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FEBRUARY 2016
The Reform of French Contract Law - What to Expect?
On 11 February 2016, after a year of public consultation, the French Ordinance No. 2016-131 was published.[1] This Ordinance
amends sections of the French Civil Code that govern the Law of Contracts and which remained largely untouched since 1804. The
amendments should be effective as of 1 October 2016.
The Objectives of The Reform
Predictability
Despite minor alterations, sections of the French Civil Code that govern the Law of Contracts remained largely untouched since the
Napoleonic Code. However, for more than two hundred years, French courts resorted to construing the French Civil Code; to such an
extent that the application of some provisions by the courts sometimes outstripped their original wording.
A mere reading of the Civil Code, therefore, does not provide a complete understanding of the French Law of Contracts[2] - a situation
which might seem at odds with the essence of a codified legal system, and which brings with it the risk of giving greater leeway to the
courts to formulate new rules or to backtrack on their previous decisions.
A number of legal commentators therefore called for an "update" of French Contract law, with the goal to make it clearer and more
intelligible.
Further, whilst Article 1134§1 of the 1804 Civil Code clearly states in substance that parties are free to agree - and be bound by - what
they want, judges have sometimes managed to make their way and get involved with the content of contracts.
One objective of the Reform was therefore to reduce interferences by judges with private agreements freely negotiated between
parties.
Competitiveness
While the impact of the Code Civil in a number of jurisdictions is undeniable, some observers flagged the risk of the French "model"
becoming slowly but surely outdated. Making French Law of Contracts more attractive to international investors was thus paramount
to the reformers.
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The Content of The Reform
The changes and improvements brought about by Ordinance No.2016-131 are threefold.
Confirmation: the Ordinance sets in stone some of the existing case law.
A number of contractual duties "discovered" and detailed by French courts over the past two hundred years have now been expressly
codified.
For example, under a literal reading of the Napoleonic Code, the duty of good faith should merely apply during the contractual
performance phase.[3] However, French courts have long ruled that this duty also applies during the negotiation, formation, and
termination phases.[4] This jurisprudential approach has now been expressly codified in the Ordinance (new Articles 1104 and
1112).[5]
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Similarly, the duty to provide information to the other party when entering into a contract ("devoir d'information") imposed by French
case law will now be found in the Code Civil (new Articles 1112-1 et seq.) - as is the general prohibition to enter into perpetual
commitments ("engagements perpétuels") (new Articles 1210 et seq.).
The Ordinance also clarifies the circumstances - previously set out in case law - under which a creditor may (i) suspend the
performance of his/her own obligations (new Articles 1219 et seq.),[6] (ii) seek specific performance of the obligations owed to him/her
(new Articles 1221, 1222),[7] (iii) seek a price reduction (new Article 1223),[8] (iv) terminate the contract (Articles 1224 et seq.),[9]
and/or (v) seek damages (new Articles 1231 et seq.).[10]
Clarification: the Ordinance modernises the wording of outdated provisions.
The Ordinance simplifies the outdated wording of certain Code Civil provisions.
The Ordinance also restructures the entire section governing the Law of Contracts in a "cyclical" and more logical manner. It now starts
with the provisions concerning pre-contractual negotiations and ends with the provisions relating to the non-performance and
termination of a contract.
It removes formal distinctions that had become redundant or irrelevant, for example the "obligation to do, not to do, or to give",
previously contained in Article 1101. The Ordinance also provides clearer definitions of key notions such as the "offer" (new Article
1114)[11] or the "unilateral promise to contract" (new Article 1124).[12]
Innovation: the Ordinance introduces new legal tools.
The Ordinance creates three examination tools ("actions interrogatoires"),[13] the purpose of which is to enable a party to put an end to
an ambiguous situation by forcing the other party to take a position. For example, the new Article 1158.[14] now provides that a third
party contracting via an agent can formally request the principal to confirm, within a reasonable period of time, if the agent has the
power to bind the principal. Failure to respond to such request will make the agent's decisions automatically binding on the principal.
One innovation of the reform which has led to some controversy stems from the new Article 1195. This Article provides that if "a change
of circumstances, unpredictable at the time the contract was signed, makes the performance of the contract excessively onerous for one
party who did not accept at the time to bear the risk associated to this change of circumstances", this party ("Party 1") can request the
other ("Party 2") to renegotiate the contract. Party 1 remains obliged to perform his/her obligations during the renegotiation phase.
Should Party 2 refuse to renegotiate the contract, or should the renegotiation fail, Party 1 can seek the revision or termination of the
contract in court.
It is noteworthy that this newly created mechanism is not meant to be mandatory: in other terms, parties who wish to opt out of the
Article 1195 mechanism can contractually exclude it.[15] Parties will therefore be well advised to discuss with their legal counsel the
most appropriate wording to be inserted in their contracts.
_______________________________________
Transitional Arrangements
Most of the amendments introduced by the Ordinance are due to take effect on 1 October 2016.[16]
In accordance with traditional grandfathering principles of French Contract Law, contracts entered into prior to 1 October 2016 will
continue to be governed by the old law.[17] The newly created examination tools, however, will take effect on 1 October 2016,
irrespective of the date on which the contract was entered into.[18]
_______________________________________
The Parliament authorised the Government to legislate by way of Ordinance[19] in order to accelerate the reform. Yet, to obtain the
status of parliamentary bill, the French Government still has to submit a ratification bill to Parliament before 11 August 2016.[20]
What remains to be seen is whether international investors will be more inclined to choose French law as governing law for their
contracts.
