Assignment of Debt in the Light of the Civil Transactions Law and the Egyptian Civil Code

The civil codes — the Egyptian Civil Code and the Civil Transactions Law among them — permit a debt to be assigned between the debtor and another person who assumes it in their place, or between the original creditor and another person who assumes the creditor's position. The Committee for the Settlement of Banking and Financing Disputes held, in judgment 161 of 1424, that "an undertaking by a person to settle the indebtedness of a bank's client, and the bank's acceptance of that undertaking, constitutes an assignment of debt by which clients are discharged toward the bank, the person undertaking becoming thereafter the bank's debtor".

What assignment of debt is

Article 248 of the Civil Transactions Law defines it as "a contract requiring the transfer of an obligation from the patrimony of the assignor to the patrimony of the assignee". It is thus an agreement — a contract — between two parties to transfer the debt from the patrimony of the original debtor to that of a new debtor who takes their place. The elements of the contract are accordingly consent, object and cause. The Commercial Circuit of the Board of Grievances held, in case 12384 of 1437, on appeal in case 2790 of 1438, that "it is settled in doctrine and in applicable regulations that an assignment is valid only upon a debt that is established, and that the debt must further be settled — that is, not liable to lapse — failing which the assignment is treated as invalid".

The texts of the Egyptian Civil Code set out how such an assignment is effected: either by an agreement between the original debtor and the assignee, who by that assignment becomes debtor in their place, or by an agreement between the creditor and the assignee without the consent of the original debtor.

The first case of assignment of debt: agreement between the original debtor and another person who assumes the debt, called the assignee

On this Article 315 of the Egyptian Civil Code provides that "assignment of debt is effected between the debtor and another person who assumes the debt in their place"; and Article 249 of the Civil Transactions Law provides that "assignment of debt is concluded by an agreement between the assignor and the assignee, and does not take effect as against the creditor unless the creditor accepts it". It is valid, then, for two persons, one of whom owes another — the original debtor — to agree to transfer that debt owed to the creditor to the second party, that is, the assignee.

Once an assignment of debt has been effected between the original debtor and the assignee in the manner set out above, it is not concluded as against the creditor (or, in the term used by the Egyptian Civil Code, the obligee) unless the creditor accepts it.

Article 316 of the Egyptian Civil Code provides that "the assignment does not take effect as against the creditor unless the creditor ratifies it". Article 249 of the Civil Transactions Law, cited above, lays down the same rule. The relation between the original debtor and the assignee therefore remains suspended upon the creditor's acceptance of the transfer. If the creditor ratifies it, it is concluded as against them. Where the debtor has assigned to more than one person, the assignment that takes effect is the one the creditor ratifies first. Where the creditor does not accept the assignment, it is not concluded as against them; and in that case Article 249 of the Civil Transactions Law provides that "the assignee is bound toward the assignor to make payment to the creditor, unless otherwise agreed, or unless it appears from the circumstances that the effect of the assignment as between them is suspended upon the creditor's acceptance".

The Egyptian Civil Code lays down a rule for which the Civil Transactions Law has no counterpart, provided for in Article 316: "where the assignee or the original debtor notifies the assignment to the creditor and fixes a reasonable period within which to ratify it, and that period expires without ratification being given, the creditor's silence is treated as a refusal of the assignment". Since an assignment concluded between the original debtor and the assignee bears upon the creditor's interests, the law provides the creditor the right to refuse it, and its effects then do not run against them. The creditor has the choice between ratifying the assignment and refusing it once notified of it by the assignee or the original debtor for the purpose of ratification. Ratification in this case is a unilateral expression of will, which to produce its effect must reach the creditor's knowledge at a time apt for deciding upon it. If the creditor ratifies, the assignment is concluded as against them with retroactive effect, and the original debtor and the assignee may not withdraw from or vary the assignment once the ratification has reached them. If the period expires without ratification by the creditor, their silence is treated as a refusal, and the relationship between the creditor and the original debtor remains in being.

An assignment of debt may thus be concluded between the creditor, the original debtor and the assignee, in which case it takes effect immediately upon that agreement. It may also be effected by agreement between the original creditor and the assignee, and this is the second case the law governs.

The second case: agreement between the creditor and the assignee without the consent of the original debtor

The Egyptian Civil Code and the Civil Transactions Law both permit the creditor and the assignee to agree upon an assignment of debt without the consent of the original debtor. Article 321 of the Egyptian Civil Code provides that "an assignment of debt may also be effected by an agreement between the creditor and the assignee providing that the latter takes the place of the original debtor in their obligation". Article 250 of the Civil Transactions Law provides that "an assignment of debt may be concluded by an agreement between the assignor and the creditor, and does not take effect as against the assignee unless the assignee accepts it".

An assignment may accordingly be concluded by an agreement directly between the creditor and the assignee, without depending on the debtor's consent, as the Egyptian Civil Code holds — resting on the rule that payment may be made by one other than the debtor, even without their knowledge or will — or with the debtor's acceptance, as the Civil Transactions Law provides. No particular form is required for this agreement; the general rules govern proof of its conclusion. Consent may be express or tacit. It must, however, bear upon the debt itself, so that the debt passes with all its securities, its qualities and its defences, lest the matter be confused and the agreement construed as a novation of the debt, or as a delegation in payment adding a new debtor to the original one. The consent of both parties must likewise be cast in a form intelligible as to the cause itself. It should be noted that assignment may bear upon every kind of debt, whether deferred, suspended or future.

An assignment in the foregoing form produces, besides the discharge of the debtor — who is treated as having rendered to the original debtor the equivalent of the value of the debt assigned — all the effects of an assignment concluded between the original debtor and the assignee: as to the passing of the accessories of the debt, as to payment of the value of the assignment, as to the defences the assignee may raise against the creditor, and as to the bar upon the creditor's recourse against the original debtor, unless otherwise agreed. On this the Egyptian Court of Cassation has held: "the effect of Article 321 of the Civil Code is that an assignment of debt may be effected in the form of a direct agreement between the creditor and the assignee, by which the debt passes from the patrimony of the former debtor to that of the new debtor without need of the former debtor's consent; and the assignee may, under Article 320 of the same Code, raise against the creditor the defences the original debtor could have raised, since the debt itself passes with its qualities, its securities and its defences from the original debtor to the assignee".