The Assignment of Debts in Action

As defined by the existing positive law, it is clear that debt is a property that can be transferred and traded similar to other forms of corporeal property, but because it is a constructive existence and is subject to contingent liquidation, the economic value of these debts is greatly determined by this. A lower liquidity contingency of the debt will result in a lower economic value. In some circumstances, it may be more difficult to liquidate a debt, and the likelihood of its collection is reduced. There can be several reasons for this condition, including the quality and characteristics of the debt, such as conditional debt, contingent debt, or future debt, as well as the situation of the debtor, such as insolvency or bankruptcy. In addition, there may be a dispute between the creditor and the debtor regarding the existence of the debt or its characteristics. This type of debt is referred to as a debt in action. In this case, the creditor cannot expect that the debt will be liquidated in a manner that is consistent with his desire, because the debtor, through whom the debt must be collected, unlike the creditor, denies the existence of the debt in its origin or some of its characteristics. In the event of a dispute between the creditor and the debtor, which may be caused by a difference in the existence and amount of the debt, or by a difference in its characteristics and function, it is less likely that the debt will be liquidated in the manner the creditor anticipates. When debt is assigned, the assignor does not guarantee the payment of the debt, but in any event, the existence of the debt is required. Thus, as with other contracts, a pillar of the validity of an assignment of debt is the existence of the transferred debt at the time of the assignment. It is, therefore, necessary to examine whether or not a debt in action that is disputed, whose existence is doubtful, can be transferred, and, if so, what are its effects and consequences? In Roman law, the assignment of debt in action was prohibited in the early periods due to the fear of speculation, but in later times, due to the benefits that were envisioned for such a transaction, it was permitted. As part of the effort to prevent speculation and safeguard the rights of the debtor, this right was provided for the debtor to pay the consideration of the assignment to the assignee, that is the amount that the assignee paid to the assignor to settle the dispute and acquire ownership of the debt. The countries that followed the Roman legal system in the later periods, such as France, accepted the assignment of the debts in action. Despite some hesitation in Iranian law and Islamic jurisprudence in this regard, the validity of this type of assignment of debt should be accepted by general contractual rules. The validity of this contract may be questioned initially due to the uncertainty, the lack of knowledge about the object of the contract, and the inability to deliver the object, however, by examining each of these objections, it can be demonstrated that these objections are irrelevant. Accordingly, the assignment of debts in action should be regarded as valid under Iranian law and Islamic jurisprudence. Due to the special nature of this type of debt, there are certain consequences associated with it. Unless otherwise agreed, the implied intent of the parties should be interpreted as a waiver of the warranty of title. As a result, the assignee may not be entitled to restitution of the consideration that has been paid to the assignor if, after the assignment of debt, the assignee claims against the debtor for recovery of the debt and it becomes evident that the debt did not exist when the assignment contract was concluded. Moreover, it is important to note that, since the fact that the debt is disputed is considered a defect of said debt, and also, since every contract of assignment of debt contains an implicit condition that the debt to be transferred is not denied by the debtor at the time of conclusion of the contract, the agreement may be terminated if the assignee is unaware of the dispute.