Business Law

Worthy Lending, LLC v New Style Contractors, Inc., 2022 N.Y. LEXIS 2384, 2022 WL 17095585 (N.Y Court of Appeals, Nov. 22, 2022)

The following is a case update written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA., Ret.), analyzing a recent decision of interest:


The New York Court of Appeals (the Court) recently held that under the Uniform Commercial Code (UCC) the holder of an exercisable security interest in a borrower’s receivables is an “assignee” under UCC § 9-406, such that once the holder gives notice to the borrower’s account debtor, the account debtor must pay the holder, not the borrower, to receive credit for the payment.  Worthy Lending, LLC v New Style Contractors, Inc., 2022 N.Y. LEXIS 2384, 2022 WL 17095585 (N.Y Court of Appeals, Nov. 22, 2022). 

To view the opinion, click here.


New Style Contractors, Inc. (New Style) engaged Checkmate Communications LLC (Checkmate) as a subcontractor.  In October 2019 Checkmate entered into a Promissory Note and Security Agreement (the Agreement) with Worthy Lending LLC (Worthy) under which Checkmate could borrow up to $3 million from Worthy.  Section 3(a) of the Agreement granted Worthy a secured interest in Checkmate’s assets, present and future, including accounts receivables (the Collateral).  Section 4(k) of the Agreement granted Worthy the right to “notify and instruct account debtors [Checkmate’s customers of which New Style was one] to remit payment of Accounts and other Collateral directly to lender,” whether or not there was a default, and Checkmate agreed to not interfere with this manner of collection of Collateral.  Worthy perfected its secured interest by filing a UCC-1 Financing Statement with the Secretary of State of New Jersey.

Immediately after the Agreement was executed, Worthy sent New Style a notice of its security interest (the Notice) and directed it to remit all payments due to Checkmate directly to Worthy.  In boldface print, it warned New Style that Worthy would not discharge any of New Style’s obligations to pay unless the payments were sent to Worthy, not Checkmate.  Checkmate soon defaulted under the Agreement, whereby Worthy accelerated all indebtedness, causing Checkmate to file bankruptcy.   

Worthy filed a lawsuit against New Style, alleging that it was entitled to recover from New Style all amounts it owed to Checkmate after receipt of the Notice.  New Style filed a motion to dismiss, arguing that (1) UCC § 9-607 “does not determine whether an account debtor, bank, or other person obligated on collateral owes a duty to a secured party;” (2) that the Agreement was not an assignment; and (3) UCC § 9-607 only applied to assignments, not security interests. The trial court granted the motion to dismiss and the intermediate appellate court in New York affirmed.  Worthy appealed to the Court of Appeals, which reversed.


The Court relied on the language of the statute and the official commentary on the UCC to reach its conclusions.  First, it noted that UCC §§ 9-607 and 9-406 as enacted in New York adhered to the standard language in the UCC, making the official commentary pertinent to its rulings.  Section 9-607 provides that if the parties agree – and in any event after a default – a secured party is entitled to enforce the obligations of an account debtor, exercising the rights of the debtor with respect to those obligations.  The secured party may give notice to the account debtor that it is asserting those rights and instructing the account debtor to pay the secured creditor in order to receive a discharge of the obligations to the debtor.  Here, Worthy was the secured party, Checkmate was the debtor, and the account debtor which owed money to Checkmate was New Style.  The key to the application of § 9-607 in this case was that the parties had specified in the Agreement that Worthy was entitled to give notice to New Style and instruct New Style that it must pay it in order to discharge its obligations to Checkmate.  In addition, the statute at subsection (a)(3) gave that right to Worthy after default, which also occurred here.

The Official Comments of the UCC Permanent Editorial Board issued in 2020 explained that UCC § 9-607 “establishes only the baseline rights of the secured party vis-à-vis the debtor” and permits “the secured party to enforce and collect [from the account debtor] after default or earlier if so agreed.”  UCC 9-607, Comment 6.  New Style had argued on appeal that § 9-406 allowed only assignors, not holders of security interests, to enforce the rights set for in § 9-607.  The Court rejected this assertion, noting first that the definition of security interest in the UCC itself did not distinguish between a security interest and an assignment, plus the Comments made clear that a security interest was to be treated the same as an assignment. [See, Commentary No. 21: “[t]he term ‘assignment’ as used in [UCC article 9], refers to both an outright transfer of ownership and a transfer of an interest to secure an obligation.”]  The Court also found state and federal cases in New York and elsewhere consistently saw no distinction between assignee and secured party.  

The Court also shot down New Style’s arguments that Worthy could not enforce Checkmate’s rights against it if there was a dispute about the amounts owed.  Because the parties had agreed that Worthy could enforce the rights once notice was given, even without a default, an underlying dispute was not an excuse for not paying Worthy directly.  Finally, the Court was not swayed by New Style’s potential double jeopardy argument – if it had paid Checkmate instead of Worthy and now was required to pay Worthy, it would be paying twice on the same obligation.  The Court reasoned that once notice was given, particularly a notice with the boldface warning described in Facts above, New Style should have known that if it paid Checkmate directly, it was taking the risk of being required to pay twice.


As stated by the Court, the version of UCC §§ 9-406 and 9-607 adopted by New York are not modified from the standard UCC.  Therefore, this opinion has import throughout the country.  Significantly, it cites to and relies on the recent official commentary that clarifies there is no distinction between an assignee and a secured creditor in Article 9.  The second takeaway from this opinion is the enforcement of the parties’ agreement.  If sophisticated contracting parties, as we have here, agree that the secured creditor may compel an account debtor to pay it directly even before the debtor is in default, then nothing in the UCC or contract law prevents that creditor from giving notice and then collecting directly from the account debtor.  Such account debtor risks double payment if it continues to pay the debtor.

This review was written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA., Ret.), a member of the ad hoc group. Thomson Reuters holds the copyright to these materials and has permitted the Insolvency Law Committee to reprint them. This material may not be further transmitted without the consent of Thomson Reuters.

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