Final amendments and ratification by French Parliament of the French contract law reform

Given a recent update passed by the French Parliament on the reform of French contract law which leads to three distinct regimes of applicable provisions, a full review of the modified provisions and details of their exact date of entry into force (which varies from provision to provision) has been produced.

On 11 April 2018 the French Senate has finally adopted a bill ratifying Ministerial Order No. 2016-131 dated 10 February 2016 reforming French contract law, the general rules on obligations and proof of obligations. Such bill has been passed on 20 April 2018 and published in the French Official Journal on 21 April 2018 (Bill No. 2018-287, hereafter the “Ratification Act”).

As a reminder, in March 2018, a Joint Committee reached an agreement on a draft bill which had to be submitted for the approval of both Chambers of the French Parliament. The French National Assembly adopted the text as it stood during its public session on 22 March 2018 and it was subsequently up to the French Senate to decide.
As regards the points discussed most during the debates, it should be noted in particular that the Ratification Act:

  • Redefines the standard-form contract (Article 1110, §2 of the French Civil Code) as a contract which “contains a collection of non-negotiable terms which are determined in advance by one of the parties without negotiation”.
  • Modifies the scope of sanctions regarding the clauses creating a significant imbalance in standard contracts (Article 1171 of the French Civil Code) by deeming unwritten “any term which is non-negotiable and determined in advance by one of the parties and which creates a significant imbalance in the rights and obligations of the parties”.
  • Maintains the mechanism of revision for unforeseeability (Article 1195 of the French Civil Code) authorising a single contracting party to petition court to request the revision or termination of the contract when the renegotiation fails.

Article 15 of the Ratification Act defines the conditions under which the text enters into force and unfortunately gives rise to legal uncertainty. In fact, under French law, there are now three different systems that apply:

  • Provisions of the French Civil Code applicable to contracts, obligations and proof of obligations prior to 01 October 2016
  • Provisions applicable to contracts, obligations and proof of obligations concluded between 01 October 2016 and 1 October 2018, as set out in Ministerial Order No. 2016-131 which entered into force on 01 October 2016. However, some provisions of the Ratification Act are interpretative meaning that they are fully part of the initial act they interpret (i.e. Ministerial Order No. 2016-131) and therefore are considered as entering into force on the same day. They have therefore a retroactive effect and are applicable to contracts concluded before 01 October 2018 but after 01 October 2016, and
  • Provisions applicable to contracts, obligations and proof of obligations from 01 October 2018, i.e. the Ministerial Order dated 20 February 2016 as amended by the Ratification Act dated 20 April 2018.

Given the resulting legal uncertainty and for ease of reference, we have detailed in the table below the provisions of the Ministerial Order dated 20 February 2016 which have been amended or construed and clarified by the Ratification Act.

Provisions of the Ministerial Order dated 20 February 2016 reforming French contract law, the general rules on obligations and proof of obligations, as amended or construed by the Ratification Act.

 

 

 

Interpretative provisions applicable to contracts concluded on or after 01 October 2016

 

 

 

 

 

Provisions applicable to contracts concluded on or after 01 October 2018

 

Article number and subject matter

Ministerial Order provisions

Ratification Act provisions

Article 1110

(Standard-form contract)

A bespoke contract is one whose stipulations are freely negotiated by the parties.

A standard form contract is one whose general conditions are determined in advance by one of the parties without negotiation.

A bespoke contract is one whose stipulations are freely negotiable by the parties.

A standard-form contract is one whose general conditions are determined in advance by one of the parties without negotiation which contains a collection of non-negotiable terms which are determined in advance by one of the parties without negotiation.

Article 1112

(Termination of contractual negotiations)

The commencement, continuation and termination of precontractual negotiations are free from control. They must mandatorily satisfy the requirements of good faith.

In case of misconduct committed during the negotiations, the reparation of the resulting loss is not calculated so as to compensate the loss of benefits which were expected from the contract that was not concluded.

The commencement, continuation and termination of precontractual negotiations are free from control. They must mandatorily satisfy the requirements of good faith.

In case of misconduct committed during the negotiations, the reparation of the resulting loss is calculated so as to compensate neither the loss of benefits which were expected from the contract that was not concluded nor the loss of the chance of obtaining these benefits.

Article 1117

(Lapse of an offer)

An offer lapses on the expiry of the period fixed by the offeror or, if no period is fixed, at the end of a reasonable period.

It also lapses in the case of the incapacity or death of the offeror.

An offer lapses on the expiry of the period fixed by the offeror or, if no period is fixed, at the end of a reasonable period.

It also lapses in the case of the incapacity or death of the offeror, or the death of the offeree.

 

Article 1137 (Fraud)

Fraud (dol) is an act of a party in obtaining the consent of the other by scheming or lies.

The intentional concealment by one party of information, where he knows its decisive character for the other party, is also fraud (dol).

Fraud (dol) is an act of a party in obtaining the consent of the other by scheming or lies.

