UCC 9-406: Notices, Defenses, and Anti-Assignment Clauses

UCC 9-406 is the Uniform Commercial Code section that tells an account debtor what to do when someone claims the right to collect a payment has been transferred to a new party. In short: you can keep paying the original creditor until you receive a valid, authenticated notice of assignment that reasonably identifies the rights assigned and directs you to pay the assignee instead. Once that notice arrives, paying the old party no longer discharges the debt. Before that notice arrives, or if the notice is defective, your existing payment habits are safe.

The section also gives you a right to demand proof of the assignment, overrides most contract clauses that try to block assignments in the first place, and preserves the defenses you had under the original deal. Each of those pieces matters when a letter from an unfamiliar company lands on your desk.

When You Have to Start Paying the New Party

Under subsection (a), payment to the original creditor (the assignor) discharges your obligation until you receive an authenticated notice telling you the amount has been assigned and that payment should go to the assignee.¹ After the notice, the switch is immediate. Send money to the old party anyway and the assignee can still collect the full amount from you.

New York’s Court of Appeals applied that rule directly in Worthy Lending LLC v. New Style Contractors, Inc. The account debtor kept paying its original vendor after receiving a valid notice and was held liable for the full balance a second time to the assignee. The court described double payment as “the statutory consequence of failing to pay a secured party.”¹

This is where most trouble starts. A business receives a letter from a company it has never heard of, assumes it’s junk mail, and keeps paying the vendor it knows. By the time a lawsuit arrives, the invoice has already been paid in full once. Treat every assignment notice as real until you’ve verified it, and use the proof procedure below rather than ignoring the letter.

What Makes an Assignment Notice Valid

Not every letter triggers a duty to redirect payments. Subsection (b) sets the standards.

The notice must reasonably identify the rights assigned. A vague statement that “all future payments” now belong to a third party, with no account numbers, invoice references, or contract details, may not be enough to shift your obligation.¹

The notice must also be “authenticated.” The UCC uses that word instead of “signed” so it covers both physical signatures and electronic records. A typed name at the bottom of an email can qualify if the sender intended it to verify the record. What matters is that the notice came from, or was authorized by, someone with authority over the assignment, meaning either the assignor or the assignee.

You Can Ignore a Split-Payment Notice

One of the strongest protections in the section is the rule on partial payments. If a notice tells you to send only part of an installment or periodic payment to the assignee and the rest somewhere else, you can treat the notice as if it never arrived. This holds even when you know the assignment covers only a portion of the account, and even when different portions were assigned to different parties.¹

Subsection (g) says you cannot waive this right. A contract clause requiring you to honor split-payment instructions has no effect.¹

A Narrow Payment-Intangible Exception

Subsection (b)(2) adds another ground for ineffectiveness. If the underlying obligation is a payment intangible and the agreement with the seller limits your duty to pay anyone other than the seller, the notice is ineffective to the extent that limitation is enforceable under other law. This mostly comes up in specialized financial transactions rather than everyday commercial accounts.¹

Demanding Proof of the Assignment

When an unfamiliar company contacts you, subsection (c) lets you ask for reasonable proof that the assignment actually happened. A copy of the signed assignment agreement is the usual form of proof. A filed UCC financing statement by itself is not enough, because the filing shows a security interest was claimed, not that a particular payment stream was transferred to the party contacting you.¹

While you wait for a response, you can continue paying the original creditor without risking default. If the assignee never provides adequate proof, you can disregard the notice entirely. Payments to the assignor during the verification window fully discharge your obligation.¹

The assignee has to respond “seasonably,” which the UCC defines as at or within a reasonable time rather than a fixed number of days.² What counts as reasonable depends on the complexity of the assignment and ordinary business practice. One caveat: paying the original creditor well before the due date just to lock in a discharge before the assignee can respond likely will not work. The protection covers the verification gap; it is not a loophole for sidestepping a legitimate assignment.

Defenses You Keep Against the Assignee

The assignee does not get better rights than the original creditor had. Under the related provision in UCC 9-404, the assignee’s right to collect is subject to the terms of your original agreement and any defense or claim arising from the transaction that created the debt. If the original creditor delivered defective goods or failed to perform, you can raise those arguments against the assignee.³

You can also assert other claims you had against the original creditor, as long as the claim arose before you received the authenticated notice. Once the notice lands, the cutoff kicks in, and new disputes with the original creditor generally cannot reduce what you owe the assignee.³

These claims can only reduce what you owe. They cannot be used to recover money from the assignee. If the original creditor owes you more than the assigned debt, you cannot collect the difference from the assignee; the assignee stands in the assignor’s shoes only up to the amount of the assigned obligation.³

Anti-Assignment Clauses That Don’t Bind You

Many commercial contracts say the creditor cannot assign payment rights without the debtor’s consent. Subsection (d) renders those clauses ineffective when they apply to accounts, chattel paper, payment intangibles, or promissory notes.¹

The override goes beyond permitting the transfer. It also blocks any contract provision that would treat the assignment as a default, impose a penalty, or give you a right to terminate. A $50,000 liquidated-damages clause tied to an unauthorized assignment has no teeth under this section. Clauses that purport to block the creation or enforcement of a security interest in the receivable fail the same way.¹

Subsection (f) extends the same principle to statutes and regulations. A law that prohibits or restricts assignment of an account or chattel paper is ineffective to the extent it would block the transfer or trigger adverse consequences.¹

There is one gap. Under subsection (e), the override does not apply to the outright sale of a payment intangible or promissory note. When a creditor sells (rather than pledges as collateral) a promissory note, contractual restrictions on assignment may still have force.¹

Modifications After an Assignment

An assignment does not freeze the underlying contract. Under UCC 9-405, you and the original creditor can modify or substitute the agreement in good faith, and the assignee takes the deal as modified. The flexibility narrows once the right to payment has been fully earned through performance, or once you have received a notice under 9-406(a). After that, unilateral changes between you and the original creditor carry more risk, though any resulting dispute is typically between the assignor and the assignee rather than something that affects you.⁴

Where UCC 9-406 Does Not Apply

The section does not cover every receivable or every debtor.

Consumer Obligations

Subsection (h) defers to other law when the obligation was taken on for personal, family, or household purposes. Federal and state consumer protection statutes may impose stricter notice rules or additional debtor rights, and those override 9-406 where they apply. If you owe money on a consumer debt, do not assume the rules in this section control.¹

Health-Care-Insurance Receivables and Other Carve-Outs

Subsection (i) excludes several categories outright. Health-care-insurance receivables are the most prominent; different rules govern their assignment and collection. Many states also exclude claims for compensation for injuries or sickness and rights to benefits under a special-needs trust.¹

State Variations

The UCC is a model, and each state enacts its own version. Most hew closely to the standard text, but some add exclusions covering interests in trusts, partnerships, or limited liability companies. If an unusual asset type is involved, check the enacted version of 9-406 in your state before deciding how to respond to a notice.

1
Legal Information Institute. Uniform Commercial Code 9-406
2
Legal Information Institute. Uniform Commercial Code 1-205
3
Legal Information Institute. Uniform Commercial Code 9-404
4
Legal Information Institute. Uniform Commercial Code 9-405