The right of retention is a formidable prerogative, often perceived as an instrument of self-defence available to a creditor. This apparently simple mechanism enables a person who legitimately holds property belonging to a debtor to refuse to return it until the debt has been paid in full. It is a powerful means of exerting economic pressure, capable of unblocking difficult payment situations without having to initiate legal proceedings. Integrated into the arsenal of security interests in movable propertyHe shares its practical effectiveness, but its exact legal nature remains a matter of debate.
The classification of the right of retention has long been the subject of controversy. Is it a genuine security, a right in rem conferring priority on the creditor, or simply a personal right to put pressure on the debtor? Case law has sometimes described this right as "real", emphasising its enforceability against everyone, including third-party purchasers. However, it differs from traditional security interests such as pledges in that it does not confer a preferential right over the sale price of the property or a right of resale in the event of voluntary divestiture. This ambiguity makes it a unique legal tool, which is essential for securing contractual relations. Our firm, experts in banking and finance lawIn this section, we take a look at the foundations of this right, the conditions under which it can be implemented and its practical effects.
The foundations and distinctions of the right of retention
The legal origin of the right of retention
The right of retention does not arise from the will of the parties but derives directly from the law. It cannot be created by a simple contractual clause, even if a contract may set out the conditions for its implementation. This legal origin gives it a particular force: in principle, contracting parties cannot set it aside by a stipulation to the contrary when the conditions provided for by the law are met. The Order of 23 March 2006, by codifying this right in article 2286 of the Civil Code, established a long-standing body of case law and doctrine, while clarifying the cases in which it applies.
Differences from pledge, lien and set-off
Although it produces effects similar to certain security interests, the right of retention has specific characteristics that distinguish it from other mechanisms. Unlike a pledgee or preferential creditor, the holder of a right of retention does not have the power to have the thing he holds sold in order to pay himself out of the price by way of preference. His right is purely passive: it is limited to a refusal to make restitution. A pledge, on the other hand, is a security which arises from a contract, whereas a retention is of legal origin and can exist outside any contractual framework.
The distinction with set-off is also clear. Set-off is a payment mechanism that extinguishes two debts reciprocally. A right of retention, on the other hand, is a temporary means of pressure that suspends an obligation to make restitution but does not extinguish any debt. In addition, set-off requires that the debts be fungible (of the same kind, such as two sums of money) and liquid, conditions not required for the exercise of a right of retention.
The relationship and specific features of the defence of non-performance
It is with the exception of non-performance that confusion is most frequent. The latter allows a party to a synallagmatic contract to suspend performance of his own obligation as long as his co-contractor fails to perform his own. While both mechanisms constitute forms of private justice, their basis differs. The exception of non-performance is based on the interdependence of obligations arising from the same contract. The right of retention, on the other hand, is based on the material or legal link that exists between the claim and the thing held. Its scope of application is therefore potentially broader, as it can apply outside any synallagmatic contract. Moreover, the right of retention is indivisible and enforceable against everyone, including third parties who are not liable for the debt, which is not the case with the exception of non-performance, which is limited by the principle of the relative effect of contracts. For a detailed analysis of these two concepts, see our article on the defence of non-performance and the right of retention as self-defence mechanisms.
Conditions for the existence of a right of retention
To be validly exercised, the right of retention must meet strict conditions, defined by law and clarified by case law. These requirements ensure that this powerful means of pressure is not abused. They concern the claim, the possession of the item and the link between them.
The requirement of a claim that is certain and due
A creditor who wishes to exercise a right of retention must prove that the claim is certain in principle. A claim that is merely contingent, future or disputed is not sufficient. For example, a claim that has not been declared as a liability in collective proceedings is considered extinguished and can therefore no longer form the basis of a right of retention. The claim must also be due and payable, i.e. its term must have expired. For example, a seller on credit who has granted his customer a payment period cannot retain the goods before the agreed payment date. On the other hand, the claim does not need to be liquid, i.e. definitively quantified, at the time the retention is exercised. It is often during a dispute over the return of the goods that the amount of the claim will be determined by the courts.
