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 Partner JEANTET

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 of so many vi ct ori es; wh at nothi ng will erase, what will live forever is my Civil Code”

Napppoleon Bonaparte

2 Introduction

3 Introduction

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

Codify material case law

Enhance Take into international account new competitiveness practices and of French Civil technology law Purposes

Modernise Strengthen legal language certainty

4 Introduction

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

. RfReform bywayof ordinance  Enabling law of 16 February 2015  Ordinance n° 2016-131 of 10, February 2016: Decree level pending ratification  Entry into force on 1st October 2016: Only applies to and amendments concluded after 1st October 2016 (but confirmatory action immediately applicable to all contracts)

. Evaluation by High Committee of the Paris Financial Marketplace

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

5 4. Transfer, renewal and 2. Formation: Validity of extension 3. Performance of contract 4.1. of receivables 2.1. of legal persons Revisiting and cancelling the 4.2. Assignment of liabilities contract for hardship 2.2. Valid consent: duress and 4.3. Assignment of contracts abuse of dependence 4.4. Clarification of / 232.3. Valid consent: fraud and subrogation / intentional concealment 4.5. Extension / Renewal 2.4. Content: lawful and certain 2.5. Fake abandonment of the 5. requirement for cause 2016 5.1. Anticipatory breach Reform 5.2. Resolution for breach 5. 3. Remedies: damages / in 1. Negotiation of contract Content kind 1.1. Freedom of contract 6. Other 121.2. GdfithGood faith . Preference pact 1.3. Precontractual duty of . Netting of related claims information . Unilateral promise 1.4. Precontractual duty . Electronic execution confidentiality . Force majeure 1.5. Remedies for breach – . Monetary nominalism . breaking off 6 1. Negotiation of contract 1.1. Enshrinement of freedom of contract

. Freedom of contract was recognised by case law as a directing principle of French contract law with constitutional value . A Civil Code rule . Limits to free contracts  Public order remains – An undefined notion  Prohibition to derogate from morality (“boni mores”) exits  New reference to pre-formulated standard contract

7 1.2. Consecration of good faith in the precontractual phase

. Extension by case law to precontractual negotiations. The obligation for the parties to act in good faith was recognised but limited to . The Ordinance positions good faith as a the performance of the contract: duty . Sanction of abusive conduct (no  Good faith in contracts covers the intention to contract but inducement to negotiation phase (Article 1104) believe)  Good faith in negotiations (Article 1112): “The commencement , continuation and . Sanction of abusive break-off (abrupt breaking-off of precontractual and unilateral without legitimate negotiations are free from control. They reasons and prior notice) must mandatorily satisfy the requirements of good faith .” . Good faith does not incorporate a duty of cooperation

8 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 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 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 . What does it change for bank acting as lender / seller of financial products / M&A advisor? 9 1.4. Precontractual duty of confidentiality

Case law had already recognized a . Article 1112-2 gives a legal basis to duty of confidentiality in relation to duty of confidentiality information obtained during negotiations, in the absence of NDA, . Pro hibition o f use or disc losure on the basis of duties of loyalty and . The provider of the information can good faith release the recipient of its duty

. NDA remains relevant to specify protected information; prohibited use, duration of confidentiality period and permitted disclosure, sanctions, etc. . Limited impact on banks already liable to duty of confidentiality

10 1.5. Remedies for precontractual breach - breaking off negotiations

French Cour de cassation landmark . Article 1112 codifies case law Manoukian case (Com. 26 November 2003, No 00-10.243): . Aims at ending lower courts’ resistance and providing legal “Remedies for breaking off certainty negotiation cannot compensate loss of benefits which were expected from the contract that was not concluded”

11 2. Formation : Validity of contract Napoleonic Code 2016 Civil Code

Moral Cappyacity Cappyacity entities Confirmatory action:

Mistake Silence of requested party during 6 months extinggguishes its right CtfConsent of CtfConsent of Fraud to act in voidness of the obligor the parties contract

Duress

Lawful No illusory or derisory Object Content (ti)(certain) No contractual term depriving Certain from their content the debtor's essential obligation

Rationale In pre-formulated standard contracts, no economic (lawful) imbalance

12 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 as defined by their byy,laws, and acts which are incidental to them . Introduction of interrogatory action : If the principal / legal representative does not answer within reasonably prescribed time, the agent is deemed to be empowered . Conflict of interests : Prohibition of representation of two parties or contracting on own behalf and representing other party, under pain of voidness, unless such is authorised 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 person represented, agent ppyersonally bound, exceptincaseofapparent authority, contractor who ignored absence of authority / ultra vires may invoke voidness  Misuse of authority to the detriment of the person represented: Voidness of the act if the contracting third ppyarty was aware or could not have been unaware . The prevention of conflict of interests rule has raised criticism 13 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 from its purpose or where it is invoked or exercised in order to obtain a manifestly excessive advantage (Article 1141) . Duress is enlarged to abuse of dependence, a notion so far applied by case law only 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 it benefitted from a manifestly excessive advantage

. Impact on lender / borrower relationship: o Disproportionate remuneration or negative pledge covenants o Excessive security is already prohibited by statute 14 2.3.Valid consent: Fraud covers intentional concealment

. The definition of fraud (“dol”) is modernised: (Article 1137) . Intentional concealment is fraud if the concealing party knows the decisive character of the information for the other party as per former case law . Should intentional concealment be correlated to the precontractual duty of information ?

