Also known as: UCC 9-406 · U.C.C. § 9-406 · UCC §9-406 · 9-406 · discharge of account debtor
Written by attorneys · grounded in primary & secondary sources — see below
A statutory rule that governs the rights of an assignee of an account or payment intangible against the account debtor. The rule requires a signed notification of the assignment before the account debtor must pay the assignee directly. It permits discharge of the obligation by payment to the assignor until such notification is received.
Ulysses Ulrich contracted to sell his corn crop to Ultra Precision under a forward contract. Ultra Precision assigned its right to payment to Upland Industries and sent Ulysses a signed notification of the assignment. Ulysses continued paying Ultra Precision after receiving the notice. Payment to the assignor does not discharge the obligation once the signed notification has been received.
Ursula Ureña granted a security interest in her accounts to Ultimate Solutions. Ultimate Solutions assigned its right to payment to Uptown Apparel and sent Ursula a signed notification. Ursula paid Ultimate Solutions after receiving the notice. The payment does not discharge the obligation because the signed notification had already been received.
Select any source to read its text and confirm it supports the definition.
An account debtor must pay the assignee after receiving a signed notification of the assignment under the applicable rule. Payment to the assignor before proper notification discharges the obligation. Unsigned notices fail to trigger the payment redirection.
Defenses and claims in recoupment arising from the transaction may be asserted against the assignee to reduce amounts owed. Claims accruing before a proper signed notification can still be raised. Post-notification defenses are limited to those arising from the original transaction.
Payment to the assignor discharges the account debtor's obligation if made before receipt of a signed notification of the assignment. Once the signed notification arrives, the account debtor must pay the assignee to obtain a discharge. The timing of the notification therefore controls which party can give an effective discharge.