Unidroit Convention on International Factoring

Unidroit Convention on International Factoring

Note: Unidroit is the “International Institute for the Unification of Private Law.” Based in Rome. Their Internet address is www.unidroit.org.

CHAPTER I – SPHERE OF APPLICATION AND GENERAL PROVISIONS

Article 1

1. – This Convention governs factoring contracts and assignments of
receivables as described in this Chapter.

2. – For the purposes of this Convention, “factoring contract”means a contract concluded between one party (the supplier)
and another party (the factor) pursuant to which:

(a) the supplier may or will assign to the factor receivables arising from contracts of sale of goods made between the supplier
and its customers (debtors) other than those for the sale of goods bought primarily for their personal, family or household use;

(b) the factor is to perform at least two of the following functions:

– finance for the supplier, including loans and advance payments;
– maintenance of accounts (ledgering) relating to the receivables;
– collection of receivables;
– protection against default in payment by debtors;

(c) notice of the assignment of the receivables is to be given to debtors.

3. – In this Convention references to “goods”and “sale of goods”shall include services and the supply of services.

4. – For the purposes of this Convention:

(a) a notice in writing need not be signed but must identify the person by whom or in whose name it is given;

(b) “notice in writing”includes, but is not limited to, telegrams, telex and any other telecommunication capable of being reproduced intangible form;

(c) a notice in writing is given when it is received by the addressee.

Article 2

1. – This Convention applies whenever the receivables assigned pursuant to a factoring contract arise from a contract of sale of goods
between a
supplier and a debtor whose places of business are in different States and:

(a) those States and the State in which the factor has its place of business are Contracting States; or

(b) both the contract of sale of goods and the factoring contract are governed by the law of a Contracting State.

2. – A reference in this Convention to a party’s place of business shall, if it has more than one place of business, mean the place of business
which has the closest relationship to the relevant contract and its performance, having regard to the circumstances known to or contemplated
by the parties at any time before or at the conclusion of that contract.

Article 3

1. – The application of this Convention may be excluded:

(a) by the parties to the factoring contract; or

(b) by the parties to the contract of sale of goods, as regards receivables arising at or after the time when the factor has been given notice in
writing of such exclusion.

2. – Where the application of this Convention is excluded in accordance with the previous paragraph, such exclusion may be made only as regards
the Convention as a whole.

Article 4

1. – In the interpretation of this Convention, regard is to be had to its object and purpose as et forth in the preamble, to its international
character and to the need to promote uniformity in its application and the observance of good faith in international trade.

2. – Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the
general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of Private International Law .

CHAPTER II – RIGHTS AND DUTIES OF THE PARTIES

Article 5

As between the parties to the factoring contract:

(a) a provision in the factoring contract for the assignment of existing or future receivables shall not be rendered invalid by the fact that the contract does not specify
them individually, if at the time of conclusion of the contract or when they come into existence they can be identified to the contract;

(b) a provision in the factoring contract by which future receivables are assigned operates to transfer the receivables to the factor when they
come into existence without the need for any new act of transfer.

Article 6

1. – The assignment of a receivable by the supplier to the factor shall be effective notwithstanding any agreement between the supplier and the debtor prohibiting such assignment.

2. – However, such assignment shall not be effective against the debtor when, at the time of conclusion of the contract of sale of goods, it has its place of business in a Contracting State which has made a
declaration under Article 18 of this Convention.

3. – Nothing in paragraph 1 shall affect any obligation of good faith owed by the supplier to the debtor or any liability of the supplier to the debtor in respect of an assignment made in breach of the terms
of the contract of sale of goods.

Article 7

A factoring contract may validly provide as between the parties thereto for the transfer, with or without a new act of transfer, of all or any of the supplier’s rights deriving from the contract of sale of goods,
including the benefit of any provision in the contract of sale of
goods reserving to the supplier title to the goods or creating any
security interest.

Article 8

1. – The debtor is under a duty to pay the factor if, and only if, the debtor does not have knowledge of any other person’s superior right to payment and notice in writing of the assignment:

(a) is given to the debtor by the supplier or by the factor with the supplier’s authority;

(b) reasonably identifies the receivables which have been assigned and the factor to whom or for whose account the debtor is required to make payment; and

(c) relates to receivables arising under a contract of sale of goods made at or before the time the notice is given.

2. – Irrespective of any other ground on which payment by the debtor to the factor discharges the debtor from liability, payment shall be effective for
this purpose if made in accordance with the previous paragraph.

Article 9

1. – In a claim by the factor against the debtor for payment of a receivable arising under a contract of sale of goods the debtor may set
up against the factor all defences arising under that contract of which
the debtor could have availed itself if such claim had been made by the supplier.

2. – The debtor may also assert against the factor any right of set-off in respect of claims existing against the supplier in whose
favour the receivable arose and available to the debtor at the time a
notice in writing of assignment conforming to Article 8(1) was given to the debtor.

Article 10

1. – Without prejudice to the debtor’s rights under Article 9, non-performance or defective or late performance of the contract of sale
of goods shall not by itself entitle the debtor to recover a sum paid by
the debtor to the factor if the debtor has a right to recover that sum from the supplier.
2. – The debtor who has such a right to recover from the supplier a sum paid to the factor in respect of a receivable shall nevertheless be
entitled to recover that sum from the factor to the extent that:

(a) the factor has not discharged an obligation to make payment to the supplier in respect of that receivable; or

(b) the factor made such payment at a time when it knew of the supplier’s non-performance or defective or late performance as regards the goods to which the debtor’s payment relates.

 

Conclusion

Notes

See Also

References and Further Reading

About the Author/s and Reviewer/s

Author: international

Mentioned in these Entries

Conventions: Chronological Index 1971-1990, Private International Law, Trade and Commercial Relations conventions, Unidroit Convention on International Factoring 2.

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