French Contract Law

1. French Contract Law NAMSA Meeting 3/10/2005 www.ulys.net Thibault Verbiest thibault.verbiest@ulys.net Pascal Reynaud pascal.reynaud@ulys.net

2. Introduction • Identify the main clauses • The link between theory and practice • Not exhaustive ! • Sources • Civil Code on Internet in English: • www.legifrance.gouv.fr • Books : • Barry Nicholas, The French Law of Contract, 2nd ed, Clarendon Press Oxford, 2002. • - John Bell, Sophie Boyron and Simon Whittaker, Principles of French Law, Oxford University Press, 1998, pp. 304-353. • - David Pollard, Sourcebook on French law, Cavendish Publishing Limited, 1998,

3. Characteristics of french law • French law : law of the book and primacy of legislation • Universally valid • Decisions of courts : merely an application of the law • Common law : created by courts • Provide solutions for individual disputes • French court system • TGI, Cour d’appel, Cour de cassation • Many other courts : T.I, tribunal de commerce, prud’homme etc…

4. Plan • Part. I - Theory of contract • Part. II -The formation process • Part. III- Structure of contract • Part. IV - Economy of contract • Part. V - Standard clauses

5. Part. 1 - Theory of contract • Freedom of contract : formation and effect • Autonomy of the will • Formation • Parties are free to enter into a contract and to determine its contents, subject to the requirements of good faith and fair dealing, and the mandatory rules

6. Effect of the contract • Art. 1134: effect towards parties • Agreements lawfully entered into take the place of the law for those who have made them. • They may be revoked only by mutual consent, or for causes authorized by law • They must be performed in good faith. • Art. 1165: effect towards third party • Agreements produce effect only between the contracting parties; • they do not harm a third party, • and they benefit him only in the case one stipulate for the benefit of a third party .

7. Interpretation Art. 1156 contract is to be interpreted according to the common intention of the parties even if this differs from the literal meaning of the words.

8. Decline of the free common intention • Examples • Art. 1244-1 : A judge may, defer or spread out the payment of sums due, taking into account the debtor's position and in consideration of the creditor's needs • Art. 1152 :the judge may "even of his own motion" moderate or increase the agreed penalty clause. • Contract between professionals and consumers : CONSUMER CODE : http://www.legifrance.gouv.fr

9. Classifications of the civil code • Contract “synallagmatic” Art. 1102 • A contract is synallagmatic or bilateral where the contracting parties bind themselves mutually towards each other. • Contract unilateral Art. 1103 • It is unilateral where one person is bound towards one, without any obligation on the part of the latter. • Gift

10. Other classifications • A contract of benevolence Art. 1105 / A contract for value art. 1106 • Contracts with a specific denomination or not art.1107 • Contract of sale : art. 1582-1701 / Know-how • Contract with / without intuitus personae • Contract for an indefinite period / with a fixed-term / instantaneous • And many others…

11. Part. 2 - The formation process • Plan • Offer and acceptance in French law • Offer and acceptance in electronic commerce • Pre contractual obligation to negotiate in good faith • Example of contractual and not contractual documents • Nullities in frenchlaw

12. Offer and acceptance in French law • Offer or invitation to treat ? • The consent of the parties : art. 1108 • Offer must be : • Precise : essentials elements of the contract • Firm : without reservations • Contract of sale : agreement on thing and price • Otherwise: • start talks • parties are not bound

13. Liability for breaking off negotiations • Negotiations contrary to good faith : liability (art.1382) • Advanced stage of the negotiations • The legitimate belief of the other party • Brutal and unilateral way • Legitimate reasons • Breach of confidentiality : information given in the course of the negotiation

14. Revocation of an offer • However, a revocation of an offer is ineffective if: • the offer indicates that it is irrevocable; • or it states a fixed time for its acceptance; • or it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.

