WEEK 10

DISCHARGE OF OBLIGATIONS

Discharge of an obligation means that this obligation shall no longer

exist. If all the obligations resulting from a contract are discharged, then
the obligative relation terminates. The normal way to discharge an
obligation is performance. Apart from performance, there are some
other ways to discharge an obligation regulated in the Code of Obligations.

1. Discharge (extinction) by Agreement (Release): The parties to a

contract may agree to discharge an obligation. No particular form is
required for the discharge of an obligation by agreement even if the
obligation itself could not be assumed without satisfying a certain form
requirement. The release should be concluded as a contract.

2. Novation: It constitutes a new obligation in the place of an old one.

The preexisting obligation is discharged and a new obligation is created.
The parties should conclude an agreement and in this agreement the
intention of novation should be clearly stated. Unless the parties clearly
agree, a new receivable bill or a new surety bond issued shall not be
deemed as novation. Registration of various items into a revolving account
also does not mean novation of the debt.

3. Merger: The obligation is deemed to be discharged by merger where

the capacities of creditor and debtor are united. In other words where the
creditor and the debtor become identical, the obligation is discharged by
merger. Nonetheless, the existing rights of the third parties on the credits
are not affected by the merger. In a rental contract when the lessee buys
the house he has rented, the obligation of paying rental money is
discharged by merger.

4. Impossibility: Impossibility means it is no longer possible to perform

the obligation. An obligation is deemed to be discharged where its
performance is made impossible by circumstances not attributed to the
debtor, in other words the debtor should not be faulty in the obligation’s
becoming impossible. If the debtor has fault, then the obligation is nor
discharged but turned to a compensation payment.

5. Set-off: Where two persons owe each other sums of money or

performance of identical obligations, and provided that both claims have
fallen due, each party may set-off his/ her debt against his/her claim. A
set-off takes place only if the debtor notifies the creditor of his/her
intention to exercise his/ her right to set-off.
ASSIGNMENT (TRANSFER) OF RİGHTS

I. DEFINITION AND LEGAL NATURE OF THE ASSIGNMENT OF RIGHTS

As it has been previously discussed, a contract creates rights only for the
Parties and imposes corresponding obligations. With the development of
the trade, the practice of extending credit became common, especially in
the area of commercial transactions. Businessmen often sell goods on
credit and need to convert their receivables into immediate cash in order
to pay their creditors. A creditor might also wish to make a gift to a third
person. Whether the creditor’s objective is to obtain financing or to make a
donation, he may decide to do so by transferring his debtor's promise to
pay to a third person. Such a transfer is called “assignment of contract
right”. Thus, a third person to a contract may acquire rights by way of
transfer.

An assignment of right is a contract entered into between the creditor

(transferor) and a third person (transferee) in which the creditor transfers
his right to claim resulting from a legal relationship with the debtor to a
new creditor. It should be emphasized that the assent of the debtor is not
required.

The person who assigns the right is the assigner (temlik eden). The person
to whom the right to claim is transferred is the transferee or assignee
(temlik alan). The party expected to pay is the debtor or the obligator
(borçlu).

Creditor
DEBTO
(assigne R
r)

New
Creditor
(assignee)
The immediate effect of the transfer is that a new creditor replaces the
former creditor. The former creditor is no longer entitled to claim
performance.

What is transferred is only a right to claim emerging from the relationship

between the debtor and the creditor. For example, in the case of a sales
contract, although the seller transfers his right to claim to a transferee, his
obligation deriving from the contract (legal relationship) will continue.

II. CONDITIONS OF THE ASSIGNMENT OF CONTRACT RIGHTS

The prerequisites of the assignment of contract right are the following:

1. The form of the assignment

In order to be valid, the contract of transfer should be made in writing.

However, a promise to make a transfer need not be in written form
(Art.184 TCO).

2. The prohibition of assignment by law

The rights to be transferred should be assignable. All kind of claims arising

from contractual relationships, conditional and future rights, contract
rights, claims arising from unjust enrichment and torts are assignable
unless the transfer is forbidden by law, by agreement or by the nature of
the legal transaction. In some cases the law does not permit the transfer.
For example, Art. 239 TCO declares that “Unless otherwise agreed,
contractual pre-emption, purchase and repurchase purchase rights are not
transferable, but are inheritable. If it is agreed by contract that these
rights may be transferred, the transfer shall be is not valid unless it is
done in the manner prescribed for its establishment.”

