Below is the second - somewhat belated - entry in a new series of author's review of court rulings in factoring cases. In the following entry you will find rulings made in factoring cases in the second half of 2018, which I found interesting and worth discussing.
- Judgment of the Court of Appeals in Katowice dated November 7, 2018. (I ACa 261/18) -> liability in solidum factor and recipient and the consequences of not having a factoring clause on the FV
There was an interesting ruling in a case brought by a factor against a factoring recipient (counterparty), issued after the factor had previously obtained an order for payment on a promissory note for the entire debt owed to the factor. The following interesting themes emerged in the case:
- The thread of the absence of the so-called factoring clause on some invoices issued by the factor. For these invoices, the recipient paid directly to the factor in violation of Article 512 of the Civil Code and the notice of assignment. The court correctly noted that such payment is ineffective against the factor who is the current creditor (assignee). The absence of a factoring clause on the invoices does not relieve the debtor from the obligation to pay the factor by virtue of the acceptance of the assignment notice. The court also noted that "The defendant's knowledge of the transfer of receivables is emphatically evidenced by the fact that for a period of two years she paid the receivables for the goods delivered to her not to the factor, but to the factor."
- On the subject of so-called responsibility. In solidum. Solidarity improper (in solidum) in factoring means that the factor and the consignee may be liable to the factor under different titles (e.g., the factor under the recourse of the advance payment and the consignee for payment of the FV), but the liability may apply in part to the same amount and payment by one of them may extinguish the debt also to the other. In this case, there was a thread of in solidum liability of the consignee together with the factor whose liability was previously covered comprehensively by the payment order from the promissory note. With such a construction, in the Court's opinion, obtaining a judgment by the factor against the factor also covering the receivables covered by the case against the consignee is not equivalent to extinguishing the liability of the consignee (counterparty). The court also held that "the risk of double satisfaction by having two enforcement titles relating to the same receivable against two obligors in solidum should be eliminated by reserving the termination of the obligation as to the performance of any of the debtors and not by dismissing the action." and therefore the Court in the operative part of the judgment made a reservation of liability in solidum. This last thread is interesting because of the different practice of the Courts.
- The verdict also raises the issue of the effectiveness of the factor's adjustment of invoices acquired by the factor against the recipient, and to that extent is unfavorable to the factor.
- Judgment of the District Court in Toruń of October 23, 2018 (V GC 336/18 upr) -> promissory note aspects in factoring
There was also an interesting judgment in a case brought by a factor against a factor (a manufacturer of metal structures) for payment under a promissory note. Here the source of the demand for payment was a factoring agreement with recourse. The factor reported the invoice, the factor paid the advance 80%. Called for payment, the consignee (contractor) refused to pay the factor due to the seizure of the claim by a bailiff. The consignee paid the bailiff instead of the factor. Then the factor, based on the agreement under recourse, demanded repayment of the advance paid with incidental costs and the amount of the debt was written on the bill of exchange.
In its objections to the payment order, the factor cited, among other things, (i) the factor's demand for repayment of the advance despite the failure to make a reverse assignment of the incomplete factoring receivables (ii) the failure to effectively present the promissory note for payment.
- The court agreed that the demand for repayment of the advance under the factoring agreement was immediately due and was not contingent on the prior assignment of a refundable claim.
- The court held that the promissory note itself constitutes proof of the existence of a debt in the amount of the sum of the promissory note, and the burden of proof to the contrary lies entirely with the promissory note debtor (factor), who must prove that the debt does not exist.
- There was an interesting thread presentation of the bill of exchange for payment. Here, indeed, the Factor made a mistake by indicating the location of the promissory note other than the place of payment (a different city) which the Factor took advantage of in its objections. However, the court held that this did not affect the maturity of the claim itself ("Since the presentation of the promissory note for payment is not a condition for the preservation of rights under the note against the issuer of the promissory note, the court upheld the rest of the payment order.") but only its due date and related interest. The court held that the failure to present the promissory note for payment to its issuer gives rise, as far as interest is concerned, only to the effect that the issuer's creditor, being the holder of the promissory note, may claim it not from the date of presentation of the promissory note for payment, which was not, but from the date on which the issuer of the promissory note was able to inspect the document and determine whether his promissory note obligation exists (so the Supreme Court in its judgment of November 23, 2004 in I CK 224/04, LEX No. 277075). The date of presentation should be taken as the date on which the defendant was able to familiarize himself with the contents of the statement of claim attached to it the original promissory note (and determine whether there is its liability under the promissory note), so the latest would be the date of the first hearing, the date of which the factfinder was notified. The above is a valuable consideration in terms of formulating procedural motions, especially when the presentation of the promissory note for payment was of doubtful effectiveness.
