An assignment of contract rights transfers one party’s existing right to receive performance under a contract to someone new, giving that new party (the assignee) the power to collect or enforce what the original party (the assignor) was owed. Under the Restatement (Second) of Contracts § 317, an assignment extinguishes the assignor’s right to performance and creates a matching right in the assignee.1H2O. Restatement (2d) of Contracts 317 Assignment of a Right The mechanism is straightforward on paper. The traps sit in the details: an invalid assignment leaves the assignee with no enforceable claim, and a botched notice can let the obligor pay the wrong party and walk away clean.
Which Rights Can Be Assigned
The default rule strongly favors assignability. Section 317 of the Restatement establishes that any contractual right can be assigned unless a specific exception applies.2Lexis Advance. Restatement of the Law, Second, Contracts 317 – Assignment of a Right The old common-law rule treating contractual rights as personal and non-transferable is gone. Anyone arguing that a particular right can’t be assigned now carries the burden of showing why.
The most common assignments involve accounts receivable, where a business sells or pledges its right to collect payment from a customer. The same principle covers rights to receive standardized goods, rights to payment under a lease, and rights to insurance proceeds. Once a valid assignment happens, the assignee steps into the assignor’s position and can enforce the right as though they had been the original party.
Assignment vs. Delegation
People routinely mix these up, and the difference matters. An assignment transfers rights: what you are entitled to receive. A delegation transfers duties: what you are obligated to perform. When a contract says “no assignment,” that language often bars only delegation of the assignor’s duties, not the transfer of rights to receive performance.3Legal Information Institute. Uniform Commercial Code 2-210 – Delegation of Performance; Assignment of Rights
A general assignment of “all my rights under the contract” typically does both at once: it transfers the rights and delegates the duties. The assignee who accepts that package implicitly promises to perform the delegated obligations, and either the assignor or the other original party can enforce that promise. But delegation does not let the original obligor off the hook. Even after delegating, the assignor stays liable if the delegate fails to perform. The only way to fully escape the duty is a novation, in which the other party agrees to substitute the new party and release the original one.
What Blocks an Otherwise Valid Assignment
Three categories of restrictions can invalidate an assignment.
Material change to the other party’s position. Under UCC § 2-210, an assignment is invalid if it would materially change the other party’s duty, materially increase the burden or risk the contract imposes on them, or materially impair their chance of getting return performance.3Legal Information Institute. Uniform Commercial Code 2-210 – Delegation of Performance; Assignment of Rights The Restatement uses similar language and adds that an assignment failing any of these tests is invalid even without an anti-assignment clause.2Lexis Advance. Restatement of the Law, Second, Contracts 317 – Assignment of a Right A contract for a specific surgeon to perform a procedure sits in this category: the other party bargained for that individual’s skill, and swapping in someone else changes the deal.
Statute or public policy. Certain claims are restricted or non-assignable by law. Most jurisdictions prohibit assigning personal injury claims on public policy grounds. Future wages face heavy restrictions under both state and federal rules. The Federal Trade Commission treats wage assignments in consumer credit contracts as unfair practices unless the assignment is revocable at will, is part of a payroll deduction plan, or applies only to wages already earned at the time of the assignment.
Anti-assignment clauses. Many commercial agreements require the other party’s written consent before any transfer. These clauses are generally enforceable, and an unauthorized assignment can itself be a breach of contract.
When Anti-Assignment Clauses Do Not Hold
This is where drafters often overreach. UCC § 9-406(d) renders anti-assignment clauses ineffective when the assignment involves accounts receivable, chattel paper, payment intangibles, or promissory notes used as collateral or sold as part of a secured transaction.4Legal Information Institute. UCC 9-406 – Discharge of Account Debtor; Notification of Assignment; Identification and Proof of Assignment; Restrictions on Assignment of Accounts, Chattel Paper, Payment Intangibles, and Promissory Notes Ineffective The clause can’t trigger a default, give rise to a termination right, or create any other remedy. The rule exists because businesses need to be able to use receivables as collateral for financing.
The override has limits. It does not reach the sale of payment intangibles or promissory notes outside secured transactions, health-care insurance receivables, or ownership interests in partnerships and LLCs. Consumer obligations incurred for personal, family, or household purposes may also fall under separate protective statutes.
Does an Assignment Need to Be in Writing
An assignment does not have to be in writing to be valid. Under Restatement § 324, an assignor can express the intent to assign orally or in writing. The critical element is a clear expression of present intent to transfer the right. An assignor who says, “I’m giving you my right to collect the $5,000 Jones owes me,” has made a legally effective assignment as long as no other barrier applies.