The need for material and regular possession of the thing
The right of retention presupposes actual and material possession of the item by the creditor. The creditor must have physical control over the property, or de facto power over it. Mere legal possession is not enough, as case law has pointed out when it stated that holding the keys to a building is not equivalent to taking possession of it. Such possession may be exercised through a third party, such as an agent, acting on behalf of the creditor.
This holding must have been acquired in a lawful and regular manner. The right of retention cannot be the result of a fraudulent manoeuvre, violence or breach of a contractual obligation. The creditor must be acting in good faith. Lastly, the right of retention is mainly exercised over tangible assets, whether movable or immovable, although case law has shown a certain reluctance to accept it for immovable property in recent years. Intangible assets, such as a business, cannot in principle be subject to a right of retention, unless they are evidenced by a document of title (paper shares, for example).
The link between the claim and the holding
This is a fundamental condition: there must be an objective link between the claim and the thing retained. A creditor cannot retain a debtor's asset to secure a claim that has nothing to do with that asset. This connection can be of two kinds. It is legal when the claim and the holding of the thing arise from the same legal relationship, usually the same contract. This is the case of a chartered accountant who withholds his client's documents to obtain payment of his fees. It is material when the claim arises from the thing withheld, independently of any contract. The typical example is that of a possessor in good faith who has incurred expenses to preserve or improve another person's property. His claim for compensation is directly linked to the thing he holds, which justifies his right to retain it until it is repaid.
The condition of good faith on the part of the returnee
Beyond the lawful acquisition of the holding, the creditor must exercise his right of retention in good faith. Case law punishes abuse of this right. A creditor may not, for example, exercise his right of retention maliciously, by suddenly demanding storage fees never before invoiced, with the sole aim of penalising his debtor at a commercially important time for him. The exercise of a right of retention must remain a proportionate measure aimed at obtaining payment of a legitimate debt, and not a means of unfairly causing harm.
The scope of the right of retention
The Civil Code does not set out a general theory of the right of retention, but it does provide for its application in a variety of cases. Jurisprudence and doctrine have systematised these cases, which can be grouped into two main categories depending on whether or not they arise from a contract.
Assumptions based on a contractual relationship
In most cases, the right of retention arises from the performance of a contract which, on the one hand, gave rise to the claim and, on the other hand, justified the delivery of the item to the creditor. The connection is therefore legal. There are many examples of this in a variety of business sectors:
The seller of an item that has not been paid for in cash may retain it until the price has been paid in full, as set out in Article 1612 of the Civil Code.
A depositary who has incurred expenses for the preservation of the deposited item may retain it until it is reimbursed (article 1948 of the Civil Code).
The carrier may retain the goods until the carriage charge has been paid.
A contractor or craftsman, such as a garage mechanic, who has carried out work on an asset (vehicle, machine, etc.) can retain it to guarantee payment of his invoice.
A pledgee, whose security is based on dispossession, by its very nature has a right of retention over the property that has been pledged to it.
A lessee who is to receive compensation from the lessor (for improvements, for example) may remain on the premises until the compensation is paid.
Non-contractual situations
The right of retention is not limited to contractual situations. It can also be recognised in situations where there is no contract between the creditor and the debtor, provided that a material link can be established between the claim and the item. There are three main examples:
The purchaser in good faith of a lost or stolen item of furniture, who is obliged to return it to its rightful owner, has the right to retain it until the price paid has been reimbursed, as set out in article 2277 of the Civil Code.
A co-heir who is required to return to the estate a property that he or she has received in advance of inheritance may exercise a right of retention on that property to obtain reimbursement for the expenses and improvements he or she has made to it.
An owner expropriated for a public purpose may, under article 545 of the Civil Code, retain his property until he has received the fair and prior compensation due to him.
Effects of the right of retention for the creditor and third parties
The right of retention gives the creditor a position of strength that produces significant effects, both in relation to the debtor and to other creditors or third parties. However, this prerogative is purely passive and has significant limits.
