On 1 June 2018 the Federal Law No. 212-FZ1 (Law 212-FZ) entered into force. Law 212-FZ changes the regulation of obligations and certain types of contracts. Below we review changes regarding cession, loan agreement, escrow account and letter of credit.
A debtor, who received a notice of assignment, shall within reasonable time inform a new creditor about his objections under an assigned claim and provide the new creditor with the documents on which such objections are based. If the debtor fails to inform within reasonable time, he will lose its right to object in future.
Entrepreneurs and companies may exclude liability of an assignor for invalidity of an assigned claim in case such invalidity is triggered by grounds the assignor had no knowledge of and was not required to have such knowledge (article 390 of the Civil Code). The new article allows to limit an assignor’s liability for invalidity of an assigned claim concerning the risks which the assignor has informed a person who accepts the rights of claim — an assignee. Assignor’s liability may be limited with regard to the main obligation and to all rights that are transferred to an assignee (article 384 of the Civil Code), including security obligations and rights to receive accrued interest. There was a mandatory provision of assignor’s liability in case of invalidity of assigned claims.
A loan agreement between commercial parties is deemed legally binding when it is signed by the parties rather than when the sum of money or property is transferred to a borrower. This amendment will allow lenders to undertake to provide a loan in future. Before 1 June, the law provided that a loan agreement bound when a sum of loan had been actually transferred to a borrower. The same view was also supported by the court practice2. According to the amendments this restriction will be mandatory only for non-commercial parties.
The amendments also allow to loan non-certificated securities. Before this option was only available to brokers3.
A lender can now avoid a loan agreement if there are circumstances obviously indicating that a given loan will not be returned timely. A borrower can avoid a contract by informing a lender before the date of the loan transfer.
Law 212-FZ incorporates a rule of clause 26 of the Russian Supreme Court Plenum’s resolution No. 54 of 22.11.2016: the moment when a loan is deemed to be returned is the moment when a payment reaches a correspondence account of the lender’s bank rather than the lender’s own bank account.
Monetary funds deposited on escrow account (article 860.7 of the Civil Code) belong to a deponent until grounds for its transfer to a beneficiary of an escrow account has occurred, and after this date — to a beneficiary. This makes difference between escrow agreement and security deposit: monetary rights, which are given as security payment, belong to creditor from the moment of transfer. (article 381.1 of the Civil Code). Law 212-FZ prohibits depositing into an escrow account the sum of money above the deposited amount. Such rule used to be established at the discretion of the parties. The law prohibits suspension of operations, asset freeze and withdrawal from an escrow account for obligations of a depositor or a beneficiary (including state authorities).
Letter of credit
The new article 870.1 of the Civil Code allows to open a transferable letter of credit account. Under this, a payment makes in favor of a person indicated by a recipient of a letter of credit. In order to open a transferable letter of credit, its terms need to contain an indication that it is transferable furthermore, and the nominated bank needs to manifest its consent to transfer the payment to the relevant third party indicated by the recipient of the letter of credit. The bank must review the documents within 5 business days.
Prior to the enactment of Law 212-FZ a letter of credit was treated by default as revocable (article 868 of the Civil Code). Now it is treated as irrevocable. Revocation of a letter of credit needs consent of its beneficiary. The same rule is established in the international letter of credit standards4. In practice, this means that banks will have a right to direct debit under a letter of credit.
1The Federal Law No. 212-FZ dated 26 July 2017 Concerning Amendments to Part One and Part Two of the Civil Code of the Russian Federation and Certain Legislative Acts of the Russian Federation
2The Review of the Court Practice of the Russian Supreme Court No. 3 (2015) approved on 25 November 2015; The Resolution of the Arbitrazh Court of the Ural District No. F09-3289/17 dated 05.07.2017 in case No. А50-23754/2016
3Art. 3 of the Federal Law No. 39 dated 22 April 1996 Concerning the Securities Market
4ICC Uniform Rules and Customs for Documentary Credits, UCP 600