Turkish Law Blog

Assignment of Receivables and the Guarantee Liability of the Assignor

Yudum Uğur Yudum Uğur/
10 December, 2019

Assignment of receivable is a legal institution that has stemmed from the needs of life[1] and is a method frequently resorted to by both international and national businesses. It is mostly used when the assignor is in financial difficulty and as a result of the sale of the receivable below its real value.[2] This institution has been regulated in Articles 183 through 194 of the Turkish Code of Obligations No 6098 (“Code”). While it is not specifically defined in the Code, it may be summarized as a process whereby an individual receivable arising from a debt relation is passed onto a third party in part or in full. It should be particularly noted here that an assignment of receivable is different than the transfer of agreement. In case one or multiple receivables arising from a debt relation are assigned to a third person, this represents an assignment of receivable whereas if the debt relation is transferred together with all its rights and liabilities, this means the transfer of the debt relation. This article will focus on the assignment of receivable.

Upon assignment, the “creditor” which is the active subject of the debt relation will be replaced and the receivable passes onto the transferee (assignee). What is assigned here is the principal amount of the receivable which is the main claim and its accessories. These accessories include accrued interest, guarantees/security, lien right and statutory lien right, and right of retention of title. It should be remembered that it may be agreed for the accrued interest not to pass onto the assignee; however, in case of doubt, accrued interests shall also be considered to have been assigned.

Following the assignment, the transferor (assignor) may no longer demand the performance of the obligation. Upon the assignment of the receivable, the right to sue which may not be separately transferred to a third party independent of the main claim shall have been assigned as well, meaning that the standing to sue also passes onto the transferee (assignee).[3] The reason of this is that in such case the assignee will have conclusively acquired the claim which used to belong to the assignor and obtained the “right of disposition” thereon. The right of disposition implicates certain legal procedures such as filing any and all lawsuits concerning the receivable, initiating enforcement proceedings for the same, and assigning the same. As can be seen, an assignment of receivable will become effective only in case the assignor also holds the right of disposition over the said receivable. As a rule, the holder of a claim also enjoys the right of disposition over the receivable. Nevertheless, in certain circumstances, such as bankruptcy, the creditor (bankrupt) does not hold the right of disposition over its receivables registered in the bankruptcy estate. As there will be also no right of disposition over an attached asset or an asset subject to precautionary injunction, assignment of receivable in this case shall not be valid.

On the other hand, in addition to the owner of a receivable, other parties, for instance, statutory or contractual representatives may also hold a disposition right over the receivable. Therefore, an assignment of receivable may only be performed by those holding disposition rights over the receivable. In the event that the assignor does not hold a right of disposition, an assignment that has already been made shall not be valid and effective, and in order for the assignment to become valid and effective, the creditor must give its consent; in other words, it must ratify the assignment that has already been made.[4]

On the other hand, it is controversial whether or not, upon an assignment of receivable, an arbitration agreement will also be effective between the assignee and the debtor. According to the opinion which I also concur with; under Turkish and Swiss positive law, since, pursuant to the principle, which is (also) referred to in the Turkish Code of Obligations, Article 188 Paragraph 1 and Article 169 Abs 1. OR, providing for that the debtor’s current status must not be aggravated upon an assignment of the receivable, the debtor’s pleadings which it has against the assignor may, as a rule, be also asserted by the debtor against the assignee which is the new creditor as soon as the debtor becomes aware of the assignment (Turkish Code of Obligations Article 188, Paragraph 1 and Art. 169 Abs. 1 OR), and since the arbitration objection is also a pleading, it should be possible from a statutory point of view for the debtor to rely upon an arbitration agreement also against the assignee creditor (meaning that if a lawsuit has been filed by the assignee creditor before a state court, the debtor should be entitled to raise an arbitration objection) – provided that the debtor had entered into the arbitration agreement before it has become aware of the assignment of receivable.[5]

So, is it possible to assign all kinds of receivables? It indeed is; a creditor has the right to assign all its receivables to a third party, notwithstanding the origin of the relevant debt. The exception to this liberty is governed in Article 183 of the Code which reads: “Unless precluded by law, contract, or the nature of business”, meaning that receivables the assignment of which is banned under the law or precluded under a contract or may not be acceptable in light of the nature of the business, may not be assigned. An assignment of receivable shall be null and void in case such assignment relates to a receivable that is not allowed to be assigned.

An example to the exceptions referred to in the article may be a situation whereby a creditor and a debtor prevent, upon agreement, the assignment of the receivable in part or in full, to specific persons or for a specific limited time. Other exceptions may include claims arising from a non-competition obligation, rights arising from membership to an association, alimony receivables, contribution of the female spouse to the domestic budget, the claim for loss of support, surety-ships tied to the principal amount of the receivable, the right of the creditor of a life-long care claim, claim for non-pecuniary damages arising in favour of the fiancée or fiancé who is found to be not negligent in breaking off of the engagement, and the lessee’s inability to transfer the leased property in case of revenue-based leases.

Endorsement of a receivable arising from a cheque following the presentation of the cheque[6], or endorsement of a bond after the protest for payment or the expiry of the permitted protest time[7] shall also be subject to the provisions governing the assignment of receivable.

Essential conditions of an assignment may be listed as follows: Both the assignee and the assignor should have legal capacity to act and to have rights, their wills should be mutual, and there should be a written assignment agreement. In order for the assignment to be valid, it is necessary and will suffice to execute a written assignment agreement that is not in the form of an official deed, in which case no notarization shall be required for the agreement to be valid; however, in case the agreement is executed before a notary public, this will provide convenience in terms of evidencing the procedure and will offer legal protection. Moreover, it will suffice if only the assignor’s signature is affixed on the deed of assignment and there is no need for the assignee to also sign it. It is also not a condition to date the deed of assignment.[8]

As the parties to a deed of assignment of receivable are the transferor and the transferee (assignor and the assignee), there is no need to seek the consent of the debtor obliged to pay the debt to the assignment. [9]

It is also not mandatory to give notice to the relevant debtor upon assignment; however, the agreement made between the assignor and the debtor may contain a clause stipulating “a notice shall be given in case of an assignment”, in which case the assignment should be notified to the debtor.

According to the law, a debtor acting in good faith and who is not aware of the assignment shall be deemed to have been discharged of its debt in case it performs its obligation towards the assignor, that is to say, its former creditor, or in case the receivable has been assigned for a multiple times, then to any one of the past assignees instead of the latest assignee. This way, the law protects the debtor acting in good faith. However, if the debtor has been informed of the assignment of the debt, then it may perform its obligation only towards the assignee; in case it performs its obligation towards the assignor, it shall be obliged to perform its obligation for a second time also towards the assignee. The debtor may be notified of the assignment of the receivable either by the assignor or the assignee, and this notification is not subject to any form requirements, either.[10]

In practice, it is common to come across deeds of assignment of receivables executed with multiple third parties. In such a case, there will be competing personal rights. As a rule, unless it is invalid or unless the agreement is terminated, the prior-dated personal right shall be given priority among the competing personal rights.[11]

In the event that the debtor asserts a statute of limitation plea towards the assignee, or asserts its non-performance plea that it may have against the assignor, against the assignee, and avoids performance of its obligation, or if the debtor cancels or rescinds the agreement from which the receivable originates due to lack of intent and similar situations where the debt cannot be collected from the debtor, the assignor shall be liable even if, for instance, it is not aware of the non-existence of the debt or that it is subject to the debtor’s pleas .[12] This liability shall continue to be applicable until the debtor is notified.[13] Article 191 of the Turkish Code of Obligations that governs this liability prescribes the following: “In case the receivable is assigned against an obligation, the assignor shall have guaranteed the existence of the receivable and the debtor’s solvency at the time of the assignment”. This provision shall not be applicable to assignments without consideration and circumstances where the receivable is transferred by the operation of law. The law also stipulates that in case of a grant, the debtor shall be liable only for its gross negligence, and as a rule, it shall not be under a further guarantee liability, and in this respect, in case of an assignment without a consideration, the assignor is , as a rule, not held liable for even the existence of the receivable. While there is not a specific provision clarifying whether or not this is applicable in circumstances in which the receivable is transferred pursuant to a court order, if the receivable is transferred pursuant to a court order because a person who undertakes to assign the receivable against a consideration has failed to fulfil its said commitment, it is argued that the guarantee liability should be considered as applicable as of the time of the promissory transaction at the very least. There is no doubt that the guarantee liability shall be valid in case the creditor assigns its receivable in order to perform its obligation towards a third party or to collect its receivable from the debtor.[14]

