In the banking world, accounts are not always the business of a single holder. Couples, partners, heirs or simple co-investors can share ownership of a bank account. In addition to general rules for opening and operating a bank accountIn practice, these arrangements take three distinct forms: usufruct/ bare ownership accounts, undivided accounts and joint accounts. In practice, these arrangements take three distinct forms: usufruct/bare ownership accounts, undivided accounts and joint accounts. Each meets specific needs and comes with specific constraints.
Accounts with several holders: three distinct configurations
Usufruct and bare ownership accounts: a dismemberment mechanism
The usufruct/bare ownership account transposes the classic dismemberment of ownership rights to the banking sector. This configuration is frequently created by inheritance.
The sums deposited, considered to be consumable assets par excellence, can only give rise to a quasi-usufruct. The usufructuary has free disposal of the funds, subject to the obligation to return the amount on expiry of the usufruct. It is therefore the usufructuary who operates the account under his or her sole signature (article 586 of the Civil Code).
The usufructuary's death puts an end to this dismemberment: the bare owner becomes the sole holder of the account, but the interest earned before the death reverts to the usufructuary's heirs.
Joint accounts: management subject to unanimous agreement
The undivided account reflects a state of joint ownership between several people. This configuration typically concerns joint heirs before partition, partners in de facto partnerships or members of joint ventures.
A major peculiarity is that ordinary law requires these accounts to operate only under the signature of all the account holders. Case law is clear on this point: a banker who authorises a withdrawal by only one joint holder is liable (CA Paris, 7 July 1981).
To get round this unanimity requirement, joint holders often use reciprocal mandates or appoint one of their number as proxy.
There is one important point to make: the death of a joint holder theoretically terminates the account only in respect of his or her share. In practice, banks prefer to close the account and open a new one for the survivors who request it, thus avoiding the delicate management of the respective shares.
Joint accounts: the active solidarity mechanism
The joint account is the most flexible form of collective account. Its basic principle is that the joint holders are joint creditors of the depositary banker, thus applying the active solidarity provided for in articles 1311 et seq. of the Civil Code.
This means that each account holder can operate the account under their own signature and withdraw funds freely. This operational simplicity explains its success, particularly with couples.
However, a distinction must be made between the relationship with the bank and the relationship between the joint account holders. While each may act alone vis-à-vis the bank, the rights of each co-holder among themselves remain defined by their specific agreement.
The specific challenges of joint accounts
Unilateral revocability
Case law has established an important principle: the joint account agreement can always be revoked by the sole will of one of the joint account holders (Civ. 1re, 19 July 1988, no. 86-12.357). This expression of will is not subject to any formal requirement and may even be tacit, resulting, for example, from a request to freeze the account.
This revocation can take two forms:
- Transformation of a joint account into an undivided account (revocation of active solidarity)
- Termination of the revoker's commitment, with the account remaining in the name of the remaining joint holder
The banker is obliged to inform the other joint holders of this revocation, without being able to invoke a contrary practice (Com. 4 May 1999, no. 95-21.752).
Passive solidarity: a common option
In principle, a joint account does not automatically imply passive solidarity between the joint holders. However, in practice, banks systematically stipulate this in their agreements.
The implications are considerable: in the event of a debit balance, the banker can sue each holder for the full amount of the overdraft. For in-depth management of claims, costs and procedures for seizing bank accountsIt is essential to master these mechanisms. The Court of Cassation has even ruled that if only one co-holder benefits from the expenditure, joint and several liability obliges the other to bear the resulting debit balance, even if he or she did not consent to the transaction (Com. 8 February 2005, no. 02-16.967).
Death of a joint account holder: continuation of the account
Unlike joint accounts, the death of a joint holder does not automatically result in the closure of the joint account. It continues to operate under the signature of the survivors.
However, the heirs may exercise the revocation option. In this case, in accordance with article 1309 of the Civil Code, each heir may only make a withdrawal in proportion to his share of the estate.
