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Part 4 - Rights Of Third Parties

      (810 ILCS 5/Art. 9 Pt. 4 heading)PART 4. RIGHTS OF THIRD PARTIES

(810 ILCS 5/9‑401) (from Ch. 26, par. 9‑401)     Sec. 9‑401. Alienability of debtor's rights.     (a) Other law governs alienability; exceptions. Except as otherwise provided in subsection (b) and Sections 9‑406, 9‑407, 9‑408, and 9‑409, whether a debtor's rights in collateral may be voluntarily or involuntarily transferred is governed by law other than this Article.     (b) 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. (Source: P.A. 90‑300, eff. 1‑1‑98; 91‑893, eff. 7‑1‑01.)

(810 ILCS 5/9‑401A)     Sec. 9‑401A. (Blank). (Source: P.A. 90‑300, eff. 1‑1‑98; 91‑893, eff. 7‑1‑01.)

(810 ILCS 5/9‑402) (from Ch. 26, par. 9‑402)     Sec. 9‑402. Secured party not obligated on contract of debtor or in tort. The existence of a security interest, agricultural lien, or authority given to a debtor to dispose of or use collateral, without more, does not subject a secured party to liability in contract or tort for the debtor's acts or omissions. (Source: P.A. 91‑357, eff. 7‑29‑99; 91‑893, eff. 7‑1‑01.)

(810 ILCS 5/9‑403) (from Ch. 26, par. 9‑403)     Sec. 9‑403. Agreement not to assert defenses against assignee.     (a) "Value." In this Section, "value" has the meaning provided in Section 3‑303(a).     (b) Agreement not to assert claim or defense. Except as otherwise provided in this Section, an agreement between an account debtor and an assignor not to assert against an assignee any claim or defense that the account debtor may have against the assignor is enforceable by an assignee that takes an assignment:         (1) for value;         (2) in good faith;         (3) without notice of a claim of a property or

possessory right to the property assigned; and

(4) without notice of a defense or claim in

recoupment of the type that may be asserted against a person entitled to enforce a negotiable instrument under Section 3‑305(a).

(c) When subsection (b) not applicable. Subsection (b) does not apply to defenses of a type that may be asserted against a holder in due course of a negotiable instrument under Section 3‑305(b).     (d) Omission of required statement in consumer transaction. In a consumer transaction, if a record evidences the account debtor's obligation, law other than this Article requires that the record include a statement to the effect that the rights of an assignee are subject to claims or defenses that the account debtor could assert against the original obligee, and the record does not include such a statement:         (1) the record has the same effect as if the record

included such a statement; and

(2) the account debtor may assert against an

assignee those claims and defenses that would have been available if the record included such a statement.

(e) Rule for individual under other law. This Section is subject to law other than this Article which establishes a different rule for an account debtor who is an individual and who incurred the obligation primarily for personal, family, or household purposes.     (f) Other law not displaced. Except as otherwise provided in subsection (d), this Section does not displace law other than this Article which gives effect to an agreement by an account debtor not to assert a claim or defense against an assignee. (Source: P.A. 90‑300, eff. 1‑1‑98; 91‑357, eff. 7‑29‑99; 91‑893, eff. 7‑1‑01.)

(810 ILCS 5/9‑404) (from Ch. 26, par. 9‑404)     Sec. 9‑404. Rights acquired by assignee; claims and defenses against assignee.     (a) Assignee's rights subject to terms, claims, and defenses; exceptions. Unless an account debtor has made an enforceable agreement not to assert defenses or claims, and subject to subsections (b) through (e), the rights of an assignee are subject to:         (1) all terms of the agreement between the account

debtor and assignor and any defense or claim in recoupment arising from the transaction that gave rise to the contract; and

(2) any other defense or claim of the account debtor

against the assignor which accrues before the account debtor receives a notification of the assignment authenticated by the assignor or the assignee.