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Footnotes
[1]Ordinance No. 2016-131 of 10 February 2016 reforming the Law of
Contracts, Evidence and Obligations, Official Journal of 11 February
2016, Text 26 of 113
[11]A free English translation of the new Article 1113 reads "A
contract is formed by the meeting of an officer and its acceptance, by
which parties demonstrate their intention to be bound. This intention
may arise from a statement or from the unequivocal conduct of its
author." See also new Articiles 1114-1117.
[2]Official Report on Ordinance No. 2016-131, "Rapport au Président
de la République relatif à l'ordonnance n° 2016-131 du 10 février
2016 portant réforme du droit des contrats, du régime général et de la
preuve des obligations", Official Journal of 11 February 2016,
[12]A free English translation of the new Article 1123 reads: "A preemption agreement is a contract by which a party commits to offer to
negotiate with a beneficiary before the opportunity is offered to others
in case the party decides to enter into an agreement. When a contract
is entered into with a third party in breach of the pre-emption
agreement, the beneficiary can obtain compensation for his/her
damage. If the third party knew the existence of the agreement and
the beneficiary's intention to rely on it, the latter can also seek to annul
the contract or ask the court to be substituted to the third party's rights
in the contract. The third party can send a written request to the
beneficary to confirm, within a reasonable period of time that he/she
determines, the existence of a pre-emption agreement and whether
the beneficiary intends to rely on it. The written request mentions that
failure to answer within the set period of time, the beneficiary will no
longer be able to seek to be substituted to the contract entered into
with the third party or the nullity of the contract." See also new Article
1124.
[3]Article 1134, paragraph 3 of the 1804 Civil Code provides that
"[Agreements] must be performed in good faith."
[4]Philippe LE TOURNEAU & Matthieu POUMARÈDE, "Encyclopédie
de droit civil, "Bonne foi"", Dalloz (2014), No. 18.
[5]A free English translation of the new Article 1104 reads: "Contracts
must be negotiated, formed and performed in good faith. This
provision is a matter of public order."
[6]A free English translation of the new Article 1219 reads: "A party
may refuse to perform his/her obligation even though it is due, if the
other party does not perform his/her obligations and if this breach is
sufficiently serious."
[13]New Articles 1123 paragraphs 3 and 4, 1158, and 1183
[7]A free English translation of the new Article 1221 reads: "After
formal notice, the creditor of an obligation may seek specific
performance unless this performance is impossible or the
performance is manifestly more onerous to the debtor than of interest
to the creditor." New Article 1222 reads: "After formal notice, the
creditor may also perform the obligation himself/herself within a
reasonable time and at a reasonable cost or, after the authorisation of
the court, demolish what has been done in breach of the obligation.
He/she may ask the debtor to reimburse the costs of doing so. He/she
may also seek a court order directing the debtor to advance the
necessary monies for this performance or this demolition."
[14]A free English translation of the new Article 1158 reads: "A third
party, who has doubts on the scope of an agent's power at the time of
entering into a contract, may address a written request to the principal
to ask for confirmation, within a reasonable time period that he/she
determines, that the agent has the authorisation to enter into such
contract. The written request mentions that a failure to respond within
the set period of time will make the agent deemed authorised to enter
into the contract."
[15]Official Report on Ordinance No. 2016-131, "Rapport au Président
de la République relatif à l'ordonnance n° 2016-131 du 10 février
2016 portant réforme du droit des contrats, du régime général et de la
preuve des obligations", Official Journal of 11 February 2016, Text 25
of 113, p. 2
[8]A free English translation of the new Article 1223 reads: "After
formal notice, the creditor may accept partial performance of the
contract and request a proportionate price reduction. If he/she has not
already paid, the creditor notifies his/her decision to reduce the price
promptly."
[16]Ordinance No. 2016-131, Article 9
[9]A free English translation of the new Article 1224 reads: "The
termination arises either pursuant to a termination clause, or in the
event of a sufficinetly serious breach, to a notification by the creditor
to the debtor, or to a court order."
[17]Ordinance No. 2016-131, Article 9, para. 2
[10]A free English translation of the new Article 1231 reads: "Unless
the non-performance is definitive, the debtor will be liable to pay
damages only if he/she has previously been formally notified to
perform within a reasonable time." New Article 1231-1 reads: "The
debtor is ordered, where applicable, to pay damages either for the
non-performance of the obligation, or for late performance, if he/she
does not show that the performance was made impossible because of
force majeure.". See also new Articles 1231-1 to 1231-7.
[19]Law No. 2015-177 of 16 February 2015 on the modernisation and
simplification of the law and procedures in the areas of justice and
internal affairs, Official Journal No. 40 of 17 February 2015, Article 8
[18]Ordinance No. 2016-131, Article 9, para. 3
[20]Law No. 2015-177, Article 27, II, 2°
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