Payment guarantee for works: even after termination, the employer must still pay

You are a property owner in Saint-Amand-Montrond and have entrusted the renovation of your roof to a tradesman. During the works, a dispute arises, you terminate the contract. The contractor demands payment for the work already carried out. But you consider that the termination releases you from any obligation. Who is right?

This question, which every employer (owner who orders works) asks themselves, was answered by the Court of Cassation in a judgment of 18 May 2017: the payment guarantee provided for by law can be demanded even after termination of the contract, as long as the amount for the works has not been fully paid. In other words, terminating does not exempt you from paying what is due.

This decision, made in relation to a private works contract, concerns both individuals and professionals. It clarifies the employer's obligations towards the contractor, and has important practical consequences for all building industry players. Analysis.

The facts: a story like many that happen every day

A contractor, whom we will call Mr Dupont, enters into a works contract with an individual, Mr Martin, for the construction of a house extension in Aubigny-sur-Nère. The amount of the works is €45,000. During the works, disagreements arise over the quality of the finishes. Mr Martin decides to terminate the contract unilaterally, without paying the full amount owed to Mr Dupont.

Mr Dupont, who has already completed 60% of the works, i.e. €27,000 worth of services, demands payment of this sum. But Mr Martin refuses, arguing that termination ends the contract and therefore any obligation on his part. The contractor then applies to the interim relief judge (emergency procedure) to obtain an interim payment (advance on the amount due).

The Bourges High Court, then the Court of Appeal, rule in his favour: the employer must provide a payment guarantee, even after termination. Mr Martin appeals to the Court of Cassation. The Court of Cassation dismisses his appeal and upholds the Court of Appeal's decision. It specifies that the obligation to guarantee payment for the works is not seriously contestable, as long as the amount for the works has not been fully paid.

The court's reasoning — broken down

To understand the judgment, we need to go back to the legal basis: Article 1799-1 of the Civil Code (in its version then in force) requires the employer to provide the contractor with a payment guarantee for private works contracts exceeding €12,000. This guarantee can be a bank guarantee or an insurance assignment. Its purpose: to protect the contractor against the risk of non-payment.

The debate focused on the following question: does termination of the contract extinguish the obligation to provide this guarantee? Mr Martin argued yes, because the contract no longer exists. But the Court of Cassation says no. Its reasoning is simple: as long as the works have not been fully paid, the contractor is entitled to a guarantee. Termination does not change the existing debt.

The judges rely on the text: the guarantee obligation arises at the time the contract is concluded and continues until payment is complete. Termination is not a ground for extinguishing the obligation to pay. This is a confirmation of case law: the Court of Cassation had already ruled similarly in 2013 (Cass. civ. 3e, 11 December 2013, No. 12-27.579).

In practice, this means that the employer cannot hide behind a termination to refuse payment. The interim relief judge can order the payment of an interim sum, because the obligation is not seriously contestable.

What this changes for you — concretely

For the landlord owner (employer): you must know that terminating a works contract does not exempt you from paying what is due. If the contractor has already carried out works, you must pay for them. And if the amount exceeds €12,000, you must provide him with a payment guarantee, even after termination. In Aubigny-sur-Nère, imagine you terminate a €20,000 contract after €8,000 worth of works: you must pay those €8,000 and provide a bank guarantee for the remaining balance.

For the contractor: this decision protects you. If your client terminates the contract without paying, you can apply to the interim relief judge for an interim payment. You do not have to wait for the dispute to be decided on the merits. This saves time and money.

For the subcontractor: you also benefit from this guarantee. The law provides that the subcontractor can demand the guarantee from the employer. If the main contractor is in default, you can go directly against the owner.

For the purchaser of a building: if you buy a property under construction, check that the seller has provided the payment guarantees to the contractors. Otherwise, you could inherit debts.

Four tips to avoid this type of dispute

• Demand the guarantee as soon as the contract is signed. Do not start the works without having received the bank guarantee or insurance assignment. In case of termination, you will be covered.
• Make a precise inventory before any termination. Photograph the works carried out, have a bailiff's report made if necessary. This will allow you to prove the extent of the services in case of litigation.
• Never unilaterally stop payment. If you think the work is poorly done, apply to the interim relief judge to have the defects noted, but do not stop paying. You could be ordered to pay an interim sum.
• Consult a lawyer before terminating. Terminating a works contract has legal and financial consequences. A lawyer specialising in property law will help you assess the risks and negotiate an amicable solution.

Further information: related case law and developments

This decision is part of a consistent line of the Court of Cassation. As early as 2013, the third civil chamber had ruled that the payment guarantee is due even after termination of the contract (Cass. civ. 3e, 11 December 2013, No. 12-27.579). The 2017 judgment confirms and clarifies this principle.

Another important decision is that of 10 September 2015 (No. 14-20.054) which extends this obligation to public works contracts, under certain conditions. The trend is therefore towards protecting contractors and subcontractors, by ensuring effective payment.

In the future, it is possible that the legislature will specify the terms of this guarantee, particularly the time limit for claiming it after termination. In the meantime, case law remains favourable to creditors of works.

Checklist before acting

FAQ: practical questions

• Can I terminate a works contract without paying if the contractor has done poor work? No. You must first pay for the work done, then bring legal action to obtain damages. Termination does not exempt you from paying.
• What is the minimum amount for the guarantee to be mandatory? €12,000 excluding VAT. Below that, the law does not require it, but you can provide for it contractually.
• How can I claim the guarantee after termination? By registered letter with acknowledgement of receipt to the employer. If refused, apply to the interim relief judge.
• What are the time limits for taking action? The interim relief judge rules urgently, usually within a few weeks. For an action on the merits, you have 5 years from the termination.
• What if the employer is insolvent? The payment guarantee (bank guarantee) allows you to go against the bank. If it has not been provided, you can try to seize the employer's assets.

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