case107 Ohio St.3d 176MP Star Financial, Inc. v. Cleveland State UniversityOhiodecided 2005read it at the source ↗
The words that state the rule
The words of that statute clearly state that when an account debtor makes payments to an assignor of an account receivable after the account debtor has received notice of an assignment, the account debtor is still liable to the assignee for the payments made to the assignor.
- case107 Ohio St.3d 176MP Star Financial, Inc. v. Cleveland State UniversityOhiodecided 2005read it at the source ↗
The words that state the rule
Accordingly, we hold that pursuant to R.C. 1309.109(D)(14), R.C. 1309.406(A) does not apply to payments made by an account debtor that is a governmental unit.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.