Business Contracts

The rules governing the offsetting of debts (la compensation) have been overhauled by the reform of the law of contracts. New Article 1347 of the Civil Code defines set-off as “the simultaneous extinction of mutual obligations between two persons”, and adds that “it takes effect, subject to being invoked, at the date when its conditions are met”. A set-off can therefore only be in effect between t …

Set-off of debt

The rules governing the offsetting of debts (la compensation) have been overhauled by the reform of the law of contracts. New Article 1347 of the Civil Code defines set-off as “the simultaneous extinction of mutual obligations between two persons”, and adds that “it takes effect, subject to being invoked, at the date when its conditions are met”. A set-off can therefore only be in effect between two debtors towards each other . Article 1347-1 provides that “set-off can only take place between two obligations which are fungible, certain, liquid and due”, while specifying that “obligations for sums of money are fungible, even in different currencies, provided that they are convertible, or those which have as their object a quantity of things of the same kind”. In the context of a sale, where the buyer has a claim to a sum of money against the seller, these two obligations may be offset, provided they are fungible, certain, liquid and due .

In the case of an undertaking in compulsory liquidation, any set-off effected during the “suspect period”  i.e. the run-up period before bankruptcy,  is not a valid method of payment within the meaning of Article L. 632-1, 4° of the Commercial Code (formerly Art. L. 621-107), which prohibits any payment for matured debts made by the debtor since the date of cessation of payments other than in cash, bills of exchange, transfers, transfer slips or any other method of payment customary in commercial relations . For example, the Court of Cassation has held that the sale by an undertaking in receivership of its eight industrial vehicles, which is not part of its corporate object, amounts to a disguised payment in kind, intended to bring about a set-off of receivables constituting an abnormal payment prohibited during the suspect period . However, the prohibition on payment of claims arising prior to the judgment opening the insolvency proceedings does not preclude the set-off of an earlier claim linked to the performance of successive contracts for the purchase of goods, against a related claim of the debtor arising subsequently .

Cass. com., 19 February 1973, LawLex202200001516JBJ.

Cass. 3e civ., 7 June 2018, LawLex202200001514JBJ, which censured a court of appeal for having annulled the sale for lack of price, whereas, despite the impossibility for the purchaser to pay by set-off with a sum of the same amount forming part of a debt recognized by the sellers towards the purchaser, the sale of a house at a price determined in the deed was completed.

Cass. com., 20 January 2021, LawLex202200001515JBJ. See also Cass. com., 19 December 2000, LawLex202100001970JBJ, specifying that when, during the suspect period, a borrower in receivership sells to his lender the property acquired with the support of a loan, the repayment of the loan by means of a set-off against part of the sale price must be declared null and void, pursuant to Article L. 632-1, 4°, of the Commercial Code, even if the sale remains valid.

Cass. com., 13 February 2007, LawLex202100003716JBJ.

CA Paris, 18 September 2018, LawLex202200001431JBJ.

Business Contracts

33. Set-off of debt

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

33. Set-off of debt

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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au contenu exclusif Livv – juristes d’entreprise