The German private law contains no specific regulations on factoring. Thus, the factoring is governed by the general provisions of the civil code and by the provisions of the commercial code relating to the commercial transactions. The factoring contract concluded at the beginning of the co-operation between the factor and the supplier is a frame contract, which provides an obligation to conclude the further performing agreements. Such particular agreements to be concluded under this frame contract may be classified as a contract of sale of receivables or as a loan contract with additional assignment of receivable securing the loan repayment. The factoring is based on the transfer of the receivables. According to the German law, the assignment of receivables is the only instrument of the transfer of receivables within the factoring transactions to the factor. The German law on the assignment of receivables provides some important rules which facilitate and thus promote the factoring. In particular, it allows the general assignment of (existing and future) receivables, removes the ban of assignment incorporated in the civil code. In addition, with its rules on transfer of accessory rights securing payment of the assigned receivable and the priority rules referring to the persons who, by operation of law, claim the rights in the same assigned receivable, it clarifies the effects of an assignment. By establishing the abstraction principle with respect to the assignment it also removes the uncertainty concerning validity of the assignment agreement. Moreover, it confirms a generally accepted rule, that an assignment does not affect the debtor's legal position without the debtor's consent. All these rules can maintain a fair balance of interests between the different parties involved in factoring transactions.
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