                                 CODE OF VIRGINIA

RESTRICTIONS ON ASSIGNMENT OF PROMISSORY NOTES, HEALTH-CARE-INSURANCE
RECEIVABLES, AND CERTAIN GENERAL INTANGIBLES INEFFECTIVE (§ 8.9A-408)

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 &#xA7; 8.9A-610 or an acceptance of collateral under &#xA7;
8.9A-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

   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.

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 title 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&#8217;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 of subsection (a) to certain payment intangibles. Subsection
(a) does not apply to:

   1. the sale of a claim or right to receive compensation for injuries or
   sickness as described in 26 U.S.C. &#xA7; 104 (a) (2), as amended from time to
   time, provided that no inference shall be drawn regarding the enforceability
   or nonenforceability under other law or any term in an agreement which
   prohibits, restricts, or requires consent to the sale of such claim or right
   described in 26 U.S.C. &#xA7; 104 (a) (2);

   2. a claim or right to receive compensation for injuries or sickness as
   described in 26 U.S.C. &#xA7; 104 (a) (1), as amended from time to time; or

   3. a claim or right to receive benefits under a special needs trust as
   described in 42 U.S.C. &#xA7; 1396p (d) (4), as amended from time to time.

f. Inapplicability of subsection (c) to certain payment intangibles. Subsection
(c) does not apply to:

   1. a claim or right to receive compensation for injuries or sickness as
   described in 26 U.S.C. &#xA7; 104 (a) (1) or (2), as amended from time to
   time; or

   2. a claim or right to receive benefits under a special needs trust as
   described in 42 U.S.C. &#xA7; 1396p (d) (4), as amended from time to time.

g. Inapplicability to partnership and limited liability company interests. This
section does not apply to an interest in a partnership or limited liability
company.

h. Promissory note. In this section, &#8220;promissory note&#8221; includes a
negotiable instrument that evidences chattel paper.

HISTORY: 2000, c. 1007; 2001, c. 537; 2003, c. 340; 2012, c. 155; 2024, c. 652.