Transfer of the Debt to Another Person (Assumption of Obligations)

The parties of creditor-debtor relations may change over time for various reasons.

It is always possible for the creditor or debtor, of their own free will, to transfer the debt they have or the debt they owe to others. In the legal literature, such transactions are called assignment of claim or assumption of obligations.

Our main focus in this bulletin is “assumption of obligations”, which means that the debt of the debtor is assumed by another person. In the simplest terms, the assumption of obligations is the transaction in which the debtor gets rid of his/her debt by transferring it to someone else, and the person who takes over the debt becomes indebted to the creditor. In practice, most of the legal disputes are seen in terms of proving that the debt has been assumed. You can see the other contents in our newsletter to get information about the conditions required for a valid assumption of obligations and the new situation in mutual rights and responsibilities after the assumption.

1.    In Which Circumstances Is Transfer of the Debt (Assumption of Obligations) Possible?

The debtor party of the debt relationship can get rid of the debt by transferring the debt to someone else. As a rule, transfer of debts of any kind is legally possible. Obligations that the debtor has to pay in person according to mandatory or public law rules are an exception. Apart from this, contingent or due debts, debts that do not exist yet but will arise in the future can also be transferred.

The assumption of obligations sometimes takes place by the law. For example, the transfer of the debts of the inheritor to the heirs after death is an example of this. In the same way, after the transfer of a commercial enterprise, the debts of the enterprise to the person who took over the enterprise are also transferred automatically, in accordance with the provisions of the law.

If the debt will be transferred by the will and desire of the creditor and debtor, not by law, they must sign a contract between them.

2.    Assumption of Obligations Contracts

2.1.Internal Assumption of Obligations

For the assumption the debt, the old and the new borrower can conclude a contract between them. This is called the internal assumption of the obligations contract. By this agreement, the existing debtor transfers the debt to the new debtor. The new debtor also undertakes to release the debtor of the debt to the creditor. The creditor party is not yet a part of this agreement. The debtor or the Assignee must inform the creditor of the contract they have concluded between them. Otherwise, it is not possible to accept that the debt has been transferred by this agreement made without the participation of the creditor.

However, it should be noted right away that for the assumption of the obligation, such a contract does not necessarily have to be concluded between the current debtor and the Assignee. Such a contract may not be even concluded. Because, unless the creditor approves, this contract has no validity and liability to the creditor. Because the important thing in the assumption of obligations is the contract to be made with the creditor.

2.2.External Assumption of Obligations

External assumption of the debt is a contract that actually results in the transfer of the debt. This agreement shall be understood while considering the assumption of the debt. Because, for the assumption of the obligations, the creditor’s approval or permission for this transaction is absolutely required. It is only possible to change the debtor with the consent of the creditor, since who the debtor is, the ability to pay and her payment habits are important for the creditor.

External assumption of the obligations is a contract concluded between the creditor and the Assignee. The debtor’s consent to this agreement is not needed. Even if the debtor is not a part of this agreement or objects to it, it is impossible for the debtor to prevent the assumption of the obligations.

In order for this contract to be valid, a proposal and acceptance phase must be completed, as in any contract. In simpler terms, a proposal should be made to the creditor for the establishment of this contract, and the creditor’s positive response to the contract proposal is needed. Here, the proposal may be adressed to the creditor by either the Assignor or the Assignee, or both. Notifying the creditor of the internal assumption of the obligations contract is also considered as a kind of proposal. But it should be noted that the creditor does not necessarily need to explicitly declare that he /she approves to conclude or to sign a contract. Even if the creditor commits a number of actions indicating that he/she has authorized or approved this agreement, it is sufficient for the debt to be considered transferred. For example, the creditor’s actions, such as accepting some or all payments made by the Assignee party without any objection, and collecting the interest payment from the Assignee, constitute evidence that this agreement has been established.

“Since the defence of the defendant is in the nature of the internal assumption of the obligations, even though the plaintiff’s receivable from the defendant was deducted from the plaintiff’s debt in the examination of the books and records of the extrajudicial…. company, there is no proposal for the defendant or the extrajudicial …. company for the assumption of the obligations for this transaction.  There is no explicit or implicit consent of the plaintiff to the transaction in question.”

