## Facts

- A finance company held a perfected security interest in a contractor’s present and after-acquired accounts, contract rights, and proceeds under a factoring/security agreement.
- A subcontractor issued a purchase order to the contractor to supply precast concrete panels for a New Mexico public highway project; the purchase order included an anti-assignment clause and incorporated the prime contract’s terms.
- The incorporated prime contract required prompt payment down the contracting chain (generally within seven days after receipt of payment from the upstream party).
- The contractor arranged for a supplier to manufacture and deliver the panels; the supplier billed the subcontractor and completed delivery.
- The contractor invoiced the subcontractor and later assigned the invoice to its finance company, which notified the subcontractor to pay the finance company.
- The contractor did not pay the supplier for the materials as required under the incorporated prompt-payment obligations.
- Facing competing claims by the supplier and the finance company, the subcontractor interpleaded the contract funds into court for determination of entitlement.

## Issues

1. Whether New Mexico lien-related policy or statutes give construction suppliers an absolute priority over a secured creditor with a previously perfected security interest in the contractor’s accounts/contract rights.
2. Whether the subcontractor, as account debtor, could assert the contractor’s breach of incorporated prompt-payment duties as a defense against the finance company’s demand as assignee/secured creditor.

## Decision

- The Supreme Court affirmed summary judgment awarding the interpleaded funds to the supplier.
- The Court rejected the view that suppliers categorically take priority over secured creditors; the legislature had not created absolute supplier priority.
- The Court held the finance company, as assignee, took the account subject to defenses the subcontractor could assert against the contractor.
- The contractor’s failure to timely pay its supplier, contrary to incorporated prompt-payment requirements and related public-works payment duties, constituted a breach supporting the subcontractor’s defense against payment to the assignee.

## Legal Principles

- New Mexico law does not grant construction suppliers an automatic, absolute priority over secured creditors merely by virtue of supplier status.
- An assignee of an account or contract right generally acquires no greater right to payment than the assignor and is subject to the account debtor’s contract-based defenses.
- When a subcontract incorporates public-works contract prompt-payment provisions, a contractor’s failure to pay lower-tier suppliers as required can amount to a breach of the subcontract, supporting nonpayment (or setoff) against the contractor and its assignee.

## Conclusion

The court upheld payment to the supplier not because suppliers invariably outrank secured creditors, but because the assignee’s claim was limited by the account debtor’s defenses arising from the contractor’s breach of incorporated prompt-payment obligations.


Hasse Contracting Co. v. KBK Fin., Inc., 980 P.2d 641 (N.M. 1999)