SFNet Weighs-In on Important Article 9 Legal Case

Pending before New York’s highest state appellate court is a secured lender’s request for review of a problematic set of rulings that threaten to impose unique obligations on loans securing obligations with the borrower’s accounts. In that case (Worthy Lending, LLC v. New Style Contractors, Inc.) an account debtor challenged the secured lender’s attempt to enforce an assignment of the right to directly collect accounts on the ground that the assignment did not meet formalities required for assignments under New York law. The secured lender contended that it had the right to collect the accounts from the account debtor and that Sections 9-406 and 9-607 of the New York Uniform Commercial Code make no distinction between a borrower assigning its accounts as opposed to granting its lender a security interest in accounts.

After the trial court and intermediate appellate court ruled to the detriment of the lender that a meaningful legal distinction exists between an assignment and security interest in accounts, the lender sought review by New York’s Court of Appeals. Recognizing that the lower court orders are contrary to longstanding commercial lending practices and prior interpretations of the Uniform Commercial Code, SFNet determined that it needed to weigh-in with an important industry perspective.

Consequently, on August 20, 2021, SFNet filed papers with the Court seeking to appear as amicus curiae and to file its brief illustrating for the Court why the lower court orders represent a dangerous departure from established precedent and practice. SFNet’s proposed brief also explained why the lower court orders damaged all participants in secured lending – the lender, the borrower and the account debtor. A copy of SFNet’s filed papers can be found at the following link: https://www.sfnet.com/docs/default-source/tsl-tslexpress/sfnet---worthy-amicus-brief---as-filed-companion.pdf?sfvrsn=af2e53b3_2