China Resources Bank of Zhuhai Co., Ltd. v. Jiangxi Electric Power Fuel Co., Ltd. and Third Party Guangzhou Dayou Coal Sales Co., Ltd. (Dispute over Factoring Contract)—Debtor’s Assumption of Liability in Dispute over Factoring Contract

Abstract

In a factoring contract with recourse, the contract for the assignment of creditor’s rights is an indirect payment contract for the settlement of debts under the loan contract, rather than a pure assignment of creditor’s rights. Before the settlement of the factored debt, subject to the principle of good faith, the factor has the right and obligation to claim from the secondary debtor first, and, for the part the secondary debtor fails to pay off, the debtor shall assume supplementary liability. To the extent that the factor is in good faith and without any fault, the debtor and the secondary debtor shall not challenge the factor for the absence of the receivables and other defect.

Collegial panel judges of the Supreme People’s Court for re-trial: Zhou Lunjun, Ma Dongxu, Wang Jun (Written by: Zhou Lunjun, Supreme People’s Court; Translated by: Niu Benlin).