2023 New Mexico Statutes › Chapter 55 - Uniform Commercial Code › Article 9 - Secured Transactions › Part 4 - RIGHTS OF THIRD PARTIES › Section 55-9-403 - Agreement not to assert defenses against assignee.

(a) In this section, "value" has the meaning provided in Subsection (a) of Section 55-3-303 NMSA 1978.
(b) 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 Subsection (a) of Section 55-3-305 NMSA 1978.
(c) Subsection (b) of this section does not apply to defenses of a type that may be asserted against a holder in due course of a negotiable instrument under Subsection (b) of Section 55-3-305 NMSA 1978.
(d) In a consumer transaction, if a record evidences the account debtor's obligation, law other than Chapter 55, Article 9 NMSA 1978 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 if 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) This section is subject to law other than Chapter 55, Article 9 NMSA 1978 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) Except as otherwise provided in Subsection (d) of this section, this section does not displace law other than Chapter 55, Article 9 NMSA 1978 which gives effect to an agreement by an account debtor not to assert a claim or defense against an assignee.
History:
1978 Comp., § 55-9-403, enacted by Laws 2001, ch. 139, § 65.
OFFICIAL COMMENTS
UCC Official Comments by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved.
1.
Source.
Former section 9-206.
2.
Scope and Purpose.
Subsection (b), like former section 9-206, generally validates an agreement between an account debtor and an assignor that the account debtor will not assert against an assignee claims and defenses that it may have against the assignor. These agreements are typical in installment sale agreements and leases. However, this section expands former section 9-206 to apply to all account debtors; it is not limited to account debtors that have bought or leased goods. This section applies only to the obligations of an "account debtor," as defined in section 9-102. Thus, it does not determine the circumstances under which and the extent to which a person who is obligated on a negotiable instrument is disabled from asserting claims and defenses. Rather, article 3 must be consulted.
See, e.g.
, sections 3-305 and 3-306. Article 3 governs even when the negotiable instrument constitutes part of chattel paper.
See
section 9-102 (an obligor on a negotiable instrument constituting part of chattel paper is not an "account debtor").
3.
Conditions of Validation; Relationship to Article 3.
Subsection (b) validates an account debtor's agreement only if the assignee takes an assignment for value, in good faith, and without notice of conflicting claims to the property assigned or of certain claims or defenses of the account debtor. Like pre-1998 Section 9-206, this section is designed to put the assignee in a position that is no better and no worse than that of a holder in due course of a negotiable instrument under Article 3. However, pre-1998 Section 9-206 left open certain issues, e.g., whether the section incorporated the special Article 3 definition of "value" in Section 3-303 or the generally applicable definition in Article 1 (Section 1-204). Subsection (a) addresses this question; it provides that "value" has the meaning specified in Section 3-303(a). Similarly, subsection (c) provides that subsection (b) does not validate an agreement with respect to defenses that could be asserted against a holder in due course under Section 3-305(b) (the so-called "real" defenses). In 1990, the definition of "holder in due course" (Section 3-302) and the articulation of the rights of a holder in due course (Sections 3-305 and 3-306) were revised substantially. This section tracks more closely the rules of Sections 3-302, 3-305, and 3-306.
4.
Relationship to Terms of Assigned Property.
Former section 9-206(2), concerning warranties accompanying the sale of goods, has been deleted as unnecessary. This article does not regulate the terms of the account, chattel paper, or general intangible that is assigned, except insofar as the account, chattel paper, or general intangible itself creates a security interest (as often is the case with chattel paper). Thus, article 2, and not this article, determines whether a seller of goods makes or effectively disclaims warranties, even if the sale is secured. Similarly, other law, and not this article, determines the effectiveness of an account debtor's undertaking to pay notwithstanding, and not to assert, any defenses or claims against an assignor -
e.g.
, a "hell-or-high-water" provision in the underlying agreement that is assigned. If other law gives effect to this undertaking, then, under principles of nemo dat, the undertaking would be enforceable by the assignee (secured party). If other law prevents the assignor from enforcing the undertaking, this section nevertheless might permit the assignee to do so. The right of the assignee to enforce would depend upon whether, under the particular facts, the account debtor's undertaking fairly could be construed as an agreement that falls within the scope of this section and whether the assignee meets the requirements of this section.
5.
Relationship to Federal Trade Commission Rule.
