Interpretation of the term “enforcement of an assigned claim” under Section 530 of the Civil Code from the perspective of the assignor’s possibility to file an action to set

What does the theory say?

1. The assignment of a claim while retaining the assignor’s right to enforce it is regulated by Section 530 of the Civil Code:
2. “At the request of the assignee, the assignor may enforce the assigned claim himself in his own name on behalf of the assignee. If the assignment of the claim has been notified or proven to the debtor, the assignor may enforce the claim only if the assignee does not enforce it and the assignor proves to the debtor that the assignee agrees to such enforcement.
3. The assignor is therefore the plaintiff in this case, even though he no longer has a substantive claim, and the debtor himself (nor the court) need not even know that, in the event of failure in the dispute, he will pay his debt to an account other than that of the assignor.
4. Section 526(1) of the Civil Code does stipulate the assignor’s obligation to notify the debtor of the assignment of the claim: “The assignor is obliged to notify the debtor of the assignment of the claim without undue delay. Until the assignment of the claim is notified to the debtor or until the assignee proves the assignment of the claim to the debtor, the debtor shall be released from the obligation by performance to the assignor,” but at the same time, it does not associate such consequences with the failure to fulfill this obligation that would prevent the assignor from enforcing the claim in its own name and on behalf of the assignee. Legal theory has termed this procedure, where the debtor does not know that he is performing on behalf of the assignee, a silent assignment.
5. In order to answer the question of whether the assignor has active legal standing to file an action to set aside against a person who benefited from the contestable legal act (a third party), it is, in our opinion, necessary to address the question of whether contesting a legal act is an act that concerns the enforcement of a claim.
6. According to the provisions of Section 42a(1) and (2) of the Civil Code:
7. “The creditor may request the court to determine that the debtor’s legal acts under paragraphs 2 to 5 are legally ineffective against him if they prejudice the satisfaction of his enforceable claim. The creditor also has this right if the claim against the debtor arising from his contestable legal act is already enforceable or has already been satisfied.
8. It is possible to contest a legal act performed by the debtor in the last three years with the intention of prejudicing his creditor, if this intention must have been known to the other party, and a legal act by which the debtor’s creditor was prejudiced and which took place in the last three years between the debtor and persons close to him (Sections 116 and 117) or which the debtor performed during that time for the benefit of those persons, except in cases where the other party could not have known of the debtor’s intention to defraud the creditor even with due care.
9. The term “enforcement (of a claim)” is not legally defined. The doctrinal definition explains this term as follows: “Enforcement is a process that occurs in a situation where it has not been possible to secure payment of a claim in a timely manner.”
10. Such a broad definition, combined with the absence of a definition of the term enforcement in legislation, leaves ample room for speculation as to exactly what actions can be subsumed under this term.
11. Even Czech legal doctrine has not resolved what it actually means to enforce a claim or to enforce an assigned claim. According to Handlar: “The scope of the rights and obligations of a party to proceedings enforcing a foreign right is unclear, in particular the possibility of performing substantive legal acts in the enforcement of the right (e.g., concluding an agreement that would be approved in the form of a court settlement, raising an objection of limitation or relative invalidity against acts raised by the debtor in its defense) (…).”
