Conditions applicable to the subrogation in relation to the subcontractor’s direct action

The Cour de cassation published a decision (Cass. 3^rd Civ., 18 May 2017, No. 16-10.719) by which it further strengthens the position of a bank, acting as principal surety of a contractor under Article 14 of the Act of 31 December 1975.
 
After the debtor had been placed under a safeguard procedure and the subcontractor had been paid, the bank claimed from the project owner, on the basis of the subrogation in the subcontractor’s direct action, the amounts that the project owner owed to the contractor.
 
This decision is novel in three respects: first, in order to consider that there was a tacit acceptance of the subcontractor and its payment terms (Article 3 of the Act of 31 December 1975), it suffices that the project owner had been merely informed of the subcontracting agreement when being served a formal notice by the subcontractor, and that the project owner had blocked the sums due by him to the contractor. Also, the subcontractor’s direct action is beneficial to the bank, after payment, because of the subrogation “in the rights and actions” of the subcontractor. Without making any reference to these provisions, the Cour de cassation applies here Articles 1346 and 2306 of the French Civil Code. Finally, the basis for the subrogation may only include amounts due to the subcontractor under the subcontracting agreement and not all of the amounts due by the project owner to the contractor which is secured by the bank.

Cass. 3^rd Civ., 18 May 2017, No. 16-10.719