2.3.The Form Requirements of the Assumption of the Obligations Contract

As a rule, the assumption of the obligations contract does not have to be made in a certain way in order to be valid and bear legal consequences. There is no need for the parties to come together and conclude and sign a written contract between them. The oral contract is also valid.

It is also important whether the assumption of the obligations contract is made in return for a response. Because if the Assignee is taking over the debt of the Assignor without expecting anything in return, this contract must be made in writing since it is a kind of promise of gift. Likewise, if the debt to be transferred is to be subject to a form requirement, then the contract must be made in accordance with this form. For example, the person who undertakes to pay the debt arising from the sale of an immovable at the deed on behalf of the buyer may discharge the obligation transferred as a result of the contract and payment to be made officially at the deed.

2.4.Can the Assignee Request a Price for Relief of the Assignor from Debt?

The assumption of the obligations is normally carried out in anticipation of a response. The Assigne expects an performance or a charge from the borrower in exchange for relieving the current borrower of the debt. Therefore, the assumption of the obligations contracts can be reciprocal contracts that burden mutual receivables and debts. However, this is not obligatory. A person can pledge to release someone else from a debt without a response. In this case, a gratuitous assumption of the obligations contract is in question. This issue is important in terms of determining how contracts should be concluded. The written establishment of the contract concluded by the Assignee in exchange for an benefit is sought. As quoted below from the article voting against a case that is the subject of a Supreme Court decision;

In the articles in which the assumption of the obligations is regulated, there is no distinction or provision regarding the assumption of the obligations, whether it is onerous or gratuitous, and there is no rule stating that the Assignee will be the successor of the creditor. As a rule, the assumption of the obligations is not an unrequited assumption. In order to be able to talk about an unrequited assumption, there must be a written contract between the debtor and the third party which is the Assignee. The reason for this is that as the unrequited assumption will be considered a promise of gift, the written form of the contract is regulated as a form of validity in article 238/1 of the BK.[1]

3.    Terms and Consequences of the Transfer of Debt

In the internal assumption of obligations cases, the Assignor get relief from the debt, and the Assignee makes a commitment to relieve the debtor from the debt. The Assignee can fulfill this commitment by paying the debt or by concluding an agreement with the creditor on the transfer of the debt.

In the external assumption of obligations cases, that is, in the cases of the complete transfer of the debt, the Assignor get relief from the debt and the Assignee becomes the new debtor. In other words, the debtor party of the debt relationship changes. The creditor shall demand the debt from Assignee, and cannot address the Assignor for payment.

4. Principal Debt Amount, Interest, Penal Clause and Rights. to Compensation

With the transfer of the debt, the nature of the debt does not change, the amount and the subject remain. Interest, penal clause and even compensation rights arising from breach of contract against the former debtor are also transferred to the Assignee.

The new interest that will be processed for the debt also belongs to the Assignee.

5. The Right to Claim Statute of Limitations Plea and the Status of Other Defenses

The defense rights arising from the debt relationship are transferred to the Assignee. For example, the Assginee may now assert the statute of limitations plea.

The Assignee cannot assert the personal defenses of the Assignor against the creditor. For example, if the Assignor has the right to make a barter plea, it is not possible for Assignee to assert this.

6.Guarantors and Pledgors

Responsibility of the persons who have become a guarantor for the transferred debt or have put in pledge does not continue as long as they have not approved the transfer of the debt, and it ends. Because they also have become a guarantor for this debt or have put in pledge knowing who the debtor is and trusting him. Since they will be affected by the change of the debtor, it is envisaged that their responsibilities will continue only if they approve the transfer of the debt.

It should also be noted that for the transfer of a debt, it is not necessary to gain the consent of the guarantors of that debt. They remain liable for the debt only if they get relief from the obligation or give their consent.

7.Proof of Transfer of Debt

In practice, most of the disputes arise on this issue. Because there is no need for a written document, contract, or deed to transfer the debt. However, in some cases, when the debt is transferred, it is possible to witness a bond or ordinary bill related to the transferred debt. However, these documents alone do not prove that the debt has been transferred, because there is no information on the source of the debt on these documents, especially in the bond, such records cause the invalidity of deed. In this case, it will be necessary to prove that the debt has been transferred in accordance with the rules of proof in the trial to be held.