15 2.4. Content Lawful content

Ensures all types of compliance with public order Certain content No illusory or No contract term No substantial imbalance in pre-formulated derisory diithdepriving the standard contracts (Article 1171) consideration debtor’s substantial . Contract in which the general terms are determined in (Article 1169) obligations from advance by one of the parties without negotiation their substance . Contract term creating substantial imbalance in the rights and obligations of the parties is deemed (Article 1170) unwritten . Substantial imbalance is not prohibited if it relates to :

Sanction: Sanction:  main object/purpose of the contract, or Voidness of Term is deemed  adequacy of the price and the good or service contract unwritten . Are by-laws, assigned contacts or shareholder’s agreements to be considered pre-formulated standard contracts?

16 2.5. Fake abandonment of cause requirement ( “cause”)

. The cause of a contract is the abstract motivation for a party to enter into a contract: e.g.expected consideration, transferred asset, animus donandi . 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) . The functions of cause are now attained by clearer functional equivalents, also sanctioned by voidness of contract

17 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 of jurisprudence Canal de Craponne a contract if unforeseen circumstances at the time of (Civ. 6 March 1876): the execution of the contract render its performance Prohibiting for courts to modify excessively onerous for a party who had not agreed to contract terms or rescidind contract assume thik”he risk”: in case of unforeseen  No suspension of contract during renegotiation circumstances in private law contracts  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 proves unsuccessfu l, eith er part y can unil at erall y request a judge to modify the contract or terminate it at terms which it determines 18 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 that does not constitute force majeure event. Can be waived . Raised concerns of Financial Marketplace High Committee

19 4. Transfer, renewal and extension of contract 4.1. Modernisation of assignment of receivables

What remains What changes

The assignment of receivables: . Enforceable vis à vis third parties as at  is valid without the consent of the execution date for existing receivables and debtor date of receivables coming to existence for  is enforceable among the parties as future receivable and no longer date of at execution date notice to debtor  mustbt be i n writi ng i n ord er t o b e . Enforceable vis à vis the debtor upon notice valid by any means and no longer bay way of  future receivables must be bailiff determinable . No longer requirement of price stipulation

. No stipppulation of price: is assig nment as security valid? . Facilitates cross border receivables finance of French law governed receivables 20 4.2. Introduction of assignment of liabilities

Consent Consent No of the can be writing creditor given in requidired required advance

. Transfer of liabilities (dette) requires creditor’s consent . In the absence of prior consent or participation of the assignment act, transfer of debt is not enforceable against creditor and creditor cannot benefit from the transfer until creditor is notified or has acknowledged . Creditor’s consent discharges seller-debtor of future liabilities - Otherwise and unless otherwise agreed, debtor-seller remains jointly liable with new debtor/buyer . 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 . Issues: When creditor does not consent, is transfer valid and enforceable against other third parties? Can creditor consent to discharge of future labilities in advance ? 21 4.3. Introduction of assignment of contract

Assignment Agreement Agreement must be in of the other can be writing, on party giiiven in pain of required advance nullity

. Does not discharge the transferor unless the transferee consents

. PitiPosition of the tfdtransferred conttltractual partyremains unchdhanged,asit can ikinvoke against the transferee any exceptions it had against the transferor

. Transferee can invoke the exceptions inherent to the debt

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

22 4.4. Novation / Subrogation / Delegation

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

. SbSubroga tion occurs at time of payment btbut may be agreed upon prior to payment

. Delegation : no requirement that the delegor be the delegee’s debtor prior to delegating the obligee

23 4.5. Extension and renewal

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

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

24 5. Breach of contract 5.1. Introduction of anticipatory breach

. A party may suspend the performance of its obligation as soon as it becomes evident that:  the contracting partner will not perform its obligation when 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 as possible (Article 1220)

. Appears to legalise the notion of potential event of default and therefore, gives leverage to lenders to impose clauses to that effect

25 5.2. Resolution for breach: Requirements for resolution clause 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 was reciprocally implemented, there is no restitution and resolution is characterised as 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, which must expressly refer to the resolution clause - But this requirement is suppletive of parties’ will

26 5.2. Resolution for breach: Requirements for resolution clause and termination in the absence of resolution clause Unilateral resolution for breach Judicial resolution for breach

. There must be a sufficiently serious breach by . Resolution may in any event be claimed in the other party court proceedings . Unless there is urggy,ency, he must ppyreviously . A court may, according to the have put the debtor in default on notice to circumstances, recognise or declare the perform his undertaking within a reasonable termination of the contract or order its time performance with the possibility of allowing the debtor further time to do so, or award . The notice to perform must state exppyressly that only damages if the debtor fails to fulfil its obligation, the creditor will have a right to terminate the . Termination takes effect, according to the contract situation: . Wheeere ttehe non-perf orm an ce per si sts, ttehe  on the terms provided for in termination creditor notifies the debtor of the termination of clause the contract and the reasons on which it is  atthedateofreceiptbythedebtorofa based notice given by the creditor . The debtor may at any time bring proceedings  on the date set by the court or, to challenge such a termination. The creditor otherwise on the day on which must then establish the seriousness of the proceedings were initiated non-performance 27 5.3. Remedies Recognition of

. Does away with the (encroached at) rule that breach is sanctioned by damages . A creditor of an obligation may seek performance in kind, unless:  the performance is impossible  there isamanifes t disproporti on btbetween itscost to the debtor and its interest for the creditor . Prior notice to perform is required . A court may order destruction of thing done in breach. It may also order advance or repayment of performance or destruction costs

28 Clarification of the notion of damages, and penalty clause  Damages . Requirement for a formal notice (“miseendemeure”): “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” (Article 1231) . Damages the loss incurred by the party or the gain of which it has been deprived . Damages cover losses which were foreseen, or which could have been foreseen at the time of conclusion of the contract . Where non-performance was due to a gross or dishonest fault damages cover losses resulting from immediate and direct result of non-performance (Article 1231-4)

