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30-09-2016 » A close-up on key features of Ordinance No. 2016-131 of 10th February 2016 on the reform of contract law, the general regime and proof of obligations.

This Ordinance takes effect from 1st October and applies to contracts concluded after 30th September 2016, while those concluded prior to this date will also come under the same regime if and when they are renewed. This is the first significant modification of sections III to IV of Book III of the Civil Code, since it was originally drafted.

These changes are primarily a codification of case law, but they also take into account important academic contributions that have been made to doctrine.

One of the great innovations of this Ordinance is the codification of the pre-contractual phase, which was already regulated by case law. The principle of the freedom to contract is re-stated, however. According to these new provisions each step of the negotiations must be conducted in good faith. This provision benefits from reinforced ‘public order’ status. It is however specified that "in case of misconduct during negotiations, damages cannot be awarded in compensation for the loss of expected benefits that would have been gained if the contract had been concluded" (Article 1112).

The Ordinance introduces a general duty to inform prior to the conclusion of the contract (Article 1112-1) which applies to all parties, for any information which is critical to consent and has a direct link with the content of the contract or the nature of the parties to it. Failure to respect this obligation triggers not only the liability of the contracting party, but also the possible invalidation of the contract for lack of consent (Article 1130 onwards). The burden of proof regarding the duty to inform rests on the party who claims that certain information should have been revealed by the other party, who in turn must prove that this information was in fact supplied (Article 1112-1, paragraph 4). However it is specified that this duty does not apply in relation to estimating the value of a service (Article 1112-1, paragraph 2).

One provision which is of general importance, but particularly so in the field of intellectual property, concerns the confidentiality of all information obtained during the pre-contractual phase. Thus, Article 1112-2 provides that "whoever uses or discloses without authorization confidential information obtained during negotiations shall be liable under the conditions of common law." This provision, which is close to the obligation provided in the European Directive of 8th June 2016 on business confidentiality, does not impose an obligation to sign a confidentiality agreement. It does remain preferable, however, especially in the interests of evidence, that such an agreement is put into writing and signed by the parties, specifying the information that must remain confidential.

The concept of a "cause" of a contract which was previously a condition of validity has been taken out, even if a contract remains "a voluntary agreement between two or more persons intended to create, modify, transmit or extinguish obligations" (Article 1101). The conditions of validity set by the texts are the consent of the parties, their capacity and the legality of the content of the agreement (Article 1128). The reasons for consent to be invalidated i.e. because of error, fraud or violence, remain relative grounds for invalidity (Article 1129 onwards).

Article 1143 introduces the concept of "abuse of the dependence of one party" whereby a contract can be annulled if consent is deemed to have been given under a state of economic duress. In such circumstances, one party exploits the dependence of the counterparty in order to induce it into an agreement that it would not have accepted without coercion and by which it gains an excessive advantage. The partner who has been exploited can then bring an action to have the contract cancelled.

The conditions in which a contract may be terminated are provided for in Articles 1224 to 1230. Approval by a judge is not required. The termination clause as well as the causes of the breach must be provided in the contract (Article 1225). Moreover, according to a new provision, a creditor may terminate a contract at his own risk, by notification, in the event of a sufficiently serious breach (Article 1226). It is specified in Article 1230 that "termination does not affect provisions relating to the resolution of disputes, or those designed to operate even in case of termination, such as confidentiality and non-competition clauses".

The circumstances in which contracts may be renegotiated are specified in Article 1195: "If an unforeseen change in circumstances occurs during the conclusion of a contract which makes its execution excessively onerous for a party that had not agreed to this risk, this party may request a renegotiation of the contract to the other contracting party. However, the original contract must continue to be executed during this renegotiation." This clause, which introduces the principle of ‘hardship’ into French contract law, tempers the principle of the binding force of a contract. It will be interesting to follow the courts’ interpretation of this highly discussed provision. In any case, the application of this principle can be excluded by the terms of a contract if the parties so wish.

Another major provision is the codification of anticipatory suspension of performance. This is a notion which has emerged from case law and provides an exception whereby the non-execution of a contractual obligation by one party is permissible when the counterparty has not executed its own obligation. While this is not a new addition to French law, it is now expressly provided for in Article 1219. This breach must be "sufficiently serious". Moreover, Article 1220 introduced the possibility for a party to "suspend performance of a contractual obligation when it is clear that the other contracting party will not carry out its own in good time and that the consequences of this breach are sufficiently serious." Article 1223 also provides for the possibility of reducing the price in case of imperfect execution. The application of these provisions necessarily poses problems of proof.

The conditions for the assignment of a contract are also specified in Article 1216 and subsequent articles.

Finally, specific provisions relating to contracts concluded by electronic means are now laid out in Articles 1125 and onwards of the code.

Thus although the reform brought in by Ordinance No. 2016-131 of 10 February 2016 does not perhaps completely transform French law, it does bring some significant changes. It is up to lawyers to immediately take note of all the new provisions and take them into account in the contracts that they draft.

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