The factoring contract – a contract still considered atypical today despite the legislative intervention made by Law No. 52 of 21 February 1991, which regulated it – is defined as the agreement whereby an entrepreneur assigns, or undertakes to assign, all or part of the receivables arising from the exercise of his business activity to another entrepreneur (the so-called factor), who, in return for consideration, undertakes to provide the assignor with a series of ancillary services (such as, for example, the management, accounting and collection of the receivables; the assumption of the debtor’s insolvency risk, etc.).
The factoring contract according to the Court of Cassation
In this regard the Supreme Court of Cassation has held that: «The factoring contract, even after the entry into force of the rules contained in Law No. 52 of 21 February 1991, is an atypical agreement – the rules governing which, supplementing contractual autonomy, are contained in Articles 1260 et seq. of the Civil Code – implemented by means of the assignment, with recourse (pro solvendo) or without recourse (“pro soluto”), of title to the receivables of an entrepreneur, arising from the exercise of his business, to another entrepreneur (the factor), with a transferring effect at the time the parties exchange consent if the assignment is global and the receivables exist, or deferred to the time when they come into existence if the receivables are future ones or if, in order to perform the obligation undertaken under the agreement, it is necessary to transfer the receivables themselves by separate assignment transactions, but in any event deriving from the perfection of the assignment between assignor (supplier) and assignee (factor), irrespective of the will and knowledge of the assigned debtor». (Court of Cassation, Third Civil Section, 08/02/2007, No. 2746).
The central element of the factoring contract, therefore, is the assignment of receivables; an assignment which, depending on the contractual scheme adopted by the parties, may have an immediately transferring effect or a merely obligatory one (where the subject of the assignment is future receivables).
The assignment of future receivables
This contribution aims to focus on the problem of the effectiveness of the assignment of future receivables against the attaching creditor, attempting, on the basis of the decisions of the Supreme Court and the positive rules introduced by Law 52 of 1991, to identify the conditions under which the assignment of future receivables is enforceable against the attaching creditor.
Article 1265 of the Civil Code, as is well known, in regulating the effectiveness of the assignment of a receivable against third parties, provides that «if the same receivable has been the subject of several assignments to different persons, the assignment first notified to the debtor prevails, or the one that has been accepted by the debtor by an instrument bearing a certain date, even if that date is later».
Article 2914, no. 2, of the Civil Code, in turn, provides that «the following have no effect against the attaching creditor and the other creditors who intervene in the enforcement proceedings, even if they predate the attachment …2) assignments of receivables that have been notified to the assigned debtor or accepted by him after the attachment».
In essence, under the cited provisions of the substantive code (historically laid down with reference to the case of the assignment of already existing receivables and, therefore, having immediately transferring effect), the conflict between assignees, or between the assignee and the attaching creditor (or the bankruptcy trustee), is resolved on the basis of the criterion of the prevalence of the assignment notified to, or accepted by, the assigned debtor first, that is, notified (or accepted) before the attachment.
The regime prior to Law 52/1991
In this regard it should be noted that the First Civil Section of the Supreme Court of Cassation, with judgment of 14 November 1996, No. 9997, ruled on a case predating the entry into force of Law 52 of 1991, on the question whether, for the purposes of enforceability against the bankruptcy estate of an assignment of future receivables, notification to the assigned debtor of the factoring “framework contract” (with deferred transferring effect) was sufficient, or whether, before the declaration of bankruptcy, notification or acceptance by the assigned debtor of each receivable after its coming into existence was necessary.
In that judgment the Supreme Court had held that «the problem raised by the present dispute . . . is to verify whether, in the case of an assignment of future receivables, for enforceability against the bankruptcy estate it is sufficient that the assignment be accepted or notified, with a certain date prior to the declaration of bankruptcy, or whether an acceptance or notification, again bearing a certain date, of each receivable after it comes into existence is also necessary.
The problem as framed obviously has nothing to do with that of the validity of the assignment of future receivables between the parties, which is by now peacefully admitted in the case law of this Court (starting from judgments 1277-62, 184-66, 1209-66 up to the more recent 3099-95, 8497-94, 11516-93, 4040-90) and is the subject of express legislative provision (Article 3 of Law No. 52 of 1991), nor with that of identifying the moment at which the transferring effect arises, it being equally undisputed that this effect occurs only when the receivable actually comes into existence and that, therefore, the assignment in question, unlike that of already existing receivables, has merely obligatory effects.
