Opinion ID: 1133174
Heading Depth: 1
Heading Rank: 2

Heading: If article 9 of the Florida Uniform Commercial Code covers this transaction, are the restrictions on assignment invalidated or the Bank's asserted right to set-off established by sections 679.318(1), (4), Florida Statutes (1973)?

Text: The defenses outlined in section 679.318(1) are available to an account debtor as defined in section 679.105(1)(a). Under that section, an account debtor means the person who is obligated on an account, chattel paper, contract right or general intangible. The certificate of deposit here does not fall within any of these classifications: (a) Section 679.105(1)(b) defines chattel paper as a writing or writings which evidence both a monetary obligation and a security interest in or a lease of specific goods. The certificate of deposit here evidences a right to payment but not as a security interest in specific goods. (b) Under 679.106, account means any right to payment for goods sold or leased or for services rendered. Here, no goods were transferred and no services were rendered. (c) Under section 679.106, contract right means any right to payment under a contract not yet earned by performance and not evidenced by an instrument or chattel paper. A contract right is described as a yet to be earned right to payment not generally evidenced by a document. Although the Bank argues that the certificate of deposit ought to be termed a contract right, it cites no authority for this position. As appellee points out, examples in the official ALI comments to this section include work to be completed under a building contract and deliveries made under an installment contract. The debt here is evidenced by a writing and the right to its payment was earned when it was purchased from the Bank for $13,000. It is therefore not a contract right as defined in this section. (d) Section 679.106 defines general intangible as any personal property (including things in action) other than goods, accounts, contract rights, chattel paper, documents and instruments. Examples in the ALI comments include goodwill, literary rights, and rights to performance of a copyright, trademark, or patent. It was the obvious intention of the drafters to include as a general intangible any intangible asset which had not been specifically defined or excluded in some other section of the Uniform Commercial Code. Kapp v. United States, 20 UCC Rptr. 1355 (U.S.Dist.Ct.N.D. Ill. 1976). Because under our analysis the certificate of deposit here may best be classified as an instrument under section 679.105(1)(g), it is not encompassed by the broad catch-all category of general intangible. The cases cited on this point by the Bank do not persuade us otherwise. [3] We conclude that the certificate of deposit is not properly classified as an account, chattel paper, contract right, or general intangible. The Bank is, therefore, not an account debtor as defined in section 679.105(1)(a). Accordingly, it may not avail itself of the article 9 defenses delineated in section 679.318(1). By the same token, since the transaction does not amount to a contract between an account debtor and an assignor, section 679.318(4) does not operate to invalidate the restrictions on assignment here. The Bank finally argues that even if the section 679.318(1) defenses are not expressly available to an obligor against an assignee of a non-negotiable instrument, the Code ought to be liberally construed to permit the Bank to utilize the article 3 simple contract defense of section 673.306. Under the Bank's analysis, the simple contract defenses of this section incorporate the set-off rights which are otherwise available to an account debtor on a simple contract under section 679.318. In reaching this conclusion, the Bank presents the following incorporation argument: (1) No article 9 defenses are available to an obligor when sued by an assignee of an instrument as defined in section 679.105(1)(g). (The Bank perceives this to be a gap in the Code.) (2) The assignment rules in sections 673.305, 306, and section 678.202 partially fill this gap in providing defenses for obligors of negotiable instruments and securities. (3) On the other hand, obligor defenses against assignees of article 9 non-negotiable instruments do not appear to be recognized under any Code provision. (Article 3 defines instrument only as a negotiable instrument in section 673.102(1)(e).) (4) One exception, however, to the rule that the article 3 term instrument means only negotiable instrument is found in section 673.805 which provides: This chapter applies to any instrument whose terms do not preclude transfer and which is otherwise negotiable within this chapter but which is not payable to order or to bearer, except that there can be no holder in due course of such an instrument. The official ALI comments to this section state that: This section covers the non-negotiable instrument... It refers to a particular type of instrument which meets all requirements as to form of a negotiable instrument except that it is not payable to order or to bearer. ... Since it lacks words of negotiability there can be no holder in due course of such an instrument, and any provision of any section of this Article peculiar to a holder in due course cannot apply to it. With this exception such instruments are covered by all sections of this Article. [Emphasis added.] (5) Section 673.306 sets forth the defenses of an obligor against one not a holder in due course. Because this section is not peculiar to a holder