The intentional concealment by one party of information, where he knows its decisive character for the other party, is also fraud (dol).

Nevertheless, it is not fraud (dol) for a party not to reveal to the other contracting party his assessment of the value of the act of performance.

Article 1143 (State of dependance)

There is also duress where one contracting party exploits the other’s state of dependence and obtains an undertaking to which the latter would not have agreed in the absence of such constraint, and gains from it a manifestly excessive advantage.

There is also duress where one contracting party exploits the other’s state of dependence on him and obtains an undertaking to which the latter would not have agreed in the absence of such constraint, and gains from it a manifestly excessive advantage.

Article 1145

(Capacity of corporate entities)

Every natural person is able to conclude a contract, except in the case of lack of capacity provided for by legislation.

The capacity of legal persons is limited to acts useful for realizing their purpose as defined by their statutes and acts which are incidental to them, in accordance with the rules applicable to each of those persons.

Every natural person is able to conclude a contract, except in the case of lack of capacity provided for by legislation.

The capacity of legal persons is limited to acts useful for realizing their purpose as defined by their statutes and acts which are incidental to them, in accordance with the rules applicable to each of those persons by the rules applicable to each of them.

Article 1161

(conflicts of interests regarding representation)

A representative cannot act on behalf of both parties to a contract nor can he contract on his own behalf with the person whom he represents.

Where he does so, any act which is concluded is a nullity unless legislation authorises it or the person represented has authorised or ratified it.

A representative cannot act on behalf of both parties to a contract. In the case of the representation of physical persons, a representative cannot act on behalf of more than one party to a contract where they have conflicting interests nor can he contract on his own behalf with the person whom he represents.

In these situations, any act which is concluded is a nullity unless legislation authorises it or the person represented has authorised or ratified it.

Article 1165

(Price fixing in contracts for supply for services)

In contracts for the supply of services, in the absence of an agreement by the parties in advance of their performance, the price may be fixed by the creditor, subject to the latter’s providing a reason for its amount if it is challenged. In case of abuse in the fixing of the price, the court may hear a claim for damages.

In contracts for the supply of services, in the absence of an agreement by the parties in advance of their performance, the price may be fixed by the creditor, subject to the latter’s providing a reason for its amount if it is challenged. In case of abuse in the fixing of the price, the court may hear a claim for damages. In case of abuse in the fixing of the price, the court may hear a claim for damages and, where appropriate, termination of the contract.

Article 1171

(Unfair terms)

In a standard-form contract, any term of a standard form contract which creates a significant imbalance in the rights and obligations of the parties to the contract is deemed not written.

The assessment of significant imbalance must not concern either the main subject matter of the contract nor the adequacy of the price in relation to the act of performance.

In a standard-form contract, any term of a standard form contract any term which is non-negotiable and determined in advance by one of the parties and which creates a significant imbalance in the rights and obligations of the parties to the contract is deemed not written.

The assessment of significant imbalance must not relate either to the main subject-matter of the contract nor to the adequacy of the price in relation to the act of performance.

Article 1195

(Inclusion of a new article in the monetary and financial Code in relation with unforeseeability)

Inclusion of a new article in the monetary and financial Code:

Art. L. 211-40-1: Article 1195 of the civil Code does not apply to obligations arising from transactions in securities and financial contracts mentioned in paragraphs I to III of article L. 211-1 of this Code.

Article 1216-3

(Status of securities in transfers of contracts)

If the assignor is not discharged by the person subject to assignment, any securities which may have been agreed remain in place. Where the assignor is discharged, securities agreed by third parties remain in place only with the latter’s agreement.

If the assignor is discharged, any joint and several co-debtors remain liable to the extent which remains after deduction of the share of the debtor who has been discharged.

If the assignor is not discharged by the person subject to assignment, any securities which may have been agreed remain in place. Where the assignor is discharged, securities agreed by the assignor or by third parties remain in place only with the latter’s agreement.

If the assignor is discharged, any joint and several co-debtors remain liable to the extent which remains after deduction of the share of the debtor who has been discharged.

Article 1217

(Sanctions of non-execution - price reduction)

A party towards whom an undertaking has not been performed or has been performed imperfectly, may:

-        refuse to perform or suspend performance of his own obligations;

-        seek enforced performance in kind of the undertaking;

-        request a reduction in price;

-        provoke the termination of the contract;

-        claim reparation of the consequences of non-performance.

Sanctions which are not incompatible may be combined; damages may always be added to any of the others.

A party towards whom an undertaking has not been performed or has been performed imperfectly, may:

-        refuse to perform or suspend performance of his own obligations;

-        seek enforced performance in kind of the undertaking;

-        request obtain a reduction in price;

-        provoke the termination of the contract;

-        claim reparation of the consequences of non-performance.

Sanctions which are not incompatible may be combined; damages may always be added to any of the others.

Article 1221

(Performance in kind)

A creditor of an obligation may, having given notice to perform, seek performance in kind unless performance is impossible or if there is a manifest disproportion between its cost to the debtor and its interest for the creditor.

