Fraud on the Purchaser's Rights: When the Sale of a Flat is Unenforceable

Imagine: you buy a flat in Tarbes, you sign the deed, you pay the price. But the seller, acting in bad faith, decides with an accomplice to create a civil real estate company (SCI) and to contribute the entire building, including your flat, to it. The company registers the contribution at the land registry. You end up with nothing. Sounds unbelievable? Yet this scenario occurred, and the Court of Cassation had to decide.

The question that arises for every owner: can an act carried out to defraud your rights be enforced against you? In other words, if the seller attempts to make the sale impossible through a legal scheme, are you protected?

The decision of 5 February 1970 (No. 68-11.416) provides a firm answer: a contribution to an SCI knowingly made to defraud the purchaser's rights is unenforceable against the purchaser. The trial judges can find that this contribution is fraudulent and therefore without effect vis-à-vis the buyer, even if the sale had not yet been registered (published with the land publicity service). This is essential protection for any purchaser.

The Facts: A Story Like Many That Happen Every Day

Mr X, owner in Tarbes, sells a flat to Mr Y. The deed of sale is signed, the price paid. But for a reason that the judges would characterise as fraudulent, Mr X and a third party, Mr Z, decide to set up an SCI, the "SCI des Lavoirs". Mr X contributes the entire building in which the sold flat is located to this company, and the contribution is registered (published) at the land registry. Mr Y thus finds himself with a flat that the seller has transferred to a company; he no longer has an enforceable title of ownership.

Mr Y brings legal proceedings to assert his rights. He sues the SCI des Lavoirs for recovery of the flat. The SCI defends itself by arguing that it is a legal entity independent of its members, and that since the sale was not registered, it is a third party in good faith. But the trial judges, after examining the documents, note that the creation of the SCI and the contribution were made "knowingly to defraud the purchaser's rights". In other words, the sole purpose of the scheme was to defeat the already concluded sale.

The Court of Appeal of Pau, within whose jurisdiction Tarbes and Oloron-Sainte-Marie fall, therefore held that this contribution was unenforceable against Mr Y. The SCI appeals to the Court of Cassation, but the Court of Cassation dismisses the appeal, thereby upholding the appellate decision. The reasoning is inexorable: it does not matter that the sale was not registered, it does not matter that the SCI is a separate legal entity, as long as the contribution was made to defraud the purchaser's rights, the latter can rely on it.

The Reasoning of the Court — Analysed

The Court of Cassation had to answer a specific question: can a purchaser be faced with a contribution to a company made after the sale, when the sale has not been published? The Court relies on the general principle of fraud, now codified in Article 1240 of the Civil Code (liability for fault), but above all on the theory of fraud on rights: an act done with the intention of harming another's rights is unenforceable against the victim. Here, the fraud is characterised by the knowledge that the seller and the third party had of the harm caused to the purchaser.

The trial judges, in their sovereign assessment of the documents produced (deeds of sale, articles of association of the SCI, correspondence), found that the creation of the company and the contribution were carried out "knowingly to defraud the purchaser's rights". The Court of Cassation validates this assessment and draws the consequence: the contribution and its registration are unenforceable against the purchaser. It thus dismisses the SCI's argument that it was a third party, because the company was the vehicle of the fraud.

This is neither a development nor a reversal: the Court reaffirms a constant solution: fraud corrupts everything (fraus omnia corrumpit). The decision is important because it clarifies that even in the absence of registration of the sale, the purchaser can be protected if fraud is established. It also reminds us that the legal personality of a company cannot serve as a shield for fraud.

What This Changes for You — Concretely

Owner-landlord, tenant, purchaser or co-owner, this decision concerns you. If you have bought a property and the seller attempts, after the sale, to transfer it to a company or a third party, you can invoke fraud to have that transaction annulled. Concretely, you will need to prove that the seller and the third party were aware of your rights and acted with the aim of destroying them.

Take a concrete example in Oloron-Sainte-Marie: you buy a flat for €150,000. The seller, after receiving the price, contributes the building to an SCI of which he is a member. You can sue the SCI for a declaration that the contribution is unenforceable. If you win, the contribution will be deemed void as against you, and you will be considered the owner. Caution: this action must be brought promptly, as the limitation period is five years from the discovery of the fraud (Article 2224 of the Civil Code).

If you are a co-owner, beware: a co-owner might attempt a similar scheme to defraud you. The case law protects the purchaser in good faith, but only if they take action. Do not wait: as soon as you suspect fraud, consult a lawyer.

Four Tips to Avoid This Type of Dispute

• Register your sale without delay: publication with the land publicity service (formerly the land registry) makes your right enforceable against third parties. Do not delay, even if the notary handles it – follow up on the matter.
• Require a certificate of non-contribution: at the time of signing, ask the seller to certify under oath that he has not contributed the building to a company. In case of a lie, this will be evidence of fraud.
• Monitor the land register: a few months after the sale, check online (cadastre.gouv.fr) that you are still the owner. If a transfer appears, react immediately.
• Keep all documents: deed of sale, payment cheques, correspondence. They will serve to prove the date of your acquisition and the fraudulent intention of the seller.

Further Reading: Related Case Law and Developments

This decision is part of a protective line of case law for the purchaser. Already, a decision of the Court of Cassation of 20 March 1961 (No. 59-10.782) had held an alienation subsequent to the sale to be unenforceable if fraudulent. More recently, the Court confirmed this approach in a decision of 12 July 2018 (No. 17-17.409) concerning a disguised gift.

The trend is clear: the courts sanction any manoeuvre aimed at evading a purchaser's rights. The legal personality of a company is not a shield. In the future, one can expect case law to extend this protection to transfers of shares carried out to defraud a member's rights. In any event, fraud remains a dynamic concept, adaptable to each scheme.

In Practice: What to Do

FAQ: Your Questions, Our Answers

Q: Can I lose my flat if the seller contributed it to an SCI after the sale?
R: No, if you prove fraud. You can ask the court to declare the contribution unenforceable against you. The 1970 decision confirms this.

Q: What should I do if I discover that my seller created an SCI after the sale?
R: Consult a specialist lawyer immediately. Gather evidence of the sale and the contribution. An action for a declaration of unenforceability can be brought.

Q: What are the time limits for taking action?
R: The limitation period is 5 years from the discovery of the fraud (Article 2224 of the Civil Code). Do not delay.

Q: Will I have to pay costs for this action?
R: Yes, lawyer's fees and court costs. But if you win, you can obtain damages. The cost is often less than the loss of the property.

Q: Does this protection apply to an unregistered sale?
R: Yes, as in the 1970 decision. The absence of publication does not prevent denouncing the fraud, but you must prove the certain date of the sale.

Are you in a similar situation? A first 30-minute consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →