Subcontracting in property: your debt does not cover other sites (Cass. 10 Dec. 2003)

You have entrusted the renovation of your roof to a contractor. He subcontracts the electrical installation to a specialised company. The main contractor goes bankrupt. The subcontractor, to be paid, turns to you, the main contractor. So far, nothing surprising. But what happens if you also owe money to the main contractor on another site, for example the construction of a garage in Saint-Amand-Montrond? Can the subcontractor demand that you pay him the balance of this second site to cover his claim on the first? The answer, decided by the Court of Cassation in 2003, is no. And if you thought that your overall debt could serve as security for all subcontractors, think again.

This decision, which went relatively unnoticed, is nevertheless crucial for any owner, developer or property professional. It sets a simple rule: the subcontractor's direct action (the right to claim payment for his work directly from the main contractor) is confined to the specific contract on which he worked. Sums due on other sites, even between the same parties, cannot be used to pay him. A rule of common sense, but one that has given rise to fierce litigation. In Bourges as elsewhere, subcontractors have tried to widen their net, in vain.

Let us delve into the details of this case, which pits the company Renault against the company SNEF, an electrical subcontractor. You will see that the financial stakes can be considerable. And above all, you will know how to protect yourself if you are a main contractor or a subcontractor.

The facts: a story like any other

In 1994, the company Renault, a well-known car manufacturer, entrusted two separate contracts to the company CFC France: one for the construction of an assembly line, the other for handling work. CFC France, the main contractor, subcontracted part of both contracts to SNEF, a specialist in automation and electricity. So far, everything was proceeding normally. The work progressed, invoices were issued.

But in 1996, disaster struck: CFC France was placed in judicial reorganisation (a collective procedure designed to save the company, but which freezes payments). SNEF, which had performed its services, did not see the colour of its money. It then turned to the main contractor, Renault, under the direct action provided for by the Law of 31 December 1975 on subcontracting. This action allows the subcontractor to claim directly from the main contractor the sums unpaid by the main contractor, provided that the subcontractor has been declared and accepted by the main contractor.

SNEF claimed from Renault the balance due on the assembly line contract, i.e. approximately 785,350 francs (about 120,000 euros). But Renault objected that, on that same contract, it had already paid advances and no longer owed anything, or that it was even a creditor of CFC France. SNEF retorted: 'No matter, you owe money to CFC France on the other contract (handling), so you must pay me out of that sum.' Renault refused, arguing that the direct action can only relate to sums due under the specific contract where the subcontractor worked. The Nanterre Commercial Court ruled in favour of Renault. SNEF appealed to the Versailles Court of Appeal, which upheld the judgment on 23 March 2000. SNEF then appealed to the Court of Cassation.

Imagine for a moment that you are a property owner in Saint-Amand-Montrond: you had an extension built by a contractor, and you also entrusted him with the renovation of your bathroom. The contractor subcontracts the electrical work for the extension to a tradesman. If the contractor goes bankrupt, can the electrician claim payment for his work from the money you still owe for the bathroom? The answer is no, as the Court of Cassation reminded us.

The reasoning of the court — dissected

The central question was the scope of the subcontractor's direct action. Articles 1, 12 and 13 of the Law of 31 December 1975 provide that the subcontractor may act directly against the main contractor to obtain payment of what is owed to him. But on what sums? The law says: 'on the sums due under the contract for the work whose execution was entrusted to him'. The key word is 'under the contract for the work'. The Court of Cassation interprets this expression strictly: it refers only to sums due specifically for the contract on which the subcontractor worked, and not to all claims that the main contractor may have against the main contractor under other contracts.

SNEF argued that the law did not limit the direct action to a particular contract, and that the sums owed by the main contractor to the main contractor, regardless of their origin, should serve as a common security for the latter's creditors, including subcontractors. In other words, SNEF invoked the principle of the unity of the main contractor's assets: Renault owed money to CFC France on the handling contract, so that debt formed part of CFC France's assets and could be seized by its creditors, including SNEF, through the direct action.

The Court of Cassation rejected this argument. It recalled that the direct action is a derogation from the principle of the relative effect of contracts (a contract only creates obligations between the parties). It must therefore be interpreted restrictively. The legislature intended to protect the subcontractor by giving him a right of direct recourse, but only within the limit of the sums due for the site that concerns him. Allowing the subcontractor to extend his action to other contracts would create a kind of general privilege, not provided for by law.

The judges therefore confirmed the reasoning of the Versailles Court of Appeal: SNEF could only claim from Renault the sums still due on the assembly line contract, and not on the handling contract. Since Renault demonstrated that it no longer owed anything on that first contract (or that it was even a creditor), the direct action was unfounded. The Court of Cassation dismissed the appeal.

