Chapter 409

409.335(5) (5) Removal of accession after default. After default, subject to subch. VI, a secured party may remove an accession from other goods if the security interest in the accession has priority over the claims of every person having an interest in the whole.

409.335(6) (6) Reimbursement following removal. A secured party that removes an accession from other goods under sub. (5) shall promptly reimburse any holder of a security interest or other lien on, or owner of, the whole or of the other goods, other than the debtor, for the cost of repair of any physical injury to the whole or the other goods. The secured party need not reimburse the holder or owner for any diminution in value of the whole or the other goods caused by the absence of the accession removed or by any necessity for replacing it. A person entitled to reimbursement may refuse permission to remove an accession until the secured party gives adequate assurance for the performance of the obligation to reimburse.

409.335 History History: 2001 a. 10.

409.336 409.336 Commingled goods.

409.336(1) (1) Commingled goods. In this section, “commingled goods” means goods that are physically united with other goods in such a manner that their identity is lost in a product or mass.

409.336(2) (2) No security interest in commingled goods as such. A security interest does not exist in commingled goods as such. However, a security interest may attach to a product or mass that results when goods become commingled goods.

409.336(3) (3) Attachment of security interest to product or mass. If collateral becomes commingled goods, a security interest attaches to the product or mass.

409.336(4) (4) Perfection of security interest. If a security interest in collateral is perfected before the collateral becomes commingled goods, the security interest that attaches to the product or mass under sub. (3) is perfected.

409.336(5) (5) Priority of security interest. Except as otherwise provided in sub. (6), the other provisions of this subchapter determine the priority of a security interest that attaches to the product or mass under sub. (3).

409.336(6) (6) Conflicting security interests in product or mass. If more than one security interest attaches to the product or mass under sub. (3), the following rules determine priority:

409.336(6)(a) (a) A security interest that is perfected under sub. (4) has priority over a security interest that is unperfected at the time the collateral becomes commingled goods.

409.336(6)(b) (b) If more than one security interest is perfected under sub. (4), the security interests rank equally in proportion to the value of the collateral at the time it became commingled goods.

409.336 History History: 2001 a. 10.

409.337 409.337 Priority of security interests in goods covered by certificate of title. If, while a security interest in goods is perfected by any method under the law of another jurisdiction, this state issues a certificate of title that does not show that the goods are subject to the security interest or contain a statement that they may be subject to security interests not shown on the certificate:

409.337(1) (1) A buyer of the goods, other than a person in the business of selling goods of that kind, takes free of the security interest if the buyer gives value and receives delivery of the goods after issuance of the certificate and without knowledge of the security interest; and

409.337(2) (2) The security interest is subordinate to a conflicting security interest in the goods that attaches, and is perfected under s. 409.311 (2), after issuance of the certificate and without the conflicting secured party’s knowledge of the security interest.

409.337 History History: 2001 a. 10.

409.338 409.338 Priority of security interest or agricultural lien perfected by filed financing statement providing certain incorrect information. If a security interest or agricultural lien is perfected by a filed financing statement providing information described in s. 409.516 (2) (e) which is incorrect at the time the financing statement is filed:

409.338(1) (1) The security interest or agricultural lien is subordinate to a conflicting perfected security interest in the collateral to the extent that the holder of the conflicting security interest gives value in reasonable reliance upon the incorrect information; and

409.338(2) (2) A purchaser, other than a secured party, of the collateral takes free of the security interest or agricultural lien to the extent that, in reasonable reliance upon the incorrect information, the purchaser gives value and, in the case of tangible chattel paper, tangible documents, goods, instruments, or a security certificate, receives delivery of the collateral.

409.338 History History: 2001 a. 10; 2009 a. 322.

409.339 409.339 Priority subject to subordination. This chapter does not preclude subordination by agreement by a person entitled to priority.

409.339 History History: 2001 a. 10.

409.340 409.340 Effectiveness of right of recoupment or setoff against deposit account.

409.340(1) (1) Exercise of recoupment or setoff. Except as otherwise provided in sub. (3), a bank with which a deposit account is maintained may exercise any right of recoupment or setoff against a secured party that holds a security interest in the deposit account.

