Business Contracts

The theory of restitution, to which the Civil Code has dedicated a chapter since the reform of contract law (Art. 1352 to 1352-9) , aims, in the event of annulment of the contract, to restore the parties to the position they were in before the contract was performed, without profit or loss: this is known as “full” restitution. Each of the parties to the invalidated contract of sale must return wha …

Restitution

The theory of restitution, to which the Civil Code has dedicated a chapter since the reform of contract law (Art. 1352 to 1352-9) , aims, in the event of annulment of the contract, to restore the parties to the position they were in before the contract was performed, without profit or loss: this is known as “full” restitution. Each of the parties to the invalidated contract of sale must return what has been given to him: the buyer must return the thing in return for the return by the seller  of the sale price, which, according to the Court of Cassation, cannot constitute a compensable harm . The Court of Cassation recently clarified that, since the annulment of a sale automatically entails restoring the parties to the position they were in before its conclusion, the court which, even in the absence of a specific request to that effect, orders at the outcome of such annulment the restitution of the goods sold and the restitution of the price, does not disregard the purpose of the dispute . Whereas previous case law held that mutual restitution, a necessary consequence of the invalidity of a contract of sale, could be made in kind or in value , Article 1352 gives priority to the principle of restitution in kind for a thing other than a sum of money. The party who returns the thing is liable for any damage or deterioration which has diminished its value , unless he is acting in good faith and the damage or deterioration is not due to any fault on his part (Art. 1352-1).

However, restitution can sometimes prove difficult or even impossible, particularly given the time that has passed between performance and invalidation of the contract. In order to remedy the injustices caused by the change in the legal situation and to re-establish a certain balance in the contractual relationship, restitution in value or “by equivalent ” is substituted for restitution in kind, the value of the thing being estimated on the day of restitution (new Art. 1352). Previously, the Court of Cassation held that the value of the thing had to be assessed on the day the contract was concluded . Thus, the person who has made restitution in kind impossible, because he has disposed of the thing in the meantime  or because it has been stolen , does not lose the right to claim invalidity, in which case restitution is effected by equivalence, by means of repayment of the resale price . 

Article 1352-2 now provides that “a person who has received the thing in good faith and sold it only has to make restitution of the sale price. If he has received it in bad faith, he owes its value on the day of restitution when it is higher than the price”. Sometimes, however, restitution by equivalent is not effective. Thus, it has been deemed that, in the event of theft of the item making restitution by the buyer impossible, the seller cannot obtain a reduction in the sale price, which he must reimburse to the buyer, since, in effect, the theft constitutes a fortuitous event, the risks of which are borne by the owner (who, through the retroactive effect of the invalidity, also happens to be the seller) .

The theory of restitution raises the question of the balance of benefits. The Court of Cassation has sometimes related it  to the principles governing unjust enrichment  or the recovery of undue payments . However, since a decision of 24 September 2002, it has held that restitution is governed solely by the rules governing invalidity . In practice, the modalities of restitution are generally determined by expert opinions. The restitution of the property raises the question of restoring the enjoyment of the property. According to a ruling by the Chambre mixte on 9 July 2004, the Court of Cassation no longer accepts the payment of compensation (for deprivation of enjoyment) to the vendor in the event of the annulment of the sale . On the other hand, the courts are not opposed to awarding compensation for depreciation in use. Thus, abnormal wear and tear of the vehicle is taken into account , as well as the repair and maintenance costs of a vehicle considered never to have belonged to the purchaser, if the latter can prove this  , or the costs of registration and breakdown services, but not the costs of compulsory motor insurance . Article 1352-3 of the Civil Code now provides that “restitution shall include the yield and the value of the use made of the thing”, “the value of the thing being assessed by the court on the day of its decision”, so that the position of the Court of Cassation seems to be evolving on this point. This text must be read in conjunction with article 1352-7, which stipulates that “a person who has received in bad faith is liable for the earnings or the value of the use from the date of payment, whereas a person who has received in good faith is liable only from the date of the claim” . Article 1352-3 thus determines the scope of the restitution of an object other than a sum of money, maintaining, contrary to the previous law , that the proceeds must be restituted without compensation, depending on the good or bad faith of the debtor of the restitution. However, this is taken into account by article 1352-7, which determines the date on which interest, the proceeds or the value of the enjoyment are due, distinguishing between those who received them in good faith and those who received them in bad faith.