29 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, the other party may be awarded neither a higher nor a lower sum . Control over penalty clause is strengthened, any stipulation contrary being deemed not written:  Ass bef or e, a cour t may, eeeven ofits own inittatiative, moder ate oro incr ease a penalty 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 the advantage which partial performance has procured for the creditor, without prejudice to the application of the preceding paragraph  Except where non-performance is permanent, a penalty is not incurred unless the debtor was put on notice to perform

30 Q&A

31 Your contact

JEAN-FRANÇOIS PARIS ADELLE 87, avenue Kléber 75116 Paris - France PARTNER Tél. : +33 (0)1 45 05 80 08 Fax : +33 (0)1 47 04 20 41 Mail : [email protected] E-mail : [email protected] Tél : +33 (0)1 45 05 82 80 www.jeantet.fr

32 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 reading

33 APPENDIX 1

French Contract Law Maltese Contract Law

Before the 2016 Reform 2016 Reform Civil Code

AtilArticle 1104: “Contracts must be negotiated, formed and performed in good faith.” Article 993: Article 1112: “Contracts must be carried out in good faith,

th and shall be bindinggyg not only in regard to the

ii “Theeco comm eceet,cotuatoadencement, continuation and Art icl e 1134 : breaking-off of precontractual negotiations are matter therein expressed, but also in regard “[…] They (i.e. agreements) must be free from control. They must mandatorily satisfy to any consequence which, by equity, performed in good faith”. the requirements of good faith. In case of fault custom, or law, is incidental to the obligation, Good fa Good committed during the negotiations, the according to its nature.” reparation of the resulting loss is not calculated contract so as to compensate the loss of benefits which were expected from the contract that was not concluded.”

Article 1112-1: tiation of tiation n oo oo “The party who knows information which is of decisive importance for the consent of the

Neg other, must inform him of it where the latter -- legitimately does not know the information or -- relies on the contracting party. of informati of However, this duty to inform does not apply to an assessment of the value of the act of Duty Duty performance. 34 Information is of decisive importance if it has a direct and necessary relationship with the content 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

rmation party has the burden of proving that he has oo -- provided it. --

The parties may neither limit nor exclude this duty. Duty of inf Duty tract In addition to imposing liability on the party who nn 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.” tion of co of tion aa Article 1112-2:

“A person who without permission makes use of -- or discloses confidential information obtained in --

Negoti the course of negotiations incurs liability under Duty of Duty

nfidentiality nfidentiality the conditions set out by the general law (“droit oo

c commun”).”

Article 1112 §2:

“In case of fault committed during the ies for ies

ch of ch neggpotiations, the reparation of the resultin g loss iations

dd -- -- is not calculated so as to compensate the loss

brea of benefits which were expected from negoti Reme the contract that was not concluded.” 35 Formation: Validity of contract

Capacity of Valid consent: Duress Valid consent legal persons duress or fraud, is not null and void (“nul de (“nul and void duress orfraud,isnotnull plein droit”); it only gives rise to action in gives rise an it only plein droit”); nullity, although it has nullity, although “There “There is no validcons third party other than the one for third than theone whose party other “The agreement contra agreement “The contracted the obligat was only given in or if it was in mistake was given only Drs againstthe person who has “Duress eei h gemn a ae e “ was made. benefit theagreement extorted or fraud.” by duress nullity orresolution.” A Article A rticle 1111: rticle 1109: rticle been exercised by a exercised been 1117: ion is a ground of is aground ion ent iftheconsent cted by mistake, hrce sasse ntelgto h person the of light the in assessed is character makes him fear that his person or his wealth, or his wealth, fear that person his makes him where where they areofsuch “Defects in consent ar consent “Defects in substantially different and of the circumstances are which acts and bylaws their by defined rules applicable to each of persons.” to each those rules applicable “There is duress where one partycontracts where isduress “There “The capacity of legal persons is limited to limited is persons of legal capacity “The “Mistake, fraud and dure and “Mistake, fraud incidental to them, in accordancewith the acts useful for achieving their purpose as their purpose acts useful forachieving under the influence of under theinfluence contracted orwoul nothave would them, oneoftheparties or those of his near relatives, might be might or relatives, those of hisnear xposed to considerable harm.” xposed toconsiderable

is by

nullity ofthecontract.” assessed

their ril 1130: Article Article1145: A Article1131:

was given.”was bylaws rticle 1140: rticle

d have contracted on d have in e a ground of relative e aground terms. Their decisive terms. Their a nature that, anature without

