A. WHAT IS ASSIGNMENT OF RECEIVABLE?

The provisions on assignment of receivable are regulated under Articles 183-194 of the Turkish Code of Obligations numbered 6098 ('TCO'). When these articles are analysed, it will be noticed that there is no explicit definition of assignment of receivable. However, in the narrowest sense, it means that it is assignment of a receivable by the creditor to third party.1

The debtor does not participate in assignment of receivable. Unless prevented by the law, the agreement or the nature of business; the creditor may assign receivables to a third party without seeking the consent of the debtor (Article 183 of TCO).

Since assignment of receivable is not an event that is realised by the creditor's unilateral declaration of will, it is important that the assignor (creditor) and the assignee (third party) agree on this issue and give their consent. Therefore, this transaction - which is in the nature of act of disposal - will occur with an agreement between the assignor and the assignee.

B. WHAT ARE THE CONDITIONS?

The validity of assignment of receivable depends on the following conditions: a valid contract, the existence of assigned receivable and the absence of any obstacle.

i. A Valid Contract

'Assignment of receivable agreement' is subject to the general provisions regarding the validity of agreements.2 In other words, it is necessary to pay attention to the matters stipulated in the law, such as the existence of mutually compatible declarations of will of the parties, the assignor having the authority to dispose, the subject matter of assignment not being impossible and not contrary to the mandatory legal rules and public order.

Apart from this, the validity of assignment of receivable is subject to a specific form under the law. The validity of assignment of a receivable by the creditor to a third party without the consent of the debtor depends on the written form of the assignment (TCO, Article 184); however, the written form required by the law is an ordinary written form, not an official form.3 Nevertheless, the requirement that assignment of receivable be in writing does not prevent assignment of receivable agreement from being executed in formal form. In practice, assignment of receivable agreement is often executed in formal form (e.g., through a notary public). Pursuant to the principle of 'definiteness',4 notaries generally require receivables to be specified in these agreements. Otherwise, they might not approve the transaction; however, in any case, if the ownership of an immovable property is promised in return for a receivable, assignment must be made in an official form (Turkish Civil Code, Article 706/I).

ii. The Existence of Assigned Receivable

As a rule, it should not be possible to dispose of a non-existing receivables; however, although the assignability of non-existing receivables is controversial in the doctrine, the common consensus is that such receivables may be assigned.5 It is argued that receivables that do not yet exist at the time of assignment and receivables subject to contingent and/or maturity are assignable; even the fact that the subject of assignment is contentious shall not constitute an obstacle to assignment. The basic idea underlying this is that the assignor has a receivable that it can dispose of, even if it is not due at the time of assignment.6

For example, assignment of receivable in lease agreements, which is one of the receivables based on a legal basis existing at the time of assignment, is interpreted as the assignment of 'expected right' arising from the underlying relationship, which gives the opportunity to have the actual receivable that will arise in the future. Therefore, it is argued that when the lease obligation arises, the assignee will have acquired the right to demand its fulfilment as a result of the expected right previously assigned to him.7

The Court of Cassation has also ruled that receivables must exist in order to be assigned but non-existing receivables may also be assigned.8

iii. The Absence of Any Obstacle (What Can be Assigned?)

In line with the resolution of the Court of Cassation stating that "It does not matter whether the receivable arises from a legal transaction, tort, unjust enrichment or directly from the law.",9 every right to receivable, regardless of its source, may be assigned, except in cases where the law or the nature of business prohibits the assignment (TCO, Article 183). There is no provision in the TCO that prohibits assignment of existing and future receivables in whole or in part.

The legislator has deemed it necessary for some receivables to remain with the person from whom they arose due to their personal characteristics and has not permitted the assignment of these receivables. For example: right of use of the usufructuary lease (TCO, Article 366/1), borrower's right of use (TCO, Article 380/2), the right of the maintenance creditor in agreement of support for life (TCO, Article 619), assignment of the employer's rights in service agreements (TCO, Article 429/1), receivable for moral damages unless it is accepted by the other party (Turkish Civil Code, Article 25/4), one quarter of the monthly wages of workers (Labour Code, Article 35).

Apart from legal obstacles, sometimes the nature of business may create an obstacle. In cases where there is a close connection between the right to receivable and the personal characteristics of the creditor, it is argued that the debtor has an interest worth protecting in not changing the creditor.10 For example: the right to request of the lawyer to perform the work in power of attorney agreement, the right to demand compliance with the non-competition agreement, alimony receivable.

Any assignment made despite these provisions shall be null and void.

Finally, the creditor and the debtor may also agree that receivables cannot be assigned by an agreement between them. Bear in mind that, although the debt relationship giving rise to the right to receivable is subject to form, non-assignment agreement may be concluded without being subject to form.11

C. WHAT ARE THE CONSEQUENCES OF ASSIGNMENT OF RECEIVABLE?

In case of assignment of receivable, different provisions and consequences arise for the debtor, the creditor and the third party.

