When a dispute arises over the ownership or possession of an asset, sequestration is an effective means of protecting the rights of each party. French law distinguishes between two main mechanisms: conventional sequestration, the result of an agreement, and judicial sequestration, ordered by a judge. Although their purpose is similar, their regimes and conditions of implementation differ substantially. Mastering the subtleties of these two mechanisms is essential if you are to secure an asset pending settlement of a dispute.
Conventional escrow: a negotiated solution
Conventional receivership is above all a contract, a pragmatic solution chosen by the parties to freeze a conflictual situation. It is based on trust and a clearly defined agreement between the parties, governed by precise rules.
Definition and key principles from the Civil Code
The text of Article 1956 of the Civil Code provides the reference definition, establishing that a conventional sequestration is a deposit made by "a third party". one or more persons, of a disputed item, in the hands of a third party who undertakes to return it, after the dispute has ended, to the person who is deemed to be entitled to it ". This definition highlights the three players who are essential to the validity of the agreement: the depositor(s), the third party depositary (the receiver) and the future beneficiary of the restitution. The existence of a "disputed item", i.e. movable or immovable property that is the subject of a dispute, is the basic condition of this contract.
The parties' agreement must cover the essential elements of the transaction: a precise description of the item being sequestered, the duration of the assignment, the management arrangements and the obligation to return it. A lawyer can play a decisive role in drafting this agreement to ensure that every word protects his client's interests and prevents any future ambiguity.
The formation of a receivership contract: a regulated consensual approach
In principle, the receivership contract is consensual, which means that it does not need to be in writing to be valid. Judicial case law, in particular the Cour de cassation, accepts that a sequestration assignment can be proven by a body of corroborating evidence. For example, in a judgment of 8 September 2021 (Civ. 1re, no. 19-25.760), the judges held that an exchange of letters and the actual payment of an escrowed sum into a lawyer's CARPA account were sufficient to establish the existence of an escrow agreement and the lawyer's acceptance of the assignment.
However, there are limits to this flexibility. The intention to entrust a sequestration mission must be unequivocal. Mere vague instructions, such as a request "not to lose sight of a garnishment", cannot constitute a sequestration contract (Civ. 3e, 9 March 2017, no. 16-12.385). The depositary's acceptance, for its part, may be express or tacit, but the mere physical holding of the property is not sufficient to prove it if it can be explained by another cause deemed legitimate.
Duties and remuneration of the depositary
If the agreement is silent, the sequestration is presumed to be free of charge, in accordance with Article 1957 of the Civil Code. However, in practice, remuneration is often stipulated, especially when the assignment involves acts of management and administration. This remuneration is fair compensation for the costs incurred by the receiver. To guarantee payment of his fees, the remunerated receiver has a right of retention over the property entrusted to him, which he can enforce against all parties, including the party who will ultimately be deemed to be the owner.
Even if free of charge, the receiver is entitled to reimbursement of expenses incurred in preserving the property. He is also liable: he must take "reasonable care" to preserve the property. This duty of care is the cornerstone of his mission. If he fails to do so, he may be held liable.
Judicial sequestration: a measure imposed by the judge
When the parties fail to reach an agreement or when urgency requires swift action, sequestration may be ordered by a court decision. It then becomes an imposed protective measure, the framework of which is set by the judge.
When and why apply for court receivership?
Article 1961 of the Civil Code lists the classic cases in which a court-ordered sequestration order may be opened: movable property seized from a debtor, property whose ownership or possession is in dispute, or things offered by a debtor for his release. However, this list is not exhaustive. Case law accepts that the judge may order a sequestration whenever such a measure appears necessary to preserve the rights of a party.
This procedure is often initiated by way of summary proceedings, the urgency procedure par excellence. The judge may be asked to place the shares of a company in receivership. company in the event of a disputed takeover bid, or the sale price of a business in the event of a dispute between the seller and the buyer. seller of thecompany and a creditor. The aim is always the same: to freeze the situation to prevent a disputed asset from disappearing or deteriorating before the merits of the case have been decided.
The fundamental distinction with seizure measures
There is a major difference to be understood: a sequestration is not a seizure. A seizure is the first act of an enforcement procedure, the purpose of which is to enable a creditor to obtain payment of his claim, generally by selling the property. Seizure therefore has an attributive effect, at least in the long term.
Sequestration is a purely protective measure. It does not confer any rights over the value of the property. The funds or property sequestered remain in a kind of legal limbo, unavailable to the parties to the dispute, but potentially accessible to other creditors who may have a lien or have lodged an objection. For example, the sequestration of the sale price of a business does not prevent direct action by a sub-contractor of the company or seizure by a preferential creditor, in particular via opposition proceedings.