the

a constraint which which a constraint and ss vitiate consent in which consent

light

acts

of

which

the

person

are

“Where “Where consent has been givenby error, or sacueo nullity,ev is a cause of extorted by violence or procured by fraud,it or procured extorted by violence by a third party, may not be avoided on the by not beavoided a thirdparty, may “(1) The use of violence against the obligor against “(1) useofviolence The freeing the obligor from violence practised violence from freeing theobligor “(2) Nevertheless, an obligation entered entered “(2) anobligation Nevertheless, into in favour of a person not being an not being person into infavour of a euto ftesmo hn promised, or thing reduction ofthesum where such sum or thing is excessive.” where or thing such sum consideration of services renderedfor p ground of such violence; saving the saving ground of suchviolence; accessory to the use of violence, in accessory to of the use violence, ractised by a person other than the other than ractised byaperson shall notbevalid.” Article 977: ril 974: Article obligee.” en if such violence is 36 Article 1112: Article 978: “There is duress when it is likely to make an impression on a reasonable person, and “(1) Consent shall be deemed to be extorted by violence when the violence is that it can inspire him the fear of exposing such as to produce an impression on a his person or his fortune to a considerable Article 1141: reasonable person and to create in such and present harm. person the fear of having his person or “A threat of legal action does not constitute propertty unjtljustly expose dtd to ser ious ijinjury. In this respect, we consider the age, sex duress, except where the legal process is and condition of individuals.” deflected from its proper purpose or where it is (2) In such cases, the age, the sex and the condition of the person shall be taken into invoked or exercised in order to obtain a account.” Article 1113: manifestly excessive advantage.” “Duress is a ground of nullity of the Article 979: ress f contract f Article 1142: uu oo contract, not only when it has been “(1) Violence is a ground of nullity of a exercised on the contracting party, but also “Duress is a ground of nullity regardless of contract even where the threat is directed when it has been exercised on her husband whether it has been applied by the other party against the person or the property of the or wife, on her descendants or or by a third party.” spouse, or of a descendant or an ascendants.” ascendant of the contracting party.

consent: D consent: Article 1143: : Validity :

dd (2) Where the threat is directed against the Article 1114: “There is also duress where one contracting person or property of other persons, it shall

Vali “The only reverential fear to the father, the party exploits the other’s state of dependence be in the discretion of the court, according mother, or other ascendant, without there and obtains an undertaking to which the latter to the circumstances of the case, to void the contract or to affirm its validity.” being duress exercised, is not enough to would not have agreed in the absence of such ormation void the contract.” constraint, and gains from it a manifestly Article 980: FF excessive advantage.” Article 1115: “Mere reverential fear towards any one of “A contract can no longer be attacked the parents or other ascendants or towards because of duress, if, since duress has one’s spouse, shall not be sufficient to ceased, this contract has been approved invalidate a contract, if no violence has been used.” either expressly or tacitly, or by letting the time for restitution fixed by law.”

37 Article 1137: “Fraud is an act of a party in obtaining the consent of the other by scheming or lies. The intentional concealment by one party of information, where he knows its decisive character for the other party, is also fraud.” Article 981: Article 1116: Article 1138: raud

FF “(1) Fraud shall be a cause of nullity of the “The fraud is a ground of nullity of the “Fraud is equally established where it agreement when the artifices practiced by agreement when the maneuvers practiced originates from the other party’s one of the parties were such that without by one of the parties are such, it is obvious representative, a person who manages his them the other party would not have that, without these maneuvers, the other affairs, his employee (“préposé”) or one contracted. party would not have contracted. standing surety for him. It is also established (2) Fraud is not presumed but must be contract lid consent: lid ff It is not presumed and must be proven . ” where it originates from a third party in proved”d.”

Va collusion.” Article 1139: “A mistake induced by fraud is always excusable. It is a ground of nullity even if it

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

Article 982: Article 1126: “(1) Every contract has for its ormation: ments “Every contract has for its object a thing ee FF Ar tic le 1162 : sbjectsubject-matter a thing w hich one of the which one of the contracting parties binds contracting parties binds himself to give, or himself to give, or to do or not to do.” “A contract can not derogate from public order to do or not to do. either by its stipulations or by its purpose, Article 1127: whether or not this was known by all the (2) Only the things that are not extra Object “The mere use or the mere possession of a parties.” commercium can be the subject of an : New requir New:

tt thing can, like the thing itself, be the subject agreement. of a contract.” (3) The mere use or the mere possession of a thing can like the thing itself, be the

Conten subject of a contract.” 38 Article 1163: Article 983:

“An obligation has as its subject-matter a “(1) The subject of an obligation must be a thing dtdeterm ina te, at tl least as t o it s speci es. present or future act of performance. (2) The portion or quantity of the thing may The latter must be possible and determined or be uncertain, provided it is capable of being capable of being determined. ascertained.” Article 1128: An act of performance is determinable where it Article 984: can be deduced from the contract or by “(1) Future things can form the subject of a “Only the things that are can be the subject reference to usage or the previous dealings of contract. of agreements.” the parties, without the need for further (2) Nevertheless, it shall not be lawful to Article 1129: agreement. “ renounce a succession not yet devolved, “The object of the obligation must be e Article 1169: or to make any stipulation with regard to ments contract ff ee thing at least determ ine d as to its kin d. any such succession , whether with the “An onerous contract is a void, where, at the person whose succession is concerned, or The quantity of the thing may be uncertain, moment of its formation, what is agreed in with any other person, even though with the provided that it can be determined.” return for the benefit of the person undertaking consent of the former; saving any other an obligation is illusory or derisory.” provision of the law in regard to any

Object Article 1130: renunciation or stipulation made in Validity o Validity

: New requir New: Article 1170: contemplation of marriagg,e, or u pon the “Future things may be the subject of an taking of religious vows.” obligation. “Any contract term which deprives a debtor’s essential obligation of its substance is deemed Article 985: One can not, however, renounce an Content not written. “ "Things which are impossible, or unopened succession, or make any prohibited by law, or contrary to morality, stipulation on such a succession, even with Article 1171 ormation: or to pppyyublic policy, may not be the sub ject-

