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French property sales – when “irrevocable” means “revocable”.

Please note that the information herein is of a general nature and you should not act or refrain from acting on it without professional advice on the specific facts of your case. No liability is accepted by the author or Sykes Anderson Perry Limited in respect of this article. Law is a complex subject and the above is a basic outline only and is intended only as a general guide.

It is not unusual in France for a property sale agreement to provide that the seller, who owes money to a third party, gives an order to the notaire to pay the creditor a specified amount from the sale of the property. This is usually expressed as an irrevocable payment order or mandate. However, in a recent judgment, the French Supreme Court has decided that the “irrevocable” payment order is in fact revocable (Cass. 1ère civ., 3 May 2018, n° 17-12.473)!

Facts of case

In this case, a sale agreement relating to a property was signed on 2 October 2009. In a later letter, the seller gave an “irrevocable payment mandate” to the notaire to pay the sum of €200.000 from the sale price to a bank. On the day of completion on 10 December 2009, the seller served on the notaire a letter revoking the mandate to pay the bank. In accordance with the seller’s instructions, the notaire payed the sum to the seller and not to the bank. The bank sued the notaire claiming the sum of €200.000 as compensation for the damage suffered.

The French Court of Appeal decided the notaire was liable to the bank for € 40.000 loss of chance to set up a civil enforcement procedure. The judges considered that the notaire was bound by a personal obligation to provide information to the bank about the revocation of the mandate by the seller.

The French Supreme Court overturned the decision of the Court of Appeal. The Supreme Court decided that the notaire who prepared a deed of sale is not bound by any obligation to provide information or counsel to any third party. The notaire does not have to protect the interests of third parties, as the latter have no enforceable rights against the parties to the deed of sale.

In other words, the French Supreme Court treats the payment order as revocable which affects this common practice. From now on, parties should proceed on the basis that an irrevocable payment order can be revoked at any time and the notary does not have to inform the third-party beneficiary of the payment order.

Relevance

It is not unusual in divorce or separation proceedings for one party dealing with the sale of a French holiday home to agree to make a payment from the sale proceeds to the other former partner. Equally if there is an agreement for a creditor in England to be paid from a French property sale the creditor will not want the costs of registering a mortgage against the property and may feel relaxed with an “irrevocable” letter from the seller instructing the notaire to pay him. This is dangerous especially for an English solicitor involved in a French matter who may assume that he has an “undertaking” from the notaire with payment guaranteed. One possibility is to get the notaire to write to the creditor personally confirming that he will “on his honour” make payment on completion. Sykes Anderson Perry has years of experience dealing with notaires  and French property transactions and is available to advise.

October 2018
David Anderson
Solicitor-Advocate and Chartered Tax Adviser