Factoring generates conflicts of rights between the factor and various third parties. In these situations, claims are made against the same receivables or their proceeds. The resolution of these conflicts depends on precise legal principles and nuanced case law.
Conflicts with other creditors
Chronological priority between creditors
Any conflict between the factor and another creditor is resolved by the "prior tempore, potior jure" rule. The first valid transfer prevails.
In the case of double mobilisation of claims, case law compares the dates:
- For two subrogations: dates of subrogatory payments
- For subrogation and cession Dailly: date of subrogation against date of slip
- For assignment and seizure: date of notification against date of seizure of assets
The Court of Cassation has confirmed this principle in several major rulings (19 May 1992, 3 January 1996). There is no priority between mobilisation techniques.
Enforceability of the assignment against distraining creditors
The factor takes precedence over the distraining creditor if his right is prior. This rule applies even against the tax authorities. A ruling by the Paris Court of Appeal on 14 April 1975 confirmed the superiority of the factor's rights against third-party notices issued after subrogation.
Seizure remains possible before transfer. No globality clause can block an attachment on future claims that have not yet been transferred.
For more details on the transfer mechanisms underlying this priority, see our technical analysis of the legal mechanisms of factoring.
Special case of disputes with banks
This conflict often arises when a bank mobilises the same receivables as the factor.
Several configurations are available:
- Dailly assignment against subrogation
- Discounting of bills of exchange against subrogation
- Pledge against subrogation
The date of transfer remains decisive. In the case of commercial paper, ownership of the provision is transferred on maturity or acceptance. These dates serve as a reference for determining priority.
Specific case of a dispute with a subcontractor
Protection of subcontractors under the Act of 31 December 1975
Law no. 75-1334 of 31 December 1975 provides strong protection for subcontractors. Article 13-1 limits the assignment of claims arising from a contract with the project owner.
The main contractor may only assign the part corresponding to the work that he carries out personally. Case law strictly applies this rule.
In a fundamental decision of 22 November 1988, the Cour de cassation gave the subcontractor priority over the factor. This solution applies irrespective of the respective dates of the subrogation and the sub-contracted.
Practical solutions in the event of a dispute with a subcontractor
Factors have a limited number of countermeasures:
- Requiring members to provide bank guarantees to their subcontractors
- Identify the subcontracted portion of contracts in advance
- Use the bill of exchange which, paradoxically, takes precedence over the subcontractor
The fragility of the factor's position warrants particular caution. Our complete guide to factoring takes a closer look at these crucial issues.
Dispute with claimant under retention of title clause
Resale price claim mechanism
Article L. 624-18 of the French Commercial Code allows the original seller with retention of title to claim the resale price. This situation pits the original seller against the factor who financed the resale price claim.
The difficulty arises from a chain of transactions:
- Initial sale with retention of title
- Resale by buyer (factor member)
- Transfer of the price claim to the factor
- Collective proceedings against the member
Priority of the original seller over the factor
Case law gives the claimant priority over the factor. The factor could only receive precarious rights to the claim.
The Court of Cassation established this principle in a judgment of 20 June 1989, and then applied it specifically to the factor in a judgment of 27 June 1989.
This solution is explained by the logic of subrogation. The factor acts in the place and stead of the subrogating reseller, who takes a back seat to the original seller's claim.
Limit: payment already made
There is an important limit to the initial seller's priority: Article L. 624-18 only authorises a claim if the price has not been "paid, settled in value or offset against a current account" by the date on which the proceedings are opened.
If the sub-purchaser has already paid off the debt with the factor before the procedure is initiated, the original seller can no longer make a claim. The Court of Cassation confirmed this in a ruling dated 11 December 1990.
To understand how these situations interact with insolvency law, see our article on factoring and insolvency proceedings.
Protection strategies for the factor
Factors can take a number of steps to protect themselves:
- Identify goods sold under retention of title
- Speeding up recovery of high-risk receivables
- Requiring the member to provide additional cover
- Strengthening prior contractual analysis
These conflicts also raise issues ofvalidity of exceptions that deserve special attention.
Conclusion
Conflicts between the factor and third parties illustrate the tension between efficient financing and protection of the legitimate rights of third parties. The resolution of these conflicts is based on clear but technical principles. To protect your rights in these complex situations, our firm ofexpert lawyers in factoring offers you personalised legal support.
Sources
- French Commercial Code, Article L. 624-18
- Law no. 75-1334 of 31 December 1975 on subcontracting
- Monetary and Financial Code, articles L. 313-23 to L. 313-35
- Court of Cassation, Commercial Division, 22 November 1988 (subcontracting)
- Cour de cassation, commercial chamber, 20 June 1989 and 27 June 1989 (retention of title)
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