THE Nanshan District People’s Court has recently settled the country’s first factoring contract dispute concerning the transfer of contingent insurance compensation to the factoring agent, Shenzhen Evening News reported yesterday.

It marks the settlement of the first such case in China after the country’s Civil Code became effective Jan. 1 this year and provides reference for the handling of similar factoring contract disputes, the court said.

The plaintiff of the case is a commercial factoring company which provides financing services, while the defendants are a transportation company and its only natural person shareholder surnamed Cai.

In June 2019, in the form of an electronic contract, Cai signed an insurance premium factoring service agreement with the plaintiff for his company’s trucks. According to the agreement, the factoring company, as the policyholder, would directly pay a lump sum of premium of 12,254.81 yuan (US$1,895.81) for Cai to an insurance company in advance, and Cai would repay it through 10 installment payments from June 25, 2019 to March 25, 2020.

It is also specifically noted in the agreement that the factoring company is entitled to receive insurance compensation as the first beneficiary. If Cai’s payments are overdue for more than three days, by mutual consent, the insurance compensation would serve as repayments.

The plaintiff paid the insurance premium for Cai according to the agreement, but Cai failed to repay the premium after four installment payments. The plaintiff filed a lawsuit at the Nanshan court, requiring the two defendants to pay the remaining premium and service fees totaling 7,916.65 yuan, in addition to damages for breach of contract.

The court held that a factoring relationship is formed between the plaintiff and the defendants in accordance with the Civil Code. But it is in violation of relevant provisions of the insurance law if the premium of this kind of liability insurance is paid to the factoring company.

As per the Civil Code, the content of the insurance policy in which the factoring company is designated as the first beneficiary of liability insurance is invalid, and the transportation company is only entitled to transfer the contingent indemnity of the car insurance to the factoring company.

The Nanshan court ruled that Cai should pay 5,925.22 yuan and damages for breach of contract to the plaintiff and Cai’s company should assume joint and several liability. The court rejected other claims of the plaintiff.

At present, the court’s judgment has come into effect.

(Zhang Yu)