When a company or an individual seeks to recover a debt, the situation becomes particularly complex when there are several parties involved. In addition to traditional instruments, the law of obligations contains ingenious mechanisms designed to navigate triangular configurations where debts and claims intertwine. These tools, although technical, offer highly effective recovery and guarantee solutions. In addition to the guarantees inherent in a single obligation relationship, the law offers sophisticated mechanisms in the presence of multiple debtors, as presented in our a complete guide to creditors' guarantees in the law of obligations. This article examines three of these legal forms: set-off, simple delegation and direct action.
Offsetting: double payment and a privileged guarantee
The Civil Code defines set-off as the simultaneous extinction of reciprocal obligations between two people. In practical terms, if person A owes person B 10,000 euros, and B also owes A 10,000 euros, their respective debts are cancelled without any financial flow taking place. This mechanism fulfils a dual function. Firstly, it is a simplified method of payment, particularly useful in the business world where it avoids redundant transfers of funds. Secondly, and this is its strategic interest, netting acts as a real guarantee. In the event of the insolvency of one of the parties, it enables the other to escape the law of concurrence, i.e. the distribution of the debtor's assets among all his creditors. The creditor who benefits from set-off is paid preferentially, by drawing on the claim that he owed to the defaulting debtor. This mechanism differs from guarantees such as passive solidarity or indivisibilitywhich concern a single debt shared by several debtors.
The conditions for legal compensation and its obstacles
For set-off to operate by operation of law, or "legal set-off", Article 1347-1 of the Civil Code requires that five cumulative conditions concerning the two debts be met:
Fungibility : Obligations must relate to things of the same kind. The most common example is two debts for sums of money, even in different currencies if they are convertible. They may also be obligations to deliver a certain quantity of goods of the same kind and quality.
The certainty: Claims must be certain, i.e. their existence or principle must not be disputed. A contingent claim or a claim subject to a suspensive condition that has not been fulfilled cannot therefore be the subject of a legal set-off.
Liquidity : A claim is liquid when its amount is determined or, at the very least, easily determinable. A claim whose valuation would require a complex legal debate is not considered liquid.
Payability : Both debts must have matured. A creditor cannot set off his debt against a claim for which he cannot yet demand payment. However, a period of grace granted by a judge does not prevent set-off.
Availability: The claim must be seizable. Claims that have been declared unattachable by law, such as part of wages or certain maintenance payments, cannot be offset, as this would deprive the claimant of resources deemed essential.
Even when these conditions are met, certain events may prevent set-off. This is particularly the case if collective proceedings (safeguard, reorganisation or judicial liquidation) are opened against one of the debtors. Article L. 622-7 of the French Commercial Code prohibits the payment of debts incurred prior to the opening of insolvency proceedings, thereby preventing set-off if all the conditions were not met prior to that date. There is, however, one important exception in the case of so-called "related" debts, which can be set off even after the judgment. Similarly, if a debt is seized by way of an attachment order before it can be set off, it becomes unavailable to the seized debtor, thereby preventing the debts from being extinguished.
The effects of compensation and its various forms
Contrary to the former conception of the Civil Code, set-off is no longer considered to operate automatically. Article 1347 states that it "operates, subject to being invoked". This means that one of the parties must express his or her intention to invoke it. Once invoked, however, its extinctive effect is retroactive: it dates back to the day when all the conditions for set-off were first met. This effect also extends to ancillary claims, such as interest or the securities that guaranteed them.
When the conditions for legal compensation are not all met, other forms of compensation may be considered:
- Judicial compensation : A judge may order a set-off even if one of the claims is not yet liquid or due (article 1348 of the Civil Code). Typically, in the context of a lawsuit, a party may file a counterclaim to have a claim against its opponent recognised and ask the court to set off the claim against the judgment against it.
- Set-off of related debts : This is a particularly powerful mechanism. Where the debts arise from the same contract or from an indivisible set of contracts, article 1348-1 of the Civil Code provides that the court may not refuse set-off on the grounds that one of the debts is not liquid or due. Connectedness creates such a strong link between obligations that their mutual extinction is seen as a fundamental guarantee for the parties.
- Conventional compensation : Contractual freedom allows the parties to agree to set off their debts, even if none of the legal conditions are met. They can therefore decide to set off future or non-fungible debts, thereby creating a simplified payment mechanism and a tailor-made guarantee.
Simple delegation: the addition of a second debtor in the creditor's service
Delegation is a legal transaction involving three people, whereby one person (the delegator) asks another (the delegate) to undertake to pay a third person (the delegatee). A distinction must be made between "perfect" (or novatory) delegation, where the delegatee agrees to discharge the delegator's debt, and "simple" (or imperfect) delegation. It is the latter that constitutes an effective guarantee. In simple delegation, the assignee accepts the delegate's new commitment but does not discharge the delegator. The creditor is thus left with two debtors instead of a single one, bound by separate commitments but aiming to pay the same sum.
