Contracts, negotiation and enforcement in France: overview

A Q&A guide to general contracts and their negotiation and enforcement in France.

The Q&A gives a high level overview of the key legal concepts, including contract formation with general discussions as to authority, formal legal requirements, formalities for execution, the requirements for deeds and notarisation, and powers of attorney. It also considers the status of contractual terms, variation and assignment of contracts, and enforcement of the contract. The enforcement section covers remedies and liability, exclusion of liability, and cross-border/jurisdictional matters.

The Q&A is part of the global guide to contracts, negotiation and enforcement.

Raphaël Dana and Martin Leny, LMBE Avocats
Contents

Formation of contracts

Authority and capacity

1. What are the authority/capacity rules for entering contracts, for different commercial entities?

The French Parliament recently voted the reform of the provisions of the French Civil Code on contract law, by way of Ordinance No. 2016-131 (Ordonnance No. 2016-131 du 10 février 2016 portant réforme du droit des contrats, du régime général et de la preuve des obligations). The Ordinance entered into force on 1 October 2016.

The information provided in this Q&A is up to date. All references to Articles of the Civil Code are based on the new numbering.

Contracts entered into before 1 October 2016 will not be governed by the amendments introduced by Ordinance No. 2016-131.

Capacity

Under French law, the capacity for entering contracts is defined as the possibility for a person (either an individual or a legal person) to have rights and obligations, and to enforce them.

The key principle is that any person can enter into a contract if they are above 18 years old and have not been declared incapable.

Nullity of the contract based on incapacity can only be sought by the incapable party.

Legal entities can enter into contracts that are (Article 1145, paragraph 2, French Civil Code):

  • Useful for the achievement of the entity's corporate purposes, as defined in its statutes.

  • Incidental to the above contracts.

Agency

An agent can enter into a contract that binds the principal if it acts within the limits of the agency agreement (Articles 1153 and 1154, French Civil Code). If the other party to the contract legitimately believed that the agent lawfully represented the principal, it can request performance of the agreement from the principal (Article 1156, French Civil Code).

Agency rules are similar to those applicable to power of attorneys (see Question 15).

Insolvency situations

When compulsory liquidation has not been pronounced (that is, under the receivership procedure), a company can still enter into contracts related to its day-to-day operations without the signature of the administrator.

However, the administrator has exclusive authority to manage ongoing contracts (that is, to pursue or terminate them). The administrator can also decide that the insolvent company enters into new contracts that will help preserve corporate assets (for example, insurance policy renewal).

Once mandatory liquidation is declared, the company cannot enter into any contract.

Formal legal requirements

2. What are the essential requirements to create a legally enforceable contract?

To create a valid contract under French law, the three following requirements must be satisfied (Article 1128, French Civil Code):

  • Consent of the parties.

  • Capacity of the parties to contract.

  • Definite and licit subject matter.

Consent of the parties

Consent is established when there is an offer and an acceptance. This means that the parties must have expressed their will to contract, which can derive from a statement or be implied from the parties' unequivocal behaviour (Article 1113, paragraph 2, French Civil Code).

If the offer does not include all the essential components of the contract and does not express the offeror's will to be bound in the event of an acceptance, it must be considered as an invitation to treat, the acceptance of which cannot create a legally enforceable contract (Article 1114, French Civil Code).

Acceptance is the expression of the offeree's will to conclude the contract on the conditions set out in the offer (Article 1118, French Civil Code).

To be valid, the consent of each party must be free from any defect, that is, it must not result from any of the following:

  • Violence.

  • Error on an essential component of the contract.

  • Wilful misrepresentation.

Defective consent can lead to the cancellation of the contract and to an award of damages.

Capacity to contract

The principle is that any person is capable of entering into a contract, except:

  • Non-emancipated minors.

  • Protected adults.

Additionally, each party must be of sound mind at the time of conclusion of the contract (Article 1129, French Civil Code).

See also Questions 1 and 15.

Definite and licit subject matter

The parties' objective under the contract and the contract terms cannot derogate from laws that relate to public order and good morals (Articles 6 and 1162, French Civil Code).

The subject matter of the contract must be determined or at least be determinable in light of the contract, customs or the pre-existing relationship between the parties (Article 1163, French Civil Code).

The contract is null and void if the consideration provided to a party is illusory or derisory at the time of conclusion of the contract (Article 1169, French Civil Code).

Contracts in electronic form

Electronic means of communication can be used to communicate contractual documents or information on the good or service offered (Article 1125, French Civil Code).

These elements can be sent by e-mail if the receiving party communicated its e-mail address. However, a consumer must have expressly consented to this means of communication.

When contracting with a consumer, the professional offeror must also communicate (Article 1127-1, French Civil Code):

  • The different steps to follow to conclude the contract through electronic means.

  • The technical tools allowing the offeree to identify and to correct errors before signing the contract.

  • The languages suggested for the conclusion of the contract.

  • If applicable, details on how the contract can be archived by the offeror and the conditions of access to the archived contract.

