Business Law 2021-2022 PDF

2021-2022 Carducci Guido Business Law A contract is governed by law and belongs to the law of obligations. Not all obligations are legal (Ex. greeting someone isn’t a legal obligation but more of a moral obligation). For the law, only legal obligations count. There are 3 sources of legal obligations : - The legal act : happens because you wanted this act, these are voluntary obligations and are the most numerous ones. It includes contract and goes further (it goes broader than the contract, it includes unilateral expression of will). It’s aimed at generating legal effects : conventional or unilateral effects (Cf Art. 1100-1 « les actes juridiques sont des manifestations de volonté destinés à produire des effets de droit, ils peuvent être conventionnels ou unilatéraux »). Legal acts in French law are subject, in principle, to the French rules which governs contracts. - Tort law (Droit de responsabilité civile) : Art. 1100-2 « Les faits juridiques sont des agissements ou des événements auxquels la loi attache des effets de droits ». Art. 1240 : « Tout fait quelconque de l’homme qui cause à autrui un dommage, oblige celui par la faute duquel il est arrivé à le réparer ». Which gives us in English : “any human act which causes harm to another compels the faulty author to make reparation for it”. Example of case of Tort law : two companies are competing and there’s unfair competition (concurrence déloyale). For instance, company A provides false information about company B. Faulty conduct of company A. - The law (legal obligations) : the law makers enact legislations. 1 Introductory Provisions Art. 1101. – Le contrat est un accord de volontés entre deux ou plusieurs personnes destiné à créer, modifier, transmettre ou éteindre des obligations. Art. 1101. – A contract is a concordance of wills of two or more persons intended to create, modify, transfer or extinguish obligations.. A contract doesn’t count for free, reaching an agreement isn’t obvious. There are cases where the parts disagree and so, there are no agreements. For instance, the interest of a buyer and a seller diverge, but they come to find an agreement because they have to (pressure, etc). Example 1 : A buyer would like to buy a very sophisticated product, with great quality for a very low price, when on the contrary, a seller, would like to sell this same product as expensive as possible, a product of good quality in order to be competitive but that’s also cheap in producing (cost of fabrication). The gain could be higher because the product has lower manufacturing cost. Example 2 : Guarantees concerning a product. Ideally, a buyer would like a product that’s guaranteed for a long time (3/5 years), however, a seller has the opposite interest, that is, to sell a product that’ll be guaranteed as little as possible). Because there’s a reduction of the cost for the seller related to litigation or repairing the product. In business, there is a financial risk. The law general principle says that if you’re a debtor you’ll pay your creditor by your assets. This means that the creditor is fully entitled at law to attach your assets and put them on sell, then pay the credit with the money. If some money remains it will go to the owner (debtor). Because of this financial risk (loss of assets), many businesses use legal entity in business and use it as their business partner. Limited company (Société de capitaux) : Limited liability. This means that the liability of the owners or investors of a company is limited to the total amount of money which they have invested in the business. When the firm is registered as a limited liability firm, the owners of the company will be safe in case the company goes bankrupt. To elaborate on this idea, ‘limited liability’ will imply that the owner’s losses are only limited to the proportion of their specific share and he or she cannot be made responsible for the losses that are beyond the share of their contribution. Unlimited companies (Société des personnes) : it’s the opposite of limited companies. In this case, the liability that the owners and investors might have is not limited to the amount that they have contributed. This means that there is no limit to the losses that the owners or investors have to bear. The risk is higher in International business : - International business : In general, there’s no common language, the law also differs, the outcome is less certain than in domestic business. Therefore, the risk is higher. - National business : The same language is spoken and it’s the same legal system (Ex. Because we know what French law says, it’s much easier for us and the risk is lower). 2 There are 4 different functions in a contract : creating new obligations, modifying existing obligations, transferring existing obligations and finally, extinguishing existing obligations. 1) Creating new obligations (main function) All of us, we conclude a contract every day, it can go from buying a coffee or taking the metro (small contract) to buying a house or a piece of land (much bigger contract). Between parties that had no mutual obligations, we create new ones (concluding = creating). 2) Modifying existing obligations Example : if A and B have a supply contract for 5 years, by a second contract, they may modify certain elements of the first contract. That is, the first contract remains but with some different elements (ex. Price on the 3rd year, the day of delivery of the goods on the 2nd year, etc.). 3) Using the contract to transfer to someone else the existing obligations It could be anything. Example : A and B are in a supply contract. Supplier A and client B, the two may transfer their positions to others parties ; we then, will have a new supplier C, and new client D. Other example, there’s a transfer of all the obligations of only one party : the client remains the same but the supplier changes. The existing obligations are generally created by a previous contract, however, there may also be obligations coming from a different source. Example : obligations arising from Tort law (= obligation délictuelle résultant de la responsabilité civile) ; obligations between A and B -> if they wish, A and B may later change something in this obligations by contract. 4) Extinguishing existing obligations Example : a 10 year supply contract, if the parties haven’t stipulated in the contract a mechanism to bring the contract to an end in certain circumstances, then the parties would need a new contract which would bring to an end the previous one. That’s very common. 3 Freedom of contract is defined in art. 1102 of the Civil Code. Art. 1102. – Chacun est libre de contracter ou de ne pas contracter, de choisir son cocontractant et de déterminer le contenu et la forme du contrat dans les limites fixées par la loi. La liberté contractuelle ne permet pas de déroger aux règles qui intéressent l'ordre public. Art. 1102. – Everyone is free to contract or not to contract, to choose the person with whom to contract, (P.1) and to determine the content and form of the contract, within the limits imposed by legislation. Contractual freedom does not allow derogation from rules which are an expression of public policy. (P.2) This freedom of contract concerns 4 elements : the freedom to conclude or not the contract, to choose your co-contractor, to determine the content of the contract and finally, to determine the form of the contract. 1) Concluding or not the contract Nobody is obliged to conclude a contract. For instance, the two parties may negotiate the contract for days, weeks, even for months and then they’re free to decide, at a given point in time, if they want to conclude (bcs they found an acceptable agreement) or not to conclude (unable to reach an interesting agreement). That is, we contract when we find an interest (generally economic interest). If you contract, you will become a party to the contract and you’ll have to assume your obligations and rights vis-à-vis the other. If you do not, there’s nothing contractual between you and the other party, however, there might be something legal between the two of you outside the contract. In terms of Tort law, even if there’s no contract between A and B and A causes harm to B, then there’ll be legal consequences for causing harm to B. For instance, in case of unfair competition. Example : Company A misleads information publicly about the products of company B. In this case, company B can seek damages against company A, but not on the legal basis of a contract (as there’s no contract) but on Tort Law. That is, company B will start a civil action before a court against A for unfair competition. 2) Everyone or anyone is free to choose the contractor When we conclude a contract, we conclude it with a person/company, that we choose. This limitations are established by law. Ex. In France, whenever a company has a monopoly, the law imposes on this company to accept any client. For instance, RATP, which concludes thousands of contracts every day with all its users, can’t choose its contractors (can’t choose who come on board and who doesn’t). But this is an exception, the rule says that we are free to choose our co-contractor. 3) We are all free to determine the content of the contract Content = clauses. An agreement is expressed by clauses and for this, this freedom is certainly the most important of all the freedoms. The contract can be about anything as long as the parties agree, it can be about a sale of products, a loan, transportation, a translation, etc. The examples are endless. 4 4) Freedom to determine the form of the contract There are only two forms, the written and oral form : - Simple written form (= acte sous-seing privé). This form is only stipulated between A and B. - Written contract by a notary public : if the parties want to add more formalism, they may very well have a legal professional (a notary) draft their contract, this it has of course a cost. In an oral form, the proof can nevertheless be established by witnesses. Example : Meeting of two directors of two different companies, A and B. Let’s say that there are other people accompanying them, those people can serve as witnesses when the two directors commit legally. The witnesses might, one day, be called in court to confirm that an agreement, between A and B, took place orally. However, 99.9% of contracts are written. Why is this form privileged ? If it’s written the parties know exactly what they agree about, especially if it’s a rather complex contract. Orally, you may remember a few elements but as soon as there are many elements the risk of making confusions is higher. And in business, nobody wants to take the risk. Indeed, business requires rapidity, clarity, no hesitation and lack of disputes. Therefore, the contract needs to be well written, with the right words at the right place. It seems obvious, but it’s not always the case. For instance, when the contract is international and is drafted in a language which isn’t the language of both parties. It’s obvious that a contract is to be clear using the right words at the right time, but it’s also obvious in domestic contracts. For example, a contract concluded between two French companies in French would, probably, be very clear. And this, because the two parties have the same culture, understanding and knowledge of the language. All this, helps reaching a very clear terminology in contract. However, when we move to International contracts it’s much more difficult. Indeed, the companies can be from anywhere, of different sizes (small, medium, important) and with all different degrees of experience in international trade (from great experience to low experience). It’ll be problematic when you have two companies that use often a language that isn’t the language of the two companies. Problematic because they probably don’t master the language. That is, they communicate but without controlling the language at 100%. So, there’s a risk of inaccuracies which can lead to disputes. Example : one of the parties will take advantage of the ambiguity and to try to say “I have a right” to what the other party will respond “no, you don’t have a right” or, on the contrary, one will say “I don’t have an obligation” to what the other will respond “yes, you do have an obligation”. So unfortunately, each party will do its best to take advantage of that ambiguity in the contract, which will lead to disputes and therefore, to court. In court, the case will be studied and a judgement will be rendered. The parties will have to go with the judgement. All this takes time and money. So, again, it’s very important to choose the written form, with the right words, in a language that both parties master. We should add that many contracts exist already : standard contracts. These are contracts written by entities of different nature either that make the contracts available to anyone or only to some members of a business association. 5 Example : in contracts related to constructions, there are several standard contracts that exist in domestic / International business practice. One of those, is what we call the FIDIC forms ( = contrats FIDIC). These, are available in various languages (English, French, Spanish, Chinese, Russian, etc.). When the parties use this kind of pre-existing contracts, generally, there are well drafted, so the risk of ambiguity is very limited. However, in order to satisfy their needs, the parties may very well change some of the existing clauses : they may remove some words / add a few words. And by doing so, they might add inaccuracies / uncertainties, and this could lead to disputes. A contract is an agreement. There are two ways of reaching an agreement : what we’ll call the old way and the standard contract. 1) Old way Person to person meeting and discussion of each clause. A and B meet in person (or virtually) and discuss each clause, and little by little they come to an agreement. This way of doing is ideal, as the parties discuss everything, however, it’s time consuming. For big contracts, it’s necessary to take time to negotiate well. Because it’s time consuming, each company in business, decides how much time to give to each contract. According to the contract/company, some will give weeks (for important contracts), but some others will give very little time (pressure of business). 2) Standard contract These are contracts written by someone else (ex. FIDIC). It’s a standard contract, which means, that it should satisfy the majority of wills. Any company may use this standard contract, and if they don’t find it sufficient, the parties may add clauses. This way of doing is mainly used today in business as each company has its own general conditions of contract (= their own standard terms). Example : If you go to a bank and ask for a bank guarantee (= a loan), the bank first should decide whether or not to grant you a loan. If they decide that you deserve their trust, then they’ll use a contract which is their standard contract for this kind of guarantee. So, if you go to any big bank or midsize bank , the contract is already drafted by the bank. In this case, the client can’t change the contract, maybe they will adapt a few clauses but not change it. Why so many companies have this standard terms ? Because they need uniformity, that is, they need to know that all the contracts they conclude (hundreds of contracts every hour, maybe even more) lead to the same conclusion, the same effect. All the clauses must be the same, because if we start negotiations with different clauses for each client, each contract would be different and therefore, the result would be different as well. Example : Michelin, a leading manufacturer in the world of tires. Imagine a company like Michelin which sells worldwide, a company like this needs stability and predictability in everything. For instance, Michelin accepts to guarantee the tire for two years, this two years need to appear in each contract, it needs a clause in the contract that says “the tires are guaranteed for two years”. Of course, Michelin can reach this stability only if the contract isn’t modified by the other party. This is why, each company has the need to standardize its conditions of contracts. Generally, companies don’t have the time and don’t want to take to discuss clause by clause. There’s only one exception : if a big company negotiate with another big company (B2B), only then, if they agree, they can take more time to negotiate their conditions. Otherwise, in the great majority of contracts, all companies need the predictability and therefore, the same kind of contract. 6 The clauses have immediately a consequence on everything, for instance, if Michelin has a two year guarantee, it means that for two years there might be litigations (= actions en justice contre Michelin). There is a cost of guarantee immediately related to the clause for Michelin (it costs to replace a product). And worst, if there’s an accident related to the tire (ex. the tire happened to be defective), the cost to repair the damages can be very important. A big company like Michelin needs to protect itself from this basis risks (= damages in case of accident) by concluding insurances. An insurance, which covers this kind of risk. This kind of insurance has of course a cost, so, Michelin, will use this cost in the price. The cost of the tire includes the manufacturing costs, but also the insurance cost. The insurance cost vary very much depending on the clauses (ex. not the same cost for a 2 year tire and a 3 year tire guarantee). So, all the clauses negotiated by the parties are very important, because it’s not just about words : each clause is associated with rights, obligations, legal consequences and economic consequences. And as we saw in this Michelin example, the parties never negotiate lightly a contract. A contract is a management tool of the risk (this is true when the parties use the contract well). Of course, big companies like Michelin do : they have expert lawyers in negotiating contracts, they have all the support to negotiate well. However, it’s not the same for very small companies (ex. Family companies), that don’t even have a lawyer, and therefore, the contract results in being poorly drafted. It’s the responsibility of each company to do well in negotiating the contract. All the agreements of the parties can never go against the law. Therefore, art. 1102 is crucial, if we didn’t have it, there would be no freedom of contract : no company, nor individual could conclude contracts in order to optimize it's economic situation (maximizing profit). This is why, in any country which has a liberal economy, you will find an article more or less like art. 1102. The exceptions would be countries that are much more dictatorial, countries where freedom of economy instead of contracts are basically not existing. The point is what are the limitations to this freedom of contract ? (Paragraph 2 art. 1102) As stated in art. 1102, paragraph 2, “contractual freedom does not allow derogation from rules which are an expression of public policy”. We always hear that law is always mandatory, which is generally correct. Now in matters of contract, so in private law and more precisely in contract law, we have a necessary distinction to draw. Some provisions are mandatory rules (= règles impératives ou règles d’ordres public). These rules always apply to contracts, regardless of whether the parties agreed upon a different clause. In French : la règle impérative s’applique toujours indépendamment de l’existence d’une clause contractuelle. Mandatory rules always apply, it doesn't matter whether the parties did agree about the clause or not. For instance, sales with consumers (B2C) are part of the consumer law (droit de la consummation). Well, this consumer law is very much mandatory law. Basically, with a few exceptions, all the provisions of French consumer law are mandatory. Meaning they don’t allow a different clause by the parties. So, the company which easily can impose a clause to the consumer, even if it imposes a clause and it’s signed by the consumer and the company, the result doesn’t change because the clause will not be able to derogate from a mandatory rule. 7 Example : if the manufacturer inserts a clause in the contract saying that it doesn’t guarantee its products at all (for ex. even if it breaks down one hour later after purchasing it), assuming that it’s accepted and signed by both parties, well this clause would be disregarded (contrary to public policy French rules / mandatory French rules). Neither the seller nor the buyer has the obligation to follow a clause which isn’t legally binding. This is true for mandatory rules, however, the situation is completely different for non-mandatory rules (= règles supplétives). These non-mandatory rules only apply if there’s no clause in the contract saying the opposite or something else. So, if the French rule is non-mandatory it means that it applies, unless the partners agreed about a different clause. Generally, if you have 50 clauses, and only two clauses are in conflict with mandatory rules, then this two clauses disappear, and the remaining 48 clauses continue to exist and have to be applied. However, if this one or two clauses (in conflict with a French mandatory rule) are so important to the parties, that they explain why the parties concluded the contract, then the contract is void (happens exceptionally). In French law of sale, the buyer becomes the owner of the sold item at the time of conclusion of the contract. French law requires only an agreement on the price and on the subject delivered. There are many consequences with becoming the owner. One of these consequences is that, once you become the owner, you carry the risk of the object. Art. 1583. – Elle est parfaite entre les parties, et la propriété est acquise de droit à l'acheteur à l'égard du vendeur, dès qu'on est convenu de la chose et du prix, quoique la chose n'ait pas encore été livrée ni le prix payé. Art. 1583. – The sale is perfect between the parties as soon as they have agreed on the item and the price, although the item has not yet been delivered nor the price paid Example : the contract is concluded today, but the good remains in the entrepot of the seller (imagine that the good’s delivery will be only 1 week later) and a fire occurs in the entrepot and destroys the good then the buyer will suffer the loss. This art. 1583 is a non-mandatory provision. Generally, the lawmaker decides whether a rule is mandatory or not. The problem is that, often, the lawmaker doesn’t say if a provision (=law) is mandatory or not. In this case, only a judge can decide on behalf of the lawmaker. Because art. 1583 is non-mandatory, the rule it establishes is no longer mandatory. That is, if the parties want, they can organize the transfer of property differently. They can insert in the contract a title retention clause (clause de réserve de propriété) under which the seller remains the owner of the object as long as he isn’t fully paid. That is to say, the seller, even if he receives a 10% payment, remains the owner (because art. 1583 has been removed). And of course, as we said previously, if there is NO title retention clause inserted, the seller immediately loses title over the property. So, it’s really important to understand whether a provision is mandatory or non-mandatory. 