The parties, by agreement can forbid assignment as well (pactum de non

cedendo - agreement prohibition transfer). In this case, the assignment of
right to claims would not valid. However, the debtor cannot set up
defenses against a third person that a forbidden assignment was agreed
upon, if the third person has become a creditor in reliance to a written
acknowledgment of a debt which does not mention that the claim is non-
assignable. On the other hand, the creditor can transfer only rights of
which he is, at the time of transfer, the actual owner. In other words, no
one can transfer a right which they don’t own.

3. Assignment in lieu of payment

There must be a valid legal reason for the transfer (causa donandi,
solvendi or credendi). In general, a creditor assigns his right in order to
pay off a debt (Art. 192 TCO). (datio in solutum - assignment in lieu of
payment).

4. The extent of assignment

The effect and scope of the transfer consists of the immediate assignment
of right to the new creditor, of all mortgages, privileges, and accessory
(ancillary) rights, except for those which cannot be separated from the
assignor's person. Interests in arrears are presumed to be transferred
together with the principal debt (Art. 189 TCO)

5. Notice of the assignment

Notice to the debtor by the transferor or the transferee declaring that the
right to claim has been transferred is not a condition for the validity of the
transfer. However, failure to notify could result in a loss. Until the receives
notice of the transfer, the debtor owes no obligation to the transferee.
Until then, the debtor's duty is to render performance to the transferor.
Upon receipt of the notice, the debtor must render performance to the
transferee and not to the transferor. Before notice, a payment by the
debtor to the assignor is an effective payment, barring the assignee from
exercising such rights against the debtor.

III. Legal Position of The Debtor

The transferor cannot transfer rights in excess of those which he himself

possesses (nemo plus iuris plus transferre, potest quam ipso habef). In
other words, the assignee, standing in the shoes of the assignor, can gain
no greater rights than those possessed by the original creditor.

This statement means two things:

a) In view of the assignee

The assignee succeeds to any rights that the assignor may have had at
the time of transfer.

b) In view of the debtor, he should be protected.

The debtor should be protected in several respects:

1. Defenses of the debtor

Legal position against assignee (the new creditor) must not become worse
than it was against assignor (predecessor). This is guaranteed by Art. 188
TCO, which states that, “The defenses that the debtor had against the
transferor at the time it learned of the transfer, may also assert against
the transferee.

The debtor may assert his/her receivable that is not due at the time
he/she learns of the transfer before the transferred receivable. or
exchange it for its debt, provided that it is due at the same time.”

As a result of this article the debtor may assert against the assignee any
valid defenses, which the debtor could have asserted against the assignor
(illegality of the contract, fraud of the transferor or his incapacity).

For example, Ayşe, sells and delivers goods at a price of 1000 TL to Berke.
Berke notifies Ayşe that he refuses payment since the goods were
defective. If Ayşe sues, Berke can successfully defend. If Ayşe has assigned
her claim for 1000 TL to Ceren, Berke can assert the same defense against
Ceren.

2. Transfer of accessory rights

According to Art. 189-190 TCO with the transfer of the receivable, the
priority rights other than those specific to the personality of the transferor
and the related rights shall also pass to the transferee. The interest
accrued together with the principal receivable shall also be deemed to be
transferred. Also, the transferor is obliged to deliver to the transferee the
receivable deed and other documents related to the proof in his
possession and to provide the necessary information for the assertion of
his receivable.

3. The effect of assignment

The debtor must be protected it he/she remained ignorant of a transfer

who has taken place. This protection is provided by Art. 186 TCO which
states that the debtor is validly discharged, if, before the assignor or
assignee notified him of assignment, he paid in good will to his former
creditor in good will.

4. Refusal of payment and lodgment

The debtor should be protected when the ownership of the claim is a

disputed matter between the debtor and the original creditor. Art. 187
TCO. provides that the debtor may refuse payment and obtain his
discharge by lodging the amount with the court or to a place indicated by
the court. The debtor pays at his own peril, if he knows dispute.

5. Warranty of the assignor

The law makes a difference where the transfer is onerous (külfetli) or

gratuitous (karşılıksız).

In the case of an assignment in return for consideration (onerous), the

assignor by implication warrants the existence of the right at the time
when the assignment is made. However, unless it is otherwise agreed, the
assignor is presumed not to warrant the solvency of the debtor.

In the case of a gratuitous agreement, the assignor is not even liable for
the existence of the claim. (Art. 191 TCO)