  • If applicable, the means of consulting, by electronic means, the professional and commercial rules that the offeror intends to be bound by.

The offeree must be in a position to (Article 1127-2, French Civil Code):

  • Check the details of the order and its total price.

  • Correct potential errors before confirming the order.

The offeror must acknowledge receipt of the order without undue delay and by electronic means.

The order, the confirmation of the acceptance of the offer and the acknowledgement of receipt are deemed received when the parties to whom they are addressed are able to access them (Article 1127-2, second paragraph, French Civil Code).

However, the parties can depart from the obligations above when either:

  • Both parties contracted in their professional capacity.

  • The contract is exclusively concluded by exchange of e-mails (but Article 1127-2, second paragraph still applies in this case).

 
3. What are the main forms of contract?

Offer and invitation to treat

If the offer does not include all the essential components of the contract and does not express the offeror's intention to be bound in the event of an acceptance, it must be considered as an invitation to treat, the acceptance of which cannot create a legally enforceable contract (Article 1114, French Civil Code).

Incorporation of terms by reference

A professional offeror must make the applicable contractual documents available in a way that allows both their preservation and reproduction by the consumer, for evidentiary purposes (Article 1369-4, French Civil Code).

In a decision dated 5 July 2012, the European Court of Justice (ECJ) held that this obligation was not fulfilled when contractual documents are accessible through a simple URL link pointing to the offeror's website (Content Services Ltd v Bundesarbeitskammer (case C-49/11)).

For business-to-business contracts, contractual terms can be incorporated by reference, provided that the offeree can store them for a long period of time and is able to print them (Jaouad El Majdoub v CarsOnTheWeb.Deutschland GmbH (case C-322/14), ECJ 21 May 2015).

Withdrawal of offer

An offeror can withdraw its offer after the expiry of a reasonable time (Article 1116, French Civil Code). If the offer refers to a specific period during which it can be accepted, the offeror cannot withdraw the offer before the expiration of that period.

Forms of contract

"Consensualism" is one the main principles of French contract law, which means that a contract is legally enforceable whether it is concluded orally or in writing (Article 1172, French Civil Code). Therefore, a contract is valid by the sole exchange of consent of the parties (provided that they have capacity to contract and the subject matter is licit), which can be expressed tacitly.

However, specific categories of contracts must be concluded in writing to be valid (for example, consumer contracts and credit agreements).

When the law requires a written document, this document can be established and stored in electronic form in accordance with Articles 1366 and 1367 of the French Civil Code (Article 1174, French Civil Code).

In principle, an electronic document (including a contract) has the same evidential value as a paper document, provided that both (Article 1366, French Civil Code):

  • The person who created the electronic document can be duly identified.

  • It is established and stored in conditions that guarantee its integrity.

Certain contracts cannot be concluded in electronic form, as they require a handwritten signature, such as contracts relating to:

  • Family and inheritance law (Article 1175 1°, French Civil Code).

  • Personal guarantees or security over property of a civil or commercial nature, except where they are made by a person for the needs of their profession (Article 1175 2°, French Civil Code).

See Question 9for more details on electronic signatures.

E-commerce

Any person that intends to sell goods or to provide services by electronic means must communicate to the offeree (Law No. 2004-575 dated 21 June 2004 on E-commerce):

  • Its last name and surname for an individual, its corporate name for a legal entity.

  • Its postal address, e-mail address and contact number.

  • If applicable, its registration number with the Trade and Companies Registry, its share capital and registered office address.

  • If applicable, its VAT identification number.

  • If applicable, the name and address of the authority that delivered the authorisation to engage in the relevant activity.

  • If applicable, reference to the specific rules applicable to its regulated profession, its professional title and the EU member state where the professional title was delivered.

 
4. How are preliminary agreements used in your jurisdiction?

French contract law allows parties to enter into preliminary agreements to provide a framework for subsequent negotiations. These preliminary agreements, which are called letters of intent (lettres d'intention), usually focus on some of the following key points:

  • Obligation to negotiate.

  • Negotiation rules.

  • Obligation of confidentiality (now recognised under new Article 1112-2 of the Civil Code, which took effect on 1 October 2016).

A letter of intent can also include the following elements:

  • Exclusive negotiation clause.

  • Applicable law during the negotiation period.

  • List of matters that the parties have already agreed on.

The letter of intent is not designed to force the parties into reaching a final agreement.

In practice, a preliminary contract is often used before the sale of property. In this case, the preliminary contract contains terms such as the expression by both the future buyer and seller of their respective interest in the transaction, but allows them time to verify its feasibility (for example, to obtain financing, preliminary documents or information).

 
5. Can negotiations become legally binding in any circumstances? What are the principles and rules (if any) on pre-contractual liability and good faith in negotiations?

The parties are free to initiate, conduct and stop negotiations (Article 1112, French Civil Code). However, negotiations must be conducted in good faith (Articles 1104 and 1112, French Civil Code).

