If assignment is prohibited by contract, which statement is correct?

If assignment is prohibited by contract, which statement is correct?

• A. The assignment is ineffective
• B. The assignee has priority
• C. The obligor owes payment to assignee only with notice
• D. The assignment is automatically valid

Answer: (A)

When a contract includes an anti-assignment clause, the rights under that contract cannot be transferred to another party. That means an attempted assignment does not take effect because the parties intended to keep those rights with the original holder. As a result, the assignee cannot step into the shoes of the original creditor, and the obligor remains obligated to pay the original creditor. The assignment is therefore ineffective. The other possibilities assume that the transfer could occur or become enforceable regardless of the contract’s prohibition, which isn’t the case here. If the contract prohibits assignment, there’s no automatic transfer of rights or new priority for the assignee, and mere notice to the obligor does not validate the transfer.

When a contract includes an anti-assignment clause, the rights under that contract cannot be transferred to another party. That means an attempted assignment does not take effect because the parties intended to keep those rights with the original holder. As a result, the assignee cannot step into the shoes of the original creditor, and the obligor remains obligated to pay the original creditor. The assignment is therefore ineffective.

The other possibilities assume that the transfer could occur or become enforceable regardless of the contract’s prohibition, which isn’t the case here. If the contract prohibits assignment, there’s no automatic transfer of rights or new priority for the assignee, and mere notice to the obligor does not validate the transfer.