Joint accounts between spouses: relationship with the matrimonial property regime
Joint accounts are particularly popular with married couples. The law of 13 July 1965 facilitated this practice by enshrining the banking independence of spouses (article 221 of the Civil Code).
Article 221, paragraph 2, provides that in relation to the depositary, the depositing spouse is always deemed to have free disposal of the funds deposited. This presumption, which is considered irrebuttable, exempts the banker from any liability for transactions carried out on the account.
However, there is an important limitation: this presumption only applies in relation to the banker and does not alter the impact of the matrimonial property regime on the relationship between the spouses. Thus, under the community regime, the deposit does not remove the presumption of community from the funds.
Operation by agent: controlled delegation
Scope and formalities of the banking mandate
The general law on power of attorney applies without restriction to the opening and operation of bank accounts. Anyone can therefore give power of attorney to a third party to operate their account.
This power of attorney is not subject to any particular formal rules and may be given by private document, or even tacitly. The Court of Cassation has even ruled that a bank that provides forms to facilitate the drawing up of powers of attorney is not liable (Com. 28 April 2004, no. 02-13.591).
The agent is not personally liable for the debit balance resulting from the transactions carried out, unless it is proved that he acted in his personal interest (Civ. 1re, 6 March 1996, no. 93-17.223).
Termination of the mandate: the need for vigilance
The causes of termination of the banking mandate follow ordinary law, with some important practical features. For a complete understanding of reasons for closing an account and their legal consequencesIt is essential to understand these rules, particularly in the event of death.
In the event of revocation, the banker must execute the orders issued by the authorised representative prior to the revocation. If he executes a later order, he makes a payment in full discharge of his obligations as long as he has not been notified of the revocation (article 2005 of the Civil Code). This rule protects banks against unsolicited revocations.
The death of the principal also terminates the mandate. The banker is not liable for any transactions carried out by the authorised representative after the death of the principal as long as the banker has no knowledge of such transactions.
Spousal mandates: a common practice
Mandates between spouses are a frequent application of this delegation of authority. Recent case law has relaxed the rules of evidence by admitting that "proof of the mandate between spouses to operate the account may be produced by any means by the banker who is not a party to it" (Civ. 1re, 3 June 2015, no. 14-19.825).
The bank is not liable if the holder ratifies transactions made without a power of attorney, as such ratification may be tacit (Com. 17 November 2015, no. 14-18.980).
The post-mortem mandate: limited validity
The validity of a "post mortem mandate" is generally recognised, but it may run up against the public order of succession. A banker who executes such a mandate may be liable to the principal's heirs (Civ. 1re, 28 June 1988, no. 86-13.639).
There is one notable exception introduced by the law of 26 July 2013: despite the closure of the account due to death, it is now possible to debit the sums required to pay funeral expenses (article L. 312-1-4 of the French Monetary and Financial Code).
The legal issues surrounding joint accounts are manifold and their practical ramifications considerable. An inappropriate configuration can lead to operational blockages, conflicts between joint holders or inheritance complications. Personalised legal advice can help you avoid these pitfalls and optimise the bank ownership structure to suit your personal or professional situation. Our law firm specialising in banking law can help you make the right strategic choices.
Sources
- Civil Code, articles 221, 586, 1309, 1311 et seq., 2005
- Monetary and Financial Code, article L. 312-1-4
- Civ. 1st, 19 July 1988, no. 86-12.357
- Com. 4 May 1999, no. 95-21.752
- Com. 8 February 2005, no. 02-16.967
- Civ. 1st, 3 June 2015, no. 14-19.825
- Com. 17 November 2015, no. 14-18.980
- Civ. 1st, 28 June 1988, no. 86-13.639
- Com. 28 April 2004, no. 02-13.591
- Civ. 1st, 6 March 1996, no. 93-17.223
- CA Paris, 7 July 1981
- Law no. 65-570 of 13 July 1965
- Law no. 2013-672 of 26 July 2013
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