8 As said before, « la liberté contractuelle ne permet pas de déroger aux règles qui intéresse l’ordre public ». Which means freedom of contract, doesn’t allow the parties to the contract to derogate from rules concerning public policy (rules that are mandatory because they concern public policy). There are several of this rules. For instance, a drug store can’t sell an expired medicament. Because there are rules that prohibit it. Art. 1103 is another major provision of French law which is crucial to economy. Art 1103. – Les contrats légalement formés tiennent lieu de loi à ceux qui les ont faits. Art 1103. – Contracts which are lawfully formed have the binding force of legislation for those who have made them. This provision is crucial because it’s the provision making all contracts that are valid legally binding between the parties. It’s what we call the binding force of contracts (= l’effet juridique obligatoire du contrat). It’s extremely important because thanks to this binding character of the contract, the parties know that if they don’t comply with the contract, then they’ll face contractual liability. Again, this is very important, if art. 1103 happened to disappear all contracts would not be legally binding. So why complying with a contract which is not binding ? Nobody would. Therefore, the economy would stop : why would I be providing a service if I’m not bound to provide this service and my client isn’t bound to pay me for this service ? So, art. 1103 is the provision granting a binding legal effect to all valid contracts. There’s a huge difference that exists between a “contract” (valid and binding) and the expression “gentleman agreement”. A gentleman agreement is an agreement which is based only on the loyalty of two gentlemen. In a gentleman's agreement, the law doesn’t intervene, the agreement will be respected only because the person is assumed to be such a gentleman. So, there is no reliance on the law. On the contrary, all of us, we rely on the law (we don't really know whether the other party is loyal or not). If you conclude an agreement with a supposed gentleman, but it turns out that this person doesn’t comply to your agreement, then it’s problematic. Because you didn’t conclude a valid contract, you have nothing in your hands to bring the other person to court. This is why contracts are so important, and why art. 1103, in particular, is so important. Because they guarantee to anyone legal certainty, that is, the fact that the law will help the creditor in case of breach of contract by the debtor. 9 Art. 1103 only applies to valid contracts. A contract is valid only if it meets the three requirements under art-1128 : the consent of the parties, their capacity to contract and the content of the contract which has to be lawful and certain. 1. The consent of the parties : the consent must be given without mistake, doll (misrepresentation) or duress (violence) Example of mistake : I wanted to buy a wooden table but they gave me a plastic table, which looks like wood. I come back home and find out that it’s not wood but plastic, in this case, I can go to court and say that there has been a mistake. Example of duress : any kind of psychological / physical violence. Example of doll : it’s a clear nonsense, occurs when a party wants to push the other in a false believe so that they agree on the contract. Let’s take the wooden table example. We have a doll if the seller knows very well that the table he’s proposing to me is plastic and only looks like wood. The seller said that only to make me buy it. In this case, I can seek the canceling of the contract. 2. Their capacity to contract You must be major, and without any mental disease which might affect your capacity to understand what your interests are. 3. Content which is lawful and certain The law requires the clauses to be lawful (= in accordance with the law) and certain. If the contract organizes anything prohibited by law (Ex. prostitution, sale of weapons, etc. ) then, of course, it’s not valid. The content of the contract also needs to be certain, that is to say, well determined and not ambiguous. As soon as the clauses are vague, because they don’t clarify what the real intention of the parties are then, of course, the content is not certain and therefore you know that the contract will not be considered valid and therefore not binding. Art. 1104. – Les contrats doivent être négociés, formés et exécutés de bonne foi. Cette disposition est d'ordre public. Art. 1104. – Contracts must be negotiated, formed and performed in good faith. This provision is a matter of public policy What does this mean ? First of all, this is a new provision. This comes from the 2016 reform, before 2016 we didn’t have this, we had a different provision : art. 1134, paragraph 3 which only mentioned “ les contrats doivent être exécutés de bonne foi”. Good faith was required only at the stage of performance of the contractual obligation, it was very different. So, between 1804 and 2016, we had good faith required by law only at the level of performing the contract. 10 This means that before, in the negotiation, there was no duty of good faith. However, now, there’s a good faith obligation : the parties must behave in accordance to good faith during the negotiation of the contract, the formation and the performance of the contractual obligations. That is, there must be loyalty between the parties between and during the negotiation conclusion and performance. Loyalty means being correct one to the other, in good faith (without hiding anything) but it doesn’t mean forgetting your own interest. Of course, it’s obvious that each party to the contract seeks its best interest. At the same time, the parties need to mutually act properly, meaning with loyalty to each other. We’ll find a strong provision on hiding, which is the provision on doll. Indeed, the all contract could be void if there has been doll (= misrepresentation). Doll is the situation where one party hides deliberately to the other a given situation, just to convince the other to conclude the contract. (cf. the wooden table example). Again, doll is a different provision, it’s not art. 1104, but the idea remains the same : during the negotiation, the parties have to act loyally toward each other. Concerning negotiation, it all depends : there are small contracts where negotiations are very short and there are other contracts where negotiations can last a few days, weeks, month or even years. It all depends on the complexity of the contract. For instance, speaking about a small, simple, straightforward contract such as a sale contract, is something completely different from speaking about a construction contract to build a highway or refinery. Why ? Because those are contracts that require so much care in dealing with so many legal and technical aspects, that the negotiations necessarily will last much longer. So, this provision (art. 1104) is important because as negotiations may take over months or even years, a lot can happen during this period. Example : The French ministry of transport decides to build a new train line from place A to place B (doesn't matter), and seeks from the major construction companies their proposal and then, the government will consider the most reasonable one. On the one side, the least expensive but also, on the other side, the one meeting all the requirements set by the government. Now, imagine that the government requests very precise numbers (un devis) concerning a number of tunnels that should be built by the construction company, for the train to go through the Alps between France and Italy. Then, the construction company undertakes very serious inquiries about the cost of a 15Km tunnel (we can imagine it’s high complexity and cost). So, in this example, the company spends a lot of money in finding the geologists experts that are in position to give a good expectation of what the cost of the tunnel will be. Let's imagine that the company spends 1,000,000 euros to get all the feasibility studies and cost expectation studies from 5 gallery's and major companies and then, all of a sudden, the French government says that it has changed its mind and is no longer interested in this project. So, in this situation, the construction company has been investing a lot of time, a lot of money ( €1 million) just to bring all this information to the attention of the government which, just walks away. Ok now, before (under case law) and now, since we have art. 1104, the construction company would be able to go to court and plead the absence of good faith by the ministry of transportation. Of course, the ministry of transportation is entitled to not conclude the contract, good faith doesn’t mean that the party has the obligation to conclude a contract. 11 Good faith prohibits an interruption of negotiation without serious grounds. If there are serious grounds, any party may interrupt the negotiation, however, if it’s more of a caprice or interruption without any serious ground, the other party may go to court and try to invoke the absence of good faith during the negotiation. And this, in order to get back the cost of all the studies that the company undertook (in our example). Then, the court might use art-1104, and if it comes to the conclusion that the government has indeed lacked good faith, then the company might be able to recover the lost costs. To resume, each party is free not to conclude a contract but is not in the position to interrupt a negotiation without serious grounds (good faith). Example of a serious ground : a sudden shortage of funds; for instance, if all of a sudden the government has a lower budget and therefore, has to cancel or at least postpone the project for a number of years. Of course, the government has to prove that this reduction of the budget couldn't be expected when they started the negotiations. If this reduction of budget was foreseeable, then there will be no justification for the government. Another serious ground example : a justified rejection of the partner (company), for instance, A rejects partner B, because A discovers something about B which makes B not reliable anymore. Now, it's also interesting that art. 1104 reads “this provision is a matter of public policy”, that is to say, art. 1104 is a mandatory provision. Mandatory provisions are rules that always apply to their subject matter, regardless of whether the parties agreed upon a different clause. So, here, if the parties inserted a clause in the contract saying “the parties are not bound by art. 1104” or “the parties are not bound to a good faith conduct”, well this clauses would be void because contrary to a mandatory provision. This isn’t the same for non-mandatory provisions (= règle suppletive). A non-mandatory rule applies like any provision, but doesn’t apply in case the parties have agreed upon a different clause. An example is art. 1583 which reads “the transfer of property concerning a good is immediate”. Which means, the buyer receives ownership of the good as soon as the contract of sale is concluded. So, if I buy something now, I immediately become the owner thanks to art. 1583. However, this because art.1583 is a non-mandatory provision, the parties may insert a title retention clause to organize the transfer of property differently (Ex. the buyer holds ownership of the good until he receives full payment). The