When does Utah Code section 70A-9-318 apply to assignment disputes? 4447 Associates v. First Security Financial Explained

Background and Facts

In this second appeal, First Security Financial executed an asset purchase agreement with Capitol, which was later assigned to Zions First National Bank and then to 4447 Associates as collateral for a loan. When disputes arose between First Security and Capitol, they entered into a settlement agreement that purportedly extinguished First Security’s remaining debt to Capitol. After Capitol defaulted on its loan, the assignees demanded payment from First Security under the original asset purchase agreement, leading to litigation over whether First Security could assert the settlement agreement as a defense.

Key Legal Issues

The court addressed three main issues: (1) whether the Utah Supreme Court’s decision in America First Credit Union v. First Security Bank changed the applicable legal standard under Utah Code Ann. § 70A-9-318; (2) whether First Security could establish a defense under subsection (2) of the statute; and (3) whether First Security was liable for attorney fees under the asset purchase agreement.

Court’s Analysis and Holding

The Utah Court of Appeals affirmed the trial court on all issues. The court distinguished America First, which involved payment situations under subsection (3), from this case involving debt extinguishment under subsection (1)(b). The court emphasized that subsection (3)’s two-pronged notice requirement applies only when an assignee seeks to receive payments directly from the account debtor, not when the debtor claims the debt was extinguished through settlement. Under subsection (1)(b), First Security’s settlement agreement defense was barred because it had received adequate notice of the assignment before entering the settlement agreement.

Practice Implications

This decision clarifies that different subsections of Utah’s assignment statute apply depending on the nature of the defense raised. Practitioners should carefully analyze whether their case involves payment issues (subsection 3) or other defenses like debt modification or extinguishment (subsection 1). The court also reinforced that parties cannot successfully raise new defenses on remand without presenting the necessary evidentiary foundation at trial. Additionally, the decision demonstrates that attorney fee provisions in underlying contracts can extend to assignment disputes when the litigation arises under the original agreement.