Chemical Bank v. Rinden Professional Ass'n
498 A.2d 706, 126 N.H. 688, 41 U.C.C. Rep. Serv. (West) 1035 (1985)
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Rule of Law:
Under Uniform Commercial Code § 9-206(1), an agreement by a commercial buyer to waive defenses against an assignee is enforceable if the assignee takes the assignment for value, in good faith, and without notice of a claim or defense.
Facts:
- On April 25, 1974, Rinden Professional Association, a law firm, entered into a lease-purchase agreement with Intertel Communications Corporation for an office phone system.
- Shortly thereafter, Intertel presented Rinden with a document notifying it of the assignment of payment rights to Chemical Bank, which included a 'hell or high water' clause waiving Rinden's defenses against the assignee.
- This waiver clause was a precondition for Chemical Bank to purchase the contract from Intertel.
- On June 11, 1974, John Satterfield, Rinden's authorized office manager, read and signed the document containing the waiver.
- After receiving the signed document, Chemical Bank paid Intertel $8,804.39 in exchange for the assignment of the lease payments.
- Rinden made payments to Chemical Bank for nearly three years.
- In 1977, the phone system began to malfunction seriously, and Rinden notified Intertel and ceased payments to Chemical Bank.
- Rinden eventually replaced the phone system, and Intertel later went into bankruptcy.
Procedural Posture:
- Chemical Bank sued Rinden Professional Association in the New Hampshire Superior Court for non-payment.
- Rinden filed a third-party claim against Intertel, which later went into bankruptcy.
- The trial court denied Chemical Bank's initial motion for summary judgment, finding a question of fact remained regarding the bank's good faith status.
- The trial court denied two subsequent motions for summary judgment filed by Rinden, awarding attorney's fees to Chemical Bank for having to defend against the second motion.
- After a hearing on the merits, a Master found for Chemical Bank, ruling the waiver clause was valid and enforceable. The Superior Court approved the Master's report and entered judgment for Chemical Bank.
- Rinden, as the appellant, appealed the Superior Court's decision to the Supreme Court of New Hampshire.
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Issue:
Does a 'hell or high water' clause, which waives a commercial lessee's defenses against an assignee, become enforceable under UCC § 9-206(1) when the assignee takes the assignment for value, in good faith, and without notice of a claim or defense?
Opinions:
Majority - Douglas, J.
Yes, the 'hell or high water' clause is enforceable because an agreement by a buyer to waive defenses against an assignee is valid under UCC § 9-206(1) when the assignee takes the assignment for value, in good faith, and without notice of any claim or defense. The court found that the lease-purchase agreement was a secured transaction governed by UCC Article 9. All requirements for a valid waiver under § 9-206(1) were met: 1) Rinden, a sophisticated commercial entity, agreed to the waiver by signing a clear and unambiguous document; 2) Chemical Bank took the assignment for value by paying Intertel over $8,800; 3) Chemical Bank acted in good faith, as its relationship with Intertel was an ordinary, arm's-length commercial one, and insisting on a waiver clause is standard practice; and 4) Chemical Bank had no notice of any claim or defense at the time of assignment. The court rejected Rinden's arguments that the waiver was unenforceable due to lack of consideration (not required for contract modification under UCC § 2-209), public policy (pre-UCC law cited by Rinden was superseded and applied to consumer, not commercial, transactions), or unconscionability (the clause was clear, not buried, and Rinden's principals were legally sophisticated).
Analysis:
This decision strongly affirms the enforceability of 'hell or high water' clauses in commercial financing agreements under the UCC. It establishes that such clauses effectively sever the obligation to pay from the seller's performance obligations, protecting assignees and promoting the flow of commercial credit. The case clarifies the high bar for a sophisticated commercial party to invalidate such a clause on grounds of bad faith or unconscionability. Future litigants in similar commercial disputes will find it difficult to avoid payment obligations to an assignee, even in cases of total product failure, if the assignee meets the good faith, for value, and without notice requirements of UCC § 9-206(1).