lawmaker decides if a provision is mandatory or not, however, in many cases the lawmaker doesn’t say anything about it. In this case, only courts are entitled to decide whether the provision is mandatory or not. 12 Art. 1105. – Les contrats, qu'ils aient ou non une dénomination propre, sont soumis à des règles générales, qui sont l'objet du présent sous-titre. Art. 1105. – Whether or not they have their own denomination, contracts are subject to general rules, which are the subject of this sub-title. All contracts are subject to these general rules in the Civil Code regardless of whether they have a specific name or not. When we say a contract with a specific name we mean “un contrat special”. Specific contract examples : sale contract (contrat de vente), exchange contract (contrat d’échange), agency contract (contrat de mandate), transportation contract (contact de transport), a loan contract (un prêt), and more and more. Basically, specific contracts are all the named contracts, that have been regulated by the lawmakers. Can parties conclude only specific contracts ? The parties can’t conclude only specific contracts. This is a very important point in business law, because business law relies on freedom of contract. We already studied freedom of contract through art. 1102 : “Everyone is free to contract or not to contract, to choose the person with whom to contract, and to determine the content and form of the contract, within the limits imposed by law”. However, the parties can do both : they can conclude a specific contract, as well as, they can conclude any contract that they put together with any clause that they deem appropriate. For instance, they can very well do a mix (put together different clauses inspired by different types of contracts : agency, service, loan contract,..) and it would be fine. That’s what we call in French “ les contrats innommés”. Those are, the opposite of specific contracts. A “contrat innommé” doesn’t fall within the specific contracts. So, it’s a type of contract that the law doesn’t recognize expressly (but ofc still valid). So, the answer to question is, the parties may conclude both, specific as well as contracts without a name. Because, of course, the principle is freedom of contract. However, there is one general limitation which is validity. Any contract, be it specific or unnamed, is a valid contract and therefore, binding upon the parties (only if it meets the requirements of art-1128 on validity). Validity requires (among other requirements -> Cf. pages above) clauses to be certain and lawful. End of chapter 1 13 Formation of Contracts I. Conclusion of contracts (offer and acceptance) Art. 1113. – Le contrat est formé par la rencontre d'une offre et d'une acceptation par lesquelles les parties manifestent leur volonté de s'engager. Cette volonté peut résulter d'une déclaration ou d'un comportement non équivoque de son auteur. Art. 1113. – A contract is formed by the meeting of an offer and an acceptance by which the parties (P.1) demonstrate their will to be bound. This may stem from a person’s declaration or unequivocal conduct (P.2) During the negotiation, there are lot of exchanges, maybe oral, maybe in writing, but the thing is there are many. The number depends on how long the negotiations last. One party makes an offer and the other one receives this offer, and decides whether to accept the offer, and then the contract is concluded, or to offer something different to make a counteroffer. (P.1) So, it's normal that art. 1113 tells us that the contract is concluded when an acceptance meets an offer. It’s important to stress that the meeting is an identical offer and an identical acceptance. Example : A sends to B an offer with 5 elements (clauses) : price, quality, quantity, place of delivery and time of delivery. B receives this offer, if responds back that he accepts all 5 clauses, then it's fine because the offer has been accepted in all its elements. However, if B replies to A “ I accept 4 out of the 5 elements, then there’s no meeting of an offer and of an acceptance. Why ? Because, what B is sending isn’t the acceptance of A’s offer, it’s something else. The same is true if B accepts the 5 elements but comes with a new (6th) element. In case a dispute arises, the court of Paris has jurisdiction. So it’s adding a 6th element : a choice of court clause in favor of the Paris court (une clause attributive de jurisdiction pour le tribunal de Paris). As in this example, there’s no meeting of an offer and an acceptance, therefore, obviously there is no contract. Also, very important, one commits himself by assuming an obligation. So, there’s contract only if the parties really express the acceptance of the legal obligation. Example : if I say “let’s meet for dinner tonight” and then, two hours later I change my mind and say “no we're not meeting tonight” there wouldn’t be any breach of contract because when I suggested meeting for dinner I never expressed the acceptance of an obligation. S’engager = faire naître des obligations juridiques (et non morales) à notre charge. (P.2) You may conclude a contract, not only by writing something (a declaration), but also by your conduct. As soon as the conduct is clear, that’s synonymous with conclusion of contract. Example : I say something and you don't react, you confirm by silence : if your behavior is regarded as a confirmation, a silent tacit confirmation, then you're expressing a will to commit yourself. 14 So, you need to be careful because not only declarations (generally written, but oral too) but also conduct, which is not equivocal (which isn’t done in its meaning) also lead to the conclusion of the contract. Example : in commercial matters, especially when there’s a practice between the parties, so there are pre-existing contracts between the two companies, silence is often considered acceptance. But that's in commercial law, it differs from Civil law. Art. 1114. – L'offre, faite à personne déterminée ou indéterminée, comprend les éléments essentiels du contrat envisagé et exprime la volonté de son auteur d'être lié en cas d'acceptation. A défaut, il y a seulement invitation à entrer en négociation. Art. 1114. – An offer, whether made to a particular person or to persons generally, contains the essential elements of the envisaged contract, and expresses the will of the offeror to be bound in case of acceptance. Failing this, there is only an invitation to enter into negotiations. We already mentioned the 2nd requirement : it’s the fact that you always have to express the will to be bound. The 1st requirement is about the inclusion of all the essentials elements to the contract. Example : I send you a letter saying that I have 50 CDs to sell, they are all-Beethoven music and I ask you if you are interested in buying them. Imagine your answer is “yes”, but then my response is “ I'm sorry I already sold them to someone else”. In this situation, can you say “well, wait a second, you made me an offer and I accepted it, so we concluded the contract and now you just breached the contract by selling the CD’s to someone else” ? The answer is no, you can’t say that as I didn’t mention the price and that's a huge problem. So, what I wrote to you wasn’t an offer under Art-1114, because it didn't include all the essential elements. As price is an essential element in a sale contract if it’s not determined, then, we don’t have an agreement upon the sale : the offer is not an offer. However, in an exchange contract it differs. If there’s no indication of price in an exchange contract then the offer is still valid, because price is not an essential element of the (exchange) contract. The 2nd requirement implies that the offer must express the will of the offeror to be bound by the acceptance, in case of acceptance. That is, if there’s an acceptance the offer binds the offeror. Example : if I say “let’s meet for dinner tonight” and then, two hours later I change my mind and say “no we're not meeting tonight” there wouldn’t be any breach of contract because when I suggested meeting for dinner I never expressed the acceptance of an obligation. So it’s certainly not an offer under art. 1114. Therefore, when communicating, companies must be very clear when they are accepting an offer. It has to be clear that the offer is valid under art. 1114. In absence of this two requirements under art. 1114 (the will to be bound and the inclusion of all the essential elements), there’s no offer, there’s only an invitation to enter into negotiations. 15 Art. 1118. – L'acceptation est la manifestation de volonté de son auteur d'être lié dans les termes de l'offre. L'acceptation non conforme à l'offre est dépourvue d'effet, sauf à constituer une offre nouvelle. Art. 1118. – An acceptance is the manifestation of the will of the offeree to be bound on the terms of the offer. An acceptance which does not conform to the offer has no effect, apart from constituting a new offer. Example : If a company sends a document to another, without expressing its will to be bound in the terms of the offer then it’s not an acceptance. So, anything which isn’t a clear acceptance to be bound isn’t an acceptance. Ex. “we will think about it”, “we’ll see” ; “we’ll get back to you soon”. The idea is that, even if there is an offer, we still need an acceptance which has to be identical to the offer. Example : A sends to B an offer with 5 elements (clauses) : price, quality, quantity, place of delivery and time of delivery. B receives this offer, if responds back that he accepts the 5 elements but comes with a new (6th) element. So B is adding a 6th element : a choice of court clause in favor of the Paris court in case a dispute arises. As in this example, there’s no meeting of an offer and an acceptance, therefore, obviously there is no contract. Now imagine A agrees the offer of B to add a 6th element but changes the court location to Bordeaux (not Paris court). So, in this case even if A accepted the introduction of a 6th element it didn’t agree upon the choice of Paris court, therefore, there’s still no agreement, and thus, no contract concluded. For many centuries, contracts have been negotiated clause by clause between the parties : whatever the parties agreed upon would become a clause. This way of doing was time-consuming, but nevertheless, both parties had a chance to discuss each clause and little by little they would put together their agreements until they would reach a contract. Now, companies look for stability and predictability. That is, they want to address thousands and thousands of potential clients all under the same clauses. Why ? Because they want the same rights and the same obligations. So, obviously, there is no room for negotiation clause by clause, on the contrary, the clauses will always be the same for everyone. Example : Citroen wants to sell thousands and thousands of cars always under the same conditions, so that its obligations are the same whether the car is sold in the north, or in the south of France, and whether it’s sold to a company, or to an individual. In order to reach this stability and predictability, companies will use standard contracts (= contrat type). A standard contract is a contract generally prepared by a third party (ex. an association) and that is proposed to A and B. Art. 1119 deals with general conditions of contracts. These are similar to standard contracts as it seeks the same purpose. Contrary to standard contracts, the company in question itself drafts these general conditions of contract (not a 3rd party). All major companies have them and each company