(b) Account debtor's claim reduces amount owed to assignee. Subject to subsection (c) and except as otherwise provided in subsection (d), the claim of an account debtor against an assignor may be asserted against an assignee under subsection (a) only to reduce the amount the account debtor owes.     (c) Rule for individual under other law. This Section is subject to law other than this Article which establishes a different rule for an account debtor who is an individual and who incurred the obligation primarily for personal, family, or household purposes.     (d) Omission of required statement in consumer transaction. In a consumer transaction, if a record evidences the account debtor's obligation, law other than this Article requires that the record include a statement to the effect that the account debtor's recovery against an assignee with respect to claims and defenses against the assignor may not exceed amounts paid by the account debtor under the record, and the record does not include such a statement, the extent to which a claim of an account debtor against the assignor may be asserted against an assignee is determined as if the record included such a statement.     (e) Inapplicability to health‑care‑insurance receivable. This Section does not apply to an assignment of a health‑care‑insurance receivable. (Source: P.A. 91‑893, eff. 7‑1‑01.)

(810 ILCS 5/9‑404.5)     Sec. 9‑404.5. Termination statement; duties of filing officer.     (1) If a financing statement covering consumer goods is filed on or after July 1, 1973, then within one month or within 10 days following written demand by the debtor after there is no outstanding secured obligation and no commitment to make advances, incur obligations or otherwise give value, the secured party must file with each filing officer with whom the financing statement was filed, a termination statement to the effect that he no longer claims a security interest under the financing statement, which shall be identified by file number. In other cases whenever there is no outstanding secured obligation and no commitment to make advances, incur obligations or otherwise give value, the secured party must on written demand by the debtor send the debtor, for each filing officer with whom the financing statement was filed, a termination statement to the effect that he no longer claims a security interest under the financing statement, which shall be identified by file number. A termination statement signed by a person other than the secured party of record must be accompanied by a separate written statement of assignment signed by the secured party of record. If the affected secured party fails to file such a termination statement as required by this subsection, or to send such a termination statement within 10 days after proper demand therefor, he shall be liable to the debtor for $100 and in addition for any loss caused to the debtor by such failure.     (2) On presentation to the filing officer of such a termination statement he must note it in the index. If he has received the termination statement in duplicate, he shall return one copy of the termination statement to the secured party stamped to show the time of receipt thereof. If the filing officer has a microfilm or other photographic record of the financing statement, and of any related continuation statement, statement of assignment and statement of release, he may remove the originals from the files at any time after receipt of the termination statement, or if he has no such record, he may remove them from the files at any time after one year after receipt of the termination statement.     (3) If the termination statement is in the standard form prescribed by the Secretary of State, the uniform fee for filing and indexing the termination statement in the office of a county recorder shall be $5 and otherwise shall be $10, plus in each case an additional fee of $5 for each name more than one at each address listed against which the termination statement is required to be indexed. (Source: P.A. 91‑893, eff. 7‑6‑00.)

(810 ILCS 5/9‑405) (from Ch. 26, par. 9‑405)     Sec. 9‑405. Modification of assigned contract.     (a) Effect of modification on assignee. A modification of or substitution for an assigned contract is effective against an assignee if made in good faith. The assignee acquires corresponding rights under the modified or substituted contract. The assignment may provide that the modification or substitution is a breach of contract by the assignor. This subsection is subject to subsections (b) through (d).     (b) Applicability of subsection (a). Subsection (a) applies to the extent that:         (1) the right to payment or a part thereof under an

assigned contract has not been fully earned by performance; or

(2) the right to payment or a part thereof has been

fully earned by performance and the account debtor has not received notification of the assignment under Section 9‑406(a).

(c) Rule for individual under other law. This Section is subject to law other than this Article which establishes a different rule for an account debtor who is an individual and who incurred the obligation primarily for personal, family, or household purposes.     (d) Inapplicability to health‑care‑insurance receivable. This Section does not apply to an assignment of a health‑care‑insurance receivable. (Source: P.A. 91‑893, eff. 7‑1‑01.)