Practical reality still favors writing. An oral assignment is hard to prove. The UCC requires a writing for assignments of rights above $5,000 in some contexts. And UCC § 9-406(c) lets an account debtor demand reasonable proof that an assignment occurred; if the assignee can’t produce that proof promptly, the obligor can keep paying the assignor and fully discharge the debt.4Legal Information Institute. UCC 9-406 – Discharge of Account Debtor; Notification of Assignment; Identification and Proof of Assignment; Restrictions on Assignment of Accounts, Chattel Paper, Payment Intangibles, and Promissory Notes Ineffective
How to Execute an Assignment
A well-drafted assignment agreement identifies the assignor, assignee, and obligor by full legal name and address. It describes the specific right being transferred with enough precision that no one could confuse it with a different obligation. For an account receivable, that means the dollar amount, the underlying contract or invoice number, and the obligor’s identity. A vague reference to “amounts owed” invites disputes.
The agreement should state the effective date and the consideration the assignee is providing, which can range from a nominal amount to full face value. A gift assignment with no consideration is valid but carries revocability risks discussed below. Both parties sign, and the assignor’s language should make clear they are relinquishing all claims to the transferred interest as of the effective date.
Notifying the Obligor
Sending a proper notice of assignment to the obligor is the single most important step an assignee can take. Until the obligor receives notice, they can keep paying the original assignor and fully discharge their obligation, leaving the assignee to chase the assignor for the money.4Legal Information Institute. UCC 9-406 – Discharge of Account Debtor; Notification of Assignment; Identification and Proof of Assignment; Restrictions on Assignment of Accounts, Chattel Paper, Payment Intangibles, and Promissory Notes Ineffective
Once the obligor receives a valid notification, the rules flip. The obligor can only discharge the debt by paying the assignee. If they ignore the notice and keep paying the assignor, they remain liable to the assignee for the same amount, which effectively means paying twice.
To be effective, the notice must be authenticated by the assignor or the assignee, state that the amount has been assigned, direct payment to the assignee, and reasonably identify the rights involved. A notice that tells the obligor to split payments between the assignor and the assignee for different portions of the debt is ineffective at the obligor’s option, even if only part of the account was assigned. The obligor can insist on paying one party in full. Sending the notice by certified mail with a return receipt creates a verifiable record and eliminates the most common defense obligors raise: claiming they never got it.5United States Postal Service. Shipping Insurance and Delivery Services
Can the Assignor Take It Back
Whether an assignment can be undone depends almost entirely on whether the assignee gave something in return. An assignment supported by consideration is irrevocable the moment it is made. The assignor cannot change their mind, and neither death nor bankruptcy of the assignor defeats the assignee’s rights.
A gratuitous assignment, given as a gift, is different. It is revocable at any time. The assignor can revoke directly by telling the assignee or the obligor that the assignment is off. Assigning the same right to someone else automatically revokes the earlier gift assignment. Death, incapacity, or bankruptcy of the assignor terminates a gratuitous assignment by operation of law.
A gratuitous assignment does become irrevocable in narrow circumstances: when the obligor has already performed for the assignee, when a symbolic document such as a stock certificate has been physically delivered, when the assignment is in writing and delivered, or when the assignee has reasonably relied on it to their detriment. Anyone receiving an assignment as a gift should try to collect from the obligor, or at minimum get the assignment in writing and delivered, as quickly as possible.
Priority When the Same Right Is Assigned Twice
When an assignor assigns the same right to two different people, someone loses. The outcome depends on whether UCC Article 9 governs the assignment, as it does with accounts receivable used as collateral.
Under UCC § 9-322, a perfected security interest beats an unperfected one regardless of which came first in time. Between two perfected interests, the one filed or perfected earliest wins. Between two unperfected interests, the first to attach has priority.6Legal Information Institute. UCC 9-322 – Priorities Among Conflicting Security Interests in and Agricultural Liens on Same Collateral This is why filing a UCC-1 financing statement matters: the filing establishes your place in line.
For assignments outside Article 9’s scope, jurisdictions split. Some follow the “first in time” rule, giving priority to whichever assignee received their assignment first. Others follow the “first to notify” rule, protecting whichever assignee first notified the obligor. Either way, an assignee who sits on an assignment without notifying the obligor or filing a public record is gambling that no competing claim surfaces.
Tax Consequences
Assigning a contract right can trigger federal income tax, and the IRS applies a doctrine that catches people off guard. Under the assignment of income doctrine, first established in Lucas v. Earl (1930), income is taxed to the person who earns it. Simply transferring the right to receive that income to someone else does not shift the tax liability.7Internal Revenue Service. Revenue Ruling 2002-22 If you earned a commission and then assigned the right to collect it, you still owe income tax on the commission.
The doctrine does not apply in every situation. Courts have recognized exceptions where the transfer serves a legitimate business purpose rather than tax avoidance. Transferring accounts receivable to a corporation as part of a genuine incorporation under IRC § 351(a) can shift the tax liability to the corporation. Transfers of income rights between spouses as part of a divorce settlement are generally exempt under § 1041.7Internal Revenue Service. Revenue Ruling 2002-22 When the assignee pays for the right, the assignor may also have a gain or loss on the sale of the contract right itself, separate from any income the right produces. The tax treatment of that gain depends on whether the contract right qualifies as a capital asset or ordinary income property.