(a) 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) of this section.

(b) Subsection (a) of this section 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 Subsection (a) of Section 55-9-406 NMSA 1978.

(c) 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.

(d) This section does not apply to an assignment of a health-care-insurance receivable.

History: 1978 Comp., § 55-9-405, enacted by Laws 2001, ch. 139, § 67.

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 9-318(2).

2. Modification of Assigned Contract. The ability of account debtors and assignors to modify assigned contracts can be important, especially in the case of government contracts and complex contractual arrangements (e.g., construction contracts) with respect to which modifications are customary. Subsections (a) and (b) provide that good-faith modifications of assigned contracts are binding against an assignee to the extent that (i) the right to payment has not been fully earned or (ii) the right to payment has been earned and notification of the assignment has not been given to the account debtor. Former section 9-318(2) did not validate modifications of fully-performed contracts under any circumstances, whether or not notification of the assignment had been given to the account debtor. Subsection (a) protects the interests of assignees by (i) limiting the effectiveness of modifications to those made in good faith, (ii) affording the assignee with corresponding rights under the contract as modified, and (iii) recognizing that the modification may be a breach of the assignor's agreement with the assignee.

3. Consumer Account Debtors. Subsection (c) is new. It makes clear that the rules of this section are subject to other law establishing special rules for consumer account debtors.

4. Account Debtors on Health-Care-Insurance Receivables. Subsection (d) also is new. It provides that this section does not apply to an assignment of a health-care-insurance receivable. The obligation of an insurer with respect to a health-care-insurance receivable is governed by other law.

Repeals and reenactments. — Laws 2001, ch. 139, § 67 repealed former 55-9-405 NMSA 1978, as amended by Laws 1986, ch. 36, § 3, and enacted a new section, effective July 1, 2001.

Am. Jur. 2d, A.L.R. and C.J.S. references. — 68A Am. Jur. 2d Secured Transactions § 538.

Rights and duties in respect of property subject of conditional sale as between seller and seller's assignee, 65 A.L.R. 783.

Right as between surety on contractor's bond and assignee of money to become due on contract, 76 A.L.R. 917.

Priority as between assignee of rights of, and subsequent buyer from, conditional seller, 88 A.L.R. 109.

Notice to debtor as affecting priority as between different assignees of same chose in action, 110 A.L.R. 774.

Priority between assignee and surety of contractor who completes contract as to money earned by contractor but unpaid before default, 164 A.L.R. 613.

Constitutionality, construction and application of statute respecting sale, assignment or transfer of retail installment contracts, 10 A.L.R.2d 447.

Validity of anti-assignment clause in contract, 37 A.L.R.2d 1251.

Transferee of commercial paper given by purchaser of chattel and secured by conditional sale, retention of title, or chattel mortgage as subject to defenses which chattel purchaser could assert against seller, 44 A.L.R.2d 8, 39 A.L.R.3d 518.

Construction and operation of UCC § 9-318(3) providing that account debtor is authorized to pay assignor until he receives notification to pay assignee, 100 A.L.R.3d 1218.

79 C.J.S. Secured Transactions § 134.