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 South Dakota's secured-transactions article protects. SDCL 57A-9-406(d) 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: (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." SDCL 57A-9-408(a) 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 would impair the creation, attachment, or perfection of a security interest, or trigger a default merely because of the assignment.
The trap
Both overrides are narrower than a blanket rule that every anti-assignment clause is unenforceable. Section 57A-9-406(e) 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 57A-9-408(b) 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, § 57A-9-408(d) 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, and no South Dakota appellate opinion applying either section's ineffectiveness override to a contract's anti-assignment clause was located here: treat the rule as statute-only until one is found.
8 authorities
- statuteSDCL § 57A-9-406enactment date not established
The words that state the rule
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
- statuteSDCL § 57A-9-406enactment date not established
The words that state the rule
(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.
- statuteSDCL § 57A-9-406enactment date not established
The words that state the rule
(e) Subsection (d) does not apply to the sale of a payment intangible or promissory note other than a sale pursuant to a disposition under § 57A-9-610 or an acceptance of collateral under § 57A-9-620 .
- statuteSDCL § 57A-9-406enactment date not established
The words that state the rule
(k) Subsections (d), (f), and (j) do not apply to a security interest in an ownership interest in a general partnership, limited partnership, or limited liability company.
- statuteSDCL § 57A-9-408enactment date not established
The words that state the rule
(a) Except as otherwise provided in subsections (b) and (f), 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.
- statuteSDCL § 57A-9-408enactment date not established
The words that state the rule
(b) 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, other than a sale pursuant to a disposition under § 57A-9-610 or an acceptance of collateral under § 57A-9-620 .
- statuteSDCL § 57A-9-408enactment date not established
The words that state the rule
(d) 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 (c) would be effective under law other than this article but is ineffective under subsection (a) or (c), 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.
- statuteSDCL § 57A-9-408enactment date not established
The words that state the rule
(f) This section does not apply to a security interest in an ownership interest in a general partnership, limited partnership, or limited liability company.