2023 Texas Statutes › Business and Commerce Code › Title 1 - Uniform Commercial Code › Chapter 9 - Secured Transactions › Subchapter D. Rights of Third Parties › Section 9.406. 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. 9.406.  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.  (a)  Subject to Subsections (b)-(i), 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.
(b)  Subject to Subsection (h), notification is ineffective under Subsection (a):
(1)  if it does not reasonably identify the rights assigned;
(2)  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 chapter;  or
(3)  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:
(A)  only a portion of the account, chattel paper, or payment intangible has been assigned to that assignee;
(B)  a portion has been assigned to another assignee;  or
(C)  the account debtor knows that the assignment to that assignee is limited.
(c)  Subject to Subsection (h), 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 (a).
(d)  Except as otherwise provided in Subsection (e) and Sections 2A.303 and 9.407, and subject to Subsection (h), 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 under the account, chattel paper, payment intangible, or promissory note.
(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 Section 9.610 or an acceptance of collateral under Section 9.620.
(f)  Except as otherwise provided in Sections 2A.303 and 9.407, and subject to Subsections (h), (i), and (k), 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:
(1)  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; 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 under the account or chattel paper.
(g)  Subject to Subsection (h), an account debtor may not waive or vary its option under Subsection (b)(3).
(h)  This section is subject to law other than this chapter 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.
(i)  This section does not apply to an assignment of a health-care-insurance receivable.
(j)  This section does not apply to an interest in a partnership or limited liability company.
(k)  An assignment under this section is subject to Section 466.410, Government Code, except to the extent that Section 466.410(a), Government Code, prohibits the assignment of installment prize payments due within the final two years of the prize payment schedule, in which case this section shall prevail over Section 466.410 solely to the extent necessary to permit such assignment.
Amended by Acts 1999, 76th Leg., ch. 414, Sec. 1.01, eff. July 1, 2001;  Acts 2001, 77th Leg., ch. 705, Sec. 11, eff. June 13, 2001.
Amended by:
Acts 2009, 81st Leg., R.S., Ch. 84 (S.B. 1442), Sec. 60, eff. September 1, 2009.
Acts 2011, 82nd Leg., R.S., Ch. 67 (S.B. 782), Sec. 9, eff. July 1, 2013.