The power to refuse restitution to the debtor
The main effect of the right of retention is to paralyse the restitution obligation of the holding creditor. As long as he has not been paid in full, he can legitimately refuse to return the property, whatever the proportion between the value of the thing and the amount of the claim. This right is indivisible. Refusal to return goods is the ultimate means of exerting pressure. Faced with the inconvenience caused, the debtor is strongly encouraged to pay his debt in order to recover his property. This power of restraint is, however, accompanied by an obligation of conservation: the returor must take care of the thing and may neither use it nor collect the fruits for his own account. If he were to do so, he could forfeit his right.
Enforceability against other creditors and third-party purchasers
The effectiveness of the right of retention lies in its enforceability against everyone. It is exercised not only against the debtor, but also against all other parties who may have rights in the property. Thus, the debtor's other creditors, whether unsecured creditors or even holders of a lien, cannot have the retained property seized and sold without first paying the retainer. Similarly, if the debtor sells the property to a third party, the third party may only obtain delivery of the property on condition that it pays the debtor's claim. This opposability gives the right of retention a practical effectiveness that is often greater than that of many published securities, which is why it is sometimes referred to as a "superprivilege".
The limits of the right of retention
Despite its power, the right of retention is a negative and limited guarantee. The retention holder has no preferential right over the sale price of the property. If he takes the initiative to have the property sold, he loses his holding and, consequently, his right of retention. He then becomes an unsecured creditor like the others, subject to the concurrence of the other creditors on the sale price. Similarly, he has no right of resale: if he voluntarily disposes of the property, he can no longer follow it into the hands of a third party to recover it. His right lapses with the loss of possession. Lastly, unlike a pledgee, he cannot apply for the property to be allocated by the court in payment of his claim. His only power is to refuse to make restitution.
The impact of the right of retention in collective proceedings
The full force of the right of retention becomes apparent when the debtor is the subject of collective proceedings (safeguard, reorganisation or judicial liquidation). While the proceedings of other creditors are suspended, the retaining party retains its prerogative. The insolvency authorities cannot force him to relinquish the property without paying him. The French Commercial Code also provides that, if the retained asset is necessary for the continuation of the business, the administrator or liquidator may, with the authorisation of the official receiver, pay the creditor to recover it. In the event of compulsory liquidation, if the asset is sold by the liquidator, theeffectiveness of the right of retention in collective proceedings is such that the purchaser's right is automatically transferred to the price, giving him priority in payment. However, new legislation has stipulated that in order to be effective, the claim must have been duly declared as a liability.
Termination of the right of retention
The right of retention, like any guarantee, is not eternal. It can be extinguished in two ways: either incidentally, as a result of the disappearance of the claim it secures, or principally, for its own reasons.
Causes of extinction on an ancillary basis
As the right of retention is accessory to a claim, it logically disappears with it. Any cause of extinction of the principal obligation terminates the right of retention. This is the case if the debtor pays the debt in full, but also if the debt is set off, forgiven or time-barred. Once the debt has been extinguished, the holder of the right of retention no longer has any legal basis for refusing to make restitution and must return the goods.
Principal causes of extinction
The right of retention can also be extinguished independently of the fate of the secured claim. The main reason for this is voluntary relinquishment: if the creditor voluntarily hands over the property to the debtor or a third party, he immediately and definitively loses his right of retention, even if his claim has not been paid. The creditor cannot subsequently claim the return of the property. Other causes may put an end to the right of retention, such as the creditor's express waiver of his right to exercise it, or the material loss of the item (destruction by chance, for example). However, in the event of involuntary loss (theft, forcible dispossession), the creditor retains the right to take legal action to recover possession of the item.
The complexity of the right of retention and the rigour of the conditions for its implementation require a precise legal analysis to guarantee its effectiveness. For all questions relating to securing your receivables, our firm of lawyers specialising in banking and financial law is here to advise you.
Sources
- Civil Code, in particular articles 1612, 1948, 2277 and 2286.
- Commercial Code, in particular articles L. 622-7, L. 642-12 and L. 642-25.
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