The transfer of debt is especially confused with barter and offsetting. It is difficult to determine for what purpose the payment is made. For this, it is necessary to identify and follow up the relations and the parties. In the barter and offsetting transactions, there are mutual receivables and debts of the two parties from each other. One’s receivables from the other are erased to the extent of his/her debts to that person. However, one side of the debt relationship changes in the assumption of the obligations contract. While barter and offsetting are valid with a unilateral declaration of intention, it is necessary to prove the existence of a contractual relationship, even verbally, for the transfer of the debt. At this point, it is necessary to confirm the contract proposal made to the creditor and the explicit or implicit approval given by the creditor to this contract. Below, you can see a decision of the Supreme Court Assembly of Civil Chambers on the subject.

“Actually, there is no dispute between the parties on the subject that 14.900 Euros should be paid by the defendant to the plaintiff. The Defendant argues that this obligation was paid by deducting the obligation from the plaintiff’s obligation to the extrajudicial …. company.

Due to the action of the extrajudicial  … company to reduce the defendant’s obligation to the plaintiff from her receivable from the plaintiff, due to the fact that the debt relationship is between the plaintiff and the defendant and there is no reduction of the claim arising from the same legal relationship, it cannot be considered as a barter and it cannot be accepted as a set-off, since it is not possible to deduct the benefit obtained by the creditor or the burden incurred by the debtor in relation to the event procuring the claim.


For the
external assumption of the obligations, there has to be a contractual relationship between the plaintiff and the extrajudicial … company, and a contractual relationship has not been established between these parties to assume the obligations.

Since the defence of the defendant is in the nature of the internal assumption of the obligations, even though the plaintiff’s receivable from the defendant was deducted from the plaintiff’s debt in the examination of the books and records of the extrajudicial…. company, there is no proposal for the defendant or the extrajudicial …. company for the assumption of the obligations for this transaction.  There is no explicit or implicit consent of the plaintiff to the transaction in question.”

In this case, considering that the defence of the defendant is in the nature of assumption of the obligations, the local court should have decided to dismiss the case since it cannot be proven that the plaintiff creditor consented to the assumption of the obligations, the decision of persistence to the fact that the plaintiff tacitly consented to the accounting transactions regarding the set-off in the extrajudicial company’s books by keeping silent and not making any payments, and that the claimant had tacit consent even if the barter transaction was accepted as the assumption of the obligations, is not appropriate.”

Conclusion

The transfer of debt is drawn up by a contract. The creditor’s participation or consent to this contract is mandatory. Only the debtor’s transfer of the debt to another has no validity for the creditor, the creditor can demand the debt from the former debtor and sue. However, if the creditor consents to the transfer of the debt

or if the creditor has accepted the transfer implicitly by accepting some payments made by the Assignee, the creditor can no longer demand and collect the receivables from the Assignor.

Proof of transfer of debt may be difficult in practice. It is important to follow up the cases related to such legal disputes and to prove them correctly. For your legal questions and problems that you cannot find the answer to in the bulletin, you can contact the Solmaz Law and Consultancy team, and you can also see our articles on the subject below.

“TRANSFER OF COMMERCIAL BUSINESS AND LEGAL CONSEQUENCES LINKED TO THE TRANSFER”

TRANSFER OF CLAIM (ASSIGNMENT)

Best Regards.

References

EREN, Fikret, 2011, Borçlar Hukuku Genel Hükümler, Beta Yayıncılık, Ankara, p.1195, 1204.

OZANEMRE YAYLA, Hatice Tolunay, “Borcun Naklinin Borca İlişkin Benzer Etkili Diğer Hukuki Kurumlar Karşısında Teorik Sınırları”, erişim: https://dergipark.org.tr/en/download/article-file/373467.

Supreme Court Assembly of Civil Chambers, 2017/3087 E., 2020/691 K., 29.09.2020.

[1]Supreme Court Assembly of Civil Chambers, 2017/3087 E., 2020/691 K., 29.09.2020.