Assignment of a Dailly debt: when the Court of Cassation reminds the rules of discount and guarantee

Imagine: you are the owner of a building in Corte, and you have assigned a rental debt to a bank to obtain financing. Then, an amicable agreement with that bank seems to cancel the assignment. But then the debtor (your tenant) challenges your right to claim the rents. What happens legally? This question, crucial for any owner or real estate professional, is at the heart of a decision of the Court of Cassation of 19 September 2007. The judgment recalls a fundamental distinction: that between assignment of a debt by way of discount and assignment by way of guarantee. Without this verification, no cancellation is possible.

Are you a landlord, tenant or real estate professional? This decision directly concerns you. It clarifies the conditions under which an assignment of a debt can be challenged. And it warns against overly simplistic agreements between assignor and assignee. Explanations.

The facts: a story that happens every day

Mrs Y., owner of a property in Grosseto-Prugna, had assigned a debt to a bank as part of professional financing. This assignment was carried out in accordance with the provisions of the Dailly law (Law No. 81-1 of 2 January 1981, now codified in Articles L. 313-23 et seq. of the Monetary and Financial Code). Subsequently, an agreement was reached between Mrs Y. and the bank to terminate this assignment. The assigned debtor (a tenant) was informed. But when Mrs Y. sues the tenant for payment of the rents, the latter raises the inadmissibility of her claim, considering that the assignment was never validly cancelled.

The Saint-Denis de la Réunion Court of Appeal ruled in favour of the tenant, holding that the agreement between the assignor and the assignee was sufficient to nullify the assignment. But the Court of Cassation censured this reasoning. For it, the Court of Appeal should have verified whether the assignment was made by way of discount or by way of guarantee. Because only an assignment by way of guarantee can be cancelled without any particular formality, the assignor then automatically recovering ownership of his debt.

The reasoning of the court — dissected

The Court of Cassation, in its judgment of 19 September 2007 (No. 04-18.372), recalls an essential principle: the Dailly assignment of a debt can have two distinct purposes. Discount (assignment for value) definitively transfers ownership of the debt to the assignee (the bank). Guarantee (assignment by way of security) preserves for the assignor a right to recover the debt when the secured debt is extinguished. In the latter case, the agreement between assignor and assignee is sufficient to terminate the assignment, because the guarantee ends with the debt it secured. But in the first case, the agreement alone is insufficient: a new assignment in the opposite direction would be required.

The Court of Appeal had therefore erred in not investigating the nature of the assignment. It deprived its decision of a legal basis. This decision confirms consistent case law: the distinction between discount and guarantee is fundamental. The judges thus recalled that informing the assigned debtor is not sufficient to validate the cancellation if the nature of the assignment is not clarified. A judgment that makes one think, doesn't it?

What this changes for you — concretely

For a landlord owner in Corte or Grosseto-Prugna, this decision has immediate implications. If you have assigned your rents to a bank as security for a loan, you will be able, after repayment, to recover your debt without complex formalities. On the other hand, if the assignment was by way of discount (for example, to obtain an immediate cash advance), a simple agreement with the bank will not be sufficient: an act of reassignment will be required.

Let's take a numerical example: you rent an apartment in Corte for €800/month. You assign this debt to a bank to obtain a loan of €50,000. If the assignment is by way of guarantee, once the loan is repaid, you can claim the rents from the tenant directly. But if the assignment was by way of discount, the bank remains owner of the debt, even after an amicable agreement. The tenant could legitimately refuse to pay you.

For the tenant, this decision protects him: he knows to whom he must pay. He cannot be forced to pay twice. If he is informed of the agreement between the owner and the bank, he must verify the nature of the initial assignment. In case of doubt, he may require written confirmation.

If you are a purchaser of a building, be vigilant: debts assigned to a bank may not be included in the sale. Check the assignment deeds.

Four tips to avoid this type of dispute

• Specify the nature of the assignment in the contract. When you sign an assignment of a debt with a bank, demand that it be clearly stated whether it is a discount or a guarantee. This mention will avoid any subsequent dispute.
• Keep all documents relating to the assignment. The assignment deed, amendments, letters informing the debtor. In case of dispute, these elements will allow proving the nature of the assignment.
• In case of an amicable agreement to cancel the assignment, formalise it by a notarial deed. If the assignment was by way of discount, a simple agreement is not enough. Have a reassignment deed drawn up by a notary or lawyer.
• Inform the debtor in writing of any change. Whether you are the assignor or assignee, notify the tenant of the cancellation agreement and the nature of the assignment. This will avoid disputes over the debtor of the rent.

Further reading: related case law and developments

This decision is part of a consistent line of the Court of Cassation. In a judgment of 15 May 2001 (No. 99-15.224), the Court had already held that the assignment of a debt by way of guarantee does not definitively transfer ownership, and that the assignor can recover it without formality. On the other hand, in a judgment of 13 November 2003 (No. 01-13.826), the Court had specified that the assignee's agreement may be sufficient to terminate the guarantee, but not the discount.

The trend of the courts is therefore clear: the distinction between discount and guarantee is essential. Judges require systematic verification. For the future, practitioners must be particularly attentive to the drafting of assignment deeds. An imprecise mention can lead to years of proceedings.

In practice: what to do

FAQ:

1. Q: Can I cancel an assignment of a debt by simple agreement with the bank?
   A: It depends on the nature of the assignment. If it was a guarantee, yes. If it was a discount, no: a formal reassignment is required.
2. Q: My tenant tells me he has paid the bank, what should I do?
   A: Check the nature of the assignment. If it was a guarantee and you have repaid, the debt reverts to you. Otherwise, the bank was entitled to receive the rent.
3. Q: What are the time limits for challenging an assignment?
   A: The limitation period is 5 years from the assignment deed. But it is better to act quickly once you become aware of the dispute.
4. Q: Is an oral agreement sufficient to cancel an assignment?
   A: No, especially if the assignment was by way of discount. A written document is essential, preferably notarial.

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