FF the consent of the successor, except under “Any term of a pre-formulated standard matter of a contract. the conditions provided for by law.” contract which creates a significant imbalance Article 986: in the rights and obligations of the parties to the contract is deemed not written. (1) Quotae litis stipulations are void. (2) Saving the provisions of article 1852 The assessment of significant imbalance must and of any other provision of this Code or not concern either the main subject matter of of any other law, any obligation to pay a the contract nor the adequacy of the price in rate of interest exceeding eight per cent per relation to the act of performance.” annum is also void in regard to the excess. 39 Article 987: “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

tt valid, if it is made to appear that such agreement was founded on a sufficient Article 1131: consideration, even though such consideration was not stated.” “An obligation without a rationale, or ) founded on a false or an unlawful rationale, Article 989: f contrac f shall have no effect” se” “Where the consideration stated is false, oo uu Article 1132: the agreement may, nevertheless, be upheld, if another consideration is proved.” “ca “The agreement is no less valid, even Article 990: thought the rationale is not stated.” “The consideration is unlawful if it is

: Validity Validity : Article 1133: tionale ( tionale prohibited by law or contrary to morality or aa nn to public policy.” R “The rationale is unlawful if it is prohibited by law or contrary to morality or to public Article 991: order.” “(1) Where the consideration for which a thing has been promised is unlawful only in

Formatio regard to the obligee, any thing which may have been g iven for the per formance o f th e 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 mayyg have given to the other pyparty, saving the provision of article 1716.”

40 Article 1195: “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 dship) ontract rr cc contract. The first party must continue to

(Ha perform his obligations during renegotiation. -- In the case of refusal or the failure of -- renegotiations, the parties may agree to

ance of ance terminate the contract from the date and on évision” rr mm the con ditions w hich th ey d et ermi ne, or b y a common agreement ask the court to set about

“Imp its adaptation. In the absence of an agreement within a reasonable time, the court may, on Perfor the request of a party, revise the contract or put an end to it, from a date and subject to such conditions as it shall determine.”

41 Article 1469 : “The assignment or sale of a debt, or of a Article 1321: right or of a cause of action is complete, “Assignment of receivables is a contract by and the ownership is ipso jure acquired by which the creditor (the assignor) transfers, the assignee as soon as the debt, the right Article 1689: whether or not for value, the whole or part of his or the cause of action, and the price have been agreed upon, and, except in the case “In the transfer of a receivable, a right or receivables against the assignment debtor to a of aright transferable by the delivery of the an action on a third party, the delivery third party (the assignee). ntract respective document of title, the deed of tktakes pl ace b btetween the ass ignor an dthd the It may concern one or more receivables, assignment is made.” assignee by the delivery of the title.” present or future, ascertained or ascertainable. Article1470: Article 1690: It extends to the ancillary receivables that is (1) The assignment is not valid unless “The assignee is seized with regard to assigned. made in writing. third parties only by the notification of the sion of co of sion vables The consent of the debtor is not required unless ii

nn transfer made to the debtor. (2) The assignment of hereditary rights , or the right was stipulated to be non assignable.” of debts, rights or causes of action arising Nevertheless, the assignee may also be Article 1322: from public deeds is void unless made by a seized by the acceptance of the transfer public deed. Notice to debtor. made by the debtor in an authentic deed.” “An assignment of receivables must be effected Article 1471: Article 1693: in writing, on pain of nullity.” and exte and mentrece of The assignee may not , in regard to third “The person who sells a receivable or Ar tic le 1323 : parties, exercise the rights assigned to him other intangible right must guarantee its “As between the parties the transfer of the right except after due notice of the assignment existence at the time of transport, even takes effect at the date of the act. Assign has been given to the debtor, by means of though it is made without security.” It can be set up against third parties from that a judicial act, by the assignee himself or by Article 1694: the assignor. Where no notice has been

r, renewal r, moment. In the event of challenge, the burden given. ee “He is only liable for the solvency of the of proof of the date of the assignment rests on debtor when he has undertaken to do so, the assignee, who may establish it by any Article 1472: and only up to the price he has withdrawn means of proof. “In default of such notice, or until such from the receivable.” Transf However, the transfer of a future right takes notice is given – effect only on the day when it comes into (a) the debtor may not set up the exis tence, as be tween the par ties as we ll as assignmen t aga ins t his cre ditor, an d if he against third parties.” pays the debt to him he is there by discharged;

42 Transfer, renewal and extension of contract

Assignment of receivables termination or theright termination term to the contrary, from the relations with from therelations severally liable for any additional costs arising for anyadditional severally liable The The are assignor andthe jointly and assignee assignment became enfor assignment became from the assignment wh from theassignment such of as thegrant a The The debtor mayset up against the assignee have to advance. Subject to anycontractual have to Subject advance. eecsinherentinthe defences “Unless the debtor has already agreed to it, agreed has already “Unless thedebtor a not debt, ortheset-off are of debtswhich only if notif it hasbeen h sinetmyb e paanthim against up set be may assignment the He may alsoset up defences which arose ult h eec fnon of defence the nullity

assignment , the lies ontheassignee.”

defence acknowledged it. acknowledged Article1324:

may related. the burden of costs these the burden

the assignor before the the assignor of be deferral, the release of to set off related debts. off related to set ied to him or he has ich the debtor did not ich thedebtor

