Assignment / Abtretung
March 17, 2022
What is an assignment?
According to § 398 German Civil Code (BGB), an assignment (also kown as cession, from the Latin cessio) is the contractual transfer of a claim of the creditor to another. The assignment is a transaction of disposal. This means that the person of the creditor changes as a result of the contract of assignment.
The assignment according to § 398 BGB is regulated by law because it is a specific case of "acquisition of ownership", which is essentially different from the acquisition of ownership of movable things. According to the legal construction of § 929 S. 1 BGB, the ownership of movable things is transferred by the delivery of the thing with the intention to transfer the ownership. Essential for the transfer of ownership of things is therefore possession, or its transfer to another. The transfer of ownership according to § 929 p. 1 BGB is not possible if one can not exercise possession of the item to be transferred, i.e. can not hold it in one's hand. This is the case with claims. An example: Anyone who sells an item has a claim to payment of the agreed purchase price. Although the ownership of this claim can be proved by a contract, the claim itself is not physical. Of course, it must be possible for the seller(s) to sell his or her claim to the purchase price - he or she does not have to claim the purchase price himself or herself (for example, in the case of classic debt collection). Therefore, the owner can assign their claim to the purchase price to a third party, with the result that the third party becomes the new owner of the purchase price claim.
What are the requirements for assignment?
According to § 398 BGB, assignment is a contract in which it is agreed that the creditor(s) of a claim will transfer it to a third party. The only requirement under § 398 BGB for assignment is that there is consent between two persons on the transfer of a claim. For the assignment to be effective, the claim must of course actually exist in the person of the assigning creditor, i.e. he/she must be the owner of the claim. Furthermore, there must be no prohibition of assignment; such a ban results either from a contract between the debtor and the creditor, or from the law, for example from § 399 BGB.
What happens after the assignment?
- Identical rights of the new creditor
Through the (successful) assignment, another person becomes a new creditor of the claim. The new creditor has the same rights but also the same obligations as the original creditor.
- Transfer of ancillary and preferential rights
According to § 401 BGB, the accessory security rights are also transferred to the new creditor with the claim. Expressly mentioned are mortgages, ship mortgages or liens as well as the rights from an appointed guarantee. An analogous applicability of this provision is approved for the priority notice according to § 883 BGB, so that in the event of assignment of the claim to transfer of ownership of a property, a priority notice registered for the buyer also passes to the new creditor.
- Protection of the debtor
The person of the debtor has not changed due to the assignment. The debtor may not have been aware of the assignment, but a notification to the debtor that the person of the creditor has changed is not necessary for the assignment to be effective.
Without specific debtor protection rules, the debtor who did not know about the assignment would be in a difficult situation: if he/she paid e.g. to the old creditor(s), there would be no extinction by performance - the debtor would still have to pay to the new creditor. He would be entitled to reclaim from the old creditor what has already been paid. The legislator has recognised these dangers for the debtor in §§ 404 ff BGB.
- Objections against the old creditor remain valid
According to § 404 BGB, the debtor can assert in the new creditor in the objections existing against the old creditor.
- Protection of the debtor in case of ignorance of the assignment
In particular, the debtor who relies in the existence of the old creditor should not be in a worse position than without an assignment. According to § 407 BGB, legal acts against the old creditor also apply to the disadvantage of the new creditor.
- Possibility of set-off against the new creditor
According to § 406 BGB, the debtor may also set off against the new creditor. This provision helps to overcome the lack of reciprocity of claims, which means that a set-off against a claim against the old creditor is now also possible against the new creditor. However, this only applies if the debtor had no knowledge of the assignment at the time of acquisition of the counterclaim. The debtor shall remain entitled to set-off if, at the time when he/she becomes aware of the assignment, there was already an offsetting situation within the meaning of § 389 BGB.
Special types of assignments
Assignments are not only known as a simple sale of a claim, but in practice often occur in certain constellations.
- Assignment by way of security
In the case of assignment by way of security, a claim is assigned to provide a guarantee. The claim is thus used by the assignment to secure another claim.
- Extended title retention
If the parties agree on an extended retention of title, they actually agree on a "simple" reservation of title, so that the buyer of the first instance do not acquire ownership of the item, but the acquisition of ownership is subject to a condition precedent with regard to the payment of the purchase price. "Extended" is the retention of title because the buyer of the goods wants to resell them - in this case, however, the seller would lose the means of securing the retention of title. Therefore the seller allows a resale of "his/her" item, but he/she allow(s) to assign in advance the purchase price claims not yet arisen.
In "real" factoring, revolving receivables are transferred to the factor. Factoring is a mass assignment. The risk of loss of receivables (del credere risk) is carried by the factor, which is why the factor usually does not pay the full value of the receivable, rather only part of it.