in due course, the type of non-negotiable instruments discussed in section 673.805 are covered by it. (6) Therefore, if the certificate of deposit in this case is the type of non-negotiable instrument discussed in section 673.805, the Bank is the beneficiary of the defenses set forth in section 673.306. (7) Section 673.306(2) provides that a non-holder in due course, the assignee here, takes the instrument subject to All defenses of any party which would be available in an action on a simple contract. (8) The simple contract language of section 673.306(2) incorporates the article 9 defenses by reference, since the defenses in section 679.318 are available to an account debtor on a simple contract. (9) The article 9, section 679.318 defenses having been made applicable, the rights of the assignee here are subject to All the terms of the contract between the account debtor [bank] and assignor and any defense or claim arising therefrom. (Section 679.318(1)(a).) (10) Finally, in the event the court does not feel that the instrument here qualifies as a section 673.805 non-negotiable instrument, the Bank argues that a liberal construction of the act should be taken to apply every section of article 3 to all non-negotiable instruments unless the context of the section otherwise requires. In this event, the section 673.306 defenses would apply to the Bank here. While the Bank's argument is an appealing one, its incorporation analysis does not withstand close scrutiny. The certificates of deposit in this case are not within the category of non-negotiable instruments addressed in section 673.805. That section draws into article 3 coverage any instrument, the terms of which do not preclude transfer and which, but for the fact that it is not payable to order or to bearer, is otherwise negotiable under the article 3 definition. The cases cited by the Bank which have used the 3-805 definition in order to extend the 3-306 defenses to obligors on non-negotiable instruments, recognize that the certificates must meet all the requirements of negotiability except the payable to order or to bearer criterion in order to be covered by section 3-306. See, D. Nelsen & Sons, Inc. v. General American Development Corp., 6 Ill. App.3d 6, 284 N.E.2d 478 (1972). Section 673.104(1)(b) provides that to be negotiable an instrument must, in addition to being payable to order or to bearer, Contain an unconditional promise or order to pay a sum certain in money. Here, in the event of assignment, the promise to pay is conditioned upon consent of the Bank and reflection of the assignment on the books of the Bank. Because the instrument does not contain an unconditional promise to pay, it does not meet the other requirements for negotiability under section 673.104(1). Therefore, the certificate of deposit is not of the non-negotiable variety to which section 673.805 refers, and the Bank's analysis breaks down at point six above. Even if the court were to adopt a liberal construction of the chapter to apply section 673.306 defenses to all non-negotiable instruments without submitting them to the otherwise negotiable test of section 673.805, the simple contract defense of section 673.306(2) by no means incorporates the section 679.318 defenses as the Bank suggests. First, the Bank concedes that if the certificate in question was classified as a contract right or an account, section 679.318(4) would invalidate all attempts to prohibit assignments, including the restrictions on alienability here. See, Florida First National Bank v. Fryd Construction Corp., 245 So.2d 883 (Fla. 3d DCA 1971). Second, and more important, section 679.318(1) addresses defenses available to account debtors. We have earlier determined that the Bank is not an account debtor as defined in section 679.105(1)(a). If it were, the Bank would clearly be entitled to section 679.318 defenses and we would have had no need to pursue this incorporation analysis. The framers apparently intended that the article 9 defenses provided in section 679.318 would not be available to the obligor of an instrument since account debtor does not include a debtor on an instrument. It is logically inconsistent for the framers of the Code to extend certain defenses only to account debtors under article 9, while permitting these same defenses to be used by obligors of non-negotiable instruments via other provisions of the Code. Accordingly, we reject the Bank's incorporation argument and conclude that it may not utilize section 673.306 to incorporate the article 9 defenses for use against the assignee here. Because we agree with both parties that the transfer is not excluded from coverage under article 9, we do not reach certified question III. Summarizing our answers to the questions certified, we find that the assignment by Milford of the certificate of deposit as security for the payment of a bond purchased from National Indemnity was the assignment of a non-negotiable instrument entitled to secured transaction treatment under article 9; that neither the provisions of section 679.104(9) nor section 679.104(11) exclude the transfer from coverage under article 9; that section 679.318(4) does not invalidate the restrictions on assignment since the transaction is not a contract between an account debtor and an assignor; and that neither by incorporation through section 673.306 nor by the express terms of article 9 is the Bank's asserted right to set-off established under section 679.318(1). ENGLAND, C.J., and ADKINS and BOYD, JJ., concur. OVERTON and ALDERMAN, JJ., dissent.