non

set debt itself,suchas ceable against him, -

up performance

against

him ,

is faith, such in good set off the debt assigned to him against any against set to him off the debtassigned (b) if the creditor, after having assigned the (b) assigned if thecreditor,afterhaving off due any sumwhich to may become him given notice of given notice the a (c) if the creditors of creditors (c) ifthe assignment thereofto assignment;(d) the debtor is entitled to set be by the assignor; but the assignee may not may by but theassignee the assignor; they creditors only after have become the due in the hands of t due inthehands “The is notnece “The notice out order attachingthe a sum garnishee favour, shall be preferred to theformer favour, be preferred shall preceding articleshallbe necessary in referred tointhelast acknowledgment debt to one person, makes a second debt person, makes to one has acknowledged the assignment,” the has acknowledged ppg,g regard to bills of exchange or other of regard tobills exchange documents of title transferable by of titletransferable documents referred to theassi referred sum owing by him to the debtor.” byhim sum owing “Neither thenot endorsement or delivery. Article1474: Article1473: assignee; the assignor shall sue shall theassignor ssignment made inhis ssignment other person, ifhehas other he debtor,theyshall another personwho ice, nor the ice, nor g ssary if the debtor nee , eventhou g h 43 Article 1475: “The assignment of a debt includes every security, privilege or hypothec attached to Article 1325: the debt and every other thing accessory to it; but it shall not include the fruits accrued “In the case of successive assignments of due or any rescissory action, unless receivables, competition between the express mention thereof has been made in assignees is resolved in favour of the first in the assignment.” ntract

oo time, who has a right of recourse against the one in whose favour the debtor would have Article 1476: tendered satisfaction.” “(1)The assignor of a debt or any other right Article 1326: is bound to warrant its existence at the time sion of c of sion vables of the assigg,nment, althou gh no ex press ii “A person who assigns a right for value nn stipulation of warranty has been made in guarantees the existence of the right and of its the assignment. ancillary receivables unless the assignee took -- it at his own risk or knew of the uncertain (2) If the debt does not exist, the assignor is character of the right. bound to return the price received, unless the warranty as to the existence of the debt and exte and mentrece of ll He is not answerable for the solvency of the has been negatived either by a declaration debtor unless he has undertaken to be so, and of the assignor that he was making the then only up to the value of the sum he was assignment without any warranty, or by

Assign other words to that effect.” able to obtain for the assignment. Article 1477: Where the assignor has guaranteed the r, renewa r, “(1) The assignor is not answerable for ee solvency of the debtor, the guarantee extends only to his current solvency; it may be the solvency, whether present or future, of the debtor, unless he has expressly bound extended to his solvency when the right falls himself thereto, either by declaring the debt due, but only if the assignor has expressly so

Transf good and collectable or by other words to specified.” that effect. (2) If the assignor has promised such warranty, he shall be bound only to the extent of the price of the assignment.”

44 Ar tic le 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 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.” ontract Art icl e 132 7-2: “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 bilities nsion of c of nsion aa

ee 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, lext and gnmentli of ii aa such as nullity, the defence of non- performance, termination or the right to set off Ass related debts. Each may also setup defences which are personal to him.” Article 1328-1: fer, renew fer, “Where th e ori g ina l de btor is no t disc harge d by the creditor, any securities remain in place. Where the original debtor is discharged, Trans securities given by third parties remain binding only if they agree. If the original debtor is discharged, any joint and several co-debtors remain liable to the extent which remains after deduction of the share of the original debtor who has been discharged.” 45 Article 1216:

“A contracting party, the assignor, may assign 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, tract 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 act ion of con of ion

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

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

nd exten nd Article 1216-1: mentcont of aa “If the person subject to assignment has expressly consented to it, assignment of

Assign contract discharges the assignor for the future.

In its absence, and subject to any term to the , renewal ,

rr contrary, the assignor is liable jointly and severally to the performance of the contract.”

Article 1216-2:

Transfe “The assignee may set up against the person subject to assignment the defences inherent in 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. 46 Transfer, renewal and extension of contract

Novation Assignment of contract -- -- against the assignee all the defences which he which all thedefences against theassignee “A the novation agreed between creditor and a which which in place. may havebeenagreedremain The The may set person subjectto up assignment which remains after deduction of the share of of theshare after deduction which remains several co-debtors remain several co-debtors person subject to any securities assignment, Where the assignor is discharged, securities is discharged, Where the assignor gedb hr ate eani lc only place in remain parties third by agreed could have beenable to set up against the guarantor does not disc guarantor does If the assignor is discharged, any joint and any joint If is discharged, the assignor “If the assignor is not discharged by the “If is notdischarged the assignor h etrwohsbe icagd” discharged been has who debtor the

debtor

by with the latter’s agreement. latter’s the with

third

Article1335 who ril 1216 Article

debtor […].” parties assignor.”

has

1216

been remain harge the principal liableto the extent - § 3:

2: discharged

in

place

only .

-- -- 47 Article 1250: Article 1346-1 §3: Article 1165: “The subrogation is conventional: “It (i.e. subrogation) must be agreed upon at the “(1) The payer shall be subrogated to the rights of the creditor, by agreement – 1° When the creditor receiving his same time as the satisfaction, unless, in an payment from a third person subrogates earlier act, the party who subrogates has (a) when the creditor subrogates the payer him in his/ rights, actions, privileges or to all his rights against the debtor, indicated his will that the other contracting party mortgages against the debtor: this provided such subrogation is expressly tract should be subrogated to him at the time of Subrogation subrogation shall be express and made at stated, and made simultaneously with nn the same time as the payment; […].” satisfaction […].” the payment […].”

Article 1337:

sion of co of sion “Where the delegator is debtor of the beneficiary 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. and exten and 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

Delegation cancellation of his debts at the time of the r, renewal r, delegation. ” ee

Article 1338: “Where the delegator is debtor of the Transf beneficiary of the delegation but the latter has not discharged his debt, the delegation provides the beneficiary with another debtor.”