Misconduct during negotiations can give rise to compensation of losses suffered by the innocent party, but not for losses of the benefits under the expected contract (Article 1112, paragraph 2, French Civil Code).

Under their duty of good faith, the parties must communicate to each other information regarding important elements of the future agreement, if this information is not known by the other party (Article 1112-1, French Civil Code). This duty to inform does not apply to information about the value of the consideration offered.

The parties cannot limit or exclude the application of these legal provisions.

Formalities for execution

6. When are written contracts required and for which assets/interests?

The following types of contracts must be concluded in writing (among others):

  • Temporary employment contracts (Article L.124-3, French Labour Code).

  • Land transfers.

  • Assignment of receivables (Article 1322, French Civil Code).

  • Copyright assignments (Article L.131-2, French Intellectual Property Code).

  • Timeshare agreements (Article L.121-6, French Consumer Code).

  • Certain credit agreements (Article L.312-7, French Consumer Code).

While French law does not generally require a written form as a condition for validity, a written document is required for proving the existence of any contract that relates to a sum exceeding EUR1,500 (Article 1359, French Civil Code).

 
7. Are there different formalities for different types of contractual document?

French law traditionally recognises two types of written contracts:

  • Simple written contracts (Articles 1372 to 1377, French Civil Code).

  • Authenticated deeds (Articles 1369 to 1371, French Civil Code).

Both simple written contracts and authenticated deeds can be in electronic form, provided that the contract is established and stored in compliance with Decree No. 2001-272 dated 30 March 2001.

The difference between simple written contracts and authenticated deeds mainly lies in their respective evidential value, as it is extremely difficult to prove against authenticated deeds.

Any contract can be drawn up in an authenticated deed form, before a notary.

Law No. 2011-331 of 28 March 2011 on the modernisation of the legal and judicial professions (which modifies Law No. 71-1130 of 31 December 1971) recognised a new type of act called "attorney's deed" (acte d'avocat), which is a private simple written contract countersigned by a lawyer. By countersigning a private instrument, lawyers certify that they have fully explained the legal consequences of the document to the parties being advised (Article 66-3-1, Law No. 71-1130 of 31 December 1971).

The signature of each party's lawyer, or a signature by the lawyer for all the parties, on a simple private written contract constitutes evidence that the document was written and signed by the parties, with regard both to them and their heirs or successors (Article 1374, French Civil Code).

 
8. What are the formalities for the execution of documents by companies, foreign companies and individuals?

There are no particular formalities for simple written contracts, which can be signed by the parties without any witnesses.

Contracts must be signed by the company's legal representative or by any person to whom the required powers have been delegated.

There are no specific signature requirements for an authenticated deed.

It is customary for the signatories of both parties to initial each page of the contract.

 
9. What is the status of electronic and faxed signatures in your jurisdiction?

Act No. 2000-230 of 13 March 2000 provides the regulatory framework for electronic signatures.

A contract can be established in electronic form in accordance with Articles 1366 and 1367 of the French Civil Code (Article 1174, French Civil Code).

In principle, an electronic contractual document has the same evidential value as a hardcopy document, provided that both (Article 1366, French Civil Code):

  • The person who created the electronic document can be duly identified.

  • The document is established and stored in conditions that guarantee its integrity.

An electronic signature consists in using a reliable means of identification that links the person and the act with certainty (Article 1367, French Civil Code). The reliability of this means is presumed, unless proved otherwise, when the following conditions are met:

  • The electronic signature is created.

  • The identity of the signatory is assured.

  • The integrity of the act is guaranteed.

Certain contracts cannot be concluded in electronic form, such as:

  • Private acts relating to family law and the law of successions (Article 1175 1°, French Civil Code).

  • Private acts relating to personal guarantees or security over property of a civil or commercial nature, except where they are made by a person for the needs of their profession (Article 1175 2°, French Civil Code).

Deeds

10. When are deeds required in relation to contracts?

Authenticated deed

An authenticated deed is a document drawn up and executed in accordance with certain formalities by a public officer (notary). Authenticated deeds differ from private documents, as these need only be signed by the parties, do not require the presence of the drafter and can be executed anywhere, including abroad.

Authenticated deeds are mandatory for:

  • Land transfers.

  • Marriage contracts.

  • Certain types of donation (notably those relating to real estate).

Only notaries can prepare authenticated deeds.

Attorney's deed

Attorney's deeds are generally used to secure the enforceability of a contract. They are never mandatory, but can be used in various areas of law, including labour law, commercial law, real estate law (except when an authenticated deed is mandatory), insurance law and so on.

 
11. What are the legal formalities for a deed?

Authenticated deed

An authenticated deed must be in writing and signed before a notary. No other particular formalities apply.

The original deed is stored in the notary's office.

Attorney's deed

An attorney's deed must be countersigned by the lawyer of each contracting party or by one lawyer acting for both parties.

The lawyer(s) must explain and inform their client(s) about the document that they are going to sign and the obligations included in it.

