Worthy Lending LLC v. New Style Contractors, Inc.

Summary

The New York Court of Appeals held that, for purposes of UCC §§ 9-406 and 9-607, an assignee includes the holder of a presently exercisable security interest in an assignor’s accounts receivable. The court concluded that a secured creditor may direct an account debtor to pay it directly when the security agreement so permits, and that payment to the assignor after receipt of the required notice does not discharge the account debtor’s obligation. The court reversed the Appellate Division and denied the defendant’s motion to dismiss.

Holdings

1. For purposes of UCC 9-406, an assignee includes the holder of a presently exercisable security interest in an assignor's receivables.
2. UCC 9-607(e) does not bar a secured creditor from enforcing the rights of its debtor against an account debtor when the secured creditor and debtor have contractually agreed that the secured creditor may direct payment.
3. After receiving the requisite notice from Worthy, New Style could not discharge its obligation by paying Checkmate; it was required either to pay Worthy or seek proof of the assignment and withhold payment.

Questions Presented

1. Whether a secured creditor holding a presently exercisable security interest in an assignor's receivables is an assignee for purposes of UCC 9-406.
2. Whether UCC 9-607(e) prevents a secured creditor from enforcing an account debtor's payment obligation after the secured creditor and debtor have contractually agreed that the creditor may direct payment.
3. Whether the complaint stated a claim against New Style for payments allegedly made to Checkmate after New Style received Worthy's notice of assignment.

Disposition

reversed_and_remanded