5th Banking and Finance Law Seminar

THE 2016 REFORM OF THE LAW OF OBLIGATIONS IN THE FRENCH CIVIL CODE: IMPACT ON BANKING AND FINANCE TRANSACTIONS

Jean‐François Adelle

PPartnerJEANTET

1

Introduction

Legacy of the Napoleonic Code of 21 March 1804

“My true glory is not to have won forty battles; Waterloo will erase the memory

f i t i h t thi illof so many victories; what nothing will erase, what will live forever is my Civil

Code”

Napoleon Bonapartep p

2

Introduction

3

Introduction

2016 : First major reform of the law of obligations since 1804

Codify material case law

Take into account new practices and

technology

Enhance international

competitiveness of French Civil

Purposes

technologyof French Civil law

Strengthen legal certainty

Modernise language

4

Introduction

10 years of preparatory work: Catala (2005) – Chancery (2008) - Terré (2009)

R f b f di Reform by way of ordinance Enabling law of 16 February 2015 Ordinance n° 2016-131 of 10, February 2016: Decree level pending ratification t Entry into force on 1st October 2016: Only applies to contracts and

amendments concluded after 1st October 2016 (but confirmatory actionimmediately applicable to all contracts)

Evaluation by High Committee of the Paris Financial Marketplace

Ratification bill of 24 January 2018 (review in progress) Ratification bill of 24 January 2018 (review in progress)

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2. Formation: Validity of contract 3. Performance of contract

4. Transfer, renewal and extension

4.1. Assignment of receivables2.1. Capacity of legal persons2.2. Valid consent: duress and

abuse of dependence2 3 Valid consent: fraud and

Revisiting and cancelling the contract for hardship

g4.2. Assignment of liabilities4.3. Assignment of contracts4.4. Clarification of novation /

2.3. Valid consent: fraud and intentional concealment

2.4. Content: lawful and certain

subrogation / delegation4.5. Extension / Renewal

5 Breach of contract2016

Reform2.5. Fake abandonment of the

requirement for cause5. Breach of contract5.1. Anticipatory breach5.2. Resolution for breach5 3 Remedies: damages / in

6. Other

Content1. Negotiation of contract1.1. Freedom of contract1 2 G d f ith

5.3. Remedies: damages / in kind

Preference pact Netting of related claims Unilateral promise Electronic execution

1.2. Good faith1.3. Precontractual duty of

information1.4. Precontractual duty

6

Force majeure Monetary nominalism Evidence

yconfidentiality

1.5. Remedies for breach –breaking off

1. Negotiation of contract

1.1. Enshrinement of freedom of contract

Freedom of contract was recognised by case law as adirecting principle of French contract law withconstitutional value

A Civil Code rule

Limits to free contracts

Public order remains – An undefined notion

Prohibition to derogate from morality (“bonimores”) exitsmores ) exits

New reference to pre-formulated standardcontract

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1.2. Consecration of good faith in the precontractual phase

Extension by case law to precontractual

The obligation for the parties to act in good faith was recognised but limited to the performance of the contract:

Extension by case law to precontractual negotiations.

The Ordinance positions good faith as a duty p

Sanction of abusive conduct (no intention to contract but inducement to believe)

Good faith in contracts covers the negotiation phase (Article 1104)

Good faith in negotiations (Article 1112): “The commencement continuation and

Sanction of abusive break-off (abrupt and unilateral without legitimate reasons and prior notice)

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

Good faith does not incorporate a duty of cooperation

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1.3. Precontractual duty of information Distinct from duty of good faith and public order rule. The duty exists if:

information of decisive importance for the other party’s consent

debtor of the duty has knowledge of such information

legitimate ignorance of the information by the creditor of the duty or legitimate reliance in the debtor of the dutyin the debtor of the duty

No duty to inform of the assessment of the value of the performance of the contract. Burden of proof: The person who claims that information was due to him has the Burden of proof: The person who claims that information was due to him has the

burden of proving that the other party had the duty to provide it, and he succeeds,then that other party has the burden of proving that he has provided it Remedies: damages or contract voidance if the breach caused a defect of consent

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Remedies: damages or contract voidance if the breach caused a defect of consent What does it change for bank acting as lender / seller of financial products /

M&A advisor?

1.4. Precontractual duty of confidentiality

Case law had already recognized a duty of confidentiality in relation to information obtained during

Article 1112-2 gives a legal basis to duty of confidentiality

P hibiti f di lnegotiations, in the absence of NDA, on the basis of duties of loyalty and good faith

Prohibition of use or disclosure

The provider of the information can release the recipient of its duty

NDA remains relevant to specify protected information; prohibitedNDA remains relevant to specify protected information; prohibiteduse, duration of confidentiality period and permitted disclosure,sanctions, etc.

Limited impact on banks already liable to duty of confidentiality

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Limited impact on banks already liable to duty of confidentiality

1.5. Remedies for precontractual breach - breaking off negotiations

French Cour de cassation landmark Manoukian case (Com. 26 November

Article 1112 codifies case law(

2003, No 00-10.243):

“Remedies for breaking off negotiation cannot compensate loss

Aims at ending lower courts’ resistance and providing legal certainty

of benefits which were expected from the contract that was not concluded”

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2. Formation : Validity of contractNapoleonic Code 2016 Civil Code

Capacity Capacity Moral entities

C t f

p y p y

C t f

entities

Mistake

Confirmatory action: Silence of requested

party during 6 months extinguishes its right Consent of

the obligorConsent of the parties Fraud

Duress

g gto act in voidness of

contract

LawfulNo illusory or derisory

considerationObject( t i ) Content

No contractual term depriving from their content the

debtor's essential obligationCertain

In pre-formulated standard

(certain)

Rationale

Content

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In pre-formulated standard contracts, no economic

imbalance

Rationale(lawful)

2.1. Capacity of legal persons limited by usefulness, compliance with purpose and conflict of interests rules

Capacity of legal persons is limited to acts useful for achieving their purpose asdefined by their bylaws, and acts which are incidental to themy y ,

Introduction of interrogatory action : If the principal / legal representative does notanswer within reasonably prescribed time, the agent is deemed to be empowered

Conflict of interests : Prohibition of representation of two parties or contractingon own behalf and representing other party, under pain of voidness, unless such isauthorised by law or the act is prior authorised or ratified by the person represented.

