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What is an Account Debtor? A Comprehensive Legal Overview
Definition & Meaning
An account debtor is a person or entity that owes money on an account, chattel paper, or a general intangible. This term is commonly used in financial and legal contexts to refer to the party responsible for making payments under a contract or agreement. Notably, individuals obligated to pay a negotiable instrument are not classified as account debtors under the Uniform Commercial Code (UCC), even if the instrument is part of chattel paper.
Table of content
Legal Use & context
The term "account debtor" is primarily used in commercial law, particularly in transactions involving assignments of accounts receivable. In these situations, the account debtor is responsible for making payments to the assignee (the party to whom the debt is assigned) once they receive notice of the assignment. This concept is crucial in areas such as contract law and secured transactions, where understanding payment obligations is essential.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A company sells its accounts receivable to a financial institution. Once the company notifies its customers (account debtors) of this assignment, those customers must direct their payments to the financial institution.
Example 2: If an account debtor continues to pay the original seller (assignor) after being notified of the assignment, and the financial institution (assignee) does not object, the account debtor is not liable for any payments made to the assignor. (hypothetical example)
Relevant laws & statutes
The Uniform Commercial Code (UCC) governs the definition and obligations of account debtors. Specifically, UCC Article 9 addresses secured transactions and assignments, outlining the rights and responsibilities of account debtors when notified of an assignment.
Comparison with related terms
Term
Definition
Key Differences
Assignor
The person or entity transferring the rights to receive payment.
Assignor is the party that assigns the debt, while the account debtor is the party that owes the debt.
Assignee
The person or entity receiving the rights to collect payment.
Assignee receives the debt from the assignor, whereas the account debtor is responsible for paying the debt.
Common misunderstandings
What to do if this term applies to you
If you are an account debtor and have received notice of an assignment, ensure that you direct your payments to the assignee to avoid potential liability. If you're unsure about your obligations, consider consulting a legal professional. Additionally, you can explore US Legal Forms for templates that may help you manage your agreements and assignments effectively.
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Definition: A person or entity owing money on an account or general intangible.
Legal Context: Primarily used in commercial law and secured transactions.
Liability: Account debtors are liable to assignees after receiving notice of assignment.
Exemption: Not liable if they pay the assignor without objection from the assignee.
Key takeaways
Frequently asked questions
If you pay the assignor after receiving notice of the assignment, you may still be liable to the assignee for those payments, especially if the assignee has not objected.
No, once notified of the assignment, the account debtor must pay the assignee to fulfill their obligation.
No, an account debtor is not liable for payments made to the assignor before receiving notice of the assignment.