Confusion and consequences of confusion in private law

In law, confusion means that one person becomes a bearer of rights and obligations under the same legal relationship. This brings about significant consequences in civil law and commercial companies law. The term “confusion” is not defined in the regulations, but its meaning has been developed in the judicature and doctrine.

In the law of obligations, confusion means a combination of the rights of debtor and creditor in the same individual. As a result of that, the obligation expires without fulfilment, which is an exception from the principle that the debtor should fulfil an obligation in accordance with the content thereof. Under the obligation relationship, a legal obligation of one person corresponds to a right of another person. In consequence, the right and obligation must be attributable to two different entities. It can happen, however, that as a result of a legal event the rights of the debtor and the creditor concentrate in one entity and the obligation expires. This can be described as follows: person A lends PLN 1000 to person B. Person A loses, however, their interest in that relationship and sells its receivables to person C. Person C finds that it owns a large stake of receivables and sells them to person B as a buyer. The stake includes the loan borrowed by person B. This means that person B bought rights of the creditor against itself as a debtor under the loan agreement. The obligation expires as a result of confusion.

Another example, existing in the property law is as follows: a company leases office space in the building. Then, it buys and becomes the owner of the building. There is a confusion because the company cannot be a lessor and a tenant of the same building. In consequence, the lease relationship expires and the status of a “stronger” effect, i.e. the property right, remains in force.

Confusion also exists in the law of commercial companies. A director of a limited company may be the creditor of that company, for example by granting a loan to the company. It can happen that the same company does not pay its liabilities to its creditors and enforcement proceedings instituted against the company are ineffective. Then, in accordance with Art. 299 of the Commercial Companies Code, directors of the company are jointly and severally liable for the company’s debts. Then, it turns out that the director being the creditor becomes jointly and severally liable for the fulfilment of the obligation. This is confusion and the director’s claim expires because the same director is obliged to meet the claim under Art. 299 of the Commercial Companies Code. Then, the director has claims against other directors on a recourse basis because all of them are liable to meet the claim jointly and severally. Article 376 of the Civil Code will apply here. The detailed legal analysis was presented by the Supreme Court in the resolution File No. III CZP 75/07.

In the civil proceedings, confusion may take the form of a charge against a claim, a mutual claim or charges made by the defendant. Either party may invoke the expiry of a given obligation as a result of confusion arising from property law, depending on their individual situation. The effective charge of confusion brings about far reaching procedural consequences because it nullifies the claim or charge brought against the claim (e.g. deduction). In effect, this may result in the dismissal of an action, fully or partially (confusion as a charge made by the defendant) or, on the contrary, in the acceptance of an action by the court (if the plaintiff nullifies the defence of the defendant through confusion).

The above examples do not describe all circumstances and consequences of confusion. It is worth pointing out that this is an institution of a great practical meaning and the awareness of confusion is useful during all legal activities in the course of trade.

Natalia Cierpiał

Legal Advisor Adam Madejski