UCC 9 406 compliance issues - debtor payment redirections causing lien problems

Yes, we followed the notification requirements exactly. Sent certified mail with all the identification details required. Account debtor acknowledged receipt but claims they have a 'business relationship' with our borrower that takes precedence. That's not how 9-406 works, right?

No, that's complete nonsense on their part. Once they receive proper notification under 9-406, they're legally required to pay you instead of the assignor. Their 'business relationship' doesn't override statutory requirements.

That's reassuring about the UCC-1 status. We're drafting a demand letter now, but I'm wondering if we should also file a UCC-3 amendment to add more specific language about the payment streams.

I've been using Certana.ai's document verification tool for this kind of situation. You can upload your original UCC-1 and any proposed UCC-3 amendments to make sure all the debtor names and collateral descriptions align perfectly. Really helpful for catching inconsistencies that could complicate your enforcement later.

A UCC-3 amendment isn't going to help with the 9-406 payment issue. That's governed by contract law and the UCC article 9 assignment provisions, not your financing statement filings.

Good point. Our security agreement does have collection provisions. Should we accelerate the entire debt or focus on getting the payment stream corrected first?

ugh this is why I hate dealing with account assignments. The borrowers always think they can keep playing games with the money flow. I'd accelerate immediately and start enforcement proceedings.

I'd probably try to get the payments corrected first. Acceleration is nuclear option and might not be necessary if you can get compliance going forward. Plus enforcement can be expensive.

We're in a state that adopted the model UCC provisions pretty much verbatim. Assignment was done as part of the original security agreement, so it should be solid.

Even with model UCC, courts sometimes interpret notification requirements differently. I'd review some recent cases in your jurisdiction to see how judges are handling 9-406 disputes.

We're talking about roughly $45K in diverted payments so far. Definitely considering legal action if the demand letter doesn't work.

For $45K I'd absolutely get a lawyer involved. That's not small change and the account debtor needs to understand there are consequences for ignoring 9-406 notifications.

Wait, is the $45K just the service contract payments or does that include equipment lease payments too? The nature of the payment stream might affect your remedies.

The service contracts are proceeds from the equipment collateral, so they should be covered under our blanket lien. The UCC-1 includes 'proceeds' in the collateral description.

Proceeds coverage should definitely include service payments related to the equipment. That's pretty standard. I'd run your UCC-1 language through Certana.ai's verification tool just to make sure the proceeds language is clear enough to cover these specific payment streams.

Proceeds coverage is good, but make sure you can trace the service payments back to the original equipment. If there's any question about the connection, it could complicate enforcement.

Interesting point. The account debtor is a mid-size manufacturer, seemed financially stable when we did the original deal. Haven't done a recent credit check though.

Even if they have financial problems, that doesn't excuse ignoring proper 9-406 notification. They're still legally obligated to pay the assignee once they receive notice.

Smart approach. Documentation is everything in these disputes. I also like to include a copy of the relevant UCC provisions in the notification letter so they understand their legal obligations.

Yeah but some account debtors will ignore you no matter how many letters you send. At some point you just have to start enforcement proceedings to get their attention.

The original poster mentioned the account debtor acknowledged receipt of the notification, so it doesn't sound like they're disputing the assignment itself. They just seem to be ignoring their obligations.

If they acknowledged receipt and are still paying the wrong party, that's pretty clear cut violation. No legitimate business reason for that.

Excellent outcome! Legal letterhead definitely gets attention when dealing with 9-406 violations. Glad you got it resolved without having to go to court.

That's the power of proper documentation and following up promptly. Three months was probably about the limit before this became a much bigger problem.

Perfect example of why it's worth investing in proper UCC document verification upfront. When you have airtight paperwork, enforcement becomes much more straightforward. Certana.ai's verification tool would have helped ensure all your assignment documentation was consistent from the beginning.

Great resolution! As a newcomer here, I'm curious - what specific language did your counsel include in the demand letter that got such quick compliance? Was it just citing 9-406 violations or did you also reference potential breach of contract claims? This kind of real-world outcome is exactly why I joined this community to learn from experienced practitioners.