48 Breach of contract

Resolution for breach Anticipatory breach in bilateral contracts, in the case where one contracts, inthecasewhere in bilateral application to thec application “The resolution condition is always implied is always condition “The resolution may be granted a delay depending on the depending a delay may begranted performed has the choice of either forcing of either has thechoice performed the other partyto automatically termi whom the undertaking has not been theundertaking whom The The must be sought by termination w of the two parties does not fulfill its of not fulfill the two parties does hitih ibl d td In this case,thecontractisnot en termination with termination with damages. it

i s poss circumstances.” Article1184: comm ourts, andthedefendant perform the agreement ibl -- e, or tt it nated. The partyto The nated. men t t o . d eman d a “Termination resultseit “Termination eoac ucetys u,oo ce ot o ous, se y t e c su s ce a o pe contract by notice.Un non-performance. The non-performance. The notice to perform takes netknswoennefrac illead will nonperformance whose undertakings must previously haveput Termination maytake Termination place only after service “A creditor ma “A creditor obligation as soon as it “A party may suspend the performance of his the performance “A suspend party may by the creditor to the debtor or from a judicial by to or from the creditor the debtor on notice to perform his undertaking within a within his undertaking on to perform notice obligation when it bec when obligation consequences of this non-performance are of thisnon-performance consequences termination ma of a termination claus termination of a his contracting partner his contracting rf of a notice to perform which has not been has of which a noticetoperform sufficiently serious for him. Notice of this complied with, unless it was agreed that agreed it was unless with, complied suspension mustbe given as quickly as o “A termination claus “A termination effect if it to the only refers expressly rm to the termination to the a n ce i

termination clause.” s whose ,, y, reasonable time.

su at his own risk at hisown Article1225: Article1220: Article1226: Article1224: y ffi arisefromthe mere act of decision.” osbe” possible c

i nonperformance e less thereis urgency, he n omes due and thatthe due omes her from the application her from e, or, thenon- e, where becomes evident that evident becomes t e mustspecify the l will not perform his notperform will of thecontract. y the debtor in default thedebtor

. se ri ous, , terminate the terminate fr o

m n will

ot lead i ce

bound torestore totheotherpartyfruits which, through his fault or negligence, have his fault ornegligence, which, through ground offraudorviolenc (3) With regard to or the (3) regard the fruitscollected With the other any thing received or obtained in or obtained the thing received other any to restore bound (2) be Each partyshall (4) Where the contract is rescinded on the (4) thecontractisrescinded Where having regard to theci having regard operate so as to restore the parties to operate soastorestoretheparties the consequence or “(1) The rescission of “(1) rescission acontract The shall, condition in which they were beforethe theywere in which condition of such fraud or violence shall also be also shall of such fraud orviolence which which might havebeencollected,and demand for rescission, the courtmay, for rescission, demand interest received up tothedateof interest received case, direct aset-offof fruits such or un lthll idthi ess not been so collected.” so not been th e Article1209: l aw prov aw contract. tt it i bitb fth tt n y v t eres -- i r rcumstances of the t ue o t id . e, the partyguilty e, es o f

th th e con erw i se, t rac t . 49 The notice to perform must state expressly that if the debtor fails to fulfil his obligation, the creditor 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.”

“The debtor may at any time bring proceedings to challenge such a termination. The creditor must then establish the seriousness of the non-performance.” ract each tt rr Article1227: “Termination may in any event be claimed in court proceedings,” Article 1228: ch of con of ch

olution for b for olution “A court may, according to the circumstances , aa recognise or declare the termination of the

Res contract or order its performance with the Bre 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 on the date set by the court or, in its absence, the day on which proceedings were brought.

50 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 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 breach rr 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 esolution fo esolution tract RR provide d by ar tic les 1352 to 1352-9”9,” Article 1230: “Termination does not affect contract terms relating to dispute-resolution, nor those

ch of con of ch intended to take effect even in the case of aa termi nati on, suc h as con fiden tia lity or non- competition clauses.” Bre

Article 1221: “A creditor of an obligation may, having given ce

nn 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:

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

Spec and at a reasonable cost, have an obligation performed or, with the prior authorisation of 51 Article 1146: the court, may have something which has been done in breach of an obligation “Damages are due only when the debtor is destroyed. He may claim reimbursement of Articles 1125: in de fau lt to fulfill his o bliga tion, excep t sums of money employed for this purpose where the thing which the debtor had “Where any person fails to discharge an from the debtor. obliged to give or to do could be given or obligation which he has contracted, he shall made only in a certain period of time that He may also bring proceedings in order to be liable in damages.” he let pass.” require the debtor to advance a sum Article 1126: necessary for this performance or destruction.” Article 1147: “(1)The obligation to give a thing carries Article 1231: “A debtor is condemned, if necessary, to with it the obligation to deliver the thing, the payment of damages, either on the “Unless non-performance is permanent, and to preserve it until the delivery. ground of the non-performance or a delay damages are due only if the debtor has (2) If the debtor is in default for delay in in performance of the obligation, whenever previously been put on notice to perform his making the delivery, the thing shall be at his he does not justify that non-performance ct obligation within a reasonable time,” risk and peril, even though before such es aa comes from an external cause which may default it was at the risk and peril of the Article 1231-1: not be imputed to him, although there is no creditor.” bad faith on his part. “A debtor is condemned, where appropriate, to Article 1127: Article 1148: the payment of damages either on the ground of the non-performance or a delay in In case of non-performance of an obligation “No damages shall be paid where, as a to do, the creditor may be authorized to

dies: damag dies: performance of the obligation, unless he h of contr h

ee result of force majeure or fortuitous event, cause the performance there of himself at cc justifies this on the ground that performance the debtor was prevented from giving or the expense of the debtor.” doing what ha was obliged to do or did was prevented by force majeure.” Rem what was forbidden to him.” Article 1231-2: Article1128: Brea Article 1149: “In general, damages due to the creditor are “Where the obligation is to forbear to do, for the loss that he has incurred or the gain of the debtor who infringes the obligation is “In general, damages due to the creditor liable in damages for the mere fact of such which he has been deprived, with the following are for the loss that he has incurred or the infringement.” exceptions and qualifications.” gain of which he has been deprived, with Article1129: the following exceptions and qualifications.” Article 1231-3: “Saving his action for damages, the creditor “A debtor is bound only to damages which Article 1150: may demand that anything done in breach were either foreseen or which could have “A debtor is bound only to damages which of the obligg,yation be undone, and maybe been foreseen at the time of conclusion of the were either foreseen or which may have authorized to undo it himself at the expense been foreseen at the time of the contract, contract, except where non-performance was of the debtor.” where it is not by his fraud that the due to a gross or dishonest fault.” obligation is not fulfilled.” 52 Breach of contract