12. Although Slovak legal science has not yet defined the term “enforcement,” it has addressed the legal consequences of an agreement under Section 530 of the Civil Code: “In connection with the enforcement of a claim on behalf of the assignee, the assignor has all the rights of the creditor that are directly related to the judicial or arbitral enforcement of the claim and the conduct of the execution. The assignor has active procedural legitimacy, which in this case cannot be challenged by an objection to the assignment of the claim. The assignor is a proper party to the proceedings and is also entitled to any enforcement title. He is entitled to perform all acts within the framework of bankruptcy and restructuring proceedings, including filing a petition for bankruptcy or permission for restructuring, filing a claim in these proceedings, filing an incidental action and conducting incidental disputes, etc. Similarly, the assignor is entitled to act as the proposer of an auction within the meaning of Section 7 of the ZoDD and to perform other acts in connection with the enforcement of claims from security rights relating to it. However, the category of acts for which the assignor is authorized does not include acts that are not directly related to the enforcement of the claim. In particular, the assignor does not have the right to dispose of the claim, for example, by assigning it to a third party, waiving security rights, or forgiving the debtor’s debt.
13. According to legal doctrine, an action to set aside is therefore clearly not an instrument for enforcing a claim or conducting enforcement proceedings. Ultimately, an action to set aside is not even directed against the debtor (against whom actions related to the enforcement of a claim or execution proceedings are directed), but against a third party who benefited from the contestable legal act.
14. The purpose of an action to set aside is to protect the creditor by enabling them to obtain a court decision declaring that the legal act performed by the debtor is ineffective against the creditor. A court decision granting an action to set aside then provides the basis for the creditor to seek enforcement on the basis of an enforcement order issued against the debtor by seizing what has been lost from the debtor’s assets as a result of the contestable (legally ineffective) act, not against the debtor, but against the person in whose favor the legal act was performed (a third party). An action to set aside is therefore a legal remedy serving to satisfy the creditor’s enforceable claim in enforcement proceedings, by seizing items or other assets that have been removed from the debtor’s assets by a contestable legal act, or by recovering monetary compensation in an amount corresponding to the benefit obtained from the contestable legal act.
15. Even if we conclude, through a very extensive interpretation of the concept of enforcement of a claim (assigned claim) to the conclusion that this term also includes the possibility of filing an action to set aside, we encounter another obstacle, which is the very wording of Section 42a(1) of the Civil Code, which grants the right to file an action to set aside only to the creditor. In this context, judicial practice defines the term creditor as follows: “As already mentioned above, only a person who has a claim against the debtor can be a creditor. From the perspective of Section 42a of the Civil Code, it is not decisive whether the claim is due or not due, or whether it is a future claim; what is important is that a legal relationship of obligation has arisen from which the claim arose or from which the claim is to arise in the future. A person who does not have a claim against the debtor cannot be his creditor and it is also – as the court of appeal correctly states – conceptually impossible for the debtor to perform a legal act with the intention of defrauding “his creditor” (i.e. reducing the satisfaction of the creditor’s claim). Therefore, only a person who has a claim against the debtor at the time when the contestable legal act was performed, including a claim that is not yet due or a claim that is to arise in the future on the basis of an existing contractual legal relationship, has active legal standing to bring an action to contest the legal act.
16. In our model case, however, the debtor no longer has a claim against the assignor but against the assignee. By assigning the claim, the assignee became the creditor and the assignor only acquired the right to enforce the claim.
17. In view of the above, it can be concluded that the term “debt collection” describes a process in which an entity takes steps leading either to the filing of a lawsuit to collect the claim or to the filing of a petition for enforcement, or possibly a petition for bankruptcy or an application for bankruptcy or restructuring. These are therefore steps leading directly to the recovery of (usually) a monetary claim with the assistance of public authorities (court, bailiff), which do not include the possibility of filing an action to set aside. Even if this were the case, only the creditor has this option, and the assignor exercising the right to enforce the assigned claim no longer does.

