North Carolina § 25-9-401 - Alienability of debtor's rights.

§ 25-9-401. Alienability of debtor's rights.

Other law governs alienability; exceptions. - Except as otherwise provided in subsection (b) of this section and G.S. 25-9-406, 25-9-407, 25-9-408, and 25-9-409, whether a debtor's rights in collateral may be voluntarily or involuntarily transferred is governed by law other than this Article. Agreement does not prevent transfer. - An agreement between the debtor and secured party which prohibits a transfer of the debtor's rights in collateral or makes the transfer a default does not prevent the transfer from taking effect. History (1965, c. 700, s. 1; 1975, c. 862, s. 7; 2000-169, s. 1.) AMENDED OFFICIAL COMMENT (2010 EDITION) 1. Source. Former section 9-311. 2. Scope of This Part. This part deals with several issues affecting third parties (i.e., parties other than the debtor and the secured party). These issues are not addressed in part 3, subpart 3, which deals with priorities. This part primarily addresses the rights and duties of account debtors and other persons obligated on collateral who are not, themselves, parties to a secured transaction. 3. Governing Law. There was some uncertainty under former article 9 as to which jurisdiction's law (usually, which jurisdiction's version of article 9) applied to the matters that this part addresses. Part 3, subpart 1, does not determine the law governing these matters because they do not relate to perfection, the effect of perfection or nonperfection, or priority. However, it might be inappropriate for a designation of applicable law by a debtor and secured party under section 1-301 to control the law applicable to an independent transaction or relationship between the debtor and an account debtor. Consider an example under section 9-408: Example 1: State X has adopted this article; former article 9 is the law of State Y. A general intangible (e.g., a franchise agreement) between a debtor-franchisee, D, and an account debtor-franchisor, AD, is governed by the law of State Y. D grants to SP a security interest in its rights under the franchise agreement. The franchise agreement contains a term prohibiting D's assignment of its rights under the agreement. D and SP agree that their secured transaction is governed by the law of State X. Under State X's section 9-408, the restriction on D's assignment is ineffective to prevent the creation, attachment, or perfection of SP's security interest. State Y's former section 9-318(4), however, does not address restrictions on the creation of security interests in general intangibles other than general intangibles for money due or to become due. Accordingly, it does not address restrictions on the assignment to SP of D's rights under the franchise agreement. The non-article-9 law of State Y, which does address restrictions, provides that the prohibition on assignment is effective. This article does not provide a specific answer to the question of which State's law applies to the restriction on assignment in the example. However, assuming that under non-UCC choice-of-law principles the effectiveness of the restriction would be governed by the law of State Y, which governs the franchise agreement, the fact that State X's article 9 governs the secured transaction between SP and D would not override the otherwise applicable law governing the agreement. Of course, to the extent that jurisdictions eventually adopt identical versions of this article and courts interpret it consistently, the inability to identify the applicable law in circumstances such as those in the example may be inconsequential. 4. Inalienability Under Other Law. Subsection (a) addresses the question whether property necessarily is transferable by virtue of its inclusion (i.e., its eligibility as collateral) within the scope of article 9. It gives a negative answer, subject to the identified exceptions. The substance of subsection (a) was implicit under former article 9. 5. Negative Pledge Covenant. Subsection (b) is an exception to the general rule in subsection (a). It makes clear that in secured transactions under this article the debtor has rights in collateral (whether legal title or equitable) which it can transfer and which its creditors can reach. It is best explained with an example: Example 2: A debtor, D, grants to SP a security interest to secure a debt in excess of the value of the collateral. D agrees with SP that it will not create a subsequent security interest in the collateral and that any security interest purportedly granted in violation of the agreement will be void. Subsequently, in violation of its agreement with SP, D purports to grant a security interest in the same collateral to another secured party. Subsection (b) validates D's creation of the subsequent (prohibited) security interest, which might even achieve priority over the earlier security interest. See comment 7. However, unlike some other provisions of this part, such as section 9-406, subsection (b) does not provide that the agreement restricting assignment itself is "ineffective. " Consequently, the debtor's breach may create a default. 6. Rights of Lien Creditors. Difficult problems may arise with respect to attachment, levy, and other judicial procedures under which a debtor's creditors may reach collateral subject to a security interest. For example, an obligation may be secured by collateral worth many times the amount of the obligation. If a lien creditor has caused all or a portion of the collateral to be seized under judicial process, it may be difficult to determine the amount of the debtor's "equity " in the collateral that has been seized. The section leaves resolution of this problem to the courts. The doctrine of marshaling may be appropriate. 7. Sale of Receivables. If a debtor sells an account, chattel paper, payment intangible, or promissory note outright, as against the buyer the debtor has no remaining rights to transfer. If, however, the buyer fails to perfect its interest, then solely insofar as the rights of certain third parties are concerned, the debtor is deemed to retain its rights and title. See section 9-318. The debtor has the power to convey these rights to a subsequent purchaser. If the subsequent purchaser (buyer or secured lender) perfects its interest, it will achieve priority over the earlier, unperfected purchaser. See section 9-322(a)(1). Editor's Note. - Session Laws 2012-70, s. 27, provides: "The Revisor of Statutes shall cause to be printed, as annotations to the published General Statutes, all relevant portions of the Official Comments to the 2010 Amendments to Article 9 of the Uniform Commercial Code and all explanatory comments of the drafters of this act as the Revisor may deem appropriate." The Revision of Uniform Commercial Code Article 9 - Secured Transactions was drafted by the National Conference of Commissioners on Uniform State Laws and The American Law Institute on April 27, 2011. The Official Commentary for the 2010 revision are copyrighted 2010 by The American Law Institute and National Conference of Commissioners on Uniform State Laws. The affected portions of the Official Comment to this section have been set out at this section with the appropriate amendments.