The role of the judge and the appointment procedure
An application for sequestration is generally made to the interim relief judge (juge des référés) or, if proceedings on the merits are already in progress, to the status adviser (conseiller de la mise en état), in accordance with the Code of Civil Procedure. The applicant must prove the existence of a serious dispute or a risk of imminent damage justifying the measure. If the parties agree on the name of a receiver by mutual agreement, the judge will confirm it. Failing this, the judge will appoint a receiver on his own initiative, choosing a person offering guarantees of neutrality and competence, often an administrator or a court-appointed agent.
The judge's decision sets out the scope of the sequestrator's mission, his powers of administration and the terms of his remuneration, which falls within the category of legal costs. This decision constitutes the reference document that will guide the receiver's actions throughout his mission.
The practical effects of receivership: a cross-sectional analysis
Whether by agreement or by court order, sequestration has a significant impact on the obligations of the parties and engages the liability of the person responsible for it.
Impact on financial obligations: interest and payment
One of the notable effects of depositing funds in the hands of a sequestrator is that default interest ceases to accrue. A debtor who is validly discharged by paying the sum in question to a sequestrator is no longer liable for default interest for the period during which the funds are unavailable, his dispossession being considered legitimate. The Court of Cassation has confirmed this in more than one decision, for example in the case of rent paid to a sequestrator (Civ. 3e, 5 January 2011) or for an insurance indemnity blocked by mutual agreement (Civ. 1re, 27 February 1985).
However, since the 2016 reform of the law of obligations, article 1345 of the Civil Code specifies that for this payment to be discharging, the debtor must have given formal notice to the creditor to receive payment. The receiver himself may be liable for interest if he delays in paying and returning the funds after having been given formal notice to do so within a certain period. Failure to comply with this time limit exposes him to penalties.
The receiver's responsibility: a risky mission
The receiver's mission is fraught with responsibilities. His main obligation is that of preservation and restitution. He must return the property entrusted to him to the person designated by the judgment or by the agreement of the parties once the dispute has been resolved. Any premature return or return to the wrong person constitutes a fault giving rise to liability in tort or contract.
For example, a notary who holds the immobilisation indemnity in a promise of sale is at fault if he returns the sum to one of the parties without ensuring that the conditions for its return have been met. This is a classic case illustrating the notary's liability in tort. Similarly, a receiver of the sale price of a business who fails to inform registered creditors - including the agent in the event of the seller's compulsory liquidation - incurs liability. This question of liability is a central issue that warrants great caution on the part of the depositary and sound legal advice for the parties.
The special case of receiverships provided for by law
In certain situations, the law itself requires the use of a specific type of receiver: the legal receiver. This is the case with commercial leases, where article L. 145-29 of the Commercial Code provides that the eviction compensation due to the tenant may be paid to an escrow agent pending final settlement. The key to this mechanism is to provide security for both the lessor, as the owner of the premises, and the lessee, as the other interested party.
Another example can be found in usufruct law: if the usufructuary, whose right is often recorded in a notarial deed, is unable to provide security, the property may be placed in escrow (article 602 of the Civil Code). Lastly, institutions such as the Caisse des dépôts et consignations (CDC) act as institutional receivers for many transactions (guarantees, successions, etc.), ensuring that funds are held in safekeeping.
Choosing the right mechanism: when should you call a lawyer?
The answer to the question of whether to use a conventional receiver or to apply for a court-ordered receiver depends entirely on the circumstances of the dispute, in particular the relationship between the parties and the urgency of the situation. In general, conventional receivership offers flexibility and control, but presupposes the possibility of dialogue. Judicial receivership offers a solution when agreement has broken down or one party is obstructive.
In both cases, the stakes are high, which means that great care must be taken. An escrow agreement must be drafted with absolute precision to avoid any difficulties of interpretation. Applying to a judge for a receivership requires solid legal arguments and proof that the application is well-founded. The complexity of these mechanisms, which are subject to current legislation, and the associated financial risks make it essential to the support of a lawyer with expertise in securities and guarantees. He will be able to guide you towards the most appropriate procedure and defend your interests to the best of his ability, in Paris and throughout the country.
Whether you need to negotiate and draw up a secure deposit agreement or take legal action to protect an asset, our firm is at your disposal. Only an analysis of your case can provide a tailor-made strategy. This is a useful approach, from the outset of the dispute, to secure the delivery of a sum of money or an asset. To obtain an assessment of your situation, please contact our team.
Sources
- Civil Code, articles 1955 to 1963 (deposit and sequestration)
- Commercial Code, articles L. 145-29 and L. 145-30 (eviction compensation)
- Code of civil enforcement procedures (provisions relating to seizures and distributions)
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