Subsection (d) is new. It applies to rights evidenced by a record that is required to contain, but does not contain, the notice set forth in Federal Trade Commission Rule 433, 16 C.F.R. part 433 (the "Holder-in-Due-Course Regulations"). Under this subsection, an assignee of such a record takes subject to the consumer account debtor's claims and defenses to the same extent as it would have if the writing had contained the required notice. Thus, subsection (d) effectively renders waiver-of-defense clauses ineffective in the transactions with consumers to which it applies.
6.
Relationship to Other Law.
Like former section 9-206(1), this section takes no position on the enforceability of waivers of claims and defenses by consumer account debtors, leaving that question to other law. However, the reference to "law other than this article" in subsection (e) encompasses administrative rules and regulations; the reference in former section 9-206(1) that it replaces ("statute or decision") arguably did not.
This section does not displace other law that gives effect to a nonconsumer account debtor's agreement not to assert defenses against an assignee, even if the agreement would not qualify under subsection (b).
See
subsection (f). It validates, but does not invalidate, agreements made by a nonconsumer account debtor. This section also does not displace other law to the extent that the other law permits an assignee, who takes an assignment with notice of a claim of a property or possessory right, a defense, or a claim in recoupment, to enforce an account debtor's agreement not to assert claims and defenses against the assignor (e.g., a "hell-or-high-water" agreement).
See
comment 4. It also does not displace an assignee's right to assert that an account debtor is estopped from asserting a claim or defense. Nor does this section displace other law with respect to waivers of potential future claims and defenses that are the subject of an agreement between the account debtor and the assignee. Finally, it does not displace section 1-107, concerning waiver of a breach that allegedly already has occurred.
ANNOTATIONS
Repeals and reenactments.
— Laws 2001, ch. 139, § 65 repealed former 55-9-403 NMSA 1978, as amended by Laws 1986, ch. 36, § 1, and enacted a new section, effective July 1, 2001.
Decisions under former Section 55-9-206 NMSA 1978.
— In light of the similarity of this section and former Section 55-9-206 NMSA 1978, annotations decided under former 55-9-206 NMSA 1978 have been included in the annotations in this section.
Public policy encourages freedom between competent parties of the right to contract,
and requires the enforcement of contracts, unless they clearly contravene some positive law or rule of public morals.
GECC v. Tidenberg
, 1967-NMSC-126, 78 N.M. 59, 428 P.2d 33, 40 A.L.R.3d 1151 (1967).
Legislature allows limitations on claims against assignees of sellers.
— By adopting this section, the New Mexico legislature has established a policy favoring the validity of an agreement not to assert against an assignee any claim or defense which the buyer may have against the seller, and especially when the transaction involves both a negotiable note and a security agreement, so long as the assignee takes for value, in good faith and without notice of a claim or defense, except as to defenses of a type which may be asserted against a holder in due course of a negotiable instrument.
GECC v. Tidenberg
, 1967-NMSC-126, 78 N.M. 59, 428 P.2d 33, 40 A.L.R.3d 1151 (1967).
Law reviews.
— For comment, "Assignments - Maker's Defenses Cut Off - Uniform Commercial Code § 9-206," see 5 Nat. Resources J. 408 (1965).
For article, "Essential Attributes of Commercial Paper - Part I," see 1 N.M. L. Rev. 479 (1971).
For note, "Self-Help Repossession Under the Uniform Commercial Code: The Constitutionality of Article 9, Section 503," see 4 N.M. L. Rev. 75 (1973).
Am. Jur. 2d, A.L.R. and C.J.S. references. —
Conditional buyer's right to maintain action for conversion and damages recoverable as affected by defendant's recognition of conditional seller's title or rights, 116 A.L.R. 904.
Rights of parties to conditional sale as affected by breach of warranty, 130 A.L.R. 753.
Warranty of title by seller, 132 A.L.R. 338.
Construction and application of provision in conditional sale contract regarding implied warranties, 139 A.L.R. 1276.
Constitutionality, construction and application of statute respecting sale, assignment or transfer of retail installment contracts, 10 A.L.R.2d 447.
Estoppel of obligor to assert against transferee of conditional sales contract, installment improvement or repair contract or related commercial paper, defenses or equities available against transferor, 44 A.L.R.2d 196.
Validity, in contract for installment sale of consumer goods, or commercial paper given in connection therewith, of provision waiving, as against assignee, defenses good against seller, 39 A.L.R.3d 518.
79 C.J.S. Secured Transactions, § 140.