France: New rules on contracts

24-11-2016

Aurélia Marie

The ordinance of February 10, 2016 on the reform of contract law took effect on October 1 and applies to contracts concluded after September 30, 2016. Those concluded before this date will also come under the same regime if and when they are renewed. The principle of the freedom to sign a contract is re-stated in law.

One of the significant changes is the codification of the pre-contractual phase, which must be conducted in good faith. However, the ordinance introduces a general duty to provide, before the conclusion of the contract, any information which is critical and has a direct link with the content of the contract or the parties. Failure to respect this obligation triggers not only the liability of the contracting party, but also the possible invalidation of the contract for lack of consent. This duty does not apply to estimating the value of what is delivered.

The burden of proof is on the party who claims that certain information should have been revealed by the other, who in turn must prove that this information was in fact supplied.

One provision of general importance, but particularly so in the intellectual property field, provides for the confidentiality of all information obtained during the pre-contractual phase. This provision does not impose an obligation to sign a confidentiality agreement. It does remain preferable, however, especially in the interests of evidence, that such an agreement is put into writing and signed by the parties, specifying the information that must remain confidential.

The conditions of contractual validity are the consent of the parties, their capacity and the legality of the content of the agreement. The reasons for consent to be invalidated, ie, because of error, fraud or violence, remain relative grounds for invalidity.

"the non-execution of a contractual obligation by one party is permissible when the counterparty has not executed its own obligation."

The concept of ‘abuse of the dependence of one party’ is introduced so that a contract can be annulled if consent is deemed to have been given under a state of economic duress. It means that when one party exploits the dependence of the counterparty by forcing it into signing an agreement that it would not have accepted without coercion, and which helps the party gain an excessive advantage, the counterparty can ask in court that the contract be cancelled.

Approval by a judge is not required for the contract to be terminated. The termination clause and the causes of the breach must be provided in the contract, however. Moreover, a creditor may terminate a contract at its own risk, by notification, in the event of a sufficiently serious breach. It is specified that “termination does not affect provisions relating to the resolution of disputes, or those designed to operate even in case of termination, such as confidentiality and non-competition clauses”.

Renegotiation

The circumstances in which contracts may be renegotiated are specified: “If an unforeseen change in circumstances occurs during the conclusion of a contract which makes its execution excessively onerous for a party that had not agreed to this risk, this party may request a renegotiation of the contract to the other contracting party. However, the original contract must continue to be executed during this renegotiation.”

This clause, which introduces the principle of ‘hardship’ into French contract law, tempers the principle of the binding force of a contract. It will be interesting to follow the courts’ interpretation of this highly discussed provision. In any case, the application of this principle can be excluded by the terms of a contract if the parties wish.

Another major provision is the codification of anticipatory suspension of performance. This notion has emerged from case law and provides an exception whereby the non-execution of a contractual obligation by one party is permissible when the counterparty has not executed its own obligation. It is now expressly provided for. This breach must be “sufficiently serious”.

Moreover, the possibility is introduced for a party to suspend performance of a contractual obligation when it is clear that the other contracting party will not carry out its own in good time and that the consequences of this breach are sufficiently serious. The possibility of reducing the price in cases of imperfect execution is also provided. The application of these provisions will necessarily pose problems surrounding proof.

The conditions for the assignment of a contract are also specified.

Finally, specific provisions relating to contracts concluded by electronic means are now laid out.

Although the reforms do not perhaps completely transform French law, the ordinance does bring some significant changes. It is up to lawyers to immediately take note of all the new provisions and take them into account when drafting contracts.  

Aurélia Marie is a partner at Cabinet Beau de Loménie. She can be contacted at: amarie@bdl-ip.com 

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