The question that arises is instead that of the enforceability of the assignment of future receivables against third parties, a question which the contested judgment resolved in the sense that notification and acceptance of the assignment contract alone are insufficient. That conclusion must be substantially endorsed, bearing in mind that in this case, as appears from the appeal (p. 3), the assignment of future receivables formed part of a factoring transaction, perfected through the signing of a “framework contract”, in implementation of which O. had proceeded to the “reporting” of the assigned debtor and to further assignments.
The wording of Article 1265 of the Civil Code, which provides for notification or acceptance of the “assignment”, is certainly not decisive for resolving the problem, because it is evident that the legislator did not have in mind the case of the assignment of future receivables (the subject of case-law and doctrinal elaboration subsequent to the drafting of the Code), with merely obligatory effects, but the assignment of already existing receivables, which has immediate transferring effect, so that notification and acceptance of the assignment coincide with the transmission or acquisition of knowledge of the receivable. Rather, one must bear in mind the ratio of Article 1265 (and of Article 2914, no. 2), which, in regulating the enforceability of the assignment in order to resolve conflicts between third parties, requires the certainty of the date of notification and acceptance, in order to reconcile the need for easy circulation of receivables with that of protecting third parties. Both needs would be entirely frustrated if the appellant’s thesis were followed, since she is in fact compelled to admit that, in order to ascertain which receivables came into existence before the attachment (or the bankruptcy), one would have to rely on the declaration of the assigned debtor or on the accounting records of the bankrupt party and, in case of dispute, on judicial determination. In conclusion, it must be held that, in order for the assignment of future receivables to be enforceable against the bankruptcy estate, it is necessary not only that the receivables arising after the perfection of the assignment in any event predate the bankruptcy, but that before that date they have become due (judgment 11516-93; which, from another standpoint, recalls the need for their specific notification or acceptance under Article 1264 of the Civil Code) and also that they have been individually notified to or accepted by the debtor by an instrument bearing a certain date».
The Supreme Court, therefore, with the cited judgment, had held that the enforceability of the assignment of future receivables against the bankruptcy estate presupposed not only that the receivables arising after the perfection of the assignment predated the bankruptcy, but also that those receivables had become due before the declaration of bankruptcy and had, before that date, been notified to or accepted by the assigned debtor by an instrument bearing a certain date.
The evolution of the case law of the Court of Cassation
More recently, the Supreme Court of Cassation, addressing the same question already dealt with in the above-mentioned decision, held that «in the case of future but probable receivables because they arise from a single underlying relationship (such as employment relationships), the assignment contract, perfect ab initio albeit with deferred real effect, may be assimilated to the assignment of a present receivable and must therefore prevail over the attachment if notified to the debtor, already identified thanks to the underlying relationship, or accepted by him before the attachment itself … By contrast, in the case of merely contingent and uncertain receivables, their greater uncertainty, that is, the transferring effect of the assignment and (at least as a rule) the lack of present identification of the debtor lead to the conclusion that the assignment can be successfully set up against the attaching creditor only if they have become due and there has been notification or acceptance by the debtor before the attachment … In this sense Cass. 14 November 1996, No. 9997 expressed itself, which held it necessary, for enforceability against the bankruptcy estate, that there be prior notification or acceptance not of the conclusion of the factoring contract (that is, of the global assignment of present and future receivables inherent in a business as consideration for financing or other counter-performance) but of the individual receivable that subsequently came into existence» (Court of Cassation, Labour Section, 26 October 2002, No. 15141).
In essence, the Labour Section of the Supreme Court, continuing along the path traced by decision 9997/96, held that the assignment of future receivables (with obligatory effects and not immediately transferring) would prevail over the attachment only insofar as it concerns «concretely contingent» receivables, that is, receivables marked «by a high degree of probability».
Conversely, where the assignment concerns «contingent and uncertain» receivables, the «greater uncertainty … of the transferring effect» means that the assignment can be set up against the attaching creditor only insofar as such receivables «have become due and there has been notification or acceptance by the debtor before the attachment».
