When a business partner, supplier or customer fails to honour its commitments, the first instinct is often to suspend its own obligations in return. While this reaction is legitimate in principle, it is governed by specific legal mechanisms that enable creditors to protect themselves without putting themselves at fault. The exception of non-performance and the right of retention are two of these contractual self-defence tools. Powerful but tricky to handle, they can be used to create a balance of power to force a defaulting debtor to perform. These tools, which are among the most direct, are part of a wider arsenal, as we explore in our complete guide to creditor guarantees. Understanding their conditions and effects is essential for any manager or individual wishing to defend their rights effectively.
The non-performance exception: a contractual response in the event of default
The defence of non-performance, or exceptio non adimpleti contractus in Latin, is a fundamental right in contractual relations. Enshrined in article 1219 of the Civil Code by the 2016 reform of contract law, it authorises a party to refuse to perform its obligation if its counterparty fails to perform its own. It is a form of private justice, a temporary means of pressure that does not aim to break the contract but to force its performance. It's the famous 'give and take' principle applied to contract law: if you don't deliver the agreed goods, I'm entitled not to pay you the price.
Scope and conditions of application of the defence of non-performance
In order to be validly invoked, the defence of non-performance must comply with strict conditions, the assessment of which may be subject to review by the court in the event of a dispute. The first condition is that the obligations must be reciprocal. They must be interdependent, arising from the same synallagmatic contract where each party is both creditor and debtor of the other. A simple link between two people who owe money to each other is not enough.
Secondly, the obligations must be performed simultaneously, or at least the order of performance must not have been respected. A seller who has granted a period for payment may not refuse to deliver the goods on the grounds that the price has not been paid in cash. Non-performance by the other party must be proven and sufficiently serious. Mere defective performance on a minor point does not generally justify a total suspension of one's own obligation. This is a delicate balancing act: the response must be proportionate to the failure. A tenant cannot suspend his rent in full for a simple leaky tap, but could do so if the property becomes unfit for habitation.
The 2016 reform also introduced a notable innovation: the exception of non-performance by anticipation. Article 1220 of the Civil Code allows an obligation to be suspended if it is "manifest" that the other party will not perform on the due date and the consequences of such non-performance are sufficiently serious. However, this preventive measure is risky. The "manifest" nature of the future non-performance must be almost certain (for example, the co-contractor is in receivership or has already sold the promised property to a third party). Finally, this right must always be exercised in good faith. A creditor who, by his own conduct, has prevented his partner from performing cannot legitimately invoke this exception.
Procedure and effects of the defence of non-performance
One of the great advantages of this mechanism is its lack of formality. It is not necessary to obtain prior judicial authorisation to suspend an obligation. The creditor acts at his own risk. Although formal notice is not legally required, it is strongly recommended. It serves to record the debtor's default, to date the start of the dispute and to prove the good faith of the creditor, who has made one last attempt to obtain amicable performance.
The main effect of the defence of non-performance is the temporary suspension of the obligation. The contract is neither resolved nor annulled. It is put on hold. As soon as the defaulting debtor performs, the other party must immediately resume performance of its own obligation. This suspension is enforceable against third parties. For example, in the event of an assignment of a claim, the debtor may raise against the new creditor (the assignee) the defence of non-performance that it could have raised against its original creditor (the assignor).
The right of retention: a power of constraint over the property of others
The right of retention is another form of pressure exerted by the creditor, but its purpose is different. It does not concern the performance of an obligation to do, but the restitution of a thing. Defined in article 2286 of the Civil Code, it allows a creditor who legitimately holds property belonging to his debtor to retain it until his claim has been paid in full. The most common example is that of a garage owner who refuses to return a vehicle until the repair bill has been paid.
Its legal nature is debated. Although the Cour de cassation sometimes refers to it as a "real right", the majority of legal writers agree that it is not a true security interest. The purchaser has neither the right to sell the item in order to pay for it (preferential right), nor the right to follow it if it changes hands (resale right). It is above all a factual means of coercion, a private means of enforcement of formidable effectiveness.
Scope and basis of the right of retention
Historically confined to specific cases provided for by law (sale, deposit, etc.), the right of retention was generalised by case law before being enshrined in its current scope in the Civil Code. It can be based on several grounds. It may be contractual, where the parties have agreed that the item is to be remitted as security for payment. More often, it arises from the link between the claim and the thing held. This is the case when the claim arises from the contract obliging delivery of the item (as in the case of an unpaid seller) or when the claim arises from the holding of the item (as in the case of a garage owner for repairs or a custodian for storage costs).
Conditions for exercising and effectiveness of the right of retention
The exercise of the right of retention is subject to specific conditions. The claim must be certain in principle, liquid (or liquidable) and due. Possession of the item must be material, effective and not the result of an assault or fraud. The debtor must have come into possession of the item lawfully and in good faith.
The essential element is the connection between the claim and the thing held. This connection may be legal (the claim and the holding arise from the same contract), material (the claim arises from the expenses incurred for the thing) or conventional. Without this link, withholding another person's property constitutes a fault.
The effectiveness of the right of retention is considerable. It is enforceable against everyone (erga omnes), including third-party purchasers of the property and, remarkably, the bodies of the collective proceedings in the event of the debtor's bankruptcy. The trustee or liquidator cannot demand the return of the property without paying the retaining creditor in full. Moreover, this right is indivisible: the creditor may retain the entire property even for a debt that has been partially paid. On the other hand, the right of retention is lost instantly by the creditor's voluntary divestiture of the item.
Articulation and complementarity of these inertia guarantees
Although they pursue a similar aim - to force performance by inertia - the exception of non-performance and the right of retention have distinct fields of application. The first concerns the non-performance of an obligation in a reciprocal contractual relationship, while the second is a right of constraint relating to a material thing. What they have in common is that they are private justice, exercised at the creditor's own risk and without prior judicial intervention.
These mechanisms can be used strategically by a company or an individual. They constitute a first line of defence, often sufficient to unblock a situation. They can also be the prelude to more formal action. In addition to these guarantees of inertia, creditors can also take action to force performance or sanction default, as explained in our articles on actions in resolution and oblique actions. Moreover, if the debtor's inaction turns into fraudulent organisation of his insolvency, more offensive tools such as paulian action become relevant. The choice between these mechanisms and their relationship with other guarantees depends on a detailed analysis of the contractual situation and the nature of the dispute.
The use of these self-defence guarantees is not without risk. A plea of non-performance deemed abusive or a right of retention exercised without a sufficiently close link may render the creditor liable and oblige him to compensate his debtor. The assistance of a lawyer is essential if you are to implement a secure system that is tailored to your situation. Our firm, with its extensive experience in law of securities and guaranteesWe will work with you to defend your interests effectively.
Sources
- Civil Code
- Commercial code
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