409.340(2) (2) Recoupment or setoff not affected by security interest. Except as otherwise provided in sub. (3), the application of this chapter to a security interest in a deposit account does not affect a right of recoupment or setoff of the secured party as to a deposit account maintained with the secured party.

409.340(3) (3) When setoff ineffective. The exercise by a bank of a setoff against a deposit account is ineffective against a secured party that holds a security interest in the deposit account which is perfected by control under s. 409.104 (1) (c), if the setoff is based on a claim against the debtor.

409.340 History History: 2001 a. 10.

409.341 409.341 Bank’s rights and duties with respect to deposit account. Except as otherwise provided in s. 409.340 (3), and unless the bank otherwise agrees in an authenticated record, a bank’s rights and duties with respect to a deposit account maintained with the bank are not terminated, suspended, or modified by:

409.341(1) (1) The creation, attachment, or perfection of a security interest in the deposit account;

409.341(2) (2) The bank’s knowledge of the security interest; or

409.341(3) (3) The bank’s receipt of instructions from the secured party.

409.341 History History: 2001 a. 10.

409.342 409.342 Bank’s right to refuse to enter into or disclose existence of control agreement. This chapter does not require a bank to enter into an agreement of the kind described in s. 409.104 (1) (b), even if its customer so requests or directs. A bank that has entered into such an agreement is not required to confirm the existence of the agreement to another person unless requested to do so by its customer.

409.342 History History: 2001 a. 10.

subch. IV of ch. 409 SUBCHAPTER IV

RIGHTS OF 3RD PARTIES

409.401 409.401 Alienability of debtor’s rights.

409.401(1) (1) Other law governs alienability; exceptions. Except as otherwise provided in sub. (2) and ss. 409.406, 409.407, 409.408, and 409.409, whether a debtor’s rights in collateral may be voluntarily or involuntarily transferred is governed by law other than this chapter.

409.401(2) (2) Agreement does not prevent transfer. An agreement between the debtor and secured party which prohibits a transfer of the debtor’s rights in collateral or makes the transfer a default does not prevent the transfer from taking effect.

409.401 History History: 2001 a. 10.

409.401 Annotation If a security agreement does not explicitly provide that transfer of collateral constitutes default and the secured party is not entitled to immediate possession, sale of collateral is not a conversion. Production Credit Association of Chippewa Falls v. Equity Coop Livestock, 82 Wis. 2d 5, 261 N.W.2d 127 (1978).

409.401 Annotation A condition imposed by a secured party on authorization to sell collateral is ineffective unless performance of the condition is within the buyer’s control. Production Credit AssociatIon of Madison v. Nowatzski, 90 Wis. 2d 344, 280 N.W.2d 118 (1979).

409.401 Note NOTE: The above annotated materials cite to the pre-2001 Wis. Act 10 version of ch. 409.

409.402 409.402 Secured party not obligated on contract of debtor or in tort. The existence of a security interest, agricultural lien, or authority given to a debtor to dispose of or use collateral, without more, does not subject a secured party to liability in contract or tort for the debtor’s acts or omissions.

409.402 History History: 2001 a. 10.

409.403 409.403 Agreement not to assert defenses against assignee.

409.403(1) (1) Value. In this section, “value” has the meaning provided in s. 403.303 (1).

409.403(2) (2) Agreement not to assert claim or defense. 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:

409.403(2)(a) (a) For value;

409.403(2)(b) (b) In good faith;

409.403(2)(c) (c) Without notice of a claim of a property or possessory right to the property assigned; and

409.403(2)(d) (d) 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 s. 403.305 (1).

409.403(3) (3) When sub. (2) not applicable. Subsection (2) does not apply to defenses of a type that may be asserted against a holder in due course of a negotiable instrument under s. 403.305 (2).

409.403(4) (4) Omission of required statement in consumer transaction. In a consumer transaction, if a record evidences the account debtor’s obligation, law other than this chapter 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 the record does not include such a statement:

409.403(4)(a) (a) The record has the same effect as if the record had included such a statement; and

409.403(4)(b) (b) The account debtor may assert against an assignee those claims and defenses that would have been available if the record had included such a statement.

409.403(5) (5) Rule for individual under other law. This section is subject to law other than this chapter 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.