(810 ILCS 5/9‑406) (from Ch. 26, par. 9‑406)     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) Discharge of account debtor; effect of notification. Subject to subsections (b) through (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) When notification ineffective. 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 Article; 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) Proof of assignment. 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) Term restricting assignment generally ineffective. 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) Inapplicability of subsection (d) to certain sales. Subsection (d) does not apply to the sale of a payment intangible or promissory note.     (f) Legal restrictions on assignment generally ineffective. Except as otherwise provided in Sections 2A‑303 and 9‑407 and subject to subsections (h) and (i), 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) Subsection (b)(3) not waivable. Subject to subsection (h), an account debtor may not waive or vary its option under subsection (b)(3).     (h) Rule for individual under other law. This Section is subject to law other than this Article which 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) Inapplicability to health‑care‑insurance receivable. This Section does not apply to an assignment of a health‑care‑insurance receivable. (Source: P.A. 91‑893, eff. 7‑1‑01.)

(810 ILCS 5/9‑407) (from Ch. 26, par. 9‑407)     Sec. 9‑407. Restrictions on creation or enforcement of security interest in leasehold interest or in lessor's residual interest.     (a) Term restricting assignment generally ineffective. Except as otherwise provided in subsection (b), a term in a lease agreement is ineffective to the extent that it:         (1) prohibits, restricts, or requires the consent of

a party to the lease to the assignment or transfer or the creation, attachment, perfection, or enforcement of a security interest in an interest of a party under the lease contract or in the lessor's residual interest in the goods; 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 lease.

(b) Effectiveness of certain terms. Except as otherwise provided in Section 2A‑303(7), a term described in subsection (a)(2) is effective to the extent that there is:         (1) a transfer by the lessee of the lessee's right

of possession or use of the goods in violation of the term; or

(2) a delegation of a material performance of either

party to the lease contract in violation of the term.

(c) Security interest not material impairment. The creation, attachment, perfection, or enforcement of a security interest in the lessor's interest under the lease contract or the lessor's residual interest in the goods is not a transfer that materially impairs the lessee's prospect of obtaining return performance or materially changes the duty of or materially increases the burden or risk imposed on the lessee within the purview of Section 2A‑303(4) unless, and then only to the extent that, enforcement actually results in a delegation of material performance of the lessor. (Source: P.A. 91‑893, eff. 7‑1‑01.)

(810 ILCS 5/9‑408) (from Ch. 26, par. 9‑408)     Sec. 9‑408. Restrictions on assignment of promissory notes, health‑care‑insurance receivables, and certain general intangibles ineffective.     (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.     (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 Article 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'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.

(Source: P.A. 91‑893, eff. 7‑1‑01.)

(810 ILCS 5/9‑409)     Sec. 9‑409. Restrictions on assignment of letter‑of‑credit rights ineffective.     (a) Term or law restricting assignment generally ineffective. A term in a letter of credit or a rule of law, statute, regulation, custom, or practice applicable to the letter of credit which prohibits, restricts, or requires the consent of an applicant, issuer, or nominated person to a beneficiary's assignment of or creation of a security interest in a letter‑of‑credit right is ineffective to the extent that the term or rule of law, statute, regulation, custom, or practice:         (1) would impair the creation, attachment, or

perfection of a security interest in the letter‑of‑credit right; or

(2) provides that the assignment 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 letter‑of‑credit right.

(b) Limitation on ineffectiveness under subsection (a). To the extent that a term in a letter of credit is ineffective under subsection (a) but would be effective under law other than this Article or a custom or practice applicable to the letter of credit, to the transfer of a right to draw or otherwise demand performance under the letter of credit, or to the assignment of a right to proceeds of the letter of credit, the creation, attachment, or perfection of a security interest in the letter‑of‑credit right:         (1) is not enforceable against the applicant,

issuer, nominated person, or transferee beneficiary;

(2) imposes no duties or obligations on the

applicant, issuer, nominated person, or transferee beneficiary; and

(3) does not require the applicant, issuer,

nominated person, or transferee beneficiary to recognize the security interest, pay or render performance to the secured party, or accept payment or other performance from the secured party.

(Source: P.A. 91‑893, eff. 7‑1‑01.)

(810 ILCS 5/9‑410)     Sec. 9‑410. (Blank). (Source: P.A. 91‑893, eff. 7‑1‑01.)