Also known as: account debtor · accountdebtor
Written by attorneys · grounded in primary & secondary sources — see below
A person obligated on an account, chattel paper, or general intangible. The definition expressly excludes any person obligated to pay a negotiable instrument even when the instrument evidences chattel paper.
CityCare Hospital sold its unpaid patient invoices to Apex Billing LLC. Jordan still owed payment on his ordinary account for medical services. Apex notified Jordan of the assignment and demanded that he remit the balance directly to Apex. Jordan remained the account debtor because his obligation arose on an account rather than a negotiable instrument.
Summit Steel LLC performed drywall work for Metro Builders Corp. under a subcontract that created rights to progress payments. Summit assigned those rights to Harbor Finance Corp. Metro remained obligated to pay the assigned amounts. Metro therefore qualified as the account debtor on the underlying account even after the assignment.
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An account debtor is the person obligated on an account, chattel paper, or general intangible. The definition excludes anyone whose only obligation runs on a negotiable instrument.
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Once an obligor issues a negotiable promissory note in satisfaction of the underlying obligation, that party is no longer an account debtor because the definition excludes persons obligated on negotiable instruments.
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After assignment the secured party may notify the account debtor to pay the assignee directly. The account debtor may assert defenses and claims in recoupment arising from the original transaction against the assignee.
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