With Ordinance No. 2016-131 of 10 February 2016, France has reformed the general scheme of obligations and evidence in the Civil Code which had remained unchanged since 1804.
This historic reform is important. It applies to contracts governed by French law and concluded after 1 October 2016 between companies, between companies and individuals or between individuals. It affects all branches of the law of obligations and, of course, that of business law.
This reform had become necessary to better insert the Civil Code into contemporary economic and social reality, while retaining its great original principles. Three hundred and fifty articles of contract law have been rewritten, with the objectives of efficiency, simplicity and the protection of the parties.
Here are the four most important components:
I. A new definition of the contractual relationship
- The contract: “An agreement of wills between two or more persons intended to create, modify, transmit or extinguish obligations”. This modern definition of contract differs from the more traditional, obligation to give, to do or not to do; it is more like the Common Law “meeting of the minds”.
- A solemn reminder of contractual principles: freedom of contract, the commitments and good faith.
- Everyone is free to choose his co-contractor, to determine the content of his contract and give it the form he pleases, oral, written or even electronic, a copy made electronically has the same value as the original.
- Good faith presupposes that the other party does not exploit the dependence of the other party to gain an undue advantage nor stipulates unfair terms, deemed to be nil in contracts of adhesion (or form agreements).
- This concern for efficiency and speed has also provided new powers to the parties, allowing them to avoid a systematic recourse to litigation. In case of serious breach, a party may terminate the contract or impose a price reduction if the other party has not completely fulfilled his obligation.
II. A new pre-contractual obligation to inform
- The reform establishes a pre-contractual obligation to inform as a rule of public policy, which forbids avoiding this obligation, even by contract. The parties may neither limit nor exclude this duty to inform the other party.
- Thus the obligation of good faith is not limited anymore to the execution phase of the contract, but even before, during the negotiations and in case of failure of talks.
- Each party will have to assess the information available and, if necessary for the purposes of the contract, communicate to his partner, keeping a written record of their transmission for the purposes of proof.
- The duty of information does not relate to the estimate of the value of the benefit, but on information whose importance is crucial, because it has a direct and necessary link with the contract or the qualification of the parties.
- The party that claims that information was due to him, must prove that the other party owed him, on condition the latter to prove that he has provided.
- Failure to comply with this duty to inform may cause the cancellation of the contract, in addition to the liability of the defaulting party.
III. Opportunity for judicial review of a contract in case of unpredictability
- The reform brings the judge in the meeting of wills between the parties.It calls into question the principle of the inviolability of contracts, which was hardly adapted to changes in economic conditions or market conditions.
- The purpose of the reform is to maintain the contractual relationship, while the old system refused any revision in case of change of unforeseen circumstances and excessive costs at the conclusion of the contract, a context making it untenable for one of the parties and necessary for judicial resolution.
- The parties can now adapt the contract by direct negotiations and, if necessary in case of failure, by the judge.The latter now has the power, under the new system, to review a contract by judgment in case of unpredictability, even without the agreement of the parties, and not only to cancel the contract by judicial annulment.
- In the old system, the judge was not permitted to intervene judicially in the contractual sphere.
- According to Professor D. Mazeaud, the judge becomes, in the new system, “contractual enemy number one.”
- The lawyers had established, under the old system, contractual mechanisms for the review of a contract in case of unforeseen circumstances, inserting safeguards causes (or “hardship”) and indexing clauses, which was admitted by the jurisprudence.
- The lawyers will probably agree and choose to exclude the application of this provision of the reform, which is not a rule of public order, provided that an exclusion clause is expressly and clearly stipulated in the contract.
IV. New rights to establish or modify the price
- The reform introduced the right to request a proportional reduction of the agreed price as a means of compensation for non-performance or partial execution of the contract.
- This right may be effective in favor of buyers, in construction contracts or in the creation of computer programs.
- The creditor of the obligation can “adjust” its prices unilaterally and pay the provider, who may challenge it in court.
- The new Civil Code recognizes framework contracts, such as in distribution or public procurement.
- In a framework contract, the price may be fixed unilaterally by one party, with the burden to justify the amount in case of dispute.
- The new Civil Code allows the conclusion of a contract for services without a mechanism for determining and setting a price. In case of abuse, a party may file a claim for damages.
In addition to recognizing the contract made electronically, the important changes introduced by the reform relate to the concept of good faith and the duty to provide information during the contract negotiations; the possibility for a party to terminate or impose a price reduction in case of serious breach by the other party, and the revision of the contract by a judge in case of an unforeseen and excessively onerous circumstances.
For more information do not hesitate to contact Gérard Samet who has practiced over 25 years in litigation and international business law in France.