Rights of transferee subject to contractual terms and defences
( 1) The rights of a transferee of an account or chattel paper (including a secured party or a receiver) are subject to:
( a) the terms of the contract between the account debtor and the transferor, and any equity, defence, remedy or claim arising in relation to the contract (including a defence by way of a right of set-off); and
(b) any other equity, defence, remedy or claim of the account debtor against the transferor (including a defence by way of a right of set-off) that accrues before the first time when payment by an account debtor to the transferor no longer discharges the obligation of the account debtor under subsection (8) to the extent of the payment.
(2) Subsection (1) does not apply if the account debtor makes an enforceable agreement not to assert defences to claims arising out of the contract.
Effect of modification or substitution of contract on transferee
(3) Unless the account debtor has otherwise agreed, a modification of, or substitution for, the contract between the account debtor and the transferor is effective against the transferee (including a secured party or a receiver) if:
(a) the account debtor and the transferor have acted honestly in modifying or substituting the contract; and
(b) the manner in which the modification or the substitution is made is commercially reasonable; and
(c) the modification or substitution does not have a material adverse effect on:
(i) the transferee's rights under the contract; or
(ii) the transferor's ability to perform the contract.
Note: For the meaning of modification , see section 10.
(4) Subsection (3) applies:
(a) to the extent that a transferred right to payment arising out of the contract has not been fully earned by performance; and
(b) even if there has been notice of the transfer to the account debtor.
(5) If a contract has been modified or substituted in the manner described in subsection (3), the transferee obtains rights that correspond to the rights of the transferor under the contract as modified or substituted.
(6) Nothing in subsections (3) to (5) affects the validity of a term in a transfer agreement that provides that a modification or substitution mentioned in subsection (3) is a breach of contract by the transferor.
Payment by account debtor after transfer
(7) If an account or chattel paper is transferred, the account debtor may continue to make payments under the contract to the transferor:
(a) until the account debtor receives a notice that:
(i) states that the amount payable or to become payable under the contract has been transferred; and
(ii) states that payment is to be made to the transferee; and
(iii) identifies the contract (whether specifically or by class) under which the amount payable is to become payable; or
(b) after receiving a notice under paragraph (a) (other than a notice from the transferor), if:
(i) the account debtor requests the transferee to provide proof of the transfer; and
(ii) the transferee fails to provide proof before the end of 5 business days after the day of the request.
(8) Payment by an account debtor to a transferee in accordance with a notice under paragraph (7)(a) (including in the circumstances described in paragraph (7)(b)) discharges the obligation of the account debtor to the extent of the payment.