Commentary on the decision rendered by the third civil chamber of the Cour de Cassation (French Supreme Court) on September 9, 2009

To protect the contractor from the risk of the owner’s insolvency, the law No. 94-475 of June 10, 1994 on the prevention and treatment of the difficulties encountered by contractors instituted the obligation for the owner to guarantee the contractor that the price of the ordered works would be paid.

This obligation, set out in Article 1799-1 of the Civil Code, concerns exclusively private works contracts, whose amount exceeds the minimum threshold fixed by the decree of July 30, 1999 at EUR 12,000.

It is mandatory, as Article 1799-1 of the Civil Code is public policy, and is materialized by a control mechanism of the payment of the loan financing the contractor’s contract, or, in the absence of a loan, by an obligation for the owner to provide to the contractor a specific guarantee.

In a decision rendered on September 9, 2009, the third civil chamber of the Cour de Cassation confirmed once again these various principles by recalling that the owner which enters into a private works contract must guarantee the contractor that the sums owed will be paid, no derogation being allowed.

Moreover and above all else, the Court recalled that the owner is liable for this payment guarantee obligation as from the execution of the works contract, the owner being unable to postpone it or make it conditional.

In this case, an owner had engaged a private contractor to renovate hotel rooms.

The owner had placed three service orders with its contractor, subject however to the latter providing to the owner a bank guarantee for the total amount of the works (considering its wish to subcontract the contract).

The contractor’s bank, for its part, agreed to provide it with this guarantee, but subject to the contractor obtaining from the owner a joint suretyship guaranteeing the payment of the contracts, in accordance with Article 1799-1 of the Civil Code.

Confronted with this request from the bank, the owner notified its contractor that the service orders were null and void on the grounds of the failure to meet the condition precedent to obtain the bank guarantee.

Having had its claims for the payment of various down payments and damages dismissed in first instance and in appeal, the contractor lodged an appeal before the Cour de Cassation.

Referring to paragraphs 1 and 3 of Article 1799-1 of the Civil Code, the Cour de Cassation quashed the decision of the Court of Appeal and granted the contractor’s claim.

Because, as from the execution of the contract, the owner was indeed liable, under Article 1799-1 of the Civil Code, for its legal guarantee obligation, without being able to condition it on the provision of a guarantee by the contractor.

By Maxime Simonnet and Chloé Niedermaier

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