Remedies: liquidated damages – penalty clause Remedies: damages “ agreement, commits himselfto something and the gain from which he was was deprived, he from which and thegain by thecreditor the losssuffered regarding ntestainweenon where situation the In In person, to t ensure a contract does result does a contract that isthe which

“Penalty clause is the one by which a is theonebywhich “Penalty clause the fraud, damages shall not included, not shall fraud, damages

in case of non in case situation result of non-performance.” result of Article1226: Article1151:

where immediate and direct he performance of an he performance - p

non erformance. from the debtor’s from - - efrac of performance performance ”

of

a penalty is not incurred unlessthe debtor was court, even of its own initiative, in proportion to proportion court, in even ofitsown initiative, agreed ifitismanifestly h al opromsalpyacransmof sum certain a pay shall perform to fails who Except where non-performance is permanent, Except non-performance where part, the by agreed penaltymaybe a reduced t idtit lt th i t d ti iti i Where Where in has been performed an undertaking hdth ilfh f l ti h hi t d th procured for the creditor, without prejudice to prejudice procured forthecreditor,without may be neither a awarded higher nora lower Any stipulation contrary to the preceding two two contrary tothepreceding Any stipulation It tt h ti it th “I n “Where “Where a contractstipul the application of t of the application money by way of damages, the otherparty by way of damages, money Nevertheless, acourt which which is theimmediate that only include dishonest fault,damages iti n e a contract does indeedresultfrom gross or a th

fails ti d e s paragraphs is deemed not written. not written. is deemed paragraphs ve, mo van

it to ua t put to perform.” on notice age w

perform ti d on w non-performance.” era Article1231-4: Article1231-5: hi t e or h c

ere non he preceding paragraph. he preceding h shall sum. par i ncrease excessiveor derisory. may, evenof its own ates that theperson ates

ti and direct result of pay a - l per p

er a

fff th certain f ormance o ormance e pena

sum lt y so h f as a

of

creditor sustains by the non-performance of creditor sustains bythenon-performance fulfilment of binds himselfto an agreement, instead of demanding the penalty incurred the penalty instead ofdemanding rdcstenliyo h eat clause penalty the of nullity the produces compensation for the damage which the which for thedamage compensation “(1) The nullity of the principal obligation “(1) of theprincipal The nullity “A penalty clauseis a clause whereby a ,p g pp pp, performance of the principal obligation of theprincipal performance (2) The nullity of the clause penalty erson something incase of non-fulfilment.” does not produce “(1) The penalty the “(1) penalty represents The 2 h rdtrmysefrthe for sue may creditor The (2)

, The for the the principal obligation. the principal

the principal obligation.”

creditor

nullity by the debtor. by the Article 1118: Article1118: Article1119: Article1120: p ur

p of

may ose of securin

the the nullity of the the nullity

sue penalty

for

the

clause g the

. 53 (3) He cannot demand both the principal thing and the penalty, unless the penalty shall have been stipulated in consideration of mere delay.” Article 1121: “(1) Where the obligation consists in forbearing to do something, the penalty becomes due as soon as the contravention

use 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. – cla penalty act

rr (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 h of cont of h

ed damages ed to abate or mitigate the penalty except in tt cc the following cases: (a) if the debtor has performed the obligation in part, and the creditor has Brea expressly accepted the part so performed;

dies: liquida dies: (()b) if the debtor has performed the ee obligation in part, and the part so performed, having regard to the particular Rem 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 penalty, has expressly waived his right to any abatement or if the penalty has been stipulated inconsideration of mere delay. 54 (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. ” 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 se

uu the he irs o f the de btor in fr inges the obligation; and in such case, the penalty may be claimed either – (a) against the defaulter, for the whole amount, or penalty cla penalty ct (b) against each co-heir for his respective –– aa share, or, where a hypothecary action is competent, even for the whole amount, saving the right of relief against the defaulter.” Article 1124: d damages d h of contr h ee “(1) Where the principal obligation cc contracted with a penalty clause is divisible, and one of the heirs of the debtor infringes the obligation, the penalty shall be Brea incurred only by such heir, and only for the share of the principal obligation for which ies: liquidat ies: he is liable, and no action shall lie against dd those who have performed the obligation. (2) The rule laid down in sub-article (1) of

Reme 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 performance 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.” 55 APPENDIX 2

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

“In case of fault committed during the negotiations, the reparation of the resulting loss is not calculated so as to compensate either the Article 1112 § 2 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.”

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

“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 Article 1161 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. ”

“If the assignor is not discharged by the person subject to assignment, any securities which may have been agreed remain in place. Article 1216-3 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.”

“A debtor may assign his liability to another person with the agreement of the creditor. Article 1327 The assignment must be made in writing, on pain of nullity.”

“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 Article 1327-1 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.” 56 Our offices

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