In essence, the Supreme Court of Cassation, having peacefully admitted the assignability, with deferred transferring effect, of future receivables, specified that the assignment of future receivables is enforceable against the attaching creditor only insofar as it was notified before the attachment and concerns «concretely contingent» receivables; conversely, where the assignment concerns «abstractly contingent» receivables, as to which there is greater uncertainty as to whether the transferring effect will materialise, enforceability against the attaching creditor presupposes that the receivable is due and has come into existence and that the notification or acceptance by the assigned debtor predates service of the attachment.
Therefore, where the assignment concerns merely contingent receivables not yet identified in all their objective and subjective elements, in order to affirm the prevalence of the assignment and, therefore, its enforceability against the attaching creditor, the notification or acceptance of the assignment must be, on the one hand, prior to the attachment and, on the other, in any event subsequent to the moment at which the receivable came into existence. (ex multis, Court of Cassation, First Civil Section, 14 April 2010, No. 8961; Court of Cassation, First Civil Section, 21 December 2005, No. 28300).
In particular, the First Civil Section, with judgment 28300/2005, following the line of the cited ruling of the Labour Section 15141/2002, held that «as regards the effectiveness of the assignment of receivables yet to accrue originating from a single and already existing underlying relationship, the assignment prevails over the attachment itself, unlike what happens for merely contingent receivables, not necessarily identified in all their objective and subjective elements: only with regard to the latter does the prevalence of the assignment require that the notification or acceptance be not only prior to the attachment, but also subsequent to the moment at which the receivable came into existence».
The regime following Law 52/1991
That said, it is worth observing that, in the cited judgment 15141/2002, the Labour Section of the Supreme Court of Cassation, at the end of the reconstruction carried out, stressed that «all this explains why Law No. 52 of 21 February 1991 does provide, in matters of obligations constituted in the course of business, for the assignment of receivables even before the contracts from which they arise are entered into, but the effectiveness of the assignment as regards the assignor’s creditors is not subject to prior notification to (still non-existent) debtors, but to prior payment of the consideration for the assignment».
This obiter dictum makes it possible to frame the problem of the enforceability against the attaching creditor of assignments of future receivables ancillary to a factoring contract, placing it within the framework of the positive rules deriving from Law 52 of 1991.
Article 3 of Law No. 52/1991 (laying down the «rules on the assignment of business receivables») provides that future receivables may be assigned, including in bulk, even before the contracts from which those receivables will arise are entered into, provided that those contracts are entered into within the following 24 months.
The fourth paragraph of the same article also provides that «the assignment of receivables in bulk is considered to have a determined object, including with reference to future receivables, if the assigned debtor is indicated, subject to the provisions of paragraph 3».
Article 5 of Law 52/1991 gave the assignee who has paid, in whole or in part, the consideration for the assignment, by payment bearing a certain date, the right to set up the assignment «i) against the other successors in title of the assignor whose title of acquisition was not rendered effective against third parties before the date of payment; ii) against the assignor’s creditor who attached the receivable after the date of payment; iii) against the bankruptcy estate of the assignor declared after the date of payment (without prejudice to the provisions of Article 7, paragraph 1)».
Enforceability of the assignment against the attaching creditor
Law 52 of 1991, therefore, in laying down the rules on the assignment of business receivables, resolved the issue by allowing the factor to set up the assignment of future receivables provided that it has paid, in whole or in part, the price of the same by payment bearing a certain date prior to the attachment.
In essence, once it is established that, in the case of an assignment of future receivables, the transferring effect occurs only when the receivable actually comes into existence, the assignment having merely obligatory effects until that moment, nevertheless, where, once the receivable has come into existence, the factor has paid the assignor, by an instrument bearing a certain date, the consideration for its assignment, the assignment will be enforceable against the attaching creditor who attached the receivable after the date of payment.
«By virtue of Law No. 52 of 1991, Article 5, where the assignee has paid, in whole or in part, the consideration for the assignment and the payment bears a certain date, the assignment is enforceable against the bankruptcy estate of the assignor declared after the date of payment, subject to the provisions of Article 7, paragraph 2 of the same Law No. 52 of 1991 … from the perspective of Law No. 52 of 1991, the moment from which its enforceability against third parties is derived is not the perfection of the contractual act, but the payment by the assignee to the assignor
….», Court of Cassation, First Civil Section, 5 July 2013, No. 16828.
Leave a Reply