What this means for you — practically

For landlord owners: you entrust a contractor with the renovation of two separate apartments in a building in Bourges. If the contractor subcontracts the plumbing of the first apartment, the subcontractor cannot claim payment for his work from you based on the sums you still owe for the second apartment. Each site is independent. This means you must ensure that each contract is followed separately, with separate accounts.

For buyers in off-plan sales: the developer entrusts the construction of your villa to a general contractor, who subcontracts the electrical lot. If the contractor goes bankrupt, the subcontractor cannot turn against you on the sums you still owe the developer for external services (e.g., garden landscaping). This protects you, but beware: you may still have to pay the subcontractor out of the sale price of the relevant lot if you have not paid the main contractor. Always check subcontractor declarations.

For co-owners: the co-ownership association undertakes facade cleaning and roof repair works, entrusted to two different companies. If the facade cleaning company subcontracts the waterproofing, the subcontractor cannot pay himself from the sums due under the roof contract. Each contract is autonomous. In practice, the association must ensure that each company declares its subcontractors and that funds are allocated contract by contract.

A concrete example: in Saint-Amand-Montrond, you are a plumber subcontractor. You work on site A for an amount of €10,000. The main contractor also has site B with the same main contractor, for which he is owed €5,000. If the main contractor goes bankrupt, you can only claim from the main contractor what he still owes on site A, not the €5,000 from site B. If the main contractor has already paid everything on A, you have lost your direct action.

If you are in this situation, you must: 1) identify precisely the contract on which you worked; 2) check the sums still due from the main contractor on that contract alone; 3) act quickly, as the direct action is time-barred one year from the end of the work.

Four tips to avoid this type of dispute

• Require prior declaration of subcontracting. Before any work starts, require your main contractor to provide you with the list of his subcontractors, with the acceptance deed and approval of payment conditions. This will allow you to know exactly your obligations and avoid surprises.
• Set up separate accounts per contract. If you entrust several sites to the same contractor, open a separate bank account for each contract or keep precise analytical accounting. This will facilitate proof of sums due contract by contract in case of dispute.
• Check payments before releasing the main contractor. Before paying the balance to the main contractor, require him to prove that he has paid all his subcontractors. You can also ask for a receipt from each subcontractor or a payment certificate. If in doubt, block payment until the situation is clarified.
• Consult a specialist lawyer at the first sign of difficulty. If a subcontractor claims a payment you consider unfounded, do not delay in seeking advice. A poorly directed direct action can lead to procedural costs and late payment interest. In Bourges, Maître Zakine can assist you in 30 minutes.

Further reading: related case law and developments

This 2003 decision is part of a consistent line of the Court of Cassation. Already, in a judgment of 9 December 1997 (No. 95-18.310), it had held that the subcontractor's direct action can only relate to sums due under the contract for which he was a subcontractor, excluding claims arising from other contracts. The solution was reaffirmed several times, notably in a judgment of 15 January 2008 (No. 06-21.131), where the Court specified that the subcontractor cannot rely on a set-off between sums owed by the main contractor under different contracts.

The trend is therefore towards strict confinement of the direct action. The courts are very meticulous about the precise identification of the contract. This means that, for the subcontractor, vigilance is required: he must ensure that his contract clearly mentions the reference contract, and that the main contractor is informed of his intervention on that specific contract. For the main contractor, it is a protection: he cannot be required to pay twice for the same site, nor see his debts on other sites used as currency.

This case law could evolve if the legislature modifies the 1975 law, but for now, no such text is under discussion. The Court of Cassation remains attached to a literal interpretation protective of main contractors.

Checklist before acting

FAQ: practical questions on the subcontractor's direct action

1. Can I refuse to pay a subcontractor if I have already paid everything to the main contractor? Yes, if you have paid the full amount of the relevant contract, the subcontractor can no longer claim anything from you, unless you have accepted his payment conditions. The law provides that payment to the subcontractor takes precedence over payment to the main contractor, but only if the subcontractor has been declared and accepted.
2. What should I do if a subcontractor sues me for payment? Do not remain passive. Immediately check whether the subcontractor was declared by the main contractor and whether you accepted him. If not, you can invoke the inadmissibility of the direct action. Consult a lawyer without delay.
3. What is the time limit for a subcontractor to act? The direct action must be brought within one year from the end of the work performed by the subcontractor. After that, it is time-barred. Do not delay.
4. As a main contractor, can I set off sums between two contracts? Yes, but only between the same parties. If you owe money to the main contractor on one contract, you can deduct what he owes you on another contract. However, this set-off does not benefit the subcontractor, who is only entitled to sums due on his contract.
5. Does the decision apply to public contracts? Yes, the Law of 31 December 1975 applies to both private and public contracts. The Court of Cassation has issued similar rulings for public contracts, particularly regarding payment delegation.

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 →