 
12. What are the legal requirements for the execution of deeds?

Authenticated deed

The signatories of an authenticated deed must be present, so that the notary can check the identity and legal capacity of the parties. However, the parties can appoint representatives to sign on their behalf.

The notary must be present and must be able to:

  • Explain the scope of the parties' undertakings.

  • Explain the consequences of the deed.

  • Provide all useful information that the parties may require.

The notary ensures that the:

  • Contract is fair.

  • Parties are providing their real, informed, legally valid consent, which is the main condition under French law to enter into a legally binding contract.

The notary signs the deed, which grants authenticity to the deed, and gives his personal guarantee as to the content and date of the deed.

The authenticated deed is drafted as a single original document, known as the "minute", which the notary keeps in his office. The notary can issue authenticated copies based on the minute.

Attorney's deed

The attorney must personally attend the signing of the instrument and cannot appoint a representative to sign on his behalf.

The attorney must:

  • Verify the identity of the signatories.

  • If applicable, verify their authority to sign by asking them to produce any supporting statutory powers or powers of attorney.

The law does not impose any storage obligation on the attorney.

Notarisation

13. Is notarisation required for contracts in your jurisdiction?

There is no distinction between notarisation and authenticated deeds under French law, as these are signed by and before a notary (see Questions 10 to 12).

 
14. What are the legalisation requirements in your jurisdiction and how is it carried out?

Legalisation of French documents for use abroad

The procedure and requirements applicable to the legalisation of a French public document for use in another jurisdiction depend on the country where the document is to be used.

Depending on the existence of an international agreement between France and the relevant country, a deed may:

  • Need to be legalised by the Ministry of Foreign Affairs.

  • Need to be legalised through a simplified procedure by means of an apostille, under the HCCH Convention Abolishing the Requirement of Legalisation for Foreign Public Documents 1961 (Apostille Convention).

  • Be exempted from legalisation under a specific multilateral or bilateral convention. France signed about 30 international conventions with other countries.

To be apostilled, the document submitted must be original and contain the following:

  • Public authority's signature.

  • Name and position of the signatory.

  • Authority's seal.

The apostille is delivered at no charge by the court of appeal in the jurisdiction where the document was established.

Legalisation of foreign documents for use in France

A document drawn up in a foreign country can be used in France if it is legalised.

To obtain legalisation, the document must first be translated into French by a certified translator. This procedure applies to both simple private written documents and foreign authenticated deeds.

Legalisation will confirm the:

  • Authenticity of the signature.

  • Position of the signatory.

  • Identity of a foreign authority's seal.

The legalisation of foreign documents falls within the competence of French embassies and consulates of the country where the document is drawn up.

The Apostille Convention and other specific bilateral or multilateral conventions will determine whether legalisation is required.

Powers of attorney

15. What are the main types of powers of attorney in your jurisdiction?

A power of attorney, also known as "procuration", is a legal document through which the grantor or principal enables another person (attorney) to execute various types of actions on his behalf. The grantor and attorney must fulfil several conditions when signing the power of attorney (such as being of legal age and of full mental capacity).

The main rules relating to powers of attorney are as follows (Articles 1153 to 1161, French Civil Code):

  • The attorney can only act within the limits established in the power of attorney (Article 1153).

  • Only the principal is bound when the attorney acts within the limits established in the power of attorney (Article 1154).

  • When the attorney acts beyond the limits established in the power of attorney, the principal is not bound, except if the other contracting party legitimately believed in the attorney's powers (Article 1156).

  • When the attorney asserted that he was acting under a power of attorney, but was actually contracting in his own name, the attorney is bound alone (Article 1154, paragraph 2).

These rules were influenced by those applicable to mandate contracts (contrat de mandat), which are set out in Articles 1984 to 2010 of the French Civil Code, and apply to all powers of attorney.

 
16. What are the main transactions when powers of attorney are used?

A power of attorney can be used in France whenever a person wants to give another individual the power to act on his behalf. Powers of attorney can be granted both by individuals and legal entities' representatives. They are mainly used for:

  • Business transactions and completion meetings: a party who is unable to attend a completion meeting can arrange for someone to sign on his behalf (signer par procuration).

  • Overseas execution.

  • Paying taxes.

  • Operating bank accounts.

  • Share sales.

  • Making legal submissions to courts administration services.

 
17. What are the key provisions in a power of attorney?

A French power of attorney must specify the activities that the representative can carry out in the name of the principal. The document is only valid if the principal authorised the representative to act on his behalf. The document must be dated and include the names of the parties.

Generally, a power of attorney is an agreement that must comply with all the requirements of the Civil Code relating to the formation of contracts (see Question 2).

A power of attorney can be signed either for an indefinite or a limited period of time.

 
18. What are the formalities for the execution of a power of attorney?

There are no specific formalities for the execution of a power of attorney. As for any other contract, a power of attorney is valid if the following requirements are met (Article 1128, French Civil Code):

  • Consent of the parties.

  • Parties' capacity to contract.

  • Definite and licit subject matter.

Although not required, it is strongly recommended to conclude a power of attorney in writing, for evidentiary purposes.

