On the debt market

Julian Spassov
Julian Spassov

Or a walk along the “pitfalls” of the assignment agreement

With amendments to the Bank Bankruptcy Act, the politicians made the assignments and the interceptions in the CCB void.

If the contractual relations in the Roman law had purely personal character, then in the modern economic turnover, when the commodity-money relations have reached a high level, the failure of performance by the debtor authorizes the creditor’s execution on their property to satisfy their claim. In order to assess this purpose, the modern legislator has adopted and reflected the legal mechanisms, allowing the transferring of claims from one individual to another.

Transferring a claim or assignment is an agreement by which the titular of the claim (old creditor or assignee) transfers it to a third party (new creditor or assignor).

Conditions for validity

According to the practice of the SCC (Decision №32 as of 9.09.2010), in order the assignment agreement to be effective, subject to the assignment agreement cannot be future, but only existing claims, which have property character, as this conclusion follows from the casual nature of the agreement, i.e. the existence of a specific legal ground. Most commonly the assignment is for a consideration and the ground is acquirendi causa (sale) or donandi causa (loan), but there is no prohibition the contract for transferring claim to be with gratuitous character, as in this case there will be a ground donandi causa (donation) or solvendi causa (instead of performance of debt).

There is no requirement for a form for validity of the assignment, but it is undoubtedly assumed that the transfer of claims, incorporated in securities, is made with the book’s delivery, and the assignment of mortgage-backed claims is subject to entry in the entry books, in order to be effective in terms of the mortgage.

Regarding a right, which is not required, as well as a not time-barred right, there is no prohibition for it to be transferred, but in the latter case the assignor cannot seek forced claim against the debtor. Because of their specific nature, certain rights shall be non-transferable, as this scope covers personal moral rights such as name, family rights and moral rights under art.15 of the Law on the copyright and related rights.

The property rights, whose occurrence is associated with the personality of assignee cannot be transferred also – claim for remuneration, claim for pension, claim for alimony, claim for compensation for moral damages, etc.

The non-transferability can exist also under the law, such as the real right of use, which is not explicitly declared non-transferable.

Regarding the associated rights, as the liability of the guarantor, the pledge and mortgage right, the right of retention, the claim for interest and the penalty the law provides their assignment only together with the main claim.

Effect of the assignment on third parties

In view of the fact that the assignment affects the interests of the debtor, the law requires the performance of an additional action while reporting the performed transfer of the claim. The old creditor must inform clearly and unequivocally the debtor for the assignment, as the importance of the message is for the purpose the transfer of the claim to make effect on third parties – the debtor, the successors and the creditors of the assignor and the assignee. When the creditor of a claim transfers it consequently to several individuals, as titular of the claim (the new creditor) is considered one of them, for whom the assignee has informed the debtor first.

In case that there is a distraint on the claim by creditors of the assignee and the distraint notification has been received by the debtor before the notification for the assignment, the transferring of the claim cannot be opposed to those creditors. In this case, the performed by the debtor payment to the new creditor is relatively ineffective against the creditors of the assignee, levied the distraint, and they can request the debtor for a repayment.

Objections of the debtor

The law allows the debtor to raise before the new creditor some objections about the performed assignment, as long as they have a connection with their relationships with the old creditor. The approach is different depending on whether the objection arises from the same legal fact, from which is the transferred claim.

In case the objection arises from the same legal fact, it should be able to oppose the assignee independently whether it incurred before or after the transfer of the notification for it. An appropriate example is a void sale, in which the creditor has transferred their claim and the buyer debtor refuses to make payment to the assignee.

As for the hypothesizes, in which the objection stems from other relationships between the old creditor and the debtor, those objections must have incurred before the notification of the assignment. Here, of particular importance are the objections for set off, as the law says that if the consideration of the debtor has not arisen or has become due before receiving the notification for the assignment, there is lack of opposite and set off is not admissible against the assignee. This situation could be clarified by the following example: X and Y have concluded two separate transactions. In one of them X transfers their claim to a new creditor (assignor), but on the other they continue to be a real debtor to Y. For Y there is possibility to object the set off against the new creditor on the assigned claim up to the amount of their claim on the second transaction, but under the cumulative requirement this claim under the second transaction to have arisen and to have become due before the receipt of the notification for the assignment.

Invalidity of the assignment

In its legal nature the assignment is a bond transaction and as such the general rules for invalidity are valid for it, described in art.26-35 of the Law of obligations and contracts. To be declared as invalid, an assignment has to suffer of a vice, regulated by the law as such. The only competent authority, which can declare a transaction (assignment) invalid, is the court, provided that it is properly seized.

The article has been published in Bulgarian, in Capital Daily.