440.9406 Discharge of account debtor; notification of assignment; identification and proof of assignment; restrictions on assignment of accounts, chattel paper, payment i

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440.9406 Discharge of account debtor; notification of assignment; identification and proof of assignment; restrictions on assignment of accounts, chattel paper, payment intangibles, and promissory notes ineffective.

Sec. 9406.

(1)Subject to subsections

(2)through (9), 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, 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.

(2)Subject to subsection (8), notification is ineffective under subsection

(1)if 1 or more of the following apply:

(a)If notification does not reasonably identify the rights assigned.

(b)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.

(c)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 1 or more of the following occur:

(i)Only a portion of the account, chattel paper, or payment intangible has been assigned to that assignee.

(ii)A portion has been assigned to another assignee.

(iii)The account debtor knows that the assignment to that assignee is limited.

(3)Subject to subsection (8), 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 (1).

(4)Except as otherwise provided in subsection

(5)and sections 2A303 and 9407, and subject to subsection (8), a term in an agreement between an account debtor and an assignor or in a promissory note is ineffective to the extent that it does 1 or more of the following:

(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.

(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.

(5)Subsection

(4)does not apply to the following:

(a)A claim or right to receive an amount that would be excluded from gross income under section 104(a)(1) or

(2)of the internal revenue code, 26 USC 104.

(b)A claim or right to receive benefits from a special needs trust. For purposes of this subdivision, a "special needs trust" is a trust described in section 1917(d)(4)(A), (B), or

(C)of title XIX of the social security act, 42 USC 1396p.

(c)The sale of a payment intangible or promissory note, other than a sale pursuant to a disposition under section 9610 or an acceptance of collateral under section 9620.

(6)Except as otherwise provided in sections 2A303 and 9407 and subject to subsections

(8)and (9), a rule of law, statute, or regulation, that prohibits, restricts, or requires the consent of a government, governmental body or official, or account debtor to the assignment or transfer of, or creation of a security interest in, an account or chattel paper is ineffective to the extent that the rule of law, statute, or regulation does 1 or more of the following:

(a)Prohibits, restricts, or requires the consent of the government, governmental body or official, or account debtor to the assignment or transfer of, or the creation, attachment, perfection, or enforcement of a security interest in, the account or chattel paper.

(7)Subject to subsection (8), an account debtor may not waive or vary its option under subsection (2)(c).

(8)This section is subject to law other than this article that establishes a different rule for an account debtor who is an individual and who incurred the obligation primarily for personal, family, or household purposes.

(9)This section does not apply to an assignment of a health-care-insurance receivable.

History: 1962, Act 174, Eff. Jan. 1, 1964 ;-- Am. 1976, Act 27, Imd. Eff. Mar. 4, 1976 ;-- Am. 1978, Act 369, Eff. Jan. 1, 1979 ;-- Am. 1988, Act 130, Eff. Sept. 1, 1988 ;-- Am. 1989, Act 216, Imd. Eff. Nov. 27, 1989 ;-- Am. 2000, Act 348 , Eff. July 1, 2001 ;-- Am. 2012, Act 88 , Eff. July 1, 2013