Sanctions of breach of capacity rules are clarified for all legal / physical persons:

Absence of authority / ultra vires: Act unenforceable against personrepresented, agent personally bound, except in case of apparent authority,p g p y p pp ycontractor who ignored absence of authority / ultra vires may invoke voidness

Misuse of authority to the detriment of the person represented: Voidness ofthe act if the contracting third party was aware or could not have been unaware

13

g p y

The prevention of conflict of interests rule has raised criticism

2.2. Valid consent: Duress is enlarged to abuse of dependence The definition of duress (“violence”) is modernised Threat must be illegitimate: threat of legal action does not

constitute duress except where the legal process is diverted

Duress is enlarged to abuse of dependence a notion so far applied by case law

constitute duress except where the legal process is divertedfrom its purpose or where it is invoked or exercised in orderto obtain a manifestly excessive advantage (Article 1141)

Duress is enlarged to abuse of dependence, a notion so far applied by case lawonly for abuse of economic dependence (Article 1143)

There is abuse of dependence when : Dependence of one party on the other Abuse is such that the abusing party obtained a commitment which the

dependent party would not otherwise have agreed to and out of which itbenefitted from a manifestly excessive advantage

Impact on lender / borrower relationship:

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o Disproportionate remuneration or negative pledge covenantso Excessive security is already prohibited by statute

2.3.Valid consent: Fraud covers intentional concealment

The definition of fraud (“dol”) is modernised:(Article 1137)

Intentional concealment is fraud if the concealinggparty knows the decisive character of theinformation for the other party as per former caselaw

Should intentional concealment be correlatedto the precontractual duty of information ?

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2.4. Content Lawful content

Ensures all types of compliance with public order

Certain contentNo illusory or

derisoryNo contract term

d i i thNo substantial imbalance in pre-formulated

standard contracts (Article 1171)derisory consideration (Article 1169)

depriving the debtor’s substantial

obligations from their substance

standard contracts (Article 1171) Contract in which the general terms are determined in

advance by one of the parties without negotiation Contract term creating substantial imbalance in the

(Article 1170)

grights and obligations of the parties is deemedunwritten

Substantial imbalance is not prohibited if it relates to :

Sanction: Voidness of

contract

Sanction: Term is deemed

unwritten

main object/purpose of the contract, or adequacy of the price and the good or service

Are by-laws, assigned contacts or shareholder’sagreements to be considered pre formulated

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agreements to be considered pre-formulatedstandard contracts?

2.5. Fake abandonment of cause requirement (“cause”)2.5. Fake abandonment of cause requirement ( cause )

The cause of a contract is the abstract motivation for a party to enter into acontract: e.g. expected consideration, transferred asset, animus donandig p , , It can different for each party but must exist and be lawful The concept was perceived as complex and fostered litigation – It had been set

aside in cross-border financing agreements (Cass Com 2011 Belvédère)aside in cross border financing agreements (Cass. Com. 2011, Belvédère)

The functions of cause are now attained by clearer functional equivalents,also sanctioned by voidness of contract

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3. Performance of contract:Hardship (“imprévision”): Revisiting or cancelling the contract in the case of “unforeseen circumstances”

Before the 2016 Reform 2016 Reform

French Cour de cassation landmark Possibility now for a party to “demand renegotiation ofjurisprudence Canal de Craponne

(Civ. 6 March 1876):

Prohibiting for courts to modify i d

Possibility now for a party to demand renegotiation of a contract if unforeseen circumstances at the time of the execution of the contract render its performance excessively onerous for a party who had not agreed to

h i k”contract terms or rescind contract in case of unforeseen

circumstances in private law contracts

assume the risk”:

No suspension of contract during renegotiation

In case of refusal of the requested party or failure of renegotiation, the parties can agree to terminate the contract or file a joint petition to a court to modify it

If, after a reasonable period of time, renegotiation f l ith t il t ll

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proves unsuccessful, either party can unilaterally request a judge to modify the contract or terminate it at terms which it determines

Hardship (“imprévision”): Revisiting or cancelling the contract in the case of “unforeseen circumstances” Generally addressed through (MAC/MAE/Market MAC MAE clauses)

Provides parties with leverage to renegotiate in the case of an unforeseen event,such as a substantial change in interest rate index, occurrence of political risk thatdoes not constitute force majeure event. Can be waived

Raised concerns of Financial Marketplace High Committee

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4. Transfer, renewal and extension of contract

4.1. Modernisation of assignment of receivablesWhat remains What changesWhat remains What changes

The assignment of receivables:

is valid without the consent of the

Enforceable vis à vis third parties as at execution date for existing receivables and

debtor is enforceable among the parties as

at execution date t b i iti i d t b

date of receivables coming to existence for future receivable and no longer date of notice to debtor

Enforceable vis à vis the debtor upon notice must be in writing in order to be valid

future receivables must be determinable

Enforceable vis à vis the debtor upon notice by any means and no longer bay way of bailiff

No longer requirement of price stipulation

No stipulation of price: is assignment as security valid?

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p p g y Facilitates cross border receivables finance of French law

governed receivables

4.2. Introduction of assignment of liabilities

Consent of the

creditor

Consent can be

given inNo

writing i dcreditor

required given in advance required

Transfer of liabilities (dette) requires creditor’s consent

In the absence of prior consent or participation of the assignment act, transfer of debt is notenforceable against creditor and creditor cannot benefit from the transfer until creditor isnotified or has acknowledged

Creditor’s consent discharges seller-debtor of future liabilities - Otherwise and unlessotherwise agreed, debtor-seller remains jointly liable with new debtor/buyer

If seller is not released: security interests related to the previous debt remain; otherwise If seller is not released: security interests related to the previous debt remain; otherwise,security interests consented to by third parties can only be maintained with their consent

A mechanism for refinancing existing debt (alternative to novation) or of defeasance

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Issues: When creditor does not consent, is transfer valid and enforceable against otherthird parties? Can creditor consent to discharge of future labilities in advance ?

4.3. Introduction of assignment of contract

Agreement of the other

t

Agreement can be i i

Assignment must be in writing, onparty

required given in advance

writing, on pain of nullity

Does not discharge the transferor unless the transferee consents

P iti f th t f d t t l t i h d it i k Position of the transferred contractual party remains unchanged, as it can invokeagainst the transferee any exceptions it had against the transferor

Transferee can invoke the exceptions inherent to the debtTransferee can invoke the exceptions inherent to the debt

Transfer of contract puts French civil law at same level as anglo-saxon law

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4.4. Novation / Subrogation / Delegation

Novation agreed upon between creditor and guarantor (caution) does not release Novation agreed upon between creditor and guarantor (caution) does not releaseprincipal debtor

S b ti t ti f t b t b d i t t Subrogation occurs at time of payment but may be agreed upon prior to payment

Delegation : no requirement that the delegor be the delegee’s debtor prior todelegating the obligee

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4.5. Extension and renewal

Extension of contract term must be express and prior to the contract term: thef ( )same contract continues for the new agreed period (Article 1213)

Whether express (Article 1214) or tacit (Article 1215) renewal of contract givesWhether express (Article 1214) or tacit (Article 1215), renewal of contract givesrise to new contract, identical to the former contract and for an unlimited term Parties may provide otherwise Impact on limitation rules tax insolvency etc Impact on limitation rules, tax, insolvency, etc

