What Is Voluntary Assignment (Transfer) of Claim? 23 September 2016
I. What is “Assignment (Transfer) of Claim”?
Assignment of claim is regulated under the Turkish Code of Obligations (“Code”) between Articles 183 and 194. However, precise definition is not included in the Code. In practice, the words both “assignment” and “transfer” are used at the same meaning. Assignment of claim means changing the creditor of an existing claim. Pursuant to Article 183 of the Code, assignment of claim is the conventional transfer of claim, which arises from an obligatio, to the third party. Such transfer is done by creditor without the need for consent of debtor.
Debtor does not contribute to procedure of assignment of claim. Therefore, debtor does not have to be informed about this transfer or the consent of debtor is not required.
Assignment of claim shall not be confused with the transfer of contract. While assignment of claim means the transfer of one or more claim arising from an obligatio to third party, transfer of obligatio means the transfer of debtor-creditor relationship with its all rights and obligations.
Because the “legal status”, which originates from obligatio and especially from contractual relation, is not transferred with assignment of claim, constitutive rights and pleas that arise from such relation shall not be transferred as a principle. Such rights and pleas remain as belonging to the parties of contract; debtor and creditor. This situation is also applicable for rights of cancellation, terminate and reneging on contract.
II. What is “Voluntary Assignment of Claim”?
There are three ways to make assignment of claim; which are voluntary, judicial and by law. Voluntary assignment is the most common way in practice.
Voluntary assignment of claim is the type of transfer which is made through assignment agreement executed between assignee and assignor which transfers the claim directly to the assignee. The term assignment of claim is actually used with the intent to refer voluntary assignment.
III. Legal Nature of Assignment
Legal characteristics of assignment of claim are as follows:
a. Assignment of claim is a legal transaction:
Assignment of claim is a legal transaction by considering its characteristics. Parties provide transfer of claim from assignor to assignee in accordance with the assignment agreement. In respect to this, assignment of claim is both act of disposal and debt contract.
b. Assignment of claim is an act of disposal:
By procedure of assignment, claim is transferred from patrimony of assignor for the purpose of being added to the patrimony of assignee. Assignor shall have the power of disposition on the claim in order to consider this assignment as valid. In principle, the power of disposition shall exist at the time of assignment. When the claim is subject to more than one assignment, the assignment which is made previously shall be valid according to the principle called ‘priority principle’ which is applicable for dispositive transactions. Creditor does not have power of disposition on the claim which is seized.
c. Assignment of claim is a conventional transaction:
Assignment of claim is a bilateral legal transaction; it is a contract. Claim is transferred from assignor to the third party by this contract instead of unilateral declaration of assignor.
d. Assignment of claim is a causal transaction:
Assignment of claim is an acquisitive transaction and it requires legal reason or promissory transaction as each acquisition does. Testimonial, contract or legal could be a legal reason for the assignment. The purpose of assignment is generally made in order to perform duties or discharge responsibilities. Debtor may assign his claim which arises from another legal relation, to the creditor in order to perform his debts. Apart from that, assignment can be made for donation. Claim may be also transferred by the way of fiduciary assignment. Transfer for warranty or collection can be shown as examples for fiduciary assignment.
IV. Substantive and Formal Requirements of Assignment
a. Substantive Requirements: Both assignor and assignee shall have juridical capacity. In addition, declaration of intention of both parties shall be in the same direction.
b. Formal Requirements: Pursuant to Article 184 of the Code, assignment agreement shall be in written form and this requirement is the condition for validity. The condition for form is ordinary written form.
According to the Article 183 Paragraph 1 of the Code, claim shall not be transferred in case of generating from convention or its own nature. Transfer of claim can be completely prohibited by agreement made by parties. Parties can also partially or conditionally prohibit the assignment of claim. Assignment of claims which are intimately associated with the characteristic of creditor shall not be possible to transfer in accordance with the nature of legal relation. In principle, transfer of claim which shall not be assignable is null and void. Such an assignment cannot be effective not only for debtor but also for assignor and assignee.
V. Scope of the Assignment:
Assignment includes the essential right which is the right of claim and it also involves the accessory rights that arise depending upon this claim. Accessory rights especially include accrued interests and rights of warranty.
VI. Legal Consequences of the Assignment
a. Fundamental Consequences of the Assignment
i. Transfer of Claim and Change of Creditor: Title of ‘creditor’ passes to the assignee from assignor with the assignment transaction and the active party of contract changes.
ii. Obligation of Delivery of Evidences: Assignor shall deliver all the documents which can be used as evidence according to the Article 190 of the Code.
iii. Liability of Security for Assignor: Assignment of claim may be onerous or gratuitous. When the assignment is onerous, Article 191 Paragraph 1 of the Code obliges the assignor to provide guarantee regarding the existence of claim in order to secure the debtor’s ability to pay his debts. However, according to the Article 191 Paragraph 2, assignor shall not have to fulfill this requirement if the assignment is gratuitous.
Creditor may transfer his claim with the aim of performing his obligation and this issue is regulated under the Article 192 of the Code. According to this article, if creditor assigned his claim without any quantification about his obligation arises from obligatio, assignee shall appropriate the quantity which he derived from debtor.
