When making a financial transaction in accordance with the law, the participants are the lender and the borrower. These are completely different representatives. They can be ordinary citizens or legal entities. In case of bankruptcy of the borrower, the coincidence of the debtor and the creditor in one person is practically impossible. But there are situations where both sides are the same person. Let us consider in more detail when such a coincidence occurs.
When do the faces of the debtor and the creditor match?
The coincidence of the debtor and the creditor in one person is called confusion. It occurs when obligations from the debtor are transferred to the creditor on the basis of universal succession. Confusion is possible if rights corresponding to debt obligations are transferred to the debtor. These situations include:
- hereditary relations;
- reorganization of the company through merger or merger;
- carrying out transactions with securities.
Coincidence arises if the debtor obtained the right from the creditor for the assignment. It is allowed if the debtor has received all rights to the collateral or the property is subject to other obligations. Similar situations also include:
- tenant's acquisition of property at the end of the lease term;
- replacement of land lease rights with shared ownership for the purpose of development.
No match possible
Confusion is not allowed for situations of maintenance obligations and compensation for damage to health and life. It does not belong to a situation where obligations belonging to the same rank coincide. An example of such cases is the transfer of duties of a creditor to another creditor or debtor to a debtor.
What happens due to embarrassment?
The coincidence of the debtor and creditor in one person terminates the obligation between the parties. Fulfillment of the conditions is legally impossible due to the actual absence of a second party to this obligation. Exceptions are situations where otherwise follows from the nature of the obligation.
If there is a coincidence, novation is not allowed - amendments to the existing obligation. As a result of embarrassment, the old commitment loses its validity; therefore, novation also becomes invalid. When the creditor and the debtor coincide in one person, the person is relieved of duties, provided that the rights of third parties are not violated.
Confusion in practice
The occurrence of insurance risk during an accident in which two cars of one enterprise fell into one particular case of the coincidence of the debtor and the creditor in one person. Both the guilty party and the victim work in this company. Debt obligation in this case is terminated. In order to recover damages, the vehicle owner has the right to recover only damages from the participants in an accident. Payments for compulsory motor third-party liability insurance and hull insurance are not made due to the absence of an insurance object due to confusion.
Most often, referring to provisions in the legislation on coincidence, they also refuse to pay insurance to spouses if one of them is to blame for the occurrence of an insurance accident. In both situations, the courts side with the insurance company, arguing that the legislation does not apply to these cases.
It should be remembered that when the debtor and the creditor coincide in one person, tax liabilities often arise before the defendant. Ignorance of legislation and obligations does not exempt from tax consequences. Due to the imperfection of the legislation, difficulties arise during the merger of two companies, one of which is a debtor, the second is its creditor. In order to avoid unexpected surprises due to embarrassment, it is recommended to consult with a lawyer about the possible consequences of such a coincidence.
