A creditor who alienated the right of claim under an invalid (void) transaction and further alienated this right to another person who is not a party to such a transaction may regain such a right by reclaiming it - SC GC

If a creditor has alienated a claim in an obligation under an invalid (void) transaction and subsequently this right of claim has been alienated to another person who is not a party to the invalid (void) transaction, the creditor may regain such right of claim only upon the results of its reclamation in the manner prescribed by Articles 387, 388 of the Civil Code of Ukraine.

Prior to the transfer of the right of claim in an obligation by way of its claim under Articles 387 and 388 of the Civil Code of Ukraine to the creditor, such right of claim is held by the acquirer. Consequently, the procedural rights and obligations in the case and enforcement proceedings are not transferred to the creditor as a procedural successor.

The Grand Chamber of the Supreme Court emphasised these conclusions.

In the case, which was reviewed by the court of cassation, the bank filed a claim to recover the loan debt from the debtor. After that, the bank assigned the right of claim under the loan agreement to a financial company under a contract of sale of rights of claim, the nullity of which was subsequently confirmed by court decisions. However, the right of claim was repeatedly resold and eventually acquired by an LLC. Accordingly, in the case of debt collection under the loan agreement, the LLC was appointed as the creditor in the enforcement proceedings.

At the same time, the bank, as the original creditor, after establishing that the sale and purchase agreement was null and void following the auction, again entered into an assignment agreement, and the new creditor applied to the court to replace the creditor in the case and the enforcement proceedings.

The case was considered several times. The first instance and appellate courts dismissed the application for replacement of the plaintiff (claimant) as the bank withdrew from the disputed procedural legal relations and, accordingly, based on the court rulings in force, the LLC was the new plaintiff in the case. After establishing the fact of nullity of the agreement and before entering into the agreement on assignment of the claim to the applicant, the bank did not take any procedural actions aimed at restoring its procedural status as a plaintiff (claimant) in the case.

The Grand Chamber of the Supreme Court, upholding the decisions of the courts of previous instances and dismissing the applicant's cassation appeal, noted the following.

If a creditor in a disputed material obligation (civil, commercial, etc.) is replaced by an assignment of the right of claim in accordance with clause 1, part 1, Article 512 of the Civil Code of Ukraine, the court shall replace such a party to the case or enforcement proceedings with its successor by way of procedural succession, and shall issue a ruling to that effect. As a result, the procedural rights and obligations in the case and enforcement proceedings that such a party had are transferred to its procedural successor.

At the same time, if a creditor has alienated a claim in an obligation under an invalid (void) transaction and subsequently this right of claim has been alienated to another person who is not a party to the invalid (void) transaction, the creditor may regain such right of claim only upon the results of its reclamation in the manner prescribed by Articles 387, 388 of the Civil Code of Ukraine. If such a right of claim is not subject to reclamation in accordance with the above provisions, another person (a bona fide purchaser) acquires the right to it in accordance with Article 330 of the Civil Code of Ukraine.

So, prior to the transfer of the right of claim in an obligation by way of its claim under Articles 387 and 388 of the Civil Code of Ukraine to the creditor, such right of claim is held by the acquirer. Consequently, the procedural rights and obligations in the case and enforcement proceedings are not transferred to the creditor as a procedural successor.

As the courts of previous instances found, the rights of claim under the loan agreement were initially alienated by the bank under a void contract and subsequently resold and transferred to the LLC on several occasions. Based on a court decision, the LLC was replaced as the creditor in the enforcement proceedings.

The bank and the applicant, as the new creditor, did not take any actions to reclaim the right of claim from the latter transferee. The said rights of claim under the loan agreement were not transferred to the bank and the applicant by way of reclamation from the LLC. Accordingly, the procedural rights and obligations in the case and enforcement proceedings were not transferred to them either.

Resolution of the Grand Chamber of the Supreme Court of 6 November 2024 in case No. 21/5005/2686/2012 (proceedings No. 12-11гс24) - https://reyestr.court.gov.ua/Review/123313983.

This and other legal positions of the Supreme Court can be found in the Database of Legal Positions of the Supreme Court - https://lpd.court.gov.ua.