Other

19. Is virtual closing used in your jurisdiction?

Virtual closing is possible under the provisions on electronic signature of the French Civil Code (see Question 9).

A requirement to send multiple copies is fulfilled electronically if the document can be printed by the recipient (Article 1177, French Civil Code).

Authenticated deeds signed before a notary can also be signed electronically.

However, when the stakes are high, the parties typically still prefer to complete transactions in a traditional way.

 
20. How are legal opinions obtained and used in your jurisdiction?

The role of attorneys is to draft legal opinions. They can be consulted for legal opinions on the drafting of companies' statutes or contracts, to minimise the risk of costly litigation.

Legal opinions are mainly used for individuals or companies' internal purposes, to put in place a legal strategy.

Legal doctrine is also sometimes used before the courts to support the parties' legal arguments.

 
21. What are the key issues in the conduct of completion meetings?

The parties must give each other the documents listed in the contract that are needed for the proper performance of the contract.

The documents executed and produced at the completion meeting depend on the nature of the transaction in question, but can include:

  • Bank details.

  • Insurance certificates.

  • Any documents or agreements relating to the financing of the transaction.

 

Content of contracts

22. What is legal status of contractual terms in your jurisdiction?

As a general principle, the parties must not only comply with the express provisions of the contract, but also with all the terms implied in it by equity, customs or the law (Article 1194, French Civil Code).

There are limits on the parties' freedom to contract, such as rules of public order (Article 1162, French Civil Code). Additionally, the obligation of each party must be determined or be at least determinable.

In a master agreement, the price can be determined by a party alone (Article 1164, French Civil Code). An abuse in the price determination confers to the other party the right to seek a price reduction and damages before the courts.

 
23. Are warranties recognised in your jurisdiction?

Warranties are recognised under French law. Warranties can be:

  • Legal (for example, hidden defects warranty and warranty against dispossession in sale of goods contracts).

  • Expressly specified by the parties in the contract.

Breach of a warranty constitutes a breach of contract, for which the innocent party can seek the usual remedies (that is, termination, damages and so on) (see Questions 29 and 31).

 

Variation and assignment

24. What are the main ways to transfer contractual rights?

The following mechanisms are available to transfer contractual rights or obligations:

  • Assignment of receivables (Articles 1321 to 1326, French Civil Code).

  • Assignment of debts (Articles 1327 to 1328-1, French Civil Code).

  • Novation (Articles 1329 to 1335, French Civil Code).

An assignment of receivables must be made in writing, and the debtor must be properly notified of the assignment. To complete an assignment of debts, the express consent of the creditor must be obtained.

A contract cannot be transferred without the prior consent of the other party where the contract either:

  • Was concluded intuitu personae (that is, the person of the contracting parties is an essential term of the agreement).

  • Contains a non-assignment clause.

Novation, which is not strictly a transfer of contractual rights, is the extinction of an existing obligation, which is replaced by a new one. The difference between the two obligations can result from any of the following (Article 1329, French Civil Code):

  • The identity of the creditor.

  • The identity of the debtor.

  • The obligation itself.

Novation cannot be presumed and must clearly stem from the provisions of the novation document. Novation requires the consent of all the parties to the original contract and of the incoming party, except if novation consists in a change of the debtor's identity, in which case the former debtor's consent is not necessary to complete the novation (Article 1332, French Civil Code).

 
25. What are the rules relating to waiver of contractual rights?

A party can waive a contractual condition of which it is the sole beneficiary (Article 1304­4, French Civil Code). Waiver can occur before the condition is completed.

 

Enforcement

Liability and remedies

26. What are the rules relating to invalidity, misrepresentation and mistake relating to contracts?

As explained in Question 2, for a contract to be valid under French law, the three following requirements must be satisfied (new Article 1128, French Civil Code):

  • Consent of the parties.

  • Capacity of the parties to contract.

  • Definite and licit subject matter.

To be valid, the consent of each party must be free from any defect, meaning that it must not result from:

  • Violence.

  • Error on an essential component of the contract.

  • Wilful misrepresentation.

Wilful misrepresentation, mistake and violence can alter a party's consent and lead to the nullity of the contract.

For a party to obtain the nullity of the contract, that party's mistake must both:

  • Relate to an essential characteristic of the other party's obligations or identity (in cases of intuitu personae contracts only).

  • Not be inexcusable.

Mistake on the value of the other party's consideration cannot lead to the nullity of the contract.

The injured party can file a request for nullity within a five-year period starting from the discovery of its mistake or of the wilful misrepresentation (Article 1144, French Civil Code).

The injured party can ratify its mistake and confirm the validity of the contract.

An annulled contract is treated as if it had never existed, and the injured party can seek damages on the basis of extra-contractual liability (tort).

 
27. What are the main performance and discharge rules relating to contracts?

Unless the contract provides otherwise, the innocent party cannot treat the contract as terminated without first sending a formal notice to the breaching party. This notice can either:

  • Duly record the situation and inform the breaching party of the termination of the contract, in the case of serious misconduct.