15. Acceptance • Must be without reservations otherwise it’s an new offer • Silence is not acceptance except in specials circumstances • Business relationship and same contract as before • Specials rules for consumers : • Period of time before acceptance • to withdraw his order to buy

16. Formation : offer & acceptance • A contract is concluded if: • the parties intend to be legally bound, and • they reach a sufficient agreement • without any further requirement. • Time of Conclusion of the Contract : the “remote” contract 1. the acceptance has been dispatched by the offeree or 2. the acceptance reaches the offeror • Choice of the first theory by the supreme court (1981) • “Suppletive” rule

17. Offer in electronic commerce • Art. 1369-4, 1369-5, 1369-6 • Information to beprovided • contract terms and general conditions in a way that allows storage and reproduction • an offer is not revoked until it is no more accessible • the different technical steps to follow to conclude the contract • the language etc… • Contract is concluded when : • the acceptor can check his order and can correct errors • the offeror has acknowledge the receipt of the recipient’s • the order and the acknowledgement of receipt are received when the parties to whom they are addressed are able to access them. • Exceptions for e commerce by e-mail

18. Example of contractual and not contractual documents • Agreement in principle and draft agreement • Good faith negotiations • Preference pact • For a determinate party • A right of pre-emption • Promise • Unilateral : often compensation for immobilization • Bilateral : A promise of sale is the same as a sale, where there is reciprocal consent of both parties as to the thing and the price (art. 1589)

19. Nullities infrenchlaw • Contract can be void for • Error on the substantial (material) quality or on the person (art. 1110) • The other party knew or ought to have known that the mistaken party, had it known the truth, would not have entered the contract or would have done so only on fundamentally different terms. • Mistake must be excusable • Mistake as to facts or law • action for annulment : 5 years from the day when it is discovered. Art 1304 • Deception : art.1116 • Duress : art. 1111 • Liability in damages

20. “Recours en garantie” • Contract of sale • For the seller : duty to warrant against latent defects • If the buyer had known, he didn’t buy • Rescision Or • Reduction of the price • Must be brought in short time

21. Part. III- Structure of contract • Plan: • Content, right and duties • Non-Performance of  Obligations

22. Content, right and duties • Who? • What ?

23. Who? • Who? Representation? • Several signatories? • Role of each others ? • Intuitus personae clause? • Subcontracting clause? • Transfer of the contract to an other party? • Binding change of partners in some special circumstances

24. What? • The common intention of the parties : who is doing what? • What are the contractual engagements ? • In case of invitation to tender : do not be engaged before checking all the services included… • Main and additional object of the contract • What are the duties of the beneficiary of the contract ? • The practical details of the operation : delivery …

25. Examples • For IT project : • Project specification • Obligations, I.P, maintenance, bankruptcy, security • Outsourcing and reversibility • Organize the return towards the company • Material, software , know-how and I.P., cost … • Length, obligations of the parties

26. The issue of price • Contract of enterprise, job contract • Determination of price can be made subsequently and based on elements unknown at the time of the conclusion (working hours…) • Contract of sale • Determination by a third person. art. 1592 • Determined by reference to a factor independent of the parties : Market price of the day, etc. … • Frame contract • the absence of a fixed or ascertainable price in an initial frame contract does not affect the validity of the frame contract. • But excessive prices may lead to the rescinding of the contract or to the award of damages ( C. Cass. 1er déc. 1995)

27. Obligation to inform • The client must inform the service provider • At the beginning of the process • In case of change of his project specification • Cassation court, 8.7.2003 • Appeal court, Nîmes : 14.12.2004 • The service provider must inform the client • Internal computer department and obligation to inform of the provider : Cassation court, 6.5.2003 : • Information at the delivery : Appeal Court Rouen, 13.01.2003

28. Interpretation of the contract • Tribunal de commerce 24.3.2004 • In case of doubt, an agreement shall be interpreted against offeror, and in favour of the one who has contracted the obligation