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5. Breach of contract

5.1. Introduction of anticipatory breach

A party may suspend the performance of its obligation assoon as it becomes evident that: the contracting partner will not perform its obligation

h it b d dwhen it becomes due, and the consequences of this non-performance are

sufficiently serious for the party

Notice of this suspension must be given as quickly aspossible (Article 1220)

Appears to legalise the notion of potential event ofdefault and therefore, gives leverage to lenders toimpose clauses to that effect

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5.2. Resolution for breach: Requirements for resolution clause and termination in the absence of resolutionclause and termination in the absence of resolution clause

The New Civil Code provides for three forms of resolution for breach In all cases, parties must restitute the benefit received. However, when the

mutual consideration exchanged was useful as and when the contract wasreciprocally implemented, there is no restitution and resolution is characterisedas terminationas termination Dispute resolution, confidentiality and non compete clauses survive

Resolution clause (Article 1225)

Resolution is automatic as soon as conditions of resolution clause are met

Resolution is subordinated to the prior sending of a formal notice, whichmust expressly refer to the resolution clause - But this requirement issuppletive of parties’ will

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5.2. Resolution for breach: Requirements for resolution clause and termination in the absence of resolutionclause and termination in the absence of resolution clause

Unilateral resolution for breach Judicial resolution for breach There must be a sufficiently serious breach by

the other party Unless there is urgency, he must previously

Resolution may in any event be claimed incourt proceedings

A court may, according to theg y, p yhave put the debtor in default on notice toperform his undertaking within a reasonabletime

The notice to perform must state expressly that

circumstances, recognise or declare thetermination of the contract or order itsperformance with the possibility of allowingthe debtor further time to do so, or award

l dp p yif the debtor fails to fulfil its obligation, thecreditor will have a right to terminate thecontract

Where the non-performance persists, the

only damages Termination takes effect, according to the

situation: on the terms provided for in terminatione e t e o pe o a ce pe s sts, t e

creditor notifies the debtor of the termination ofthe contract and the reasons on which it isbased

The debtor may at any time bring proceedings

pclause

at the date of receipt by the debtor of anotice given by the creditor

on the date set by the court or

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The debtor may at any time bring proceedingsto challenge such a termination. The creditormust then establish the seriousness of thenon-performance

on the date set by the court or,otherwise on the day on whichproceedings were initiated

5.3. Remedies

Recognition of specific performance

Does away with the (encroached at) rule that breach issanctioned by damages

A creditor of an obligation may seek performance in kind,unless:

the performance is impossible

th i if t di ti b t it t t th there is a manifest disproportion between its cost to thedebtor and its interest for the creditor

Prior notice to perform is required

A court may order destruction of thing done in breach. It mayalso order advance or repayment of performance ordestruction costs

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Clarification of the notion of damages, liquidated damages and penalty clause

Damages Requirement for a formal notice (“mise en demeure”): “Unless non-performance is

permanent, damages are due only if the debtor has previously been put on noticeto perform his obligation within a reasonable time” (Article 1231)

Damages cover the loss incurred by the party or the gain of which it has beendeprived

Damages cover losses which were foreseen or which could have been foreseen at Damages cover losses which were foreseen, or which could have been foreseen atthe time of conclusion of the contract

Where non-performance was due to a gross or dishonest fault damages coverlosses resulting from immediate and direct result of non performancelosses resulting from immediate and direct result of non-performance(Article 1231-4)

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Clarification of the notion of damages, liquidated damages and penalty clause

Liquidated damages – Penalty clause Liquidated damages are enforceable: Where a contract stipulates that the person

who fails to perform shall pay a certain sum of money by way of damages, theother party may be awarded neither a higher nor a lower sum

Control over penalty clause is strengthened, any stipulation contrary being deemednot written:

As before, a court may, even of its own initiative, moderate or increase as be o e, a cou t ay, e e o ts o t at e, ode ate o c ease apenalty if it is manifestly excessive or derisory

Where an undertaking has been performed in part, the agreed penalty maybe reduced by a court even of its own initiative in proportion to thebe reduced by a court, even of its own initiative, in proportion to theadvantage which partial performance has procured for the creditor, withoutprejudice to the application of the preceding paragraph

Except where non-performance is permanent a penalty is not incurred

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Except where non-performance is permanent, a penalty is not incurredunless the debtor was put on notice to perform

Q&AQ&A

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Your contact

PARISJEAN-FRANÇOISADELLEPARTNER

PARIS87, avenue Kléber 75116 Paris - France Tél. : +33 (0)1 45 05 80 08

Mail : jfadelle@jeantet.frTél : +33 (0)1 45 05 82 80

Fax : +33 (0)1 47 04 20 41 E-mail : info@jeantet.fr www.jeantet.fr

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APPENDICES

APPENDIX 1: Comparative chart : French old Civil Code / French 2016 Civil Code / Maltese Civil Code (excerpts)

APPENDIX 2: Proposed amendments to the 2016 Civil Code under the Ordinance Ratification Bill as already voted by the French Parliament in second readingFrench Parliament in second reading

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APPENDIX 1 French Contract Law Maltese Contract Law

Before the 2016 Reform 2016 Reform Civil Code

A ti l 1104

ith A i l 1134

Article 1104:“Contracts must be negotiated, formed and

performed in good faith.”

Article 1112:“The commencement, continuation and

Article 993:“Contracts must be carried out in good faith, and shall be binding not only in regard to the

cont

ract

Goo

d fa

i Article 1134:“[…] They (i.e. agreements) must be

performed in good faith”.

e co e ce e t, co t uat o a dbreaking-off of precontractual negotiations are

free from control. They must mandatorily satisfy the requirements of good faith. In case of fault

committed during the negotiations, the reparation of the resulting loss is not calculated

g y gmatter therein expressed, but also in regard

to any consequence which, by equity, custom, or law, is incidental to the obligation,

according to its nature.”

otia

tion

of so as to compensate the loss of benefits which

were expected from the contract that was not concluded.”

on Article 1112-1:

Neg

o

of in

form

atio

--

“The party who knows information which is of decisive importance for the consent of the other, must inform him of it where the latter

legitimately does not know the information or relies on the contracting party.

--

34

Dut

y However, this duty to inform does not apply to an assessment of the value of the act of

performance.

Information is of decisive importance if it has a direct and necessary relationship with the content of the contract or the status of the

orm

atio

ncontent of the contract or the status of the

parties.

A person who claims that information was due to him has the burden of proving that the other party had the duty to provide it, and that other party has the burden of proving that he has

ntra

ct

Dut

y of

info --

party has the burden of proving that he has provided it.

The parties may neither limit nor exclude this duty.

In addition to imposing liability on the party who

--

atio

n of

con had the duty to inform, his failure to fulfill the

duty may lead to annulment of the contract under the conditions provided by articles 1130

and following.”

