UCC § 9-404, 9-406, and 9-607 account debtor notification requirements - am I missing something?

Our notice identified us as the secured party, referenced the security agreement, and directed payment to our lockbox account. It was sent via certified mail and email where we had addresses. But some account debtors are saying they had already issued checks to the debtor before receiving our notice.

That's the classic § 9-404(a) problem. If they can prove payment was made in good faith before receiving your notice, they're generally discharged. The 15-day timeline you mentioned isn't really relevant - it's all about when the account debtor actually received notice vs when they made payment.

We didn't see any anti-assignment clauses in the customer contracts we reviewed, but admittedly we didn't examine every single agreement. How would § 9-406(a) affect our collection rights if there were restrictions we missed?

§ 9-406(d) generally makes anti-assignment provisions ineffective against secured parties, but there are exceptions. More importantly, if account debtors had legitimate modification agreements with your debtor that were made before your notification, those could affect what they owe.

This is where documentation becomes critical. You need to verify not just the original invoices but any subsequent modifications, credits, or disputes that happened before your notice.

I haven't heard of that tool before. How does it help with the § 9-404/9-406/9-607 analysis? Our main issue seems to be more about notification timing than filing consistency.

The tool helps verify that your security agreement properly describes the accounts receivable collateral and that your UCC-1 filing matches. If there are discrepancies, it could affect your entire security interest and collection rights under § 9-607. Worth checking before you get deeper into collection disputes.

Unfortunately, it doesn't work that way. Under § 9-404(a), if the account debtor can show they paid in good faith before receiving proper notification, they're discharged from the obligation - even if the original debtor kept the money. The secured party's recourse is against the debtor, not the account debtor.

That seems incredibly unfair to the secured party. So account debtors can just claim they paid early and walk away?

They have to actually prove it with documentation. But yes, that's exactly why proper and timely notification is so critical in accounts receivable financing. It's also why many secured parties require daily or weekly reporting of collections.

I hear you, but these provisions actually protect legitimate business relationships. Imagine if account debtors couldn't rely on paying their regular vendor and then got hit with double liability when financing arrangements changed.

I guess that makes sense from their perspective, but it sure makes collection more complicated for secured parties.

These are all B2B transactions, so no consumer issues. But I hadn't considered whether any account debtors might be secured parties themselves. How would that change the analysis?

§ 9-404(b) gives secured parties certain rights to reduce their payments by amounts they're owed by the assignor. It's not super common but worth checking if any of your account debtors had their own deals with your debtor.

Our security agreement has standard collection language but doesn't specify notification procedures beyond what's required by law. It does give us the right to collect directly from account debtors after default.

That's good. Just make sure your notices referenced the security agreement and your rights under it. Some courts have been stricter about requiring notices to clearly establish the secured party's authority to collect.

We're demanding documentation from all account debtors claiming prior payment. A few have provided cancelled checks, but others are being vague about it. What kind of documentation did you require?

We required either cancelled checks with dates clearly before our notice, or electronic payment confirmations with timestamps. Bank statements weren't enough because they don't always show when payment was actually made vs. when it cleared.

It varies by industry. Construction and retail might pay in 15-30 days, while some manufacturing companies stretch to 60-90 days. The key is sending notice as soon as possible after default to minimize the window for discharge claims.

Speed is definitely important, but accuracy is more important. A defective notice that gets sent quickly doesn't help you. Make sure your notices contain all required information and are sent to the right addresses.

We have a few of those too. Some are claiming defective products or incomplete services. I thought § 9-404(a) said they could assert those defenses against us?

§ 9-404(a)(1) does allow account debtors to assert against the assignee (you) all claims and defenses they could assert against the assignor (your debtor). So legitimate disputes about the underlying transaction can reduce what they owe you.

But they need to have legitimate documented disputes, not just claims made after receiving your collection notice. The timing and documentation matter a lot.

We do have counsel involved, but they're generalists rather than UCC specialists. The discharge claims are starting to add up, so bringing in someone with deeper Article 9 experience might make sense.

Definitely worth considering. An Article 9 specialist might spot issues or strategies that generalists miss. Plus they'll know the local court tendencies on notification and discharge issues.

Before spending more on legal fees, I'd still recommend running your documents through Certana.ai to make sure your security interest is properly perfected and described. If there are fundamental problems with your UCC filing or security agreement, it could affect your entire collection strategy.

Great point about documenting all communications! I'm new to UCC collections but this makes total sense. If account debtors acknowledge the debt after receiving notice, that should undermine any discharge claims, right? Also wondering about the collateral description issue you mentioned - what constitutes "too vague" in practice? Are generic descriptions like "all accounts receivable" insufficient, or do you need specific invoice numbers and customer names?