This liability is also a strict liability just like the liability in case of a defect or seizure. Therefore, even if the assignor is not, or does not need to  be aware of the existence or non-existence of the receivable or that the debtor has certain pleas it shall still be liable towards the assignee for the non-existence of the credit. The assignor is primarily liable for the existence of the receivable at the time of the assignment.[15] However, the same rule is also applicable in terms of solvency, and even if the assignor is not aware, or does not need to be aware of the insolvency of the debtor, it shall still be under strict guarantee liability towards the assignee due to the insolvency. However, as Article 191 is not a mandatory provision, it may be by-passed by the parties or a more aggravated liability may be agreed upon by the parties (such as imposing on the assignor also the liability arising from the debtor’s lack of intent to pay the debt). It should be acknowledged that in case an assignor transfers its receivable by concealing the debtor’s insolvency even though it is aware of its insolvency, the assignor may not rely on the non-liability agreement made with the assignee (just like in the case of defects or seizure).

In case the debtor is unable to perform its obligation due to its insolvency, the assignee willing to resort to strict liability remedy shall have the burden of proof to prove that the debtor was insolvent at the time of the assignment. As stated in Article 98 of the Law (and without limitation thereto), the status of insolvency may be demonstrated in case it is proven that at the time of the assignment, the debtor was already bankrupt or that the attachment over its assets had turned out to be in vain .

Upon an interpretation of the wording of Article 191 of the Law, although it is possible to argue that strict guarantee liability for solvency becomes applicable as of the time of the assignment, this is a rather controversial matter in the doctrine. According to one of the opinions on the matter, if the liability for the debtor’s solvency is limited to the time of the assignment and the assignor is not held liable in case the debtor becomes insolvent following the assignment, then the scope of applicability of the provision would be narrowed too much. The counter opinion argues that the seller is not held liable for developments occurring following the “transfer of the damage” also in case of seizure or defect; that however, the liability arising from the damage/ defects/ non-existence that may be present at the time of the sales contract is accepted; and that in case the assignor is subjected to strict guarantee liability due to unforeseen developments, this will lead to an unfair consequence in the risk allocation between the parties. The legislator, on the other hand, takes into consideration who shall assume the risk of failure to recover the assigned receivable, and thus considers that an assignee who acquires the receivable by paying a consideration therefor is exposed to a bigger risk and that therefore the assignor shall be under the guarantee liability in circumstances defined in the law. Therefore, it may be said that strict liability for the debtor’s insolvency referred to in Article 191 is intended not to be limited to the time of assignment. It should be remembered that as this article is not a mandatory provision, the risk imposed by the law on one party may also be shifted onto the other party.

The assignee may request the following from the assignor which is under the guarantee obligation:

  1. The refund of the counter-obligation performed by it plus the interest thereon;
  2. Expenses incurred as a result of the assignment;
  3. Expenses incurred due to futile attempts made by it towards the debtor to recover the assigned receivable;
  4. Other losses sustained by it unless the assignor proves that it is not negligent.

As, in case of an assignment of the receivable, the receivable is sold at a value less than its real value, it is highly appropriate to limit the assignor’s guarantee liability to this low value collected by it from the assignee. Otherwise, the assignee which fails to recover the assigned receivable may claim from the assignor to pay the actual and higher value of the receivable rather than the lower value the assignee has paid for the assignment.[16] Secondly, the legislator has intended to limit the strict guarantee liability of the assignor to  indirect losses as is the case in the provisions on guarantee against defect and seizure in a sales contract.[17]                                                           


[1] The decision rendered by the Court of Cassation, 13th Civil Chamber, under the File No. 2015/14545 E. and Decision No. 2017/ 1808 K.

[2] ENGİN, p. 147-148

[3] The Court of Cassation 3rd Civil Chamber’s decision under the File No. 2016/13540 E. and Decision No. 2017/1715 K is as follows: “...the plaintiff has assigned its receivable under this case file to .... A.Ş. pursuant to a deed of assignment of receivable notarized by ... 21st Notary Public on 30.04.2014 under the notary reference no. 65894; the said deed was submitted to the case file and this fact was also stated in the minutes of hearing held on 05.09.2014. Accordingly, the plaintiff has lost its standing (as a plaintiff) following such assignment. In light of this fact, the court should have determined whether or not..... A.Ş., the assignee of the receivable, would proceed with the case, and in case it has a standing, the litigation should have continued, and otherwise, the court should have ordered for the dismissal of the lawsuit due to the lack of standing (as a plaintiff), and therefore, the court’s written decision granted regarding the plaintiff without taking these issues into consideration is not found to be acceptable and such decision should be overruled.”