Since assignment of receivable is a contractual act of disposal, the right to receivable is removed from the assets of the assignor. In addition, the assignor shall cease to be the party to previous debt relationship and shall be replaced by the assignee in the capacity of creditor. Consequently, after assignment, the former creditor may no longer dispose of or assign the receivable. The assignee may collect the receivable from the debtor, release the debtor or assign the receivable to a third party.12

Priority rights and subsidiary rights other than those specific to the personality of the assignor shall also pass to the assignee (TCO, Article 189). For instance, rights such as pledge, surety, penal clause, mortgage, rights that give rise to novelty, right to receivable compensation pursuant to Article 112 of the TCO, right to receivable default interest pursuant to Article 125 of the TCO, right to file a lawsuit, right to pursue, etc., which are among the rights attached to receivable, shall be assigned.13 It is also stated in the law that the interest accrued together with the principal receivable shall be deemed to be assigned (TCO, Article 189/2).

In assignment of receivable, the consent of the debtor is not required; however, although it is not one of the formal conditions of validity, it is crucial to notify the debtor because the good faith debtor, who has not been notified of assignment of receivable by the assignor or assignee, may be released from its obligation by performing to the previous creditor (TCO, Article 186). Therefore, if the debtor has been notified of assignment, the debtor may be released from its obligation by fulfilling the debt to the assignee.14 If no notification is made and the debtor has performed, the assignee will have lost its right since the obligation has been terminated and the assignee will only be able to receivable compensation for the damages incurred due to the acceptance of performance by the assignor. On the other hand, the debtor has the right to ask the creditor to prove that the receivable has been assigned because if the receivable has not been assigned, the performance in reliance on the notification will not relieve the debtor from its obligation.15

In assignment of receivable, the scope of the debt relationship does not change, only the creditor changes. Therefore, the debtor may assert the defences (def'i) that he had against the assignor when he learnt of assignment, as well as against the assignee (TCO, Article 188/1).16 The debtor may assert that the receivable did not arise or that it was terminated due to reasons such as release of debt, performance, etc. It may object to the invalidity of the debt relationship on which the receivable is based, that one of the parties does not have the capacity to act, that the assignor does not have the authority to dispose of, etc.17 In addition, the debtor also may object that the delaying condition has not been fulfilled in assignment of receivable subject to any kind of groundless delaying condition.18

Another important consequence of assignment of receivable is the guarantee liability of the assignor.19 It is important whether receivable is assigned in return for a consideration (edim) or not, because if receivable is assigned in return for a consideration, the creditor guarantees the existence of receivable and the debtor's ability to pay at the time of assignment (TCO, Article 191/1). The assignee may demand from the creditor the return of the counter-consideration with interest, the expenses caused by assignment, the expenses incurred by assignment, the expenses incurred by the debtor in his fruitless attempts to obtain the receivable he has taken, and other damages incurred unless the assignor proves his fault (TCO, Article 193); however, if receivable has been assigned without consideration or has been assigned to another person in accordance with the law, the assignor or the previous creditor shall not be responsible for the existence of receivable and the debtor's ability to pay (TCO, Article 191/2).

Footnotes

1. The resolution of the 3rd Civil Chamber of the Court of Cassation dated 21.2.2017 and no. E. 2016/13540, K. 2017/1715.

2. Oguzman, Öz, (2016), "Special Provision of Code of Obligations", Volume 2, Istanbul: Vedat Kitapçilik, p. 564-565.

3. The resolution of the 14rd Civil Chamber of the Court of Cassation dated 7.3.2017 and no. E. 2016/11546, K. 2017/1742.

4. Abdurrahim Altun, (2019), "Assignment of Future Receivables", Necmettin Erbakan University Journal of Faculty of Law, Volume 2, Issue 2, p. 168.; Mehmet Deniz Yener, "Guarantee Liability of the Assignor of the Receivable and the Amendments Made by the Turkish Code of Obligations No. 6098", DegiPark, p. 68.

5. Baki Ilkay Engin, (1999), "Guarantee Liability of the Assignor", Istanbul University Institute of Social Sciences Department of Private Law, Doctoral Thesis, p. 26.

6. Abdurrahim Altun, p. 165.

7. Oguzman, Öz, p. 567.

8. The resolution of the 13rd Civil Chamber of the Court of Cassation dated 28.5.2019 and no. E. 2016/18730, K. 2019/6711: "In assignment of receivables, the creditor may assign a right that he currently has, as well as a future receivable that does not yet exist.".

9. The resolution of the General Assembly of Civil Chambers of the Court of Cassation dated 21.3.2019 and no. E. 2017/2630, K. 2019/328.

10. Baki Ilkay Engin, p. 30.

11. The resolution of the General Assembly of Civil Chambers of the Court of Cassation dated 3.6.2021 and no. E. 2017/427, K. 2021/685.

12. Mehmet Deniz Yener, p. 68.

13. Oguzman, Öz, p. 576-577.

14. The resolution of the 11rd Civil Chamber of the Court of Cassation dated 4.11.2020 and no. E. 2020/632, K. 2020/4721.

15. Oguzman, Öz, p. 581.

16. The resolution of the 19rd Civil Chamber of the Court of Cassation dated 14.10.2015 and no. E. 2015/1159, K. 2015/12752.

17. Oguzman, Öz, p. 585.

18. The resolution of the 8rd Civil Chamber of the Court of Cassation dated 18.3.2014 and no. E. 2014/670, K. 2014/4467.

19. The resolution of the 11rd Civil Chamber of the Court of Cassation dated 24.3.2016 and no. E. 2015/7083, K. 2016/3331.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.