has its own. 16 Example : Fnac has its own general conditions of contract. If we buy a product from Fnac these conditions are of course binding upon us. So, when you buy a product from Fnac, you’re concluding a contract with the company, a contract which is subject to French law (as contract law) but also to Fnac general conditions of sale. Art. 1119. – Les conditions générales invoquées par une partie n'ont effet à l'égard de l'autre que si elles ont été portées à la connaissance de celle-ci et si elle les a acceptées. En cas de discordance entre des conditions générales invoquées par l'une et l'autre des parties, les clauses incompatibles sont sans effet. En cas de discordance entre des conditions générales et des conditions particulières, les secondes l'emportent sur les premières. Art. 1119. – General conditions put forward by one party have no effect on the other party unless they have (P.1) been brought to the latter’s attention and that party has accepted them. In case of inconsistency between general conditions relied on by each of the parties, incompatible clauses (P.2) have no effect. (P.3) In case of inconsistency between general conditions and special conditions, the latter prevail over the former. (P.1) If company A has general conditions, then A has to bring these general conditions to the attention of B. And then, only if B accepts them, the general conditions become part of the contract (and therefore binding upon the parties). P(2) Paragraph 2 concerns what we call “the battle of the forms”. If the parties (A and B) have not checked and therefore, conclude a contract with incompatible general conditions then, in this case, any clause either from A or B, which is inconsistent with the other, is without legal effect. The incompatible clauses are not binding upon the parties. Example : Imagine company A (seller) includes a title retention clause (“the seller remains the owner of the goods until their full payment”) in its general conditions, and at the same time, company B (buyer) has the exact opposite clause (“the buyer gains title on the goods at the time of conclusion of the contract”) in its general conditions. So, in this case, the clauses are, obviously, incompatible and have no legal effect. Now that the two general conditions are not valid, what happens ? The law applies. If the contract is subject to French law, then the buyer gains title on the goods as soon as the contract is concluded (Cf art. 1583). (P.3) In case of inconsistency, any clause, which is more specific, prevails over a more general and less specific clause. 17 Art. 1120. – Le silence ne vaut pas acceptation, à moins qu'il n'en résulte autrement de la loi, des usages, des relations d'affaires ou de circonstances particulières. Art. 1120. – Silence does not count as acceptance except where so provided by legislation, usage, business dealings or other particular circumstances. France has two codes : the Civil Code (1804) and the Commercial Code (1807). In Commercial Code we have some specific contracts (contrats spéciaux), but the general part, on formation and performance of contracts, is part of the Civil Code. So, the main logic is the “civiliste” logic that is, contracts concluded by ordinary people not the contracts concluded by businessmen. Between “ordinary people”, silence is never acceptance, this is the Civil Code mentality. On the contrary, in Commercial law (B2B), little by little a commercial usage has developed under which the parties, sometimes (not always), accept by their silence. This can be explained by the fact that these companies have regular business relations with other companies, they do business since a long time, and so they have developed their own habits. Example : There’s a regular practice of business between two companies : by the end of each month the buyer will ask the seller for an invoice of all the orders he did during the month. So, after a period of application of this practice, the seller won’t need to be reminded to send the invoice. In fact, because of the regular character of this practice, each month, he will send it to send to the buyer. Therefore, we count three exceptions for which silence equals acceptance : the law, usages, and business relations. Art. 1121. – Le contrat est conclu dès que l'acceptation parvient à l'offrant. Il est réputé l'être au lieu où l'acceptation est parvenu. Art. 1121. – A contract is concluded as soon as the acceptance reaches the offeror. It is deemed to be concluded at the place where the acceptance has arrived. Example : If the offeror is in Paris and the one accepting it is in Bordeaux, then the contract will be considered concluded in Paris. 18 Art. 1122. – La loi ou le contrat peuvent prévoir un délai de réflexion, qui est le délai avant l'expiration duquel le destinataire de l'offre ne peut manifester son acceptation ou un délai de rétractation, qui est le délai avant l'expiration duquel son bénéficiaire peut rétracter son consentement. Art. 1122. – Law or the contract may provide for a period for reflection, which is a period within which the offeree cannot give his acceptance, or a period for withdrawal, which is a period within which a party may withdraw his consent. Basically, art. 1122 says that law, or the contract, may include and delete the period for reflection, so the time to think about the offer before acceptance. For instance, in French consumer law we have examples where the law says that the offer must be valid for at least one week or two weeks, so that the consumer has time to consider it. II. Validity of the Contract As said before, a contract is valid only if it meets the three requirements under art. 1128. Art. 1128. – Sont nécessaires à la validité d'un contrat : 1. Le consentement des parties ; 2. Leur capacité de contracter ; 3. Un contenu licite et certain. Art. 1128. – The following are necessary for the validity of a contract: 1. the consent of the parties; 2. their capacity to contract; 3. content which is lawful and certain. A) Consent Consent must be given without mistake, doll (misrepresentation) or duress (violence). Art-1130. - L'erreur, le dol et la violence vicient le consentement lorsqu'ils sont de telle nature que, sans eux, l'une des parties n'aurait pas contracté ou aurait contracté à des conditions substantiellement différentes. Leur caractère déterminant s'apprécie eu égard aux personnes et aux circonstances dans lesquelles le consentement a été donné. ». Art. 1130. – Mistake, fraud and duress vitiate consent where they are of such a nature that, without them, (P.1) 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 and of the circumstances in which consent (P.2) was given. 19 Art. 1130 is very important : first, it summarizes the three vices of consent (mistake, doll, duress). To vitiate (= invalidate) consent, these vices have to be so serious, so relevant that without it one of the parties wouldn’t have contracted or would have contracted under substantially different conditions. Example (washing machine pt.1) : by mistake, you buy a washing-machine with a spin speed that you thought was 1200 rpm. It turns out that you were mistaken and the spin speed is actually 1000 rpm. In this example, my mistake is irrelevant unless I prove the contrary. (P.1) In this case, according to art. 1130, I have to prove that, without this mistake, I would not have contracted or I would have concluded a contract but under substantially different conditions (Ex. a €50 reduction). (P.2) The mistake has to be sufficiently relevant and serious to justify my request to cancel my purchase and the decisive character is assessed in the light of the person and of the circumstances in which consent was given. Why this reference to the person and circumstance ? For the simple reason that we’re all different human beings, with different sensibility to all these matters. Example (washing machine pt.2) : If you consider the buyer as a person that planned using the washing machine intensively, for its business for example, this 200rmp difference is huge. So, the judge will more easily agree that it’s a sufficiently relevant and serious mistake, and decide that the contract is void. For a person like you and me, who don’t make heavy use of it, the mistake would be considered irrelevant. So, basically, this art. 1130 requires from the judge to pay attention to the person, their age, their level of education, their knowledge about the subject and circumstances. Art. 1131. – Les vices du consentement sont une cause de nullité relative du contrat. Art. 1131. – Defects in consent are a ground of relative nullity of the contract. Art. 1131 tells us that, all three vices, are grounds only for relative nullity, not absolute nullity. Absolute nullity : An action, document, or transaction which is void is of no legal effect whatsoever: an absolute nullity—the law treats it as if it had never existed or happened. When the contract violates a rule intended with general interest. (Ex. contracts about drugs, prostitution, terrorism, etc.) Relative nullity: a contract is relatively null when it violates a rule intended for the protection of private parties, as when a party lacked capacity or did not give free consent at the time the contract was made. A contract that is only relatively null still may be confirmed. The three vices are grounds only for relative nullity as they only concern the interests of the buyer or the seller. Not all French society is at stake, so only the person affected by one of this vices may raise the invalidity ground in court. 20 1. Mistake Art. 1132. – L'erreur de droit ou de fait, à moins qu'elle ne soit inexcusable, est une cause de nullité du contrat lorsqu'elle porte sur les qualités essentielles de la prestation due ou sur celles du cocontractant.. Art. 1132. – Mistake of law or of fact, as long as it is not inexcusable, is a ground of nullity of the contract when it bears on the essential qualities of the act of performance owed or of the other contracting party.. So, basically, art. 1132 states that mistake is a ground for invalidity of the contract only if it concerns the essential quality of the performance of the contract or the essential quality of the contractor. We find this same idea in the following provision, art-1133. Art. 1133. – Les qualités essentielles de la prestation sont celles qui ont été expressément ou tacitement convenues et en considération desquelles les parties ont contracté. L'erreur est une cause de nullité qu'elle porte sur la prestation de l'une ou de l'autre partie. L'acceptation d'un aléa sur une qualité de la prestation exclut l'erreur relative à cette qualité. Art. 1133. – The essential qualities of the act of performance are those which have been expressly or (P. 1) tacitly agreed and which the parties took into consideration on contracting. Mistake is a ground of nullity whether it bears on the act of performance of one party or of the other. (P.2) Acceptance of a risk about a quality of the act of performance rules out mistake in relation to this quality. (P.3) a party may claim that the contract is voidable only if it proves that the mistake (P.1) This means that concerns essential qualities, and that both parties expressly agreed upon these specific qualities. If it can’t be proved, the contract won’t be void. (P.2 ) Mistakemay invalidate the contract regardless of whether it concerns one party or the other. In a sale contract it may concern the buyer as well as the seller. Unlike doll and duress, mistake is neutral, indeed, it can happen to anyone to make a mistake. (P.3 ) If a party accepts an uncertainty (aléa) on the contractual performance, then this acceptance excludes mistake. Example of contracts that raises uncertainty : insurance contracts. Insurance covers risk with uncertainty concerning the number of accidents (can go from 0 to many). An insurer can’t say “I made a mistake I want to cancel the contract because this person I cover does a lot of accidents and costs my business dearly”. Because an insurance is synonym with uncertainty, it’s obvious that the insurer can’t claim the existence of a mistake and ask for the contract to be void. There might be uncertainty in other type of contracts, not only insurance contracts. 