§ 9-408. Restrictions on assignment of promissory notes, health-care-insurance receivables, and certain general intangibles ineffective.

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(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.

(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, other than a sale pursuant to a disposition under Section 9-610 or an acceptance of collateral under Section 9-620.

(c)Legal restrictions on assignment generally ineffective. — A rule of law, statute, or regulation that prohibits, restricts, or requires the consent of a government, governmental body or official, person obligated on a promissory note, or account debtor to the assignment or transfer of, or creation of a security interest in, a promissory note, health-care-insurance receivable, or general intangible, including a contract, permit, license, or franchise between an account debtor and a debtor, is ineffective to the extent that the rule of law, statute, or regulation:

(1)would impair the creation, attachment, or perfection of a security interest; or

(d)Limitation on ineffectiveness under subsections

(a)and (c). — 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.

(e)Inapplicability. — This section does not apply to:

(1)a claim or right to receive compensation for injuries or sickness as described in 26 U.S.C. § 104(a)(1) or (2), as amended from time to time;

(2)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;

(3)an interest in a trust, including any right or power of a beneficiary (including the settlor) or owner of a trust, arising under a governing instrument (as defined in Section 3301(e) of Title 12), Title 12, or other applicable law, to the extent that Delaware law governs such interest; or

(4)an interest in a partnership or limited liability company.

Subsection

(c)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 (c): Section 9011 of Title 11 (prohibiting assignment of victim awards and recoveries); Section 4915 of Title 10 (restricting transferability of benefits, rights, privileges or options accruing under certain annuity contracts); Section 6863 of Title 18 (prohibiting assignment of medical negligence compensation claims); Section 2355 of Title 19 (prohibiting assignment of workers’ compensation claims or payment for compensation due or to become due); and Section 4808 of Title 29 (prohibiting assignment of lottery prizes).

(f)Section prevails over inconsistent law. — Except as otherwise provided in subsection (e), 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.

(g)“Promissory note.” —

In this section, “promissory note” includes a negotiable instrument that evidences chattel paper.