Business Contracts

Exchange is similar to the barter system, an economic transaction in which one or more individuals transfer ownership of a good and receive another in return. An exchange agreement is similar to a sales contract in that it transfers the rights in rem on two goods to each other. These assets may be movable, immovable, tangible or intangible. They may relate to abusus  or fructus , or to undivided property. In many respects, this transfer of ownership gives rise to a regime similar to that of sale.

Today, the contract of exchange is reappearing in a variety of ways in the French and international economic landscape. In particular, financial “swaps”, exchanges by way of set-offs in the context of international trade, local exchange systems specific to associations , exchanges of rural real estate  and contributions in usufruct  all constitute contracts of exchange. “Swap” is a term used in the world of finance to designate an exchange of financial flows, with the aim of reducing or canceling a risk. The most common swaps are those involving interest rates  and currencies . “Compensated exchange”, on the other hand, refers to various techniques, notably “offsets”  used in international trade.

Contracts of exchange governed by the Civil Code are codified in Articles 1702 to 1707. Article 1702 of the Civil Code states that “exchange is an agreement by which the parties respectively give each other one thing for another”. Article 1703 goes on to state that “exchange is effected by consent alone, in the same way as sale”. The exchange agreement is therefore a bilateral and consensual contract  which, in principle, does not require any particular formality in order to be concluded, except in the case of an exchange of real estate , where such a transaction requires publication with the land registry in order to be valid and enforceable . The contract of exchange is commutative in the sense that the services that each of the parties undertakes to provide to the other are considered to be equivalent to those received . The proximity of exchange to sale stems from the mutual nature of the transactions, which often take place at the same time. The signing of two concomitant deeds on the same day may thus lead one of the parties to erroneously believe that it is implementing an exchange .

Exchange contracts and sales contracts differ, however. In exchange, the parties commit to deliver something to each other, whereas in sale, one party commits to deliver something for a price . In principle, therefore, contracts of exchange do not include a price. Thus, the agreement by which one party becomes the owner of the vehicle previously owned by the other, who at the same time acquires ownership of the other's vehicle, constitutes an exchange, and not a sale, in the absence of any proof of agreement on price . The mere fact of filling in a declaration of transfer, required by the French tax authorities each time there is a change of ownership of a vehicle, does not constitute proof of the nature of the contract by which the vehicle changes ownership: since a transfer is defined as the act of transferring ownership of a good, whether in return for payment or free of charge, it can cover the situation of a sale as well as that of an exchange .

However, the boundary between the two processes of sale and exchange becomes blurred when the goods to be exchanged differ in value, as the contract of exchange includes a balance to cover the difference. In this case, the mutual consent of the parties, which is necessary for the formation of the contract of exchange, must relate not only to said goods, but also to the balancing payment . To correctly classify the agreement, the court must ascertain the joint intention of the parties . Thus, a large amount of balance, when it does not constitute the main object of the agreement, does not prevail over the intention expressed by the parties, and does not allow the exchange contract to be reclassified as a contract of sale . On the other hand, the disproportionate value of the goods exchanged, as revealed by a balancing payment that far exceeds the value of the goods acquired, may exclude classification as an exchange agreement, particularly when this classification is sought with a view to circumventing a pre-emption right . This arrangement, which constitutes fraud, is liable to be declared null and void .

Right to receive the fruits of the thing.

Cass. 3e civ. 18 March 1980, LawLex202200001281JBJ, for a mistake as to the nature of the agreement.

CA Bourges, 17 May 2018, LawLex201800000740JBJ.

CA Metz, 11 June 2020, LawLex202200001379JBJ, adding that the agreement by which each party simultaneously became the owner of the other party's car should be classified as an exchange, and not a sale, since, while it is established that the disputed vehicle was indeed offered on the internet at the price of 28500 euro, the documents submitted to the court prove neither an agreement between the parties on a price, nor a payment, and the party claiming the existence of a sales agreement merely alleges an offset without proving it.

CA Metz, 11 June 2020, LawLex202200001379JBJ.

Cass. 3e civ, 20 June 1989, LawLex202200001298JBJ.

CA Metz, 8 February 2000, LawLex202200001389JBJ.

Cass. 3e civ., 15 March 1977, LawLex202200001274JBJ.

Local exchange systems enable members to exchange know-how, services and products within an association.

Cass. 3e civ., 9 January 1991, LawLex202200001286JBJ.

Exchanges of rural real estate are governed by Articles L. 124-1 et seq. of the Rural and Maritime Fishing Code and are exempt from the right of pre-emption of the Sociétés d'aménagement foncier et d'établissement rural (SAFER).

Exchanges of plots are also governed by Articles L. 411-39 and L. 411-39-1 of the same code, with the aim of improving the use of farmland.

Cass. 3e civ., 19 May 2016, LawLex202200002052JBJ, for an interest-rate swap agreement that lapsed because the leasing agreement, with which it formed an indivisible whole, lapsed for lack of proper authentication.

Bulletin Officiel des Finances Publiques, BOI-BIC-PDSTK-10-20-80-40.

Designating clearing markets where cleared swaps take place.

Civil Code, Art. 1106, 1107, 1108 and 1109. 

Decree No 55-22 of 4 January 1955 on land registration.

36. Classification