2006 Ohio Revised Code - 1309.404. (UCC 9-404) Rights acquired by assignee; claims and defenses against assignee.

§ 1309.404. (UCC 9-404) Rights acquired by assignee; claims and defenses against assignee.
 

(A)  Unless an account debtor has made an enforceable agreement not to assert defenses or claims, and subject to divisions (B) to (E) of this section, the rights of an assignee are subject to: 

(1) All terms of the agreement between the account debtor and assignor and any defense or claim in recoupment arising from the transaction that gave rise to the contract; and 

(2) Any other defense or claim of the account debtor against the assignor that accrues before the account debtor receives a notification of the assignment authenticated by the assignor or the assignee. 

(B)  Subject to division (C) of this section and except as provided in division (D) of this section, the claim of an account debtor against an assignor may be asserted against an assignee under division (A) of this section only to reduce the amount the account debtor owes. 

(C)  This section is subject to law other than this chapter that 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)  In a consumer transaction, if a record evidences the account debtor's obligation, if law other than this chapter requires that the record include a statement to the effect that the account debtor's recovery against an assignee with respect to claims and defenses against the assignor may not exceed amounts paid by the account debtor under the record, and if the record does not include the required statement, the extent to which a claim of an account debtor against the assignor may be asserted against an assignee is determined as if the record included the required statement. 

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

HISTORY: 149 v S 74. Eff 7-1-2001.
 

The effective date is set by section 4 of SB 74. 

 

Official Comment

1. Source. Former section 9-318(1). 

2. Purpose; Rights of Assignee in General. Subsection (a), like former section 9-318(1), provides that an assignee generally takes an assignment subject to defenses and claims of an account debtor. Under subsection (a)(1), if the account debtor's defenses on an assigned claim arise from the transaction that gave rise to the contract with the assignor, it makes no difference whether the defense or claim accrues before or after the account debtor is notified of the assignment. Under subsection (a)(2), the assignee takes subject to other defenses or claims only if they accrue before the account debtor has been notified of the assignment. Of course, an account debtor may waive its right to assert defenses or claims against an assignee under section 9-403 or other applicable law. Subsection (a) tracks section 3-305(a)(3) more closely than its predecessor. 

3. Limitation on Affirmative Claims. Subsection (b) is new. It limits the claim that the account debtor may assert against an assignee. Borrowing from section 3-305(a)(3) and cases construing former section 9-318, subsection (b) generally does not afford the account debtor the right to an affirmative recovery from an assignee. 

4. Consumer Account Debtors; Relationship to Federal Trade Commission Rule. Subsections (c) and (d) also are new. Subsection (c) makes clear that the rules of this section are subject to other law establishing special rules for consumer account debtors. An "account debtor who is an individual" as used in subsection (c) includes individuals who are jointly or jointly and severally obligated. Subsection (d) 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 subsection (d), a consumer account debtor has the same right to an affirmative recovery from an assignee of such a record as the consumer would have had against the assignee had the record contained the required notice. 

5. Scope; Application to "Account Debtor." This section deals only with the rights and duties of "account debtors" - and for the most part only with account debtors on accounts, chattel paper, and payment intangibles. Subsection (e) provides that the obligation of an insurer with respect to a health care insurance receivable is governed by other law. References in this section to an "account debtor" include account debtors on collateral that is proceeds. Neither this section nor any other provision of this article, including sections 9-408 and 9-409, provides analogous regulation of the rights and duties of other obligors on collateral, such as the maker of a negotiable instrument (governed by article 3), the issuer of or nominated person under a letter of credit (governed by article 5), or the issuer of a security (governed by article 8). Article 9 leaves those rights and duties untouched; however, section 9-409 deals with the special case of letters of credit. When chattel paper is composed in part of a negotiable instrument, the obligor on the instrument is not an "account debtor," and article 3 governs the rights of the assignee of the chattel paper with respect to the issues that this section addresses. See, e.g., section 3-601 (dealing with discharge of an obligation to pay a negotiable instrument).