21 Art. 1134. – L'erreur sur les qualités essentielles du cocontractant n'est une cause de nullité que dans les contrats conclus en considération de la personne. Art. 1134. – Mistake about the essential qualities of the other contracting party is a ground of nullity only as regards contracts entered into on the basis of considerations personal to the party. Here, the mistake art. 1134 refers to is about contracts truly concluded in consideration of the other party. One example would be agency contracts (contrat de mandat). Example : in agency contracts, the principal (le mandant) chooses his/her agent (le mandataire) truly because of his/her capacities (someone reliable). The law says that, if your agent dies, the contract can’t be extended to his son. The contract comes to an end. Why ? because the capacities and reliability of the father and the son are not the same. 2. Doll Doll is defined in art. 1137 : Art. 1137. – Le dol est le fait pour un contractant d'obtenir le consentement de l'autre par des manœuvres ou des mensonges. Constitue également un dol la dissimulation intentionnelle par l'un des contractants d'une information dont il sait le caractère déterminant pour l'autre partie. Art. 1137. – Doll is an act of a party in obtaining the consent of the other by scheming or lies. (P.1) The intentional concealment by one party of information, where he knows its decisive character for the other (P.2) party, is also fraud. Doll occurs when a party wants to push the other in a false believe so that they agree on the contract. It can be based on scheming, lies or an intentional concealment of information. (P.1)Example (based on scheming or lies) : Let’s take the same wooden table example. We have a doll if the seller knows very well that the table he’s proposing to me is plastic and only looks like wood. The seller said that only to make me buy it. In this case, I can seek the canceling of the contract. (P.2) Example ofdoll (based on the intentional concealment of information) : same wooden table example. The seller knows very well the table he’s proposing to me is plastic and only looks like wood. To make sure its wood I ask him the question. The seller doesn’t respond (pretends not to hear) so that I believe his answer is “yes”. So, here, even if the seller doesn’t take the risk to respond, he manipulates me so that I buy his product. Therefore, doll can be explicit as well as it can be implicit. 22 Art. 1139. – L'erreur qui résulte d'un dol est toujours excusable ; elle est une cause de nullité alors même qu'elle porterait sur la valeur de la prestation ou sur un simple motif du contrat. Art. 1139. – A mistake induced by doll is always excusable. It is a ground of nullity even if it bears on the value of the act of performance or on a party’s mere motive. If a mistake comes from the will to manipulate the other party, then any error leads to the (relative) nullity of the contract. 3. Duress Art. 1140. – Il y a violence lorsqu'une partie s'engage sous la pression d'une contrainte qui lui inspire la crainte d'exposer sa personne, sa fortune ou celles de ses proches à un mal considérable. Art. 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 exposed to considerable harm. Duress is not only about certainty but fear as well. The term “relatives” doesn’t necessarily refer to family members, it extends to friends, etc. Art. 1141. – La menace d'une voie de droit ne constitue pas une violence. Il en va autrement lorsque la voie de droit est détournée de son but ou lorsqu'elle est invoquée ou exercée pour obtenir un avantage manifestement excessif. Art. 1141. – 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. Basically, art. 1141 says that a threat based on a legal action (law) is not duress. Example : if Peter threatens Charles to file an action against him this is not duress. If Peter says “if you don't sign this contract I will file a claim against you” this is not considered duress. Why ? Because in filing a claim, there’s nothing unlawful, it’s a legal action. So, it’s meaningless. However, this threat becomes duress if its pushed out of its purpose or is invoked or exercised in order to obtain a manifestly excessive advantage. Example : if Peter threatens Charles to take him to court and lies about the penalty, for instance he says “they will condemn you to death penalty” or invents some exaggerated circumstances. Imagine Charles was risking 1 year of prison and Peter lies about this period and says “you’ll risk 10 years of prison if you don’t sign”. 23 Art. 1144. – Le délai de l'action en nullité ne court, en cas d'erreur ou de dol, que du jour où ils ont été découverts et, en cas de violence, que du jour où elle a cessé. Art. 1144. – In the case of mistake or fraud the period for bringing an action for nullity runs only from the day when they were discovered, and in the case of duress the period runs only from the day when it ceased. Law wants us to be active and focused on our rights and obligations and take action. However, there’s always a time limitation for anything. Example : if you have 5 years to fill a claim and don’t do it within this period of time then you lose your right to do it. This time limitation runs only from the day when the mistake or doll is discovered. In case of duress, this time limitation runs only from the day duress has ceased. Example : I buy a product today under doll and discover about it 3 years later, then even after these 3 years, I have the possibility to rely on art. 1144 and take action in court. B) Capacity (and Representation) The second requirement for a contract to be valid is the capacity to contract. 1. Capacity Art. 1145. – Toute personne physique peut contracter sauf en cas d'incapacité prévue par la loi. Art. 1145. –Every natural person is able to conclude a contract, except in the case of lack of capacity provided for by legislation. All physical individuals are legally capable of concluding contracts, there’s exception only if the law prescribes cases of incapacity. 2. Representation Art. 1153. – Le représentant légal, judiciaire ou conventionnel n'est fondé à agir que dans la limite des pouvoirs qui lui ont été conférés. Art. 1153. – A representative authorized by legislation, by a court or by a contract is justified in acting only within the limits of the authority conferred upon him. Legal representation means legal replacement. Basically, we have legal representation if B can take the legal position of A vis-à-vis others. When do we have legal representation ? An example would be agency contracts (contrat de mandat) where the principal requires agent to have a given conduct vis-à-vis third parties. 24 Example : The principal requests the agent to conclude the contract on his behalf in another city, with someone. The one signing the contract isn’t the principal but the agent designated as legal representative (by the principal). But still, the legal effect of the concluded contract goes under the principal. There are 3 types of agents/representative : - Legal representative : when the law prescribes the representation (ex. for a minor, the law designates the parents as the legal representatives) - Judicial representative : refers to the representative appointed by French Court - Conventional representative : refers to the representative appointed by contract. Art. 1153 states that the agent/representative may never go beyond the power received from the principal. Example : If I ask you to sign for me a contract to buy 1000 computers of category A, you can only do that. If you buy 1001 computers of category A, you acted outside my mandate. Same if you bought 1000 but of category B, again you’re acting outside my mandate, and therefore, I don't take responsibility for your conduct. Art. 1154. – Lorsque le représentant agit dans la limite de ses pouvoirs au nom et pour le compte du représenté, celui-ci est seul tenu de l'engagement ainsi contracté. Lorsque le représentant déclare agir pour le compte d'autrui mais contracte en son propre nom, il est seul engagé à l'égard du cocontractant. Art. 1154. – Where a representative acts within his authority and in the name and on behalf of the person whom he represents, only the latter is bound to the undertaking so contracted. Where a representative states that he is acting on behalf of another person but contracts in his own name, he alone is bound towards the other contracting party When the agent acts in conformity with the mandate, on behalf of the principal, then only the principal is bound by the contract. On the contrary, if the agent goes beyond and acts with the principal authority, then he is the only one bound to the contract, not the principal. C) The content of a contract Art. 1162. – Le contrat ne peut déroger à l'ordre public ni par ses stipulations, ni par son but, que ce dernier ait été connu ou non par toutes les parties. Art. 1162. – A contract cannot derogate from public policy either by its stipulations or by its purpose, whether or not this was known by all the parties. Public policy provisions are mandatory rules. 25 This art. 1162 stipulates that a contract may not derogate from public policy neither by its clauses nor by its purpose, whether or not this was known by all the parties. Therefore, public policy provisions are rules that may NOT be contracted out by contract. Why a contract may not derogate from public policy ? Because society doesn’t want to grant the enforceability to a contract which goes against the general interest of society. Here public policy is the general interest of society. Each country has its specific public policy. Ex. French public policy -> general interest of French people Italian public policy -> belongs to the Italian society, etc. Therefore, when concluding a contract, the parties have to make sure they use clauses in accordance with public policy (mandatory rules). Memo : art. 1128, validity is crucial for a contract in order to be binding upon the parties. The clauses can’t go against public policy, and the same is true concerning stipulations. Even if the clauses don’t go against public policy, its sufficient that the purpose of the contract goes against public policy for it to not be valid. It does NOT matter whether or not the purpose was known by all parties. Ex. A sales weapons to B, but A doesn’t know for what use that weapons are, on the contrary, B knows that these will be used for a criminal act. Well, in this case it’s the purpose of the contract that goes against public policy. Only the buyer, B, knows about the real purpose. Maybe the seller thinks that these will be used legally, by people that are authorized to use one. In this example, only one party knows about the purpose of the contract, but even so, art-1162 tells us that it’s sufficient reason for the contract to be void. Art. 1163. – L'obligation a pour objet une prestation présente ou future. Celle-ci doit être possible et déterminée ou déterminable. Art. 1163. – An obligation has as its subject-matter a present or future act of performance. (P.1) (P.2) The latter must be possible and determined or capable of being determined. (P.1) Obligations concern either a current or future performance. performance has to be possible : obviously, you can’t commit to something impossible. Also, this (P.2) This contractual performance has to be determined or capable of being determined (must be certain) by the parties. This provision protects all of us from uncertainties, and disputes that may arise if the content is not clear and certain. What’s the difference between determined and capable of being determined ? Determined refers to the present moment, while capable of being determined (by the parties themselves) makes allusion to the future. Ex. supply contract (contract over a given period of time) : let’s imagine that A produces wine and sells it to B, the owner of a chain-restaurants in Paris. The agreement is a supply contract over 5 years, where every month A delivers to B X (number) bottles of wine. What will be the price of a bottle of wine in x (number) month ? We can’t be sure, if the supply contract is signed today, we don’t know how the price of wine (its value) will evolve through time. Therefore, there is no certainty. 