409.403(6) (6) Other law not displaced. Except as otherwise provided in sub. (4), this section does not displace law other than this chapter which gives effect to an agreement by an account debtor not to assert a claim or defense against an assignee.

409.403 History History: 2001 a. 10.

409.404 409.404 Rights acquired by assignee; claims and defenses against assignee.

409.404(1) (1) Assignee’s rights subject to terms, claims, and defenses; exceptions. Unless an account debtor has made an enforceable agreement not to assert defenses or claims, and subject to subs. (2) to (5), the rights of an assignee are subject to:

409.404(1)(a) (a) 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

409.404(1)(b) (b) Any other defense or claim of the account debtor against the assignor which accrues before the account debtor receives a notification of the assignment authenticated by the assignor or the assignee.

409.404(2) (2) Account debtor’s claim reduces amount owed to assignee. Subject to sub. (3) and except as otherwise provided in sub. (4), the claim of an account debtor against an assignor may be asserted against an assignee under sub. (1) only to reduce the amount the account debtor owes.

409.404(3) (3) Rule for individual under other law. This section is subject to law other than this chapter 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.

409.404(4) (4) Omission of required statement in consumer transaction. In a consumer transaction, if a record evidences the account debtor’s obligation, 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 the record does not include such a 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 had included such a statement.

409.404(5) (5) Inapplicability to health care insurance receivable. This section does not apply to an assignment of a health care insurance receivable.

409.404 History History: 2001 a. 10.

409.404 Annotation There is no distinction between a party with a security interest in a debtor’s accounts receivable and a party who is an assignee of a debtor’s accounts receivable. Bank of Waunakee v. Rochester Cheese Sales, Inc. 906 F.2d 1185 (1990).

409.404 Note NOTE: The above annotated materials cite to the pre-2001 Wis. Act 10 version of ch. 409.

409.405 409.405 Modification of assigned contract.

409.405(1) (1) Effect of modification on assignee. 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 subs. (2) to (4).

409.405(2) (2) Applicability of sub. (1). Subsection (1) applies to the extent that:

409.405(2)(a) (a) The right to payment or a part thereof under an assigned contract has not been fully earned by performance; or

409.405(2)(b) (b) 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 s. 409.406 (1).

409.405(3) (3) Rule for individual under other law. This section is subject to law other than this chapter 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.

409.405(4) (4) Inapplicability to health care insurance receivable. This section does not apply to an assignment of a health care insurance receivable.

409.405 History History: 2001 a. 10.

409.406 409.406 Discharge of account debtor; notification of assignment; identification and proof of assignment; restrictions on assignment of accounts, chattel paper, payment intangibles, and promissory notes ineffective.

409.406(1) (1) Discharge of account debtor; effect of notification. Subject to subs. (2) to (9), an account debtor on an account, chattel paper, or a payment intangible may discharge its obligation by paying the assignor until, but not after, the account debtor receives a notification, authenticated by the assignor or the assignee, that the amount due or to become due has been assigned and that payment is to be made to the assignee. After receipt of the notification, the account debtor may discharge its obligation by paying the assignee and may not discharge the obligation by paying the assignor.

409.406(2) (2) When notification ineffective. Subject to sub. (8), notification is ineffective under sub. (1):

409.406(2)(a) (a) If it does not reasonably identify the rights assigned;

409.406(2)(b) (b) To the extent that an agreement between an account debtor and a seller of a payment intangible limits the account debtor’s duty to pay a person other than the seller and the limitation is effective under law other than this chapter; or

409.406(2)(c) (c) At the option of an account debtor, if the notification notifies the account debtor to make less than the full amount of any installment or other periodic payment to the assignee, even if:

409.406(2)(c)1. 1. Only a portion of the account, chattel paper, or payment intangible has been assigned to that assignee;

409.406(2)(c)2. 2. A portion has been assigned to another assignee; or

409.406(2)(c)3. 3. The account debtor knows that the assignment to that assignee is limited.

409.406(3) (3) Proof of assignment. Subject to sub. (8), if requested by the account debtor, an assignee shall seasonably furnish reasonable proof that the assignment has been made. Unless the assignee complies, the account debtor may discharge its obligation by paying the assignor, even if the account debtor has received a notification under sub. (1).