Article 1352-5 also provides that if the person who has to return the thing has incurred expenses for its preservation and/or for increasing its value, this will be taken into account in the amount of the restitution, up to the limit of the increase in value estimated on the date of restitution .

With regard to interest due in the case of restitution of a financial benefit  , under Art. 1352-6 (formerly Art. 1378), interest at the legal rate on the sum whose repayment has been ordered following the annulment of a contract on the grounds of mistake runs, in principle, from the date on which the application is made to the courts, equivalent to a final demand for payment . On the other hand, if the debtor was in bad faith at the time of payment of the undue sum, interest runs from the day of the sale, a more punitive solution in practice . The trial court cannot set interest on late payment from the date of sale without first determining whether the debtor acted in bad faith .

Restitutions are covered by Chapter V of Title IV (General rules governing obligations) of Book III (Different ways of acquiring ownership) of the Civil Code.

Cass. 3rd ch. civ, 2 February 2005, LawLex201400000629JBJ, pointing out that the seller, as a consequence of the annulment of the sale, can only be ordered to reimburse the sums personally received and to pay damages to compensate for the harm caused by his misconduct, to overruling the judgment of the Court of Appeal of Aix-en-Provence, which had ordered the seller to pay the costs and fees of the cancelled sale, on the grounds that “the parties [should] be returned to the position they were in prior to the implementation of the agreements”; Cass. civ. 1re, 30 April 2014, LawLex201500001668JBJ, reiterating that restitutions following the invalidity of a sale for a mistake as to essential qualities only take place between the contracting parties, so that an auctioneer against whom no claim has been made cannot be ordered to refund to the buyer, as a consequence of the invalidity of the sale, the costs incurred in organizing said sale; 3 May 2018, LawLex202200003555JBJ, adding that in the event of the annulment of a public auction sale of a pledged asset, the seller alone is required to return the sale price, since it was in this capacity that he was able to sign the sale requisition and that possession of the item by the credit union, in its capacity as creditor, has not transferred ownership of the pledge to the credit union, even if it has received part of the auction price as repayment of the loan taken out by the seller.

Cass. 1re civ., March 16, 1999, LawLex202200003541JBJ: a purchaser who has bought trees planted on a plot of land at a low price, and who has cut them down as provided for in the contract of sale, must return the price of the real value of the trees delivered, since the contract performed is null and void and restitution in kind of the trees is impossible. See e.g., CA Douai, 15 December 2011, LawLex201200000747JBJ.

See CA Amiens, 29 January 2004, LawLex200600000599JBJ.

Neither legal commentators nor the case law is unanimous on the question of whether restitutions should be considered as undue payments.

See CA Amiens, 30 April 1990, LawLex200700000738JBJ, retaining the basis of unjust enrichment, upholding Cass. civ. 1re, 25 May 1992, LawLex200700000737JBJ Contra, Cass. com. 11 May 1976, LawLex200500006156JBJ.

Outside the scope of mistakes as to essential qualities, Cass. civ. 1re, 24 September 2002, LawLex201400000502JBJ, concerning an action for restitution of contractual interest improperly received, holds that “restitutions following the voiding of a contract do not fall within the scope of undue payments, but only within the rules of invalidity”. This means that the mutual benefits must be returned as a consequence of the annulment, and not as compensation for harm (under quasi-contractual liability). In other words, restitutions are not compensatory in nature.

Cass. Ch. mixte, 9 July 2004, LawLex200600001739JBJ, ruling on fraud. The First Civil Chamber did not uphold it, while the Third Civil Chamber did so, on the basis of the in rem verso (unjust enrichment) action, the case law of the Commercial Chamber not being conclusive.

CA Riom, 15 December 2011, LawLex201200000760JBJ, holding that the seller may claim compensation for the loss in value of the property due to the buyer's fault or to the use he has made of it, without however taking into consideration depreciation linked solely to the vehicle's age.

CA Douai, 18 June 2012, LawLex201300000509JBJ.

CA Aix-en-Provence, 3 March 2005, LawLex201400000505JBJ.

