Quarterly Journal of Social Development (Previously Human Development)

Quarterly Journal of Social Development (Previously Human Development)

The Role of Social Structures in Deterring or Inciting Discount Contract Violations with a Focus on the Factoring Mechanism

Authors
Shaghayegh Hossein Damghani 1
Farzaneh Sarir 2
1 PhD Student in Private Law, Edalet University, Tehran, Iran
2 Assistant Professor, Department of Private Law, Islamic Azad University, South Tehran Branch, Tehran, Iran
10.22055/qjsd.2019.20676
Abstract
The discounting contract, particularly in the form of factoring, is one of the important instruments of commercial financing. By converting deferred receivables into immediate liquidity, it contributes to the continuity of business enterprises’ operations. Under this mechanism, the creditor transfers its receivables to a factor, usually a bank or financial institution, and in return receives an amount lower than the nominal value of the debt. Although the breach of this contract is, from a legal perspective, governed by the general rules of contractual liability, its economic and time-sensitive nature means that delay, refusal to pay, provision of false information, or transfer of defective receivables may undermine the economic purpose of the contract. This study, using a descriptive-analytical method and relying on library-based sources, examines the role of social structures in preventing or encouraging breach of discounting contracts, with an emphasis on factoring. The findings indicate that a factoring contract is not merely a legal relationship, but rather a socio-economic institution that gains meaning within the context of commercial trust, professional reputation, market customs, informational transparency, credit assessment systems, dispute resolution institutions, and the culture of honoring commitments. In an environment where institutional trust, economic transparency, and effective enforcement mechanisms exist, the likelihood of breach of contract decreases. However, weakness in the credit assessment system, ambiguity regarding the status of receivables, prolonged litigation, economic instability, and inefficiency of enforcement mechanisms may create conditions for an increase in contractual breaches. The study concludes that reducing the risk of breach in factoring contracts is not possible merely through the inclusion of contractual clauses; rather, it requires the strengthening of trust-building, transparency-enhancing, and regulatory mechanisms in the market for commercial credit.
Keywords
Discounting Contract
Factoring
Breach of Contract
Social Structures
Commercial Trust
Credit Assessment
Enforcement Mechanisms
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Quarterly Journal of Social Development (Previously Human Development)
Volume 12, Issue 4 - Serial Number 48
Vol. 12, No. 4, Summer 2018
Summer 2018
Pages 239-262