  • Ask for performance of the contract within a specific time frame.

The innocent party can decide to terminate the contract for serious misconduct at its own risks, but the breaching party can seek damages in the case of abusive termination.

If a force majeure event is temporary, the performance of the contract is suspended, except where late performance justifies termination (new Article 1218, French Civil Code). If the force majeure event is permanent, the contract is automatically terminated.

In the event of a change of circumstances that was unpredictable at the time the contract was concluded, which renders the execution of the contract excessively onerous for a party that had not agreed to bear such a risk, that party can request a renegotiation of the contract (Article 1195, French Civil Code). However, that party must continue to perform its obligations during the renegotiation period.

In the case of refusal to renegotiate, or of a failure of the renegotiation, the parties can agree to either:

  • Terminate the contract at the time and on the conditions fixed by them.

  • Ask a judge for a revision of the contract.

If the parties fail to reach an agreement within a reasonable time, one of them can ask the judge to revise or to terminate the contract.

Frustration was recently codified in the French Civil Code, following the contract law reform that entered into force on 1 October 2016. Before the reform, frustration was only recognised by case law.

 
28. What are the key rules on privity of contract and third party rights?

A contract only creates obligations between the parties. Third parties cannot ask for performance of a contract or be forced to perform a contract (Article 1199, French Civil Code). This rule is known as the "relative effect of the contract", under which a third party cannot:

  • Be bound by a contract.

  • Ask to benefit from a contract.

However, a contract, as a legal fact, is opposable to third parties, who can therefore invoke a situation created by a contract to their benefit (Article 1200, French Civil Code).

Additionally, where a breach of contract has caused damage to a third party, that third party can seek compensation on the basis of tortious liability.

When the contracting parties concealed the actual situation (for example, by entering into what appears to be a loan contract, while they actually agreed on a sale), the actual contractual relationship is not opposable to third parties.

 
29. What are the main rules relating to contractual liability?

A breach of contract can give the innocent party the right to (Article 1217, French Civil Code):

  • Suspend its own performance of the contract.

  • Seek performance by the breaching party.

  • Ask for a price reduction.

  • Terminate the contract.

  • Seek damages.

The innocent party can seek several of these remedies, provided that they can be cumulated. Damages can be sought with any other remedy.

Breaches of different types of contractual terms do not give rise to different rights to enforce.

See Question 31 for details on the main contractual remedies.

 
30. What are the main rules relating to excluding contractual liability?

The parties can decide to cap, limit or exclude certain types of liability and/or damages (Article 1231-3, French Civil Code). However, limitation and exclusion clauses are only valid if they do not empty the contract of its essential stipulations.

Additionally, a breaching party cannot invoke a limitation or exclusion clause in the case of wilful misconduct.

In a contract where clauses are not freely negotiated (typically a contract between a consumer and a company (contrat d'adhésion)), any clause that creates a significant imbalance between the parties' respective rights and obligations is deemed null and void (Article 1171, French Civil Code). This rule applies to limitation and exclusion clauses.

 
31. What are the main contractual remedies?

The main contractual remedies are (Article 1217, French Civil Code):

  • Suspension of performance by the innocent party.

  • Forced performance.

  • Price reduction.

  • Termination.

  • Damages.

French law does not categorise remedies as legal, equitable or discretionary.

Suspension of performance

Suspension of performance by the non-breaching party must be notified to the breaching party (Article 1219, French Civil Code).

Forced performance

Forced performance must be preceded by a formal notice to the breaching party, and can consist in any of the following (Article 1221, French Civil Code):

  • Forced performance by the breaching party.

  • Performance by the innocent party at the breaching party's costs.

  • Dismantlement by the innocent party of what the breaching party did in violation of the contract, subject to prior judicial authorisation.

Price reduction

This remedy requires a prior formal notice, requesting a proportional reduction of the price initially agreed on with the breaching party (Article 1223, French Civil Code).

Damages

The innocent party can seek damages corresponding to the (Article 1231-2, French Civil Code):

  • Losses caused by the breach.

  • Benefits it was deprived of because of the breach.

However, damages are limited to the losses that were foreseen or could have been foreseen at the time of conclusion of the contract. This limitation does not apply in cases of very serious or wilful misconduct (Article 1231-3, French Civil Code).

The claimant must prove that the damages incurred are the immediate and direct consequence of the defendant's breach. This excludes indirect damages.

Termination

Termination can result from any of the following (Article 1224, French Civil Code):

  • A termination clause in the contract.

  • A formal notice sent to the breaching party (in the case of a serious breach and at the innocent party's own risks if it cannot prove that the breach was serious enough to terminate the contract).

  • A court decision.

When the innocent seeks termination of the contract, the court can either order the (Article 1228, French Civil Code):

  • Termination of the contract.

  • Performance of the contract, within a specific deadline.

In both cases, the court can also award damages to the innocent party.