Can an analogy help?

1. However, the possible use of analogy legis, i.e., the analogous application of the creditor’s legal option to contest the debtor’s legal act on the basis of the provisions of Section 42a(1) of the Civil Code, may also be considered in a case where the claim is enforced by the assignor pursuant to the provisions of Section 530 of the Civil Code.
2. According to the ruling of the Constitutional Court of the Slovak Republic under file number IV. ÚS 414/2013: “Analogy of law (analogia legis) is the application of “law to cases that are not regulated by any provision of law, i.e., finding law in an area outside the scope of the concept” (Melzer, F. Methodology of Finding Law. Introduction to Legal Argumentation. Prague: C. H. Beck, 2010, p. 211). Analogy is a methodological tool for closing gaps in the law, the essence of which is that it “connects the legal consequences (disposition) of norms with cases that are not included in their linguistic expression in legal regulations” (ibid., p. 240). The admissibility of analogy must result from objective teleological reasoning, i.e., in principle, from the purpose of the legal provision (its teleological background) and from the balancing of legal principles (see , ibid., pp. 240–241).
3. The use of analogy of law (especially in cases where the law does not directly refer to its use) must always be sensitive, well-considered, and argumentatively substantiated, since in such cases the judge de facto becomes a legislator, as he or she voluntarily subsumes under the norms adopted by the legislator social relations that he or she believes should be subsumed under these norms and that it is only due to a legislative error that this is not the case. However, in such cases, the judge runs the risk of ruling contrary to the will of the legislator, which is inadmissible in view of the principle of the separation of powers in a state governed by the rule of law.
4. It cannot therefore be ruled out that a judge may conclude that the analogy of the law can be applied to a case in which the assignor opposes the debtor’s legal act in his own name and “on behalf of the assignee.”
5. As we have stated, the purpose of Section 530(1) of the Civil Code is primarily to create space for entities to sell (or donate) receivables that will not burden the assignee with the “inconveniences” associated with court proceedings (loss of time, possible obligation to reimburse costs of proceedings, etc.). If the assignee had to contest the legal act in its own name, the purpose of Section 530(1) of the Civil Code would be partially lost. This situation could hypothetically be remedied by analogy with the law, which “links the legal consequences (disposition) of norms to cases that are not included in their linguistic expression in legal regulations.”
6. It should also be noted that the assignor enforces the claim in its own name and, in hypothetical cases, neither the court, the debtor, nor the person who benefited from the contestable legal act (third party) would not know that the assignor no longer has a substantive claim to payment of the claim on its own account.
7. Whether or not other entities knew on whose account the claim was being enforced, the fact remains that it would be the assignor who would file a motion for enforcement, which would be conducted “in his name” but on behalf of the assignee. It therefore makes sense for the decision to declare the contestable legal act ineffective precisely against him.
8. However, the counterargument is that the right to enforce a claim in one’s own name on behalf of the assignee may expire (e.g., by revocation). A hypothetical situation could therefore arise in which the assignor would have an enforceable judgment on the claim for payment of the debt, as well as a judgment on the invalidity of the legal act against him, and the assignee would revoke his right to enforce the claim. The assignee would therefore be entitled to file a motion for enforcement, but the contestable legal act would be ineffective against the assignor, which would render such a judgment effectively unenforceable.
9. A decision on the ineffectiveness of a legal act against the assignor would thus be “only an academic (theoretical) decision, serving no practical purpose in protecting the creditor. Issuing academic decisions is contrary to one of the fundamental principles of civil proceedings, namely the principle of effectiveness.”
10. This applies regardless of the fact that the assignment of the right to enforce the claim by the assignor to the assignee would most likely not have been exercised before the filing of the petition for enforcement. The mere theoretical possibility of revoking this right must be taken into account. In addition, the assignor could, for example, cease to exist without a legal successor, which, contrary to the will of the assignor and the assignee, would also render the decision on the ineffectiveness of the legal act unenforceable.

Conclusion

1. In view of the above, we believe that if the debtor attempts to deprive the assignee of satisfaction of the claim by a contestable legal act, the debtor will not be deprived of the active procedural legitimacy to file a contestation action by a request pursuant to Section 530 of the Civil Code.
2. The assignor and assignee will thus have to deal with a situation in which they will be forced to file an action to set aside against the debtor by means other than the procedure under Section 530 of the Civil Code.
3. One option is to grant the assignor power of attorney to file an action to set aside and represent the assignee in the proceedings, which relieves the assignee from having to go through the court proceedings. However, the debtor will learn who the new creditor is, and if the dispute is lost, the assignee will be obliged to reimburse the costs. However, the costs of opposition proceedings are not usually high, and in addition, the assignor and the assignee may conclude an agreement (e.g., at the time of assignment of the claim) that if the dispute is lost, the assignor will reimburse the assignee for the costs incurred as a result of losing the dispute.

References

1. 1. KISLINGEROVÁ, Eva., 2010. Managerial Finance. 3rd ed. Prague: C. H. Beck. Beck’s Economics Series. ISBN 978-80-7400-194-9
   2. HANDLAR, J., Objection to the invalidity of a contract for the assignment of a notified debtor’s claim. In: Právní rozhledy, 2012, No. 9, pp. 318-324
   3. ŠTEVČEK, M. et al.: Civil Code I. 2nd edition. Prague: C. H. Beck, 2019, p. 1987
   4. Judgment of the Supreme Court of the Slovak Republic of June 24, 2020, ref. no. 6Cdo/237/2017
   5. Judgment of the Supreme Court of the Czech Republic of January 21, 2002, ref. no. 21Cdo/549/2001
   6. Ruling of the Constitutional Court of the Slovak Republic, file no. IV. ÚS 414/2013
   7. Judgment of the Supreme Court of the Slovak Republic of June 24, 2020, ref. no. 6Cdo/237/2017