26 In this case, for instance, the contract would say the price of wine will be of 1$/L for the first six months, and at the end of this period of time, A and B would have to meet in order to determine a new price for the next six months, and so on. So, this is an example where the price is determined for the first six months, and determinable (capable of being determined) for the remaining period of time. Ex. other possibility with the same example but where the parties to the contract (A and B) agree upon a person and to appoint this person for deciding the price every x period (months/semester/etc.). In this case the price would be determinable by a third party. Art. 1166. – Lorsque la qualité de la prestation n'est pas déterminée ou déterminable en vertu du contrat, le débiteur doit offrir une prestation de qualité conforme aux attentes légitimes des parties en considération de sa nature, des usages et du montant de la contrepartie. Art. 1166. – When the quality of the act of performance is not determined or capable of being determined under the contract, the debtor must offer an act of performance of a quality which conforms to the legitimate expectations of the parties taking into account its nature, usual practices and the amount of what is agreed in return. If the parties have not agreed themselves upon the quality of the contractual performance (not determined nor capable of being determined), then the debtor must provide a performance which is in conformity with the legitimate expectations of the other party, taking into account the nature of the contract, usages and the amount of what is agreed in return. Art. 1168. – Dans les contrats synallagmatiques, le défaut d'équivalence des prestations n'est pas une cause de nullité du contrat, à moins que la loi n'en dispose autrement. Art. 1168. – In Synallagmatic contracts, a lack of equivalence in the acts of performance of the parties is not a ground of nullity of the contract, unless legislation provides otherwise. Synallagmatic contract = a contract which entails (contains) a reciprocal obligation between the parties. Unilateral contract = a contract agreement in which an offeror promises to pay after the occurrence of a specified act. Ex. deposit contract, insurance policy, reward contract, etc. Art. 1168 stipulates that the absence of equivalence between two performances (in a Synallagmatic contract) is not a ground for invalidity, unless the law says otherwise. That is, the contract won’t be invalidated : it would remain valid and binding upon the parties. Ex. Let’s say I buy a bike in a terrible condition for a huge amount of money, let’s say 1M euros (in our example there’s no doll, duress or mistake). In this case, I can’t seek to cancel the contract /get a refund. Why ? Because I was just being stupid : there’s no equivalence between the product and the amount I paid, so, because there’s no equivalence there’s no ground for invalidity, that is, the contract remains binding upon me and the seller. 27 Art. 1170. – Toute clause qui prive de sa substance l'obligation essentielle du débiteur est réputée non écrite. Art. 1170. – Any clause which deprives a debtor’s essential obligation of its substance is deemed not written If the debtor of an obligation inserts, in the contract, a clause that reduces his obligation, then this clause will be considered not written. Ex. Chronopost is known for its fast delivery service. People pay more in order to get their deliveries faster. There’s a case where Chronopost inserted a clause which stipulated that in case of late delivery (couldn’t meet the deadline), Chronopost would refund the price the customer paid. However, because this clause reduces Chronopost of its essential obligation (fast delivery, meeting the deadline), the Court decided that this clause was considered irrelevant / not acceptable, and thus, disregarded. The client can file a claim for damages against Chronopost. The amount that Chronopost would pay isn’t limited to the one fixed in the (irrelevant) clause, but based on the damages caused. For instance, if Chronopost didn’t deliver an envelope (contract) on time and because of this A lost his chance to submit on time and therefore lost a contract of 1M euros, then A would be entitled to obtain 1M euros. Attention : A has to prove to the Judge he had the certainty to conclude the 1M euros contract if Chronopost had delivered the contract on time. If the conclusion of the contract was only a possibility then there is no certainty, and it would be much more difficult for the judge to grant anything. Art. 1171. – Dans un contrat d'adhésion, toute clause non négociable, déterminée à l'avance par l'une des parties, qui crée un déséquilibre significatif entre les droits et obligations des parties au contrat est réputée non écrite. L'appréciation du déséquilibre significatif ne porte ni sur l'objet principal du contrat ni sur l'adéquation du prix à la prestation. Art. 1171. – Any clause of a standard form contract which creates a significant imbalance in the rights and (P.1) obligations of the parties to the contract is deemed not written. The assessment of significant imbalance must not concern either the main subject-matter of the contract nor (P.2) the adequacy of the price in relation to the act of performance. Standard contract = a basic legal agreement that is used by an organization in many situations without allowing the employee, customer, etc. to make any changes. You can only agree to the contract as it is written. Standard contract doesn’t necessarily involve a consumer, it can also be a contract between companies. a standard contract if a clause causes an important imbalance in the rights and obligations of the (P.1) In parties then it’s considered not written. (P.2) In order to understand if this clause has generated a significant imbalance, it does NOT matter what the main subject-matter of the contract is nor if the price paid by the client is adequate. So, both elements are irrelevant to the judge in determining whether or not a significant imbalance was created by this provision. 28 III. The Form of Contracts A) General provisions Art. 1172. – On principle contracts are consensual. By exception, the validity of a solemn contract is subject to the fulfilment of formalities set by legislation, and their absence renders the contract a nullity except where it may be regularized. Otherwise, legislation subjects the formation of certain contracts to the delivery of a thing. Art. 1172. – Les contrats sont par principe consensuels. (P.1) (P.2) Par exception, la validité des contrats solennels est subordonnée à l'observation de formes déterminées par la loi à défaut de laquelle le contrat est nul, sauf possible régularisation. En outre, la loi subordonne la formation de certains contrats à la remise d'une chose. (P.3) (P.1) Consensual here refers to the form of the contract, it means that it may be concluded in any form : oral or written. If a contract is concluded orally it’s not an obstacle to its validity. However, in business it’s rare that the contract is concluded orally. The reason for that is because it’s difficult to prove the existence of an oral contract, and also its content. In order to prove the existence of an oral contract you’ll need witnesses and even so, we’re not sure about their testimonies (may take different positions, change the truth). (P.2) Solemn contract are contracts that are required to be written in order to be valid. A solemn contract also requires a notary public act (=the presence of a notary who will draft the contract and certify the identity of the parties). If the parties don’t comply with this form and the solemn contract happens to be concluded orally, then the contract is void and therefore not binding upon the parties. It has no legal effect, unless the law (in some cases) allows regularization. Ex. of solemn contract : contract for the sale of a house, mortgage (hypothèque) contract. The written form is mandatory for this type of contract. (P.3) In addition, the law conditions the making of certain contracts to the delivery of property. 29 Art. 1173. – Les formes exigées aux fins de preuve ou d'opposabilité sont sans effet sur la validité des contrats. Art. 1173. – Formal requirements imposed for the purposes of proof of a contract or setting up a contract against another person have no effect on the validity of the contract. Opposability : By opposability a contract can’t be ignored by third parties. A contract can generate rights and obligations only in favor of, or regarding the obligation of the contracting parties. On the other hand, the contract and the legal situations it gives rise to are social realities that must be respected by third parties, as the contract is not an isolated element, but it is integrated into the legal order, bringing about changes to social life. Thus, a contract is opposable to everyone, including third parties, who have the general obligation to abide by the legal situation generated by the contract, even if for them, this reality is presented as a legal fact. This article distinguishes forms required for the purpose of proof from forms required for the purpose of opposability, and stipulates that these two forms have no effect on the validity of the contract. Ex. of opposability : Let’s take the example of a company contract (a contract that the associates of a company stipulate in order to create a company). Imagine there are five people that decide to create together a company A. If they conclude the contract today and the contract is valid, then it’s binding upon the five parties to the contract. The third parties (ex. France inhabitants) are not concerned by this contract, however, because the contract is meant to create a company, then the law requires the contract to be published so that third parties are informed of the existence of a new contract. Since the day of publication of the contract, the contract is “opposable” to third parties, meaning they can’t pretend not to know about the existence of the contract / new company A. Let’s say B makes a contribution of 1M $ to company A, the 1M $ will leave the assets of B to enter into the assets of company A (transfer of title). Now, thanks to opposability (the fact that the existence of company A has been subject to publicity, third parties are supposed to know about it), the creditor (company B) of A can’t claim the company A’s assets. Why ? Because the company is separated from associate A, it’s a different entity. 