Article 193 of the Code regulates the scope of liability of security for assignor. Accordingly, if the assignment is performed for a deed, assignee may demand to recover the performance given by assignor with its interest. Furthermore, within the scope of this article, assignee may ask the expenses which arise from assignment, expenditures which is inflicted from unsuccessful attempts made in order to obtain the claim from debtor and other losses unless assignor proves his faultlessness.
b. Subsidiary Consequences of the Assignment
i. Transfer of Priority Rights to Assignee with Essential Right: Concessionary claims should firstly be taken into consideration. Such claims have some priorities than other type of claims when the debtor bankrupts. Unpaid wages of employees, claim of alimony and payment for doctor can be shown as examples of such claims.
ii. Transfer of Accessory Rights to Assignee: Accessory rights which are based on the characteristic of assignor shall not be transferred to the assignee. However, rights of warranty such as right of surety and pledge, right of lien, right of reserve the possession are transferred to the assignee. Right of litigation and right to commence executive proceeding can also be regarded as accessory rights.
iii. Transfer of Regulatory Rights: It should be taken account of fact that when constitutive right is related with obligatio as a whole that is the source of claim, transfer of such a right to the assignee shall not be possible by assignment of claim
c. Legal Relation Between Assignee and Debtor
i. Permission of Debtor is not a Requirement for Assignment: Consent of debtor is not considered as a requirement for assignment in the Code. On the other hand, if debtor pays his debt to previous creditor with good faith, debtor will discharge from his obligation pursuant to Article 186 Paragraph 1 of the Code.
ii. Rights of Plea (Defense) of Obligor: According to Article 188 of the Code, debtor can submit pleas, which can be asserted against assignor at the time of being informed about assignment, also against assignee.
d. Legal Relation Between Assignor and Assignee
The most significant consequence of assignment of claim is the change of creditor and accurate transfer of claims to assignee from assignor. As mentioned above, assignee entitles for claim within or without the knowledge of debtor. When assignee bankrupts, claim that is assigned will be registered to bankruptcy estate. However, because assignor does not have any rights on claim, it will not be registered to bankruptcy estate if assignor bankrupts.
CONCLUSION: Assignment of claim is a contract which includes the transfer of right to claim resulting from obligatio and it is signed between creditor and third party who takes over this claim. Third party who is assigned the claim will have it with the completion of assignment without the consent of debtor. Existence of claim is guaranteed by assignor when the assignment is onerous. On the other hand, if assignment is gratuitous, assignor does not have any responsibility even for existence of claim in principle. Liability of security of assignor covers performance acquired by transfer and its interest, expenses made for assignment and costs made in order to collect the claim.
- Dr. Fikret Eren, Borçlar Kanunu Genel Hükümler, 17. Baskı, 2014. Ankara
- Doç. Dr. Mehmet Deniz Yener, Alacağı Devredenin Garanti Sorumluluğu ve 6098 Sayılı Borçlar Kanunu ile Yapılan Değişiklikler
I start my first year contracts course with consideration. For the first time, I’m also teaching a contracts drafting course. Based upon the contracts drafting texts that I reviewed, the general consensus seems to be that recitals of consideration are basically pointless. While I think that’s somewhat true in that they don’t contain performance obligations, it’s misleading, too. Courts not only consider recitals in construing clauses and the parties’ intent, a recital of consideration may create a rebuttable presumption or may estop a party from claiming lack of consideration. In other words, in some cases, it can save a party from a claim that consideration was insufficient.
A recent case involving a patent assignment, Network Protection Sciences v. Fortinet, 2013 WL 4479336 (N.D. Cal 2013), seemed to go even further when the court, applying Texas law, held that a recital was conclusive. The recital in question stated that the patent was assigned “for good and valuable consideration, the receipt of which is hereby acknowledged.” The party contesting the assignment argued that it was invalid because it was “beyond dispute” that no consideration was paid for it. The court, applying Texas law, rejected that argument finding the recital conclusive and that “(e)ven if no actual consideration were paid…NPS’s agreement to be bound by the choice-of-law provision would be deemed adequate consideration.” In other words, according to the court, the recital is conclusive with respect to the issue of whether there was consideration for the assignment but even if it weren’t, agreeing to the choice of law provision was sufficient consideration. Is this the law in Texas, is it unique to Texas, or did the judge make new law? Any contracts profs care to weigh in?
In any event, it seems that consideration wasn't the way to go anyway because (although the parties didn't raise the issue) the assignment seems to fall under Restatement section 332 regarding gratuitous assignments that are irrevocable if signed and delivered to the assignor. This makes sense to me because a written assignment can affect third parties who rely upon it.
The case is also noteworthy because it opens with a quote from a recent NYT oped, coauthored by Santa Clara law prof Colleen Chien, which discusses the problem of “patent trolls” (companies that buy up patents with the intent to sue for infringement, rather than to practice the patented invention). The court’s decision denying the defendant's motion to dismiss the patent infringement action was a bit disappointing given the way it began its opinion and the less-than-admirable behavior of the plaintiffs and their trollish behavior in pursuing the action. Where are the activist judges when you need them?
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