- Judgment of the Court of Appeals in Warsaw on July 4, 2018. (VII AGa 904/18) -> ambiguous UF provision on securing revolving financing of the factor by the bank
The verdict should serve as a warning to lawyers when formulating contracts - in this case involving securing financing provided to a factoring company by a bank and related clauses.
The factor sued the recipient (the counterparty) for payment of more than 300 thousand zlotys. And the case would probably have ended positively at once, if it were not for the fact that the recipient raised an allegation of lack of legitimacy of the factor due to a provision in the factoring agreement. That is, the defendant recipient recognized that the factor was not a valid creditor. Interestingly, this was not due to a challenge to the factoring assignment - on the contrary, it invoked the assignment securing the revolving credit.
In fact, the bank granted the factor a revolving credit in the amount of PLN 60,000,000. In order to secure the loan, the factor made an irrevocable assignment to the Bank of future receivables that were to be due to the factor from all factoring agreements entered into by the factor in relation to buyers of factoring services. In the wording of the factoring agreement, the factor stated that under the assignment of receivables agreement with the Bank made an assignment to the bank of all present and future receivables due to it under the agreement, and the factor took note of the above statement. This unfortunate provision in the factoring agreement was taken advantage of by the consignee, who raised a claim of lack of legitimacy. This is because he considered that there was a further assignment of the claim to the Bank. The court of first instance shared this view and dismissed the lawsuit.
It was not until the Court of Appeals comprehensively interpreted the aforementioned provisions that it noted that the assignment occurs only "with respect to buyers of factoring services." According to the Court of Appeals, the assignment agreement covers only receivables to which the factor is entitled "in relation to the buyers of factoring services," but no longer receivables due to the debtors of the buyers of factoring services (i.e., recipients). This interpretation is supported not only by the wording of the provisions of the loan agreement, but also by the very essence of the factoring agreement. In contracts, however, it is necessary to examine what was the consensual intention of the parties and the purpose of the agreement, rather than relying on its literal wording.
The above should serve as a lesson to the industry on how to formulate provisions on assignment securing factor financing in terms of disclosing these provisions in factoring agreements.
- Judgment of the District Court in Poznań dated 23/10/2018. (XII C 964/17) -> risks of no global assignment
The case involved a lawsuit... a factor for payment against a recipient. Such cases practically do not happen on this blog. I mention it because it is noteworthy. The factor sued the counterparty on a promissory note for almost 1 million zlotys. The claims arose from a contract dated September 5, 2012 for the sale of petroleum products secured by a promissory note due to a trade credit of PLN 650,000. On May 7, 2013, the factor entered into a factoring agreement with the factor and on May 27, 2013, the same consignee was included in the list of counterparties, but was excluded from the list after a year. At that time, the factor normally (outside of factoring) sold petroleum products to the counterparty. Thus, some receivables were included in the factoring, and some were not and stayed with the factor. Thus, there was no global assignment.
In the court's opinion, as a result of the factoring agreement entered into by the factor, the factor did not lose its right to assert a claim against the counterparty under the sales contract secured by a promissory note. Changing the list of counterparties was possible and had the effect of excluding the counterparty from factoring and releasing the assignment. Consequently, the factor did not have to reassign with the Bank the claim previously owed to the Bank.
The above shows the risk for the factor associated with the lack of global assignment - there may be collision situations and conflicts of interest between the factor and the factor - both entities may have maturing receivables from the recipient, which may give rise to competition that should not occur in factoring. In this case, this was indeed the case, and bankruptcy still happened along the way.