29. Interpretation of the contract • Appeal Court, Paris : 2.11.2004 • Standard Comprehensive insurance for office automation (bureautic) does not cover the loss of the data 

30. The Non-Performance of  obligations • Remedies • Liability : conditions of claims damages • Forced performance • Right to Withhold Performance • Right to Terminate the Contract : claim rescision

31. Conditions of the liability • Non-performance of the obligation • reasonable care  / achieve the result • Force majeure Art. 1148 A party's non-performance is excused if it proves that it • is due to an impediment beyond its control and that • Due to an external cause • it could not reasonably have been expected to take the impediment into account at the time of the conclusion of the contract, or to have avoided or overcome the impediment or its consequences. • The fault of aggrieved party excused totally or partly the party's non-performance

32. Obligation to achieve the result • Appeal Court, Paris 29.6.2004 • Contract on development, maintenance and delivery of a software • Obligation to deliver the system in good operating condition

33. The Non-performance of obligations to do or not to do • Art. 1142 Any obligation to do or not to do resolves itself into damages, in case of non-performance on the part of the debtor. • The judge can not forced a party to do the obligation, only to pay “astreinte”

34. Penalty clauses Art. 1226 : A penalty is a clause by which a person, in order to ensure performance of an agreement, binds himself to something in case of non-performance. Art. 1152, al 2 : Nevertheless, the judge may "even of his own motion" moderate or increase the agreed penalty, where it is obviously excessive or ridiculously low. Any stipulation to the contrary shall be deemed unwritten.

35. Limitation of liability Art. 1150 : • A debtor is liable only for damages which were foreseen or which could have been foreseen at the time of the contract, • Unforeseen damages are excluded • where it is not through his own intentional breach that the obligation is not fulfilled.

36. Clause limiting liability • Validity in principle but : • If the obligation unperformed is an essential one, a clause limiting liability may be held ineffective although the breach itself is not deliberate or gross

37. Right to Withhold Performance • A party who is to perform simultaneously with or after the other party may withhold performance until the other has tendered performance or has performed. • The first party may withhold the whole of its performance or a part of it as may be reasonable in the circumstances. • A party may similarly withhold performance for as long as it is clear that there will be a non-performance by the other party when the other party's performance becomes due.

38. Forced performance • Direct forced performance: obligation to pay the price / seizure • Indirect forced performance: imposition of a periodic penalty (astreinte) • (L. 9 juillet. 1991 art. 31 à 37)

39. Right to Terminate the Contract • In principle, termination must be applied for in court • Art. 1184 al 3 • Non judicial termination • Fixed-term contract • Intuitus personae contract • Resolutory clause  with or without notice of termination • if the other party's non-performance is fundamental.

40. Part. IV - Economy of contract • Assignment of claims (art. 1689 et ss. Only for a civil person) • Simplified mode of assignment in commercial law • No assignment of debts

41. Part. V - Standard clauses • Title, preamble, heading, number of copies • Meaning of terms and interpretation clauses • Divisibility of the contract : partial avoidance ? • Link between contracts • List of contractual documents ? • Prior statement, undertakings or agreements : part of the contract ?

42. Other clausesrelating to • Change of circumstances : • performance more onerous or excessively more onerous • Bound to enter into negotiations for the parties • Confidentiality of information • given during and after the term of the contract • Intellectual property and know-how • Licensing ?

43. Other clausesrelating to • Professional common standard • INternational COmmercial TERMS • Linguistic Discrepancies • Two or more language versions • Which one is stated to be authoritative ? • Performance by a third person • Contract require personal performance ? • Assent of the party ? • Non competition clauses

44. In case of judiciary procedure • Choice of the law : • Convention on the law applicable to contractual obligations : Rome Convention 19 June 1980 • Choice of jurisdiction • Council Regulation n° 44/2001, of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters • Arbitration

45. Conclusion

46. Thank you

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