Definition and guarantee function of the simple delegation
The main advantage of simple delegation, enshrined in article 1338 of the Civil Code, is that it spreads the risk of insolvency. The creditor (the delegatee) can turn either to his original debtor (the delegator) or to the new debtor (the delegatee) to obtain payment. Payment by one releases the other. This legal construction is commonly used in practice. For example, a principal contractor (delegator) may delegate to his client, the project owner (delegate), the payment of his subcontractor (delegate), thereby providing him with a payment guarantee required by the 1975 law on subcontracting.
The guarantee function is even more obvious in "security delegation". In this case, the delegate makes a commitment to the delegatee even though he has no pre-existing debt to the delegator. The delegate's commitment is created specifically to guarantee the delegator's debt. This is an alternative to other personal sureties, such as surety bonds, which are based on a different legal mechanism.
Exceptions to simple delegation
The strength of the delegation as a guarantee lies in its system of non-opposability of exceptions, now clearly affirmed by article 1336 of the Civil Code. This principle means that the delegate cannot refuse to pay the delegatee on the grounds of his own relationship with the delegator. For example, if the delegate was himself a creditor of the delegator, he could not set off this claim against the delegate to refuse payment to the delegatee.
Similarly, the delegate may not, in principle, raise against the delegatee the defences that the delegator could have raised against the delegatee (for example, the nullity of the initial contract between the delegator and the delegatee). The delegate's commitment is abstract and autonomous. It creates a new direct legal relationship between the delegate and the delegatee. This autonomy constitutes the core of the protection offered to the creditor. Unless there is a clause to the contrary, once the delegation has been accepted, the delegatee is protected against virtually all the risks that could affect the other two legal relationships in the transaction.
Direct action: a legal privilege for the creditor
Direct action is an exceptional prerogative granted by law to certain creditors. It enables them to take direct action for payment against their own debtor. The creditor acts in his own name and on his own behalf. The sum claimed in this way does not pass through the intermediary debtor's assets, which is its main advantage. In this respect, it differs from the action oblique, where the creditor acts in the name of his debtor to reconstitute the latter's assets. It also differs from similar mechanisms such as the promise to pay. performance securitywhich is based on a personal commitment to action.
Role and benefits of direct action
The derogatory nature of the direct action, now governed by article 1341-3 of the Civil Code, means that it cannot exist without a legal text that expressly provides for it. It is a privileged method of payment which enables its holder to avoid all other creditors of the debtor. A creditor who takes direct action is paid in priority to the claim that he or she "seizes" from the sub-debtor.
The best-known legal examples illustrate its practical usefulness:
- An action by the lessor of a building against a sublessee for payment of rent owed by the principal lessee (article 1753 of the Civil Code).
- The subcontractor's action against the client for sums owed by the principal contractor (Act of 31 December 1975).
- Action by the victim of an accident against the liability insurer of the person liable (article L. 124-3 of the Insurance Code).
In each of these situations, the law considered that a creditor was in a vulnerable position justifying the granting of such a lien.
Effects of the direct action: unavailability and exclusive jurisdiction
When a direct action is brought, the intermediate debtor's claim against the sub-debtor becomes unavailable. From the moment the action is brought, the sub-debtor can no longer validly pay its own creditor (the intermediate debtor). The claim is in a sense "frozen" in favour of the holder of the direct action.
It is customary to distinguish between two types of direct action, depending on when the effect occurs:
- Imperfect" direct action: The unavailability of the claim arises only from the day on which the action is brought by its holder. This is the case, for example, with a subcontractor's action. Before the subcontractor takes action, the client may validly pay the principal contractor. The creditor's diligence is therefore decisive.
- Perfect" direct action: The unavailability of the claim is attached to its very inception, before any action by the creditor. A typical example is the victim's action against the insurer. As soon as the damage occurs, the insured's claim against the insurer is assigned exclusively to paying the victim. The insurer can no longer pay its policyholder. This form of direct action offers the most absolute guarantee.
Set-off, simple delegation and direct action are three illustrations of the technical richness of the law of obligations. Each offers a solution adapted to securing a claim in complex contexts involving several parties. While set-off relies on the reciprocity of debts, delegation organises the addition of a new debtor and direct action creates a preferential right of pursuit. The complexity and technical nature of these mechanisms require a high level of expertise. expert legal support in securities and guarantees to optimise their use and develop an effective recovery or security strategy.
If protecting your receivables in a multi-player environment is an issue for you, our firm is at your disposal to analyse your situation and propose the most appropriate legal solutions.
Sources
- Civil Code
- Commercial code
- Insurance Code
- Law no. 75-1334 of 31 December 1975 on subcontracting
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