Neg

otia

Dut

y of

on

fiden

tialit

y

--

Article 1112-2:

“A person who without permission makes use of or discloses confidential information obtained in the course of negotiations incurs liability under the conditions set out by the general law (“droit

--

co commun”).”

dies

for

ch o

f ia

tions

--

Article 1112 §2:

“In case of fault committed during the negotiations, the reparation of the resulting loss --

35

Rem

edbr

eane

goti g p g

is not calculated so as to compensate the loss of benefits which were expected fromthe contract that was not concluded.”

acity

of

pers

ons Article 1145:

“The capacity of legal persons is limited toacts useful for achieving their purpose as

defined by their bylaws and acts which areC

aple

gal defined by their bylaws and acts which are

incidental to them, in accordance with the rules applicable to each of those persons.”

Article 1130:

f con

trac

t

cons

ent

Article 1109:

“There is no valid consent if the consent was only given in mistake or if it was

extorted by duress or fraud.”

Article 1117:

“Mistake, fraud and duress vitiate consent where they are of such a nature that, without

them, one of the parties would not have contracted or would have contracted on

substantially different terms. Their decisive character is assessed in the light of the person

Article 974:

“Where consent has been given by error, or extorted by violence or procured by fraud, it

: Val

idity

o

Valid

c Article 1117:

“The agreement contracted by mistake, duress or fraud, is not null and void (“nul de plein droit”); it only gives rise to an action in

nullity or resolution.”

character is assessed in the light of the person and of the circumstances in which consent

was given.”

Article 1131:

“Defects in consent are a ground of relative

shall not be valid.”

Form

atio

n: nullity of the contract.”

ress

Article 977:

“(1) The use of violence against the obligor is a cause of nullity, even if such violence is F

cons

ent:

Dur Article 1111:

“Duress against the person who has contracted the obligation is a ground of

nullity, although it has been exercised by a third party other than the one for whose

Article 1140:

“There is duress where one party contracts under the influence of a constraint which

makes him fear that his person or his wealth, or those of his near relatives, might be

practised by a person other than theobligee.”

“(2) Nevertheless, an obligation entered into in favour of a person not being an

accessory to the use of violence, inconsideration of services rendered for

36

Valid

benefit the agreement was made. “ exposed to considerable harm.” freeing the obligor from violence practised by a third party, may not be avoided on the

ground of such violence; saving the reduction of the sum or thing promised, where such sum or thing is excessive.”

Article 1112:Article 978:

“There is duress when it is likely to make an impression on a reasonable person, and

that it can inspire him the fear of exposing his person or his fortune to a considerable

and present harm. Article 1141:

“A threat of legal action does not constitute

Article 978:

“(1) Consent shall be deemed to be extorted by violence when the violence is such as to produce an impression on a

reasonable person and to create in such person the fear of having his person or

t j tl d t i i j

of c

ontr

act

ures

s

In this respect, we consider the age, sex and condition of individuals.”

Article 1113:“Duress is a ground of nullity of the

A threat of legal action does not constitute duress, except where the legal process is

deflected from its proper purpose or where it is invoked or exercised in order to obtain a

manifestly excessive advantage.”

Article 1142:

property unjustly exposed to serious injury.

(2) In such cases, the age, the sex and the condition of the person shall be taken into

account.”

Article 979:

: Val

idity

o

d co

nsen

t: D

u contract, not only when it has been exercised on the contracting party, but also when it has been exercised on her husband

or wife, on her descendants or ascendants.”

Article 1142:

“Duress is a ground of nullity regardless of whether it has been applied by the other party

or by a third party.”

Article 1143:

“(1) Violence is a ground of nullity of acontract even where the threat is directed against the person or the property of the

spouse, or of a descendant or an ascendant of the contracting party.

(2) Where the threat is directed against the

Form

atio

n

Valid Article 1114:

“The only reverential fear to the father, the mother, or other ascendant, without there being duress exercised, is not enough to

void the contract.”

“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

(2) Where the threat is directed against the person or property of other persons, it shall be in the discretion of the court, accordingto the circumstances of the case, to void

the contract or to affirm its validity.”

Article 980:F

Article 1115:“A contract can no longer be attacked

because of duress, if, since duress has ceased, this contract has been approved either expressly or tacitly, or by letting the

excessive advantage.”“Mere reverential fear towards any one of

the parents or other ascendants or towards one’s spouse, shall not be sufficient toinvalidate a contract, if no violence has

been used.”

37

time for restitution fixed by law.”

Article 1137:“Fraud is an act of a party in obtaining the consent of the other by scheming or lies

Frau

d

Article 1116:

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.”

Article 1138: Article 981:

“(1) Fraud shall be a cause of nullity of the

f con

trac

t

lid c

onse

nt: F “The fraud is a ground of nullity of the

agreement when the maneuvers practiced by one of the parties are such, it is obvious that, without these maneuvers, the other

party would not have contracted. It is not presumed and must be proven ”

“Fraud is equally established where it originates from the other party’s

representative, a person who manages his affairs, his employee (“préposé”) or one

standing surety for him. It is also established where it originates from a third party in

(1) Fraud shall be a cause of nullity of theagreement when the artifices practiced by one of the parties were such that without

them the other party would not have contracted.

(2) Fraud is not presumed but must be d ”

Val

idity

of Va

It is not presumed and must be proven. where it originates from a third party in collusion.”

Article 1139:“A mistake induced by fraud is always

excusable. It is a ground of nullity even if it bears on the value of the act of performance

proved.”

Form

atio

n: bears on the value of the act of performance or on a party’s mere motive.”

emen

ts

Article 1126:

“Every contract has for its object a thing A ti l 1162

Article 982:

“(1) Every contract has for its s bject matter a thing hich one of theF

Obj

ect

t: N

ew re

quire

Every contract has for its object a thing which one of the contracting parties binds

himself to give, or to do or not to do.”

Article 1127:

“The mere use or the mere possession of a thing can like the thing itself be the subject

Article 1162:

“A contract can not derogate from public order either by its stipulations or by its purpose, whether or not this was known by all the

parties.”

subject-matter a thing which one of the contracting parties binds himself to give, or

to do or not to do.

(2) Only the things that are not extra commercium can be the subject of an

agreement

38

Con

tent thing can, like the thing itself, be the subject

of a contract.”agreement.

(3) The mere use or the mere possession of a thing can like the thing itself, be the

subject of a contract.”

Article 1163:

“An obligation has as its subject-matter a

Article 983:

“(1) The subject of an obligation must be a thi d t i t t l t t it i

Article 1128:

present or future act of performance.

The latter must be possible and determined or capable of being determined.

An act of performance is determinable where it can be deduced from the contract or by

thing determinate, at least as to its species.

(2) The portion or quantity of the thing maybe uncertain, provided it is capable of being

ascertained.”

Article 984:

f con

trac

t

emen

ts

“Only the things that are can be the subject of agreements.”

