Decision of the Court of Cassation General Assembly of Civil Chambers Regarding the Role of Company Employees in the Assumption of Debt
Introduction
The assumption of a debt or an act (performance) of a third party has a critical role in the maintenance of commercial relations and the resolution of commercial disputes.
The Court of Cassation General Assembly of Civil Chambers (“General Assembly”) recently issued a decision numbered 2021/928 E., 2023/132 K. and dated 01.03.2023 (“Decision”), containing significant evaluations that reveal how the concept of assumption of debt and the legal obligations of third parties are addressed. In particular, the Decision focuses on the credit-debt relationship between companies and the legal consequences of this relationship.
This article examines the main aspects of this Decision, which is particularly noteworthy for senior executives of companies, compares the concepts of assumption of debt and guarantee of performance by third parties, and emphasizes the differences between the Court of First Instance and the Decision.
The Case at Hand, Decisions of the Court of First Instance and Specialized Chamber
The dispute that constitutes the foundation of the decision arose upon the objection to the enforcement proceeding initiated by the claimant company against the defendant company and the request for the annulment of this objection. The enforcement proceeding initiated by the claimant company was challenged by the defendant on the ground that “there is no purchase and sale agreement between the parties and the signature and stamp of the company are not attached to the memorandum of understanding in the file of the enforcement proceeding”.
In the initial judgment of the court of first instance, it was evaluated that the defendant company could not be held liable for the debt in question, stating that the defendant company’s signature was not present in the memorandum of understanding that constituted the foundation of the enforcement proceedings. In this initial judgment on the dispute, it was highlighted that as the defendant did not accept the debt, the claimant could not request the receivable from the defendant by reaching an agreement with the companies that are not subject to the proceeding. This decision was reversed upon the claimant’s request for appeal, and multiple decisions were rendered by the court of first instance and the specialized chamber on different grounds in the subsequent stages of the proceedings.
The most significant issue in the decision of reversal issued by the Specialized Chamber at the last stage, which played a critical role in the resolution of the dispute, was the e-mails containing transfer instructions sent by the defendant’s employee to the claimant’s employee in line with the instructions of his managers and the binding nature of these e-mails sent by the defendant employee for the defendant company. The claimant company used the e-mails and documents sent by the defendant’s employee to prove that the debt was binding on the defendant company and the defendant accepted liability to pay this debt. However, in its third decision following the reversal decisions of the court of first instance, the court evaluated that the person who sent the e-mails was an accounting employee of the defendant company and this person did not have the authority to make any binding dispositions for the company. In addition, it was emphasized that the defendant company’s signature was not present on the transfer instructions in question and that a contract must exist between the assumer and the creditor for the transfer (assumption) of the debt.
On the contrary, in the third and latest reversal decision of the specialized chamber, it was evaluated that the e-mails written by the employee of the defendant company were binding on the defendant. Accordingly, it was concluded that an external assumption of debt agreement was concluded between the claimant and the defendant favoring the claimant. However, after the court of first instance rejected the dismissal of the case, the dispute came before the General Assembly.
Assumption of Debt and Guarantee of Performance by a Third Party
Before analyzing the decision of the General Assembly, it would be useful to focus on the concepts of “assumption of the debt” and “guarantee of performance by a third party”, which play a critical role in the interpretation and resolution of the dispute. These concepts are of great importance in order to comprehend the assumption (transfer) of the debt, and the legal status of third parties and to determine the title of the debtor, which has also contributed greatly to the understanding of the case at hand.
The dispute before the General Assembly focuses on two important issues that are frequently encountered in commercial relations: the assumption of a debt and the guarantee of performance by a third party. The treatment of these two fundamental concepts in the Decision offers new perspectives to companies and, of course, practitioners on the interpretation of such transactions in the ordinary course of commercial life.
Assumption (Transfer) of Debt
In the assumption of debt, which is the opposite of the assignment of claim, the passive subject of the debt relationship, in other words, the debtor party changes. In the assumption of the debt, since the debt is transferred to a third party, some risks arise for the creditor.[1] Therefore, the consent of the creditor is necessary and important in the assumption of the debt[2]. The third-party replaces[3] the debtor with the consent[4] of the creditor in respect of an individual debt.[5]
The assumption of the debt is addressed under two different subheadings “internal assumption” and “external assumption” under Articles 195 - 204 of the Turkish Code of Obligations No. 6098. While the internal assumption of the debt refers to the relationship between the debtor and the third party who assumes the debt, the external assumption of the debt appears in the relationship between the third party and the creditor.
The person who executes an internal assumption agreement with the debtor releases the debtor from the debt by performing the debt individually or by assuming the debt with the consent of the creditor.[6] However, the internal assumption of the debt does not mean the assumption of the debt in the actual sense. Indeed, this situation does not change the debtor of the debt, and it remains only a legal relationship between the debtor and the third party. The creditor is not a party to the internal assumption agreement, nor is he required to authorize the execution of this agreement.[7]
External assumption of the debt is possible through a contract between the creditor and the party assuming the debt, whereby the debtor is released from liability and the new debtor is recognized as the party assuming the debt. In this approach, which can also be characterized as debt assumption in the actual sense, the debtor party of the debt changes, and the existence of the debt relationship persists. At this point, the debtor is not required to enter into the external assumption agreement, nor is it required to give consent. Even if the debtor objects, the parties have the opportunity to conclude the external assumption of the debt agreement.[8]
It is possible to assume debts that are contingent, optional, partial, or subject to a statute of limitations.
