1. Legal Framework - Why Prior Assignment Wins

Core principle: Nemo dat quod non habet - You cannot give what you don't have.

If seller has already assigned receivable to Factor 1, he has no title left to assign to Factor 2.

Priority rules differ by jurisdiction:

A. English Law - Rule in Dearle v Hall (1828) 3 Russ 1 - Still law in India, UK, HK
Where there are successive assignments of same equitable chose in action (receivable):
First assignee to give notice to debtor wins, even if he was second in time.

If you don't notify debtor, you lose to later assignee who does notify first.

Exception: If second assignee knew of prior assignment at time of taking assignment, he cannot gain priority by first notice.

B. US - UCC Article 9-322 - First to File / Perfect Wins

"The first to do the best job of perfecting wins. The UCC creates a race of diligence."

• If both perfected by filing UCC-1, first to file wins.
• If one perfected and one attached, perfected wins.

C. India - Factoring Regulation (Amendment) Act 2021 + Transfer of Property Act s.130-135 + CERSAI

• s.130 TPA: Assignment must be in writing signed by transferor + notice to debtor.
• Factoring Act 2011 as amended 2021: Every assignment of receivables in favor of Factor must be registered with CERSAI within 30 days. If not registered, assignment is not valid against third parties and you cannot claim priority.
• RBI TReDS: You must check CERSAI before financing.

2. How Failure Happens

1. No CERSAI / UCC / PPSA search: Originator goes to 3 factors simultaneously with same invoices.
2. Future receivables assignment: Company assigns "all present and future receivables" to Bank A under working capital deed, then factors specific invoices to Factor B. Bank A has prior floating charge.
3. Non-notification factoring: First assignment is silent, second factor doesn't know, doesn't search.
4. Fake invoices + circular assignment: Common in India - related party invoices assigned multiple times.

Consequence:

• Factor 2 pays twice, debtor discharges by paying Factor 1 (who gave notice first).
• Securitization SPV fails true sale test - becomes recharacterized as loan.
• Criminal: s.447 Companies Act 2013 fraud, s.66C IT Act, IPC 420.

3. Case Laws - Where Second Assignee Lost

A. US / International

1. Worthy Lending LLC v. New Style Contractors, Inc., NY Court of Appeals 2021
Landmark: Secured party may directly collect on proceeds of accounts receivable from account debtors EVEN IF event of default has not occurred. Court held s.9-406 UCC allows factor to enforce after notice.
Lesson: If prior factor gave notice under s.9-406, debtor's payment to second factor does NOT discharge debt. Second factor must refund.

2. 1st Source Bank v. Wilson Bank & Trust, 6th Cir 2013
Priority dispute over accounts receivable. First lender's UCC filing said "proceeds" but not "accounts". Sixth Circuit held: Reference to proceeds does NOT perfect interest in accounts. Second lender who explicitly listed "accounts" won, even though second in time.
Lesson: Failure to detect exact collateral description = you think you have priority but you don't.

3. In re 8760 Service Group, W.D. Mo. Bankruptcy 2023
BancorpSouth vs Hudson dispute over equipment and inventory but principle applied to receivables: Creditor had first-priority despite ambiguous collateral description because filed first and debtor had notice.
UCC is race of diligence.

4. First Abu Dhabi Bank PJSC v BP Oil International Ltd [2018] EWCA Civ 14 - UK Court of Appeal
Underlying contract had clause: "Neither party shall without previous consent assign Agreement or any rights thereunder. Any assignment not in accordance shall be void."
Factor financed without consent. Court held: Prohibition effective, attempted assignment void. Factor lost.
Later overruled for receivables by Business Contract Terms (Assignment of Receivables) Regulations 2018 - such prohibition now ineffective for receivables, but still effective for other contracts. Failure to detect clause costs financing.

5. Non-Notification Financing - English Court of Appeal 18 Jan 2018
Section in underlying agreement prohibited assignment without consent. Factor argued assignment of receivables only, not agreement. Court held: Need to read assignment clause - if it assigns rights to payment, prohibition may not apply to receivables financing.
Many factors fail to detect this distinction.

B. India

6. Edelweiss Asset Reconstruction Co. Ltd. v. State, Punjab & Haryana HC CWP 13346/2020
Banks assigned loans to ARC via two registered deeds in 2016, paid stamp duty. Later another party claimed prior assignment. HC held: Registered assignment deed + CERSAI filing = valid, prior unregistered oral assignment fails.

7. Rajesh Vilasrao Patil v Savannah Life - NCLAT 2024
NCLAT held: When assignment of debt from bank to applicant is found illegal and unauthorized, basis of filing u/s 7 IBC is knocked out. In that case, assignment agreement was fabricated / antedated - second assignment. Assignee lost right to file as financial creditor.

8. Multiple Assignments of Future Receivables - Supreme Court (Czech Supreme Court case followed in India by analogy, cited by Lexology)
Supreme Court held: Where agreement on assignment of future receivables already perfected, receivable will accrue to security assignee when individual receivable accrues without need for further act.
If Company assigns future receivables to Bank A in 2020, and in 2022 tries to factor invoice arising in 2023 to Factor B, Bank A wins - even without new notice.

9. Indian Factoring Reality - RBI Circular on TReDS
RBI mandates: Financier must search CERSAI registry before onboarding. In NCLT Mumbai Anish Nanavaty v Reliance Comm Infrastructure - ₹260 cr intra-group assignment had no effect on creditors because not registered, treated as fraudulent under s.66 IBC.

4. How To Detect Correctly - Checklist That Will Save You

For Factor / Bank:

1. CERSAI Search (India) - Mandatory: Search by Assignor PAN + GSTIN. Check "Assignment of Receivables" register, not just SARFAESI. Look for "All present and future receivables" filings.
2. MCA Charge Search: Check Form CHG-1 for hypothecation of book debts.
3. Notice to Debtor: Immediately send Notice of Assignment under s.130 TPA via registered post + email + get acknowledgement. Under Dearle v Hall, first to notify wins.
4. UCC Search (US) / PPSA (Australia/Canada): Search debtor legal name.
5. Underlying Contract Review: Check prohibition on assignment clause - if present pre-2019 contract, assignment may be void.
6. Invoice Verification: Direct confirmation from debtor that invoice not previously assigned + not already paid.
7. Stamp + Registration: Assignment deed to be stamped per state Stamp Act, otherwise not admissible.

Sample Due Diligence Warranty to take from Assignor:

Assignor represents: (a) No prior assignment, charge, pledge over receivables, (b) No CERSAI filing by any other factor, (c) Underlying contract does not prohibit assignment.

Breach = fraud + indemnity.