Article 1352-3 determines the scope of restitution of a thing other than a sum of money, by stipulating, contrary to earlier law, that benefits must be restituted without restitution depending on the good or bad faith of the debtor of the restitution. However, this is taken into account in Article 1352-7, which sets the time from which interest, proceeds or the value of enjoyment are due, distinguishing between those who received them in good faith and those who received them in bad faith.

Cass. 3e civ, 3 May 2018, LawLex201800001374JBJ.

Cass. 3e civ, 1 October 2020, LawLex202200003556JBJ: once the tenants of a building have applied to the courts for the invalidation of the sale of the building by writ of summons delivered on 15 and 21 March 2007, and the invalidity of the sale is declared on 21 October 2016, the purchaser of the building can no longer assert his good faith against the seller from the date of the application for annulment of the sale, since the defects concerning his deed transferring ownership were known to him, and the seller is also entitled to claim restitution of the rents paid by the tenants between 1 April 2007 and 28 October 2016.

Cass. com, 29 March 1994, LawLex202200003475JBJ: the cancellation of the transfer of shares in an undertaking entitles the seller to obtain the return of the shares in kind or in value without the amount of the restitution being reduced, with the exception of useful or necessary expenses incurred by the purchaser for the preservation of the shares; 7 March 1995, LawLex202200003554JBJ: the sellers of a business whose transfer has been annulled on grounds of fraud must reimburse the purchasers for the amount of the disputed sale price, and also compensate them for their expenses incurred in improving the business with a view to developing a complementary activity. Cf. Cass. 1re civ. 2 June 1987, LawLex202200003835JBJ: the invalidity of the sale does not entitle the seller to an indemnity corresponding to the profit made by the purchaser prior to the restitution of the machine.

Previously, by virtue of the simultaneous application of former articles 1153 (relating to late payment interest) and 1378 (relating to undue payment) of the Civil Code.

Cass. com, 17 October 1995, LawLex200500006055JBJ.

Cass. com. 14 June 2005, LawLex200700000739JBJ: the cancellation of a share transfer for fraud confers on the seller the right to obtain delivery of their value on the date of the cancellation, insofar as delivery of the shares in kind is no longer possible; Cass. com. 14 May 2013, LawLex202200003370JBJ.

Cass. civ. 1re, 4 October 1998, LawLex200500008967JBJ.

Cass. 1re civ., 24 January 2024, LawLex202400000507JBJ and LawLex202400000504JBJ.

Cass. com., 11 May 1976, LawLex200500006156JBJ, stating that the invalidity of a contract of sale entails reciprocal restitutions which, when they relate to certain bodies, are executed in kind or in value, regardless of whether the purchaser is materially unable to restore the “ charger ” he had used in the meantime to the condition in which he had received it; Cass. 1re civ., 11 June 2002, LawLex200500005870JBJ.

Cass. 1re civ., 9 October 1981, LawLex200700000735JBJ; Cass. 1re civ., 2 June 1987, LawLex202200003835JBJ: when a void contract has been performed, the parties must be restored to the state in which they were prior to its conclusion, so that the purchaser of an agricultural machine may be ordered to bear the cost of restoring the machine without any fault on his part being disclosed. 

Monetary benefits are not subject to revaluation by virtue of the nominal value principle (principe  de nominalisme monétaire).

Cass. 1re civ. 16 March 1999, LawLex202200003541JBJ: a purchaser who has bought trees planted on a plot of land at a low price, and who has cut them down as provided for in the contract of sale, must return the price of the real value of the trees supplied, insofar as the contract performed is null and void and restitution in kind of the trees is impossible. See e.g., CA Douai, 15 December 2011, LawLex201200000747JBJ.

Cass. civ. 1re, 11 June 2002, LawLex200500005870JBJ: the purchaser of a vehicle may seek annulment of the sale of the vehicle on the grounds that it does not correspond to the agreed model, even if he has resold it to a sub-purchaser and finds himself unable to return it, provided that mutual restitution can be made in kind or in value.

See, in the same vein, CA Amiens, 29 January 2004, LawLex200600000599JBJ: “The impossibility of restituting the thing sold in kind does not prevent the person entitled to invoke the invalidity of the sale from doing so, and restitution, in the event of cancellation [...] may be made in the form of a compensatory award”.

Business Contracts

245. Restitution

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245. Restitution

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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