Article 1129:

“The object of the obligation must be e hi l d i d i ki d

can be deduced from the contract or by reference to usage or the previous dealings of

the parties, without the need for further agreement. “

Article 1169:

“(1) Future things can form the subject of a contract.

(2) Nevertheless, it shall not be lawful to renounce a succession not yet devolved, or to make any stipulation with regard to any such succession whether with the

Valid

ity o

f

Obj

ect

: New

requ

ir e thing at least determined as to its kind.

The quantity of the thing may be uncertain, provided that it can be determined.”

Article 1130:

“An onerous contract is a void, where, at the moment of its formation, what is agreed in

return for the benefit of the person undertaking an obligation is illusory or derisory.”

Article 1170:

any such succession, whether with the person whose succession is concerned, or with any other person, even though with the

consent of the former; saving any other provision of the law in regard to any renunciation or stipulation made in

contemplation of marriage, or upon the

Form

atio

n:

Con

tent “Future things may be the subject of an

obligation.

One can not, however, renounce an unopened succession, or make any

stipulation on such a succession, even with

“Any contract term which deprives a debtor’s essential obligation of its substance is deemed

not written. “

Article 1171

p g , ptaking of religious vows.”

Article 985:

"Things which are impossible, or prohibited by law, or contrary to morality, or to public policy, may not be the subject-F the consent of the successor, except under

the conditions provided for by law.”“Any term of a pre-formulated standard

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

p p y y jmatter of a contract.

Article 986:

(1) Quotae litis stipulations are void.

(2) Saving the provisions of article 1852 and of any other provision of this Code or

39

not concern either the main subject matter of the contract nor the adequacy of the price in

relation to the act of performance.”

and of any other provision of this Code or of any other law, any obligation to pay a

rate of interest exceeding eight per cent per annum is also void in regard to the excess.

Article 987:

“An obligation without a consideration or

t

An obligation without a consideration, or founded on a false or an unlawful

consideration, shall have no effect.”

Article 988:

“The agreement shall, nevertheless, be valid, if it is made to appear that such

of c

ontr

act

use”

)

Article 1131:

“An obligation without a rationale, or founded on a false or an unlawful rationale,

shall have no effect”

, ppagreement was founded on a sufficient

consideration, even though suchconsideration was not stated.”

Article 989:

“Where the consideration stated is false,

n: V

alid

ity o

atio

nale

(“ca

u

Article 1132:

“The agreement is no less valid, eventhought the rationale is not stated.”

Article 1133:

the agreement may, nevertheless, be upheld, if another consideration is proved.”

Article 990:

“The consideration is unlawful if it is prohibited by law or contrary to morality or

Form

atio

n Ra

“The rationale is unlawful if it is prohibited by law or contrary to morality or to public

order.”

to public policy.”

Article 991:

“(1) Where the consideration for which a thing has been promised is unlawful only in regard to the obligee, any thing which may h b i f th f f thhave been given for the performance of the

contract, may be recovered.

(2) If the consideration is unlawful in regard to both contracting parties neither of them, unless he is a minor, may recover the thing which he may have given to the other party,

40

y g p ysaving the provision of article 1716.”

Article 1195:“If a change of circumstances that was

cont

ract

rdsh

ip)

If a change of circumstances that was unforeseeable at the time of the conclusion of the contract renders performance excessively onerous for a party who had not accepted the risk of such a change, that party may ask the

other contracting party to renegotiate the

man

ce o

f c

révi

sion

” (H

ar

--

contract. The first party must continue to perform his obligations during renegotiation.

In the case of refusal or the failure of renegotiations, the parties may agree to

terminate the contract from the date and on th diti hi h th d t i b

--

Perf

orm

“Im

pr the conditions which they determine, or by a common agreement ask the court to set about its adaptation. In the absence of an agreement

within a reasonable time, the court may, on the request of a party, revise the contract or put an end to it, from a date and subject toput an end to it, from a date and subject to

such conditions as it shall determine.”

41

Article 1321:

Article 1469 :

“The assignment or sale of a debt, or of a right or of a cause of action is complete

ntra

ct Article 1689:

“In the transfer of a receivable, a right or an action on a third party, the delivery

t k l b t th i d th

“Assignment of receivables is a contract by which the creditor (the assignor) transfers,

whether or not for value, the whole or part of his receivables against the assignment debtor to a

third party (the assignee).

right or of a cause of action is complete, and the ownership is ipso jure acquired by the assignee as soon as the debt, the right or the cause of action, and the price have

been agreed upon, and, except in the case of aright transferable by the delivery of the respective document of title, the deed of

nsio

n of

co

ivab

les

takes place between the assignor and the assignee by the delivery of the title.”

Article 1690:

“The assignee is seized with regard to third parties only by the notification of the

transfer made to the debtor

It may concern one or more receivables, present or future, ascertained or ascertainable.

It extends to the ancillary receivables that is assigned.

The consent of the debtor is not required unless

respective document of title, the deed of assignment is made.”

Article1470:

(1) The assignment is not valid unless made in writing.

(2) The assignment of hereditary rights or

and

exte

n

men

tof r

ecei transfer made to the debtor.

Nevertheless, the assignee may also be seized by the acceptance of the transfer

made by the debtor in an authentic deed.”

Article 1693:

the right was stipulated to be non assignable.”

Article 1322:

“An assignment of receivables must be effected in writing, on pain of nullity.”

A ti l 1323

(2) The assignment of hereditary rights, or of debts, rights or causes of action arising

from public deeds is void unless made by a public deed. Notice to debtor.

Article 1471:

The assignee may not in regard to third

er, r

enew

al

Ass

ign “The person who sells a receivable or

other intangible right must guarantee its existence at the time of transport, even

though it is made without security.”

Article 1694:

Article 1323:

“As between the parties the transfer of the right takes effect at the date of the act.

It can be set up against third parties from that moment. In the event of challenge, the burden

The assignee may not, in regard to third parties, exercise the rights assigned to him except after due notice of the assignment has been given to the debtor, by means of a judicial act, by the assignee himself or by

the assignor. Where no notice has been given.

Tran

sfe “He is only liable for the solvency of the

debtor when he has undertaken to do so, and only up to the price he has withdrawn

from the receivable.”

of proof of the date of the assignment rests on the assignee, who may establish it by any

means of proof.

However, the transfer of a future right takes effect only on the day when it comes into i t b t th ti ll

given.

Article 1472:

“In default of such notice, or until such notice is given –

(a) the debtor may not set up the i t i t hi dit d if h

42

existence, as between the parties as well as against third parties.”

assignment against his creditor, and if he pays the debt to him he is there by

discharged;

ontr

act Article 1324:

“Unless the debtor has already agreed to it, the assignment may be set up against him

(b) if the creditor, after having assigned the debt to one person, makes a second

assignment thereof to another person who is in good faith, such other person, if he has given notice of the assignment made in his

nsio

n of

co

ivab

les

the assignment may be set up against him only if it has been notified to him or he has

acknowledged it.