Contract interpretation

Both the parties and the court must interpret the contract in accordance with several basic rules (Articles 1188 to 1192, French Civil Code):

  • The contract must be interpreted in light of the common intention of the parties, which prevails over the literal meaning of the contract.

  • Every contractual clause must be interpreted having regard to the coherence of the whole agreement.

  • If there is any doubt, contracts that were freely negotiated must be interpreted in favour of the debtor.

  • Clear stipulations must not be interpreted.

This means that a court cannot properly correct mistakes in a contract. However, where a mistake creates doubt regarding the performance of the contract, the court can interpret the contract in accordance with the rules described above.

 
32. What are the main differences between indemnity and damages? Are penalty clauses subject to any limitation?

Since the 2016 reform of contract law, there is no longer a distinction between indemnity and damages under French law.

The parties can determine in advance the amount of damages payable in the case of breach of contract. This amount will limit the damages awarded by the judge.

However, a court can modify the amount of agreed damages if it considers that this amount is either patently derisory or excessive.

The parties cannot exclude the court's power to assess the amount initially agreed between them.

 

Enforcement and cross-border issues

Choice of law

33. Is a foreign choice of law in a contract upheld by the local courts?

Choice of foreign law

French courts will uphold a choice of foreign law. Parties are free to choose the law that governs their contract (Regulation (EC) 593/2008 on the law applicable to contractual obligations (Rome I)). They can also choose to apply several laws to the same contract.

In principle, the parties' choice of law must be express. However, a choice of law can be implied from clear contractual terms or from the circumstances of the case.

The parties can agree to change the applicable law at any time, including in the course of performance of the contract.

The following limitations apply to the parties' ability to choose an applicable law:

  • Where all other elements relevant to the situation at the time of the choice are located in a country other than the country whose law has been chosen, a court can apply the provisions of that other law which cannot be derogated from by contract (Article 3(3), Rome I).

  • The courts can give effect to overriding mandatory provisions of the law of the country where the contractual obligations must be, or have been, performed, if those overriding mandatory provisions render the performance of the contract unlawful (Article 9, Rome I).

  • The chosen law will not be applied if it is manifestly incompatible with the public policy (ordre public) of the forum (Article 21, Rome I).

Absence of choice of law

If the parties did not choose a law, the contract will be governed by the law of the country where the party required to effect the characteristic performance of the contract has his habitual residence (Article 4(2), Rome I). If this cannot be determined, the contract is governed by the law of the country with which it is most closely connected (Article 4(4), Rome I).

However, the following specific rules apply:

  • Consumer contracts. In the absence of choice, consumer contracts are governed by the law of the country where the consumer has his habitual residence (except when the professional does not conduct business in this country) (Article 6, Rome I).

  • Contracts of carriage. The law applicable is the law of the country of habitual residence of the carrier, provided that the place of receipt or the place of delivery, or the habitual residence of the consignor, is also situated in that country. If those requirements are not met, the law of the country of the place of delivery, as agreed by the parties, will apply (Article 5, Rome I).

  • Individual employment contracts. The law applicable is the law of the country in which or, failing that, from which the employee habitually carries out his work in performance of the contract (Article 8(2), Rome I).

Article 4(1) of Rome I lists other specific rules for:

  • Contracts relating to a right in rem (that is, pertaining to a specific item of property) in immovable property.

  • Franchise contracts.

  • Distribution contracts.

  • Contracts for the sale of goods by auction.

  • Contracts for the provision of services.

  • Sale of goods contracts.

Rome I does not apply to matters of evidence and procedure, which are governed exclusively by the law of the court hearing the claim, regardless of the law that applies to the substantive issues.

 
34. Are any mandatory terms implied by statute?

There are no mandatory terms implied by statute for standard civil law contracts.

Jurisdiction

35. Is a choice of jurisdiction in a contract upheld by the local courts?

Regulation (EU) 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Recast Brussels Regulation) applies when the defendant is domiciled in an EU member state. The Recast Brussels Regulation protects certain types of parties such as employees, consumers and insured persons.

In principle, non-protected parties can designate the courts of any EU country (Article 25, Recast Brussels Regulation). However, the Recast Brussels Regulation contains special rules for contracts:

  • Relating to insurance (Articles 10 to 16).

  • Entered into with consumers (Articles 17 to 19).

  • Relating to individual contracts of employment (Articles 20 to 23).

  • Relating to rights in rem in immovable property or tenancies of immovable property (Article 24(1)).

The question of whether a choice of jurisdiction is null and void as to its substantive validity will be determined according to the law of the member state identified in the jurisdiction agreement, unless the parties have agreed otherwise (Article 25, Recast Brussels Regulation).

Additionally, the French Supreme Court (Cour de Cassation) refuses to enforce any choice of jurisdiction clause that is patently unbalanced (for example, a clause under which one of the parties can choose "any competent court", and the other party a specified jurisdiction only (Cour de Cassation, Chambre civile 1, 26 September 2012, No. 11-26.022)).

When the parties made no choice, the parties can sue before the courts of the member state where the:

  • Defendant is domiciled (Article 4, Recast Brussels Regulation).

