KRS 355.9-408: Restrictions on assignment of promissory notes, health -care-insurance

receivables, and certain general intangibles ineffective.

(1) Except as otherwise provided in subsections (2) and (6) of this section, 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:

(a) Would impair the creation, attachment, or perfection of a security interest; or

(b) Provides that the assignment or transfer or the creation, attachment, or

perfection of the security interest may give rise to a defaul t, breach, right of

recoupment, claim, defense, termination, right of termination, or remedy

under the promissory note, health -care-insurance receivable, or general

intangible.

(2) Subsection (1) of this section 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 KRS

355.9-610 or an acceptance of collateral under KRS 355.9-620.

(3) (a) Except as otherwise provided in paragraph (b) of this subsection and

subsection (6) of this section, 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 p romissory 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 de btor 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.

(b) Paragraph (a) of this subsection does not apply to the following statutes,

including administrative regulations promulgated under the authority of those

statutes: KRS 304.2 -260, KRS 304.24 -420, Subtitle 33 of KRS Chapter 304,

and Subtitle 37 of KRS Chapter 304.

(4) 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 (3 )

of this section would be effective under law other than this article but is ineffective

under subsection (1) or (3) of this section, the creation, attachment, or perfection of

a security interest in the promissory note, health -care-insurance receivable, or

general intangible:

(a) Is not enforceable against the person obligated on the promissory note or the

account debtor;

(b) Does not impose a duty or obligation on the person obligated on the

promissory note or the account debtor;

(c) 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;

(d) Does not entitle the secured party to use or ass ign 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;

(e) 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

(f) Does not entitl e the secured party to enforce the security interest in the

promissory note, health-care-insurance receivable, or general intangible.

(5) This section prevails over any inconsistent provisions of the following statutes and

any administrative regulations ba sed on those statutes: KRS 56.230(3), 138.320(5),

138.665(5), 138.720(5), 139.250, 154A.400(3), 190.047(1), 190.070(2)(c),

217B.535(2), 230.300(11), 234.330(6), 243.630(2), 260.815, 286.4 -460(2),

292.320(3)(b), 286.8 -036(3), 304.3 -410(2)(f), 304.3 -520(5), 333.080, 350.135(1),

365.430(1), and 286.9-070(6).

(6) This section does not apply to a security interest in an ownership interest in a

general partnership, limited partnership, or limited liability company.

(7) In this section, "promissory note" includes a negotiable instrument that evidences

chattel paper.