The debtor may set up against the assignee defences inherent in the debt itself, such as

nullity the defence of non performance

favour, shall be preferred to the former assignee;

(c) if the creditors of the assignor shall sue out a garnishee order attaching the sum due in the hands of the debtor, they shall be preferred to the assignee, even though

land

ext

en

men

tof r

ecei nullity, the defence of non-performance,

termination or the right to set off related debts. He may also set up defences which arose

from the relations with the assignor before the assignment became enforceable against him, such as the grant of a deferral, the release of

p g , gthey have become creditors only after the assignment;(d) the debtor is entitled to set off any sum which may become due to him by the assignor; but the assignee may not

set off the debt assigned to him against any sum owing by him to the debtor.”

er, r

enew

al

Ass

ign a debt, or the set-off of debts which are not

related.

The assignor and the assignee are jointly and severally liable for any additional costs arising from the assignment which the debtor did not

Article 1473:

“The notice is not necessary if the debtor has acknowledged the assignment,”

Article 1474:

Tran

sfe

have to advance. Subject to any contractual term to the contrary, the burden of these costs

lies on the assignee.”

“Neither the notice, nor the acknowledgment referred to in the last preceding article shall be necessary in

regard to bills of exchange or other documents of title transferable by

endorsement or delivery.

43

Article 1475:

“The assignment of a debt includes every

ontr

act

Article 1325:

“In the case of successive assignments of receivables, competition between the

assignees is resolved in favour of the first in

security, privilege or hypothec attached to the debt and every other thing accessory to it; but it shall not include the fruits accrued

due or any rescissory action, unless express mention thereof has been made in

the assignment.”

nsio

n of

co

ivab

les

time, who has a right of recourse against the one in whose favour the debtor would have

tendered satisfaction.”

Article 1326:

“A person who assigns a right for value

Article 1476:

“(1)The assignor of a debt or any other right is bound to warrant its existence at the time

of the assignment, although no express

land

ext

en

men

tof r

ecei

--

A person who assigns a right for value guarantees the existence of the right and of its ancillary receivables unless the assignee took

it at his own risk or knew of the uncertain character of the right.

He is not answerable for the solvency of the

g , g pstipulation of warranty has been made in

the assignment.

(2) If the debt does not exist, the assignor is bound to return the price received, unless

the warranty as to the existence of the debt has been negatived either by a declaration

er, r

enew

al

Ass

ign He is not answerable for the solvency of the

debtor unless he has undertaken to be so, and then only up to the value of the sum he was

able to obtain for the assignment.

Where the assignor has guaranteed the solvency of the debtor the guarantee extends

has been negatived either by a declaration of the assignor that he was making the assignment without any warranty, or by

other words to that effect.”

Article 1477:

“(1) The assignor is not answerable for

Tran

sfe solvency of the debtor, the guarantee extends

only to his current solvency; it may be extended to his solvency when the right falls due, but only if the assignor has expressly so

specified.”

(1) The assignor is not answerable for the solvency, whether present or future, of the debtor, unless he has expressly bound himself thereto, either by declaring the debt good and collectable or by other words to

that effect.

(2) If the assignor has promised such

44

(2) If the assignor has promised such warranty, he shall be bound only to the

extent of the price of the assignment.”

A ti l 1327Article 1327:“A debtor may assign his liability to another person with the agreement of the creditor.”

Article 1327-1:“If the creditor gave his agreement to the

ontr

act

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.”

A i l 132 2

ensi

on o

f c

abili

ties

Article 1327-2:“If the creditor expressly so agrees, the

original debtor is discharged for the future. Otherwise, and subject to any contractual term

to the contrary, he is bound jointly and severally to pay the debt ”

alan

d ex

te

ignm

ento

f lia

--

severally to pay the debt.

Article 1328:“The substituted debtor, and the original

debtor if he remains liable, may set up against the creditor defences inherent in the debt,

such as nullity the defence of non

fer,

rene

wa

Ass

i such as nullity, the defence of non-performance, termination or the right to set off related debts. Each may also setup defences

which are personal to him.”

Article 1328-1:“Wh th i i l d bt i t di h d

Tran

s “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

45

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 1216:

“A contracting party, the assignor, may assign

trac

t

his status as party to the contract to a third party, the assignee, with the agreement of his own contractual partner, the person subject to

assignment.

This agreement may be given in advance,

sion

of c

on

ract

notably in a contract concluded between the future assignor and person subject to

assignment, in which case assignment takes effect as regards the person subject to

assignment when the contract concluded between the assignor and the assignee is

and

exte

ns

men

tof c

ontr

--

between the assignor and the assignee is notified to him or when he acknowledges it.

An assignment must be established in writing, on pain of nullity.”

Article 1216-1:--

r, re

new

ala

Ass

ign

“If the person subject to assignment has expressly consented to it, assignment of

contract discharges the assignor for the future.

In its absence, and subject to any term to the contrary the assignor is liable jointly and

Tran

sfer contrary, the assignor is liable jointly and

severally to the performance of the contract.”

Article 1216-2:

“The assignee may set up against the person subject to assignment the defences inherent in

46

the debt itself, such as nullity, the defence of non-performance, termination or the right to

set off related debts. He cannot set up against him defences personal to the assignor.

ontr

act

trac

tThe person subject to assignment may set up against the assignee all the defences which he

could have been able to set up against the assignor.”

Article 1216-3:

nsio

n of

co

nmen

tof c

ont

--

Article 1216 3:

“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

--

land

ext

en

Ass

ign 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 ”

er, r

enew

al the debtor who has been discharged.

Tran

sfe

Nov

atio

n

--

Article 1335 §2:“A novation agreed between the creditor and a

guarantor does not discharge the principal debtor […].”

--

47

Article 1250: Article 1346-1 §3: Article 1165:

ntra

ct

Subr

ogat

ion “The subrogation is conventional:

1° When the creditor receiving his payment from a third person subrogates him in his/ rights, actions, privileges or

mortgages against the debtor: this subrogation shall be express and made at

“It (i.e. subrogation) must be agreed upon at the same time as the satisfaction, unless, in an earlier act, the party who subrogates has

indicated his will that the other contracting party should be subrogated to him at the time of

f

“(1) The payer shall be subrogated to the rights of the creditor, by agreement –

(a) when the creditor subrogates the payer to all his rights against the debtor,

provided such subrogation is expressly stated, and made simultaneously with

sion

of c

on the same time as the payment; […].” satisfaction […].” the payment […].”

Article 1337:“Where the delegator is debtor of the

and

exte

n gbeneficiary of the delegation and the instrument

demonstrates expressly the will of the beneficiary of the delegation to discharge the

delegator, the delegation takes effect as a novation.

er, r

enew

al

Del

egat

ion

--

However, the delegator remains bound if he had expressly undertaken to guarantee the

future solvency of the delegate, or if the delegate is subject to a procedure for

cancellation of his debts at the time of the delegation ”

--

Tran

sfe delegation.