Guarantee of Performance by Third Party
Guarantee of performance by a third party is an undertaking by a person that a third party shall perform a certain obligation or act.[9] Thus, the debtor, who guarantees the performance of the third party, incurs a debt itself by guaranteeing the performance of the third party.[10]
In the third-party performance guarantee regulated under Article 128/1 of the TCO, “The person who undertakes the performance of a third party against another person is obliged to compensate the damage arising from the non-performance of this performance.” As it is clearly understood from the provision of the article, the guarantor of the third party’s performance is under the obligation to indemnify not only the performance but also the damage arising from the non-performance. In practice, the most common example of this situation is the bank letters of guarantee.[11]
During the discussions before the General Assembly, the concept of “guarantee of performance by a third party” was discussed separately. However, it was underlined that the party who guarantees the performance of the third party shall be obliged to compensate for the damages arising from the non-performance of this performance, and therefore, a separate debt arises in such case.
Decision of the General Assembly
The General Assembly found the first instance court’s approach regarding the absence of the defendant company’s signature on the transfer instructions related to the transfer in the e-mail correspondence to be inaccurate as it did not prove the existence of a debt assumption agreement binding the parties.
The General Assembly examined the prior purchase and sale agreement, the debt liquidation agreement, the trade registry records of the companies in question, and the provisions of the memorandum of understanding executed between the claimant, the defendant, and the external companies whose names are mentioned in the memorandum of understanding submitted as a foundation for the enforcement proceedings. Thus, by analyzing the ongoing relationship between the parties in detail, it was able to determine the reasons behind the transfers made through e-mail correspondence between the parties and the companies not involved in the proceedings, and thus the reason for the transfer of the debt owed to the claimant by the company not involved in the proceedings to the respondent company. In other words, despite the defendant company’s denial and the absence of its signature on the memorandum, the General Assembly evaluated the provisions of the agreement, record, and memorandum together, in which all parties were involved, and uncovered the underlying reasons for the transfer of the debt.
One of the most important evaluations in the Decision is undoubtedly the position of the employees in the assumption of the debt. It was stressed that the e-mail correspondence submitted as evidence during the proceedings by the General Assembly was sent by an employee working in the finance department and performing transactions upon the instructions of the managers, and it was emphasized that all e-mails sent by this employee contained company officials, deputy general managers and members of the board of directors in the info/cc section. In addition, the info/cc section of all emails sent by this employee includes company officials, deputy general managers and board members. As a result of the evaluation of all this evidence, the e-mails sent by the defendant company’s employee from the corporate e-mail address and the transfer instructions contained in the e-mails were deemed binding for the defendant company and thus, it was stated that the transfer of the debt occurred.
During the discussions at the General Assembly of Civil Chambers, it was also argued that the assumption of the debt cannot be mentioned, since the assumption of the debt requires the agreement of both parties, and therefore, the guarantee of performance by a third party can be applied to the particular case. However, for the reasons explained above, it has been concluded that the corporate e-mail correspondence and assumption instructions clearly demonstrate the respondent company’s will to assume the debt and these transactions legally bind the respondent.
Conclusion
This remarkable decision by the General Assembly marks a new era in the interpretation of debt relations in commercial transactions. The Decision and its reasoning have brought a new dimension to the issues of assumption (transfer) of debt and the guarantee of performance by a third party.
In the reasoning of the decision, it has been accepted that the correspondence made by the employees of the defendant company over the corporate e-mail accounts upon the instructions of their managers, the transfer instructions contained in these correspondences, and the presence of signatories, assistant general managers and managers in the info/cc section of the e-mails are sufficient for the existence of the transfer of debt. This approach reveals the importance of the binding nature of the actions of the company employees as well as their correspondence and transactions on behalf of the company.
As can be seen, companies may be under significant legal liabilities due to the e-mails sent by their employees during their daily workflow. For this reason, it is of great importance that the authorization limits of employees are clearly defined and appropriate control mechanisms are implemented by companies.
- In fact, in the early and classical Roman Law, the debt was not considered to be transferable due to the idea that the debt relationship created a very close personal relationship (iuris vinculum) between the creditor and the debtor. On this subject, see: Özcan, Didem: Borcun Üstlenilmesi, On İki Levha Yayıncılık, PhD Thesis, Istanbul University, 2017, p. 11.
- Eren, Fikret: Borçlar Hukuku Genel Hükümler, 24th Edition, Yetkin, Ankara, 2019, p. 1391.
- Nomer, Halûk N.: Borçlar Hukuku Genel Hükümler, 14th Edition, Beta, Istanbul, 2015, p. 454-455.
- Assumption of debt cannot be realized without the consent of the creditor. In this respect, assumption of debt differs from assignment of receivables. See: Özcan, Didem, p. 6-7.
- Tercier, Pierre / Pichonnaz, Pascal / Develioğlu, H. Murat: Borçlar Hukuku Genel Hükümler, 2nd Edition, On İki Levha, Istanbul, 2020, p. 610.
- Oğuzman, Kemal / Öz, Turgut: Borçlar Hukuku Genel Hükümler, Volume II, 16. Bası, Vedat Kitapçılık, İstanbul, 2021, p. 616.
- Eren, p. 1393.
- Eren, p. 1398.
- Oğuzman / Öz, p. 425.
- Nomer, p.412
- Oğuzman / Öz, p. 426-427.
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