[4] The Court of Cassation, General Assembly of Civil Chamber, the File No. 2010/333 E., Decision No: 2010/ 406 K., Decision Date: 22.09.2010

[5] GÜRZUMAR, Assignment of Receivables and Arbitration Agreement, p. 1264

[6] The Court of Cassation 11th Civil Chamber states the following in its decision rendered on 8.3.2010 under the file no. 2010/2093 E., 2010/2560 K.: “The claim concerns a precautionary attachment request. Conditions that should exist in order to order for a precautionary attachment are listed in Article 257 of the Enforcement and Bankruptcy Law and in case a cheque is transferred by way of endorsement following its presentation, this shall not affect the characteristics specific to the cheque as a document but grants certain rights to the debtor with respect to pleas. Therefore, there is no legal impediment that prevents initiation of enforcement proceedings in a manner that is specific to bills of exchanges. In case a cheque is endorsed following its presentation, this does not deprive it of the characteristics of a cheque; however, such an endorsement will implicate the assignment of receivable. It is quite naturel that in case an endorsement gives rise to the assignment of receivable in this manner this will not prevent the creditor from becoming the authorized holder. Considering the fact that H.A. who seeks a precautionary attachment may use the rights originating from a cheque whose elements specific to its nature as a cheque are fully in place, the  court’s decision of dismissal of the claim, without giving regard to this fact and only based on the reasoning that the claim requires a trial, has been considered to be not appropriate.

[7]Nomer, Law of Obligations, General Provisions p. 372

[8] The Court of Cassation , General Assembly of Civil Chamber, File No: 2010/333E., Decision No: 2010/406 K., Decision Date: 22.09.2010

[9] The Court of Cassation 19th Civil Chamber, Decision under the file no: 2002/7795E. and decision no. 2003/5255 K. is as follows: “The debtor shall not be obliged to personally perform its obligation unless the creditor has an interest in the same. The debt may be settled by a third party without the knowledge of the debtor. This third party shall be subrogated to the rights of the creditor upon such payment to the extent its payment satisfies the creditor. According to Article 162 of the Code of Obligations, pursuant to a written agreement to be signed between the creditor and the third party in question, the creditor may assign its receivable to third party without seeking the consent of the debtor except for detailed circumstances set out in the said article. In the present case, the plaintiff fully paid the receivable of the V-….bank, which is not party to the legal action, arising under the loan agreement, and has taken over the assignment of the bank receivable by means of a notarized deed of assignment according to Article 162 et seq. of the Code of Obligations. In this case, the court should have given consideration to the fact that the defendant was a several surety  under the loan agreement and the amount of receivable that the plaintiff is entitled to claim from the defendant should have been quantified by means of an expert examination and the court should have granted its decision on the basis of the outcome of such examination, and hence the dismissal of the case is not acceptable.”

[10] The Court of Cassation General Assembly of Civil Chamber, Decision under File No: 2010/333E. and the Decision No. 2010/406 K., with Decision Date: 22.09.2010

[11] The Court of Cassation 14th Civil Chamber, Decision under File No: 2014/17357E. and the Decision No. 2015/3524 K., with Decision  Date: 31.03.2015

[12] AKSOY/ Evaluation of the Guarantee Liability of the Assignor arising from the Law in light of the principles of the Law of Economics

[13] ENGIN, p. 69; DAYINLARLI, p. 177, AKSOY/ Evaluation of the Guarantee Liability of the Assignor arising from the Law in light of the principles of the Law of Economics

[14] The General Assembly of Civil Chamber of the Court of Cassation, Decision under File No: 2006/21-5 E. and the Decision no. 2006/03 K., with Decision Date: 01.03.2006

[15] The General Assembly of Civil Chamber of the Court of Cassation, Decision under File No: 2006/21-5 E. and the Decision no. 2006/03 K., with Decision Date: 01.03.2006

[16] In case the assignee has acquired anything other than a monetary obligation, this will be refunded in full and if this is not possible, then the value of it as of the time the counter party has acquired it plus interest thereon shall be paid. ENGİN, p. 151

[17] AKSOY/Evaluation of the Guarantee Liability of the Assignor arising from the Law in light of the principles of Law of Economics P. 148

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