Article 1338:“Where the delegator is debtor of the

beneficiary of the delegation but the latter has not discharged his debt, the delegation provides

48

not discharged his debt, the delegation provides the beneficiary with another debtor.”

brea

ch

Article 1220:“A party may suspend the performance of his obligation as soon as it becomes evident that

Ant

icip

ator

y --

his contracting partner will not perform his obligation when it becomes due and that the consequences of this non-performance are

sufficiently serious for him. Notice of this suspension must be given as quickly as

possible ”

--

act

A possible.

Article 1224: “Termination results either from the application

of a termination clause, or, where the non-performance is sufficiently serious, from notice

Article 1209:“(1) The rescission of a contract shall,

l th l id th i

ch o

f con

tra

each

Article 1184:“The resolution condition is always implied in bilateral contracts, in the case where one

of the two parties does not fulfill its it t

pe o a ce s su c e t y se ous, o ot ceby the creditor to the debtor or from a judicial

decision.”

Article 1225:“A termination clause must specify the

undertakings whose nonperformance will lead

unless the law provides otherwise, operate so as to restore the parties to the condition in which they were before the

contract.(2) Each party shall be bound to restore to the other any thing received or obtained in

b i t f th t t

Bre

ac

olut

ion

for b

re commitment.In this case, the contract is not

automatically terminated. The party to whom the undertaking has not been

performed has the choice of either forcing the other party to perform the agreement

h it i ibl t d d

undertakings whose nonperformance will lead to the termination of the contract.

Termination may take place only after service of a notice to perform which has not been complied with, unless it was agreed that

termination may arise from the mere act of

consequence or by virtue of the contract.(3) With regard to the fruits collected or the

interest received up to the date of the demand for rescission, the court may,

having regard to the circumstances of the case, direct a set-off of such fruits or

i t t

Res

o when it is possible, or to demand a termination with damages.

The termination must be sought by application to the courts, and the defendant may be granted a delay depending on the

circumstances.”

ynon-performance. The notice to perform takes

effect only if it refers expressly to the termination clause.”

Article 1226:“A creditor may, at his own risk, terminate the

interest.(4) Where the contract is rescinded on the ground of fraud or violence, the party guilty

of such fraud or violence shall also be bound to restore to the other party the fruits

which might have been collected, and

49

y, ,contract by notice. Unless there is urgency, he must previously have put the debtor in default on notice to perform his undertaking within a

reasonable time.

which, through his fault or negligence, have not been so collected.”

The notice to perform must state expressly that if the debtor fails to fulfil his obligation, the

creditor will have a right to terminate thecreditor will have a right to terminate the contract.

Where the non-performance persists, the creditor notifies the debtor of the termination of

the contract and the reasons on which it is based ”

trac

t

reac

h

based.

“The debtor may at any time bring proceedings to challenge such a termination.

The creditor must then establish the seriousness of the non-performance.”

ach

of c

ont

olut

ion

for b

r Article1227:“Termination may in any event be claimed in

court proceedings,”

Article 1228:“A court may, according to the circumstances,

Bre

a

Res

y, g ,recognise or declare the termination of the contract or order its performance with the

possibility of allowing the debtor further time to do so, or award only damages.”

Article 1229:“Termination puts an end to the contract.

Termination takes effect, according to the situation, on the conditions provided by any termination clause, at the date of receipt by

the debtor of a notice given by the creditor, or

50

on the date set by the court or, in its absence, the day on which proceedings were brought.

Where the acts of performance exchanged were useful only on the full performance of the

contract which has been terminated, the parties must restore the whole of what they have obtained from each other. Where the

r bre

ach

acts of performance which were exchanged were useful to both parties from time to time

during the reciprocal performance of the contract, there is no place for restitution in respect of the period before the last act of

trac

t

Res

olut

ion

for

performance which was not reflected in something received in return; in this case,

termination is termed resiling from the contract.

Restitution takes place under the conditions id d b ti l 1352 t 1352 9 ”

ach

of c

on

R provided by articles 1352 to 1352-9,”

Article 1230:“Termination does not affect contract terms

relating to dispute-resolution, nor those intended to take effect even in the case of t i ti h fid ti lit

Bre

a termination, such as confidentiality or non-competition clauses.”

nce

Article 1221:“A creditor of an obligation may, having given notice to perform seek performance in kind

ific

perf

orm

an

--

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.”

Article 1222:“Having given notice to perform a creditor

--

51

Spec

Having given notice to perform, a creditor may also himself, within a reasonable time

and at a reasonable cost, have an obligation performed or, with the prior authorisation of

Article 1146:

“Damages are due only when the debtor is i d f lt t f lfill hi bli ti t

the court, may have something which has been done in breach of an obligation

destroyed. He may claim reimbursement of Articles 1125: in default to fulfill his obligation, except where the thing which the debtor had

obliged to give or to do could be given or made only in a certain period of time that

he let pass.”

Article 1147:

sums of money employed for this purpose from the debtor.

He may also bring proceedings in order to require the debtor to advance a sum

necessary for this performance or destruction.”

“Where any person fails to discharge an obligation which he has contracted, he shall

be liable in damages.”

Article 1126:“(1)The obligation to give a thing carries

act

es

“A debtor is condemned, if necessary, to the payment of damages, either on the

ground of the non-performance or a delay in performance of the obligation, whenever he does not justify that non-performance comes from an external cause which may

Article 1231:“Unless non-performance is permanent, damages are due only if the debtor has

previously been put on notice to perform his obligation within a reasonable time,”

(1)The obligation to give a thing carries with it the obligation to deliver the thing,

and to preserve it until the delivery.

(2) If the debtor is in default for delay in making the delivery, the thing shall be at his

risk and peril, even though before such default it was at the risk and peril of the

ch o

f con

tra

edie

s: d

amag

comes from an external cause which may not be imputed to him, although there is no

bad faith on his part.

Article 1148:

“No damages shall be paid where, as a result of force majeure or fortuitous event

Article 1231-1:“A debtor is condemned, where appropriate, to the payment of damages either on the ground

of the non-performance or a delay in performance of the obligation, unless he

default it was at the risk and peril of the creditor.”

Article 1127:

In case of non-performance of an obligation to do, the creditor may be authorized to

cause the performance there of himself at

Bre

ac

Rem

e result of force majeure or fortuitous event, the debtor was prevented from giving or doing what ha was obliged to do or did

what was forbidden to him.”

Article 1149:

“In general damages due to the creditor

justifies this on the ground that performance was prevented by force majeure.”

Article 1231-2:“In general, damages due to the creditor are

for the loss that he has incurred or the gain of

cause the performance there of himself at the expense of the debtor.”

