Will an Oregon court give effect to a clause that prohibits assignment or requires consent?
It depends on what is assigned. For accounts, chattel paper, payment intangibles and promissory notes, ORS 79A.4060(4) makes a term in the agreement between the account debtor and the assignor, or in a promissory note, ineffective to the extent it prohibits, restricts or requires the account debtor's consent to the assignment or transfer, or to a security interest, or provides that the assignment or transfer may give rise to a default, breach, termination or other remedy; subsection (4) is itself subject to (5), which excludes the sale of a payment intangible or promissory note (other than a disposition under ORS 79A.6100 or acceptance of collateral under ORS 79A.6200), and to ORS 72A.3030, 79A.4070 and subsection (8) (an individual account debtor who incurred the obligation primarily for personal, family or household purposes) and subsection (9), which takes a health-care-insurance receivable out of the section altogether and takes subsections (4) and (6) out for a sold claim to compensation for injuries or sickness, for benefits under a special needs trust and for annuity benefits restricted as ORS 743.049 permits. In subsection (4), 'promissory note' includes a negotiable instrument that evidences chattel paper. Outside that statute, in Pacific First Bank the Oregon Supreme Court held that the tenant's merger into its wholly owned subsidiary effected a transfer of the lease “by operation of law,” requiring the landlord's consent, under a clause reaching a transfer “in any manner,” “whether voluntary or involuntary or by operation of law”: that clause was worded in a broad and all-encompassing manner and did not exclude mergers, and a downstream merger is one way in which the rights and obligations under a lease pass from one corporate entity to another. The court answered a second question too: a duty of good faith applies to lease agreements, but the landlord's refusal to consent did not contravene that duty, because it did not contravene the 'reasonable expectations' of the parties as manifested in the express terms of that lease, so the tenant's successor was not entitled to a declaration that it had become the tenant (the Court of Appeals was affirmed on different grounds and the circuit court's judgment reversed).
The trap
A consent requirement in a contract that creates an account, chattel paper or a payment intangible does not stop the assignment or financing of that receivable, and the assignment cannot be made a default, except for a sale of a payment intangible or promissory note, which subsection (5) puts back outside the rule. Subsection (9) is a further limit: the section does not apply at all to the assignment of a health-care-insurance receivable, so a consent requirement in the contract that creates a medical receivable is untouched by it. In the other direction, a clause reaching transfers “in any manner … by operation of law” was held to cover a corporate merger even though it did not mention mergers (Pacific First Bank).
8 authorities
- statuteORS 79A.4060enactment 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 subsection (5) of this section and ORS 72A.3030 and 79A.4070, and subject to subsection (8) of this section, 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 (b) 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.
- statuteORS 79A.4060enactment date not established
The words that state the rule
Subsection (4) of this section does not apply to the sale of a payment intangible or promissory note, other than a sale pursuant to a disposition under ORS 79A.6100 or an acceptance of collateral under ORS 79A.6200.
- statuteORS 79A.4060enactment 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.
- statuteORS 79A.4060enactment date not established
The words that state the rule
This section does not apply to the assignment of a health-care-insurance receivable. (b) Subsections (4) and (6) of this section do not apply to the assignment or transfer of, or the creation of a security interest in, a claim or right to receive compensation for injuries or sickness as described in 26 U.S.C. 104(a)(2), provided that such transaction constitutes a sale of such claim or right. The limitation in this paragraph is intended to leave to the court the determination of the proper rules in such cases. The court may not infer from that limitation the nature of the proper rule in such cases and may continue to apply established approaches. (c) Subsections (4) and (6) of this section do not apply to the following: (A) The assignment or transfer of, or the creation of a security interest in, a claim or right to receive compensation for injuries or sickness as described in 26 U.S.C. 104(a)(1); (B) The assignment or transfer of, or the creation of a security interest in, a claim or right to receive benefits under a special needs trust as described in 42 U.S.C. 1396p(d)(4); or (C) The assignment or transfer of, or the creation, attachment, perfection or enforcement of a security interest in, the benefits, rights, privileges or options accruing under an annuity policy, to the extent that the annuity policy provides for such a restriction and the restriction is permitted under ORS 743.049.
The words that state the rule
We answer those questions as follows: (1) The tenant’s merger into its wholly owned subsidiary effected a transfer of the lease “by operation of law,” requiring the landlord’s consent. (2) A duty of good faith applies to lease agreements; here, however, the landlord’s refusal to consent did not contravene that duty, because the landlord’s refusal did not contravene the “reasonable expectations” of the parties as manifested in the express terms of the lease agreement at issue.
The words that state the rule
It does, however, expressly provide that a “transfer” of the lease “in any manner,” “whether voluntary or involuntary or by operation of law,” is an event requiring the consent of Landlord.
The words that state the rule
More pertinently, however, Section 18.2, which is worded in a broad and all-encompassing manner, does not exclude mergers. A downstream merger is one way in which the rights and obligations under a lease pass — that is, transfer — from one corporate entity to another.
The words that state the rule
Bank is not entitled, therefore, to a declaration that it became the tenant of the property in compliance with the lease agreement. The decision of the Court of Appeals is affirmed on different grounds. The judgment of the circuit court is reversed, and the case is remanded to the circuit court for further proceedings.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.