A creditor of an obligation may, having given notice to perform, seek performance in kind unless performance is impossible or if there is a manifest disproportion between its cost to the debtor in good faith and its interest for the creditor.

Article 1223

(Price reduction)

Having given notice to perform, a creditor may accept an imperfect contractual performance and reduce the price proportionally.

If he has not yet paid, the creditor must give notice of his decision to reduce the price as quickly as possible.

Having given notice to perform, a creditor may accept an imperfect contractual performance and reduce the price proportionally.

If he has not yet paid, the creditor must give notice of his decision to reduce the price as quickly as possible.

In the case of imperfect performance of the act of performance, the creditor, having given notice to perform and where he has not yet paid for all or part of the act of performance, may notify the debtor as quickly as possible of his decision to reduce its price proportionally. Acceptance by the debtor of the creditor’s decision to reduce the price must be made in writing.

Where he has already paid, and in the absence of an agreement between the parties, the creditor may claim a reduction in price in court.

Article 1304-4

(Waiver of condition)

A party is free to waive a condition which has been stipulated for his exclusive benefit, as long as the condition has not been fulfilled.

A party is free to renounce a condition which has been stipulated for his exclusive benefit, as long as the condition has not been fulfilled or has not failed.

Article 1305-5

(Enforceability of time delay)

The loss of the benefit of a time delay by a debtor may not be set up against his co-debtors, even if they are joint and several.

The loss of the benefit of a time delay by a debtor may not be set up against his co-debtors, even if they are joint and several, nor against his guarantors.

Article 1327

(Assignment of debt)

A debtor may assign his debt to another person with the agreement of the creditor.

A debtor may assign his debt to another person with the agreement of the creditor.

The assignment must be recorded in writing on pain of nullity.

Article 1327-1

(Enforceability against the creditor of the assigned debt)

If the creditor gave his agreement to the assignment in advance, or if he has not taken part in the assignment, he may find it set up against him, or may take advantage of it himself, only from the day when he was notified of it, or once he has acknowledged it.

If the creditor gave his agreement to the assignment in advance, or if and has not taken part in the assignment, he may find it set up against him, or may take advantage of it himself, only from the day when he was notified of it, or once he has acknowledged it.

Article 1328-1

(Status of securities in assignment of debt)

Art. 1328-1. - Where the original debtor is not discharged by the creditor, any securities remain in place. Where the original debtor is discharged, securities given by third parties remain binding only if they agree.

If the original debtor is discharged, any joint and several co-debtors remain liable to the extent which remains after deduction of the share of the original debtor who has been discharged.

Art. 1328-1.- Where the original debtor is not discharged by the creditor, any securities remain in place. Where the original debtor is discharged, securities given by the original debtor or by third parties remain binding only with their agreement.

If the original debtor is discharged, any joint and several co-debtors remain liable to the extent which remains after deduction of the share of the original debtor who has been discharged.

Article 1343-3

(Payment in a foreign currency)

Art. 1343-3. - Payment in France of a monetary obligation must be made in Euros. However, payment may be made in another currency if the obligation providing for it arises under an international contract or a foreign judgment.

Art. 1343-3. - Payment in France of a monetary obligation must be made in Euros. However, payment may be made in another currency if the obligation providing for it arises under an international contract or a foreign judgment.

However, payment may be made in another currency if the obligation providing for it arises from a transaction of an international character or from a foreign judgment. The parties may agree that payment should be made in a foreign currency if it is to be effected between persons acting in the course of business or a profession and where use of a foreign currency is commonly accepted for the transaction in question.

 

 

Inclusion of a new article in the monetary and financial code :

Art. L. 112-5-1.- Notwithstanding paragraph 1 of article 1343-3 of the civil code, payment can be made in a foreign currency if the obligation so denominated come from term financial instrument or a spot transaction.

Article 1347-6

(Set-off)

A guarantor may set up against the creditor a set-off which arises between the creditor and the principal debtor.

A joint and several debtor may take advantage of a set-off which arises between the creditor and one of his co-debtors in order to deduct from the total debt the separate part of the debt owed by that debtor.

A guarantor may set up against the creditor a set-off which arises between the creditor and the principal debtor. A joint and several debtor may take advantage of a set-off which arises between the creditor and one of his co-debtors in order to deduct from the total debt the separate part of the debt owed by that debtor.

A guarantor may set up by way of set-off what is owed by the creditor to the principal debtor.

A joint and several debtor may take advantage of a set-off of what the creditor owes to one of his co-debtors in order to deduct from the total debt the separate part of the debt owed by that debtor.

Article 1352-4

(Restitutions owed by protected people)

Restitution owed to an unemancipated minor or to a protected adult is reduced in proportion to the profit which he has drawn from the act that has been annulled.

Restitution owed to by an unemancipated minor or to by a protected adult is reduced in proportion to the level of profit which he has drawn from the act that has been annulled.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.