Limitation of the receivable, and the indemnity that follows it

Time extinguishes receivables, and it does so under rules that are neither the commercial contract's nor the policy's, but those of a law that must first be identified. On an international sale, three periods run in parallel and share neither duration, nor starting point, nor causes of interruption: that of the receivable against the debtor, that of the insured's action against its insurer, and that of the insurer's subrogated action against the debtor, which inherits the first. A file can be lost on any of the three, and is most often lost on the one nobody watches.

The first question, and it is too rarely asked, is which law fixes the receivable's period. It is not necessarily the one the contract designates as governing law, because limitation is treated by some systems as a substantive question, attached to the law of the contract, and by others as a procedural one, attached to the law of the court seized. A contract governed by French law but whose enforcement will take place before the debtor's judge can therefore be subject to a shorter period than the one had in mind. That point is established once, per country, and then serves every file in the zone.

The gaps are considerable and this is not an academic nuance. Depending on the system, a commercial receivable becomes time-barred in ten years, in five, in three, sometimes in two for certain sales, and there are very short periods for particular categories such as carriage. An exporter mentally applying its own country's period to a foreign debtor is therefore reasoning on a duration that may be three times too long. It must be added that the starting point varies as much as the duration: at maturity, at delivery, at knowledge of the default, and on instalment payments, whether the period runs per instalment or from the last one changes everything.

What interrupts the period varies just as much, and that is where good-faith errors occur. A formal demand interrupts in some systems and not in others. An acknowledgment of debt by the debtor interrupts almost everywhere, which makes it the most useful document to obtain early, and often the easiest since a debtor in difficulty readily agrees to write that it owes. A rescheduling agreement starts a fresh period, but we have seen elsewhere that it can also amount to novation and destroy subrogation. And an action brought before a court without jurisdiction does not always interrupt, which turns two years of proceedings into two years of loss.

The articulation with insurance then produces a counterintuitive effect worth keeping in mind. The insurer that indemnifies is subrogated, and it can receive only a right as it exists: if the receivable is already time-barred or close to it, it pays with no useful recourse. That is why policies require protective diligence from the insured and sanction one that lets a receivable become time-barred, not because limitation is a moral fault but because it destroys the only value left to the insurer after settlement. An insured that let time run can therefore face a reduction or a refusal even though its receivable was beyond challenge.

Finally, this period must be distinguished from that of the action against the insurer, dealt with elsewhere in this certification, because the two are easily confused and have no connection. The second is fixed by the insurance contract and by the law governing it; it often runs from the event giving rise to the action, and it is frequently shorter than the receivable's. An exporter can thus hold a perfectly valid receivable against its debtor and have lost its recourse against its insurer, or the reverse, and the two calendars are watched separately.

The practical discipline is modest and effective. Establish, for each country sold into, the applicable period and its starting point, once and for all. Obtain a written acknowledgment of debt at the first serious overdue, because it interrupts almost everywhere and can no longer be obtained once the relationship has cooled. Check, before signing a rescheduling, what it does to the period and to subrogation. And keep a limitation calendar alongside the invoice calendar, because a receivable does not die loudly: it goes out one morning with nothing to announce it.