30 IV. Sanctions A) Nullity Art. 1178. – Un contrat qui ne remplit pas les conditions requises pour sa validité est nul. La nullité doit être prononcée par le juge, à moins que les parties ne la constatent d'un commun accord. Le contrat annulé est censé n'avoir jamais existé. Les prestations exécutées donnent lieu à restitution dans les conditions prévues aux articles 1352 à 1352-9. Indépendamment de l'annulation du contrat, la partie lésée peut demander réparation du dommage subi dans les conditions du droit commun de la responsabilité extracontractuelle. Art. 1178. – A contract which does not satisfy the conditions required for its validity is a nullity. Nullity must (P.1) be declared by a court, unless the parties establish it by mutual agreement. A void contract is deemed never to have existed. (P.2) Acts of performance which have been carried out give rise to restitution under the conditions provided by (P.3) articles 1352 to 1352-9. Regardless of whether or not the contract is void, an injured party may claim reparation for any harm suffered (P.4) under the conditions set out by Tort Law. (P.1)A contract that doesn’t meet the validity requirements under art. 1128 is void. Nullity needs to be declared by a judge : one party can’t just go and decide by itself that the contract is void. One party will have to raise the issue before the judge, then the judge will examine the contract and decide whether or not it is void. Why the judge ? Because he has no interest and is an impartial party. The only exception to this, is if all the parties to the contract agree (in writing) that there has been a violation of art. 1128 and that, therefore, the contract is void. (P.2)If the contract concluded is in violation with art. 1128, it means that the very basic conditions concerning validity of contracts have not been met (ex. no capacity to contract, duress, unlawful content, etc.). Therefore, the violation concerns the formation of contract. So, this is why the contract is presumed to have never existed. Example : A and B conclude a contract today and 3 years later, this same contract is declared void by a judge. This means that whatever was performed during the 3 years was without legal obligation. The obligations were performed only because A and B thought the contract was valid, and therefore binding. performance under this invalid contract shall be returned to the other under art. 1352 to (P.3) Any art. 1352-9. A void contract never existed because, during the making of the contract, the validity requirements have not been met. Regardless of the invalidity of contract, the party which has been affected by harm may seek (P.4) damages under Tort Law. Why Tort Law and not Contract Law ? Because contract law applies only to valid contracts. 31 Art. 1179. – La nullité est absolue lorsque la règle violée a pour objet la sauvegarde de l'intérêt général. Elle est relative lorsque la règle violée a pour seul objet la sauvegarde d'un intérêt privé. Art. 1179. – Nullity is absolute when the legal provision that is violated has as its object the safeguard of the general interest. It is relative when the legal provision that is violated has as its sole object the safeguard of a private interest. Which validity requirements under art. 1128 concern general interest (here, French society) and generate absolute nullity ? An example would be an unlawful content (Ex. contract which corrupts someone, sell of weapons, prostitution, etc.). All vices of consent (duress, doll, mistake) concern relative nullity (private interest of the person concerned not the general interest). Art. 1180. – La nullité absolue peut être demandée par toute personne justifiant d'un intérêt, ainsi que par le ministère public. Art. 1180. – Absolute nullity may be claimed by any person who can demonstrate an interest, as well as by the ministère public. Not only the parties to the contract but anyone (third party) may request the judge to declare absolute nullity (because it’s a matter of general interest). This third party has still to prove that they carry an interest. The ministère public may also take action and ask the judge to declare absolute nullity. Art. 1181. – La nullité relative ne peut être demandée que par la partie que la loi entend protéger. Elle peut être couverte par la confirmation. Si l'action en nullité relative a plusieurs titulaires, la renonciation de l'un n'empêche pas les autres d'agir. Art. 1181. – Relative nullity may be claimed only by the party that the legislation intends to protect. (P.1) It may be remedied by confirmation. (P.2) When more than one person has the right to bring an action for relative nullity, renunciation by one of (P.3) them does not prevent the others from bringing proceedings. (P.1) Only the party that the law aims to protect may request relative nullity of the contract. Example : all victims of vices of consent, any legally incapable person (ex. A concludes a contract in a period where he was not in his ordinary mental condition : sick, under the influence of drugs, etc. ). (P.2) In case the interest at stake is private, the party concerned may also confirm the contract, and therefore, the contract is not subject to nullity anymore. (doesn’t work for absolute nullity -> bcs concerns general interest). 32 Example : a victim of mistake that decides that they are fine with the contract and makes a declaration confirming the contract. The contract is then valid, although they could have obtained the judgment declaring it invalid. (P.3) If there are more parties to the contract and one of them waives to his/her rights to obtain the invalidity, it doesn’t prevent the others from requesting nullity. Example : wooden table mistake example. 4 people signed a contract (A, B, C, D). A confirms the contract because even if the table he purchased isn’t made from wood (mistake coming from the seller) he still finds the quality good and is fine with the mistake. The remaining 3 (B, C, D) are not concerned with the renunciation of A and still can seek nullity of the contract. Art. 1182. – La confirmation est l'acte par lequel celui qui pourrait se prévaloir de la nullité y renonce. Cet acte mentionne l'objet de l'obligation et le vice affectant le contrat. La confirmation ne peut intervenir qu'après la conclusion du contrat. L'exécution volontaire du contrat, en connaissance de la cause de nullité, vaut confirmation. En cas de violence, la confirmation ne peut intervenir qu'après que la violence a cessé. La confirmation emporte renonciation aux moyens et exceptions qui pouvaient être opposés, sans préjudice néanmoins des droits des tiers. Art. 1182. – Confirmation is an act by which a person who could rely on the nullity of the contract (P.1) waives the right to do so. This act must mention the subject-matter of the obligation and the ground affecting the contract. Confirmation can take place only after the conclusion of the contract. (P.2) Voluntary performance of a contract in the knowledge of a ground of nullity is equivalent to (P.3) affirmation. In the case of duress, confirmation can take place only after the duress has ceased. Confirmation implies renunciation of the grounds of claim or exceptions that might be set up, without (P.4) prejudice, however, to the rights of third parties. In case of confirmation, the waiver (renunciation) must clearly express the obligation (the contract (P.1) we’re referring to) and the ground for invalidity (ex. legal capacity, mistake, doll, etc.). (P.2) Confirmation take only place after the conclusion of the contract. Otherwise it’s not a confirmation. (P.3) If one person performs the contract although he/she knows the contract contains a ground for invalidity, then this means that he/she confirmed the contract and so, has waived its right to request for nullity. In case of duress, confirmation of contract may take place only after the end of duress. (P.4) When a party confirms a contract, they waive their legal grounds and exceptions related to the annulment ground, without prejudice, nevertheless, to the rights of other parties. Third parties are not concerned so they remain protected. 33 Art. 1183. – Une partie peut demander par écrit à celle qui pourrait se prévaloir de la nullité soit de confirmer le contrat soit d'agir en nullité dans un délai de six mois à peine de forclusion. La cause de la nullité doit avoir cessé. L'écrit mentionne expressément qu'à défaut d'action en nullité exercée avant l'expiration du délai de six mois, le contrat sera réputé confirmé. Art. 1183. – A party may claim in writing from a person who could rely on the nullity of the contract either to (P.1) confirm it, or to seek action for nullity within a period of six months, on pain of losing the right to do so. The ground of nullity must have ceased. The written notice must set out expressly that unless the action for nullity is brought within a period of six months, the contract shall be deemed to have been affirmed. (P.2) This provision aims to push the other party into taking action within the 6 months. Either by confirming the contract or seeking for nullity within this period. Therefore, this provision pushes the parties to certainty : the parties will know within 6 months whether or not the contract will be valid and binding, so that all the parties have to perform what they agreed upon, or not valid because claimed void by a judge. Art. 1184 – Lorsque la cause de nullité n'affecte qu'une ou plusieurs clauses du contrat, elle n'emporte nullité de l'acte tout entier que si cette ou ces clauses ont constitué un élément déterminant de l'engagement des parties ou de l'une d'elles. Le contrat est maintenu lorsque la loi répute la clause non écrite, ou lorsque les fins de la règle méconnue exigent son maintien. Art. 1184 – When a ground of nullity affects only one or more terms of the contract, it entails the nullity of the (P.1) whole contract only if this term or these terms constituted a decisive factor in the undertaking of the parties, or of one of them. The contract is maintained when the law deems a clause not written, or when the purposes of the rule not followed requires maintaining a contract valid. (P.2) ground of nullity that affects one or several clauses, which did NOT constitute a decisive factor in (P.1) A the commitment of the parties, does NOT entail the nullity of the whole contract. Only the clause(s) subject to nullity is/are void. However, if the clause(s) subject to nullity constituted a decisive factor in the commitment of the parties, then the whole contract is void. The decisive character does NOT necessarily concern all parties. Its sufficient that the void clause constituted a determining element in the commitment of only one party for the whole contract to be void. For the whole contract to be void, the party still has the burden of proof. That is, the party has to prove to the judge that the void clause constituted a determining element for him/her to commit. There are three type of clauses : valid clauses, void clauses (clauses that go against the law) and clauses deemed not written (the law usually says what kind of clauses are deemed not written). contract is maintained when the law considers the clause not written or when the objectives of (P.2) A the clause require maintaining a contract valid. Why is the contract maintained ? Because the law considers a not written clause less serious/problematic than a void cla

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