Article1128:

“Where the obligation is to forbear to do, the debtor who infringes the obligation is

liable in damages for the mere fact of suchIn general, damages due to the creditor are for the loss that he has incurred or the gain of which he has been deprived, with

the following exceptions and qualifications.”

Article 1150:“A debtor is bound only to damages which

which he has been deprived, with the following exceptions and qualifications.”

Article 1231-3:“A debtor is bound only to damages which were either foreseen or which could have

liable in damages for the mere fact of such infringement.”

Article1129:

“Saving his action for damages, the creditor may demand that anything done in breach

of the obligation be undone, and maybe

52

A debtor is bound only to damages which were either foreseen or which may have been foreseen at the time of the contract,

where it is not by his fraud that the obligation is not fulfilled.”

been foreseen at the time of conclusion of the contract, except where non-performance was

due to a gross or dishonest fault.”

g , yauthorized to undo it himself at the expense

of the debtor.”

ages Article 1151:

“In the situation where non-performance ofArticle 1231-4:

“I th it ti h f fm

edie

s: d

amIn the situation where non-performance of a contract does result from the debtor’s

fraud, damages shall not included, regarding the loss suffered by the creditor and the gain from which he was deprived,

that which is the immediate and direct

“In the situation where non-performance of a contract does indeed result from gross or dishonest fault, damages include only that which is the immediate and direct result of

non-performance.”

act

Re result of non-performance.”

ause

Article 1231-5:

“Where a contract stipulates that the person who fails to perform shall pay a certain sum of

Article 1118:

“A penalty clause is a clause whereby a person, for the purpose of securing the

ch o

f con

tra

s –

pena

lty c

la who fails to perform shall pay a certain sum of money by way of damages, the other party

may be awarded neither a higher nor a lower sum.

Nevertheless, a court may, even of its own i iti ti d t i th lt

p , p p gfulfilment of an agreement, binds himself to

something in case of non-fulfilment.”

Article 1119:

“(1) The nullity of the principal obligation produces the nullity of the penalty clause

Bre

ac

ated

dam

ages Article 1226:

“Penalty clause is the one by which a person, to ensure the performance of an

agreement, commits himself to something in case of non-performance.”

initiative, moderate or increase the penalty so agreed if it is manifestly excessive or derisory.

Where an undertaking has been performed in part, the agreed penalty may be reduced by a court, even of its own initiative, in proportion to th d t hi h ti l f h

produces the nullity of the penalty clause.

(2) The nullity of the penalty clause does not produce the nullity of the

principal obligation.”

Article 1120:

edie

s: li

quid

a pthe advantage which partial performance has procured for the creditor, without prejudice to the application of the preceding paragraph.

Any stipulation contrary to the preceding two paragraphs is deemed not written.

“(1) The penalty represents the compensation for the damage which the

creditor sustains by the non-performance of the principal obligation.

(2) The creditor may sue for the

53

Rem

e

Except where non-performance is permanent, a penalty is not incurred unless the debtor was

put on notice to perform.”

(2) The creditor may sue for the performance of the principal obligation

instead of demanding the penalty incurred by the debtor.

(3) He cannot demand both the principal thing and the penalty, unless the penalty

shall have been stipulated in consideration us

eof mere delay.”Article 1121:

“(1) Where the obligation consists in forbearing to do something, the penalty

becomes due as soon as the contravention takes place.

ract –pe

nalty

cla

takes place.(2) Where the obligation could not be

performed except at a certain time, the penalty shall be incurred as soon as such

time expires, unless another time has been fixed by agreement.

(3) In any other case the penalty shall be

ch o

f con

tr

ted

dam

ages

(3) In any other case, the penalty shall be incurred when the debtor is put in default as

provided in article 1130.” Article 1122:

“(1) It shall not be lawful for the court to abate or mitigate the penalty except in

Bre

ac

edie

s: li

quid

at the following cases:(a) if the debtor has performed the

obligation in part, and the creditor has expressly accepted the part so

performed;(b) if the debtor has performed the

Rem

e ( ) pobligation in part, and the part so

performed, having regard to the particular circumstances of the creditor, is manifestly

useful to the latter. In any such case, however, an abatement cannot be made if

the debtor, in undertaking to pay the

54

penalty, has expressly waived his right to any abatement or if the penalty has been stipulated inconsideration of mere

delay.

(2) Where an abatement is to be made under this article, the penalty shall be

reduced in proportion to the unperformed part of the obligation ”

use

part of the obligation.Article 1123:

“Where the subject-matter of the principal obligation contracted with a

penalty clause is an indivisible thing, the penalty is incurred even where only one of

th h i f th d bt i f i th

act

–pe

nalty

cla

u the heirs of the debtor infringes the obligation; and in such case, the penalty

may be claimed either –(a) against the defaulter, for the whole

amount, or(b) against each co-heir for his respective

ch o

f con

tra

ed d

amag

es – share, or, where a hypothecary action is

competent, even for the whole amount, saving the right of relief against the

defaulter.”Article 1124:

“(1) Where the principal obligation

Bre

ac

dies

: liq

uida

te (1) Where the principal obligation contracted with a penalty clause is

divisible, and one of the heirs of the debtor infringes the obligation, the penalty shall be incurred only by such heir, and only for the share of the principal obligation for which he is liable, and no action shall lie against

Rem

ed

gthose who have performed the obligation.(2) The rule laid down in sub-article (1) of this article shall not apply to cases where the penalty has been stipulated in order

that payment should not be made in part, and one of the co-heirs has prevented the

55

pperformance of the obligation in its entirety. In any such case, such co-heir is liable for the entire penalty, and the others are liable for their respective shares only, saving their

right of relief against the defaulter.”

APPENDIX 2 Proposed amendments to the 2016 Civil Code under the Ordinance Ratification

Bill as already voted by the French Parliament in second readingBill as already voted by the French Parliament in second reading

Article 1112 § 2 “In case of fault committed during the negotiations, the reparation of the resulting loss is not calculated so as to compensate either the loss of benefits which were expected from the contract that was not concluded or the loss of opportunity to obtain these benefits.”

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

Article 1137 The intentional concealment by one party of information, where he knows its decisive character for the other party, is also fraud.Nonetheless, does not constitute a fraud for one party not to reveal to the other party his estimate of the value of the service.”

Article 1145 “The capacity of legal persons is limited to acts useful for achieving their purpose as defined by their bylaws and acts which are incidental to them, in accordance with the rules applicable to each of those persons.”

Article 1161

“A representative cannot act on behalf of both parties to a contract In case of representation of natural person, a representative cannot act on behalf of several parties to the contract in opposition of interests, 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 ”ratified it.

Article 1216-3“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 1221 “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 acting in good faith and its interest for the creditor.”

Article 1327“A debtor may assign his liability to another person with the agreement of the creditor.

56

Article 1327The assignment must be made in writing, on pain of nullity.”

Article 1327-1 “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 and may take advantage of it himself, only from the day when he was notified of it, or once he has acknowledged it.”

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