  • Goods were delivered or should have been delivered under a sale of goods contract (Article 7(1)(b), Recast Brussels Regulation).

  • Services were provided, or should have been provided, under a contract for the provision of services (Article 7(1)(b), Recast Brussels Regulation).

When the defendant is located outside the EU, and in the absence of bilateral agreement determining the competent court between the states concerned, the French rules of private international law applies.

The French courts can ignore the parties' choice of jurisdiction if it is considered as an unfair and unbalanced term under French consumer law (in cases involving consumer contracts). For example, in February 2016, the Paris Court of Appeal refused to recognise the jurisdiction clause in Facebook's terms and conditions. The Court considered that the French courts were competent because it was unfair and unbalanced to force a French consumer to sue Facebook before a Californian court.

Enforcement of foreign judgments

36. When are foreign judgments recognised in your jurisdiction?

In France, the enforcement of foreign judgments is not automatic. The judicial process that leads to the recognition and enforcement of a foreign judgment is called exequatur, and is set out in Articles 509 to 509-7 of the French Civil Procedure Code.

Exequatur proceedings are governed by both French law and international treaties, which means that the conditions to obtain exequatur will vary depending on the country where the original judgment was issued.

When there is an international treaty in force, France usually imposes the following requirements:

  • The original judgment must have been regularly rendered by a foreign competent jurisdiction or empowered judicial authority.

  • The judgment must have been rendered consistently with applicable rules of procedure.

  • The judgment must be enforceable in the country where it was rendered.

  • The judgment must conform to the French public order (for example, the principle of protection of human beings and human dignity).

When there is no international treaty between France and the country where the judgment was rendered, the French Cour de Cassation has held that the French courts must verify that the foreign judgment meets the three following conditions:

  • The foreign court has indirect jurisdiction (that is, the French court has no exclusive jurisdiction and the foreign court was seized).

  • The foreign judgment complies with French procedural and substantive public policies.

  • The foreign court was seized with no fraudulent forum shopping.

The first instance court (Tribunal de Grande Instance) that is territorially competent has exclusive jurisdiction to decide on exequatur proceedings.

Judgments rendered in other EU member states on specific subject matters (such as family law) can be enforceable in France through a simple declaration of enforceability, except if the foreign judgment is challenged by a party.

 

Online resources

Legifrance

W www.legifrance.gouv.fr

Description. Legifrance is the French Government entity responsible for publishing official legal texts online. It provides access to laws and decrees published in the Journal officiel, important court rulings, collective bargaining agreements, standards issued by European institutions, and international treaties and agreements to which France is a party. 

Legifrance in English

W www.legifrance.gouv.fr/Traductions/en-English

Description. Legifrance includes a page providing English translations, either made by Legifrance itself or by institutional websites (such as those of the Cour de Cassation, the Conseil Consitutionnel and so on). Translations have no legal force and are provided for informational purposes only. The English version of Legifrance does not always correspond to the French version, and there is often a delay between the publication of a revised French text and the uploading of the corresponding English version.



Contributor profiles

Raphaël Dana

LMBE Avocats

T +33 1 43 12 80 80
F +33 1 43 12 80 99
E rdana@lmbeavocats.com
W www.lmbeavocats.com

Professional qualifications. France, Lawyer at the Paris Bar, 2000 (ranked first at the Bar exam)

Areas of practice. Commercial law; data protection law; IP and IT law.

Languages. English, French

Professional associations/memberships

  • ITECHLAW (International Technology Law Association).

  • ADIJ (Association for the Development of IT Law). 

  • AFCDP (French Data Privacy Correspondent Association).

Publications

  • January 2016: author of the French chapter of "Data Protection & Privacy", cross-border handbook covering 38 jurisdictions, Practical Law Global Guides, Sweet & Maxwell International Series.

  • October 2015: author of the French chapter "E-Commerce 2016" published in Getting the Deal Through, Law Business Research, London.

  • September 2015: author of the French chapter "Outsourcing 2016" published in Getting the Deal Through, Law Business Research, London.

Martin Leny

LMBE Avocats

T +33 1 43 12 80 80
F +33 1 43 12 80 99
E mleny@lmbeavocats.com
W www.lmbeavocats.com

Professional qualifications. France, Lawyer at the Paris Bar, 2013

Areas of practice. Data protection law; IP and IT law.

Languages. English, French


{ "siteName" : "PLC", "objType" : "PLC_Doc_C", "objID" : "1248420109510", "objName" : "Contracts, Negotiation and Enforcement in France", "userID" : "2", "objUrl" : "http://us.practicallaw.com/cs/Satellite/us/resource/9-634-2031?null", "pageType" : "Resource", "academicUserID" : "", "contentAccessed" : "true", "analyticsPermCookie" : "25e8a493e:15b13085790:60c1", "analyticsSessionCookie" : "25e8a493e:15b13085790:60c2", "statisticSensorPath" : "http://analytics.practicallaw.com/sensor/statistic" }