Nullity implies restitution, liability implies damages!

It cannot be repeated often enough: nullity implies restitution, liability implies damages!   Nullity of contract, restitution, prejudice, damages... Each legal concept has its own definition, which covers a specific reality and generates specific consequences. Yet confusion is common, even among lawyers and magistrates, as these concepts are often used for similar situations. This is why the High Court sometimes has to issue reminders. It did so in a recent consumer law decision of December 20 (1), in which it reviewed the fundamental difference between a claim for nullity of contract and a claim for damages.   Each legal concept has its own definition, covering its own reality and generating specific consequences.

• THE CASE WAS AS FOLLOWS.

In 2017, a private couple wanted to install photovoltaic panels and a water heater. They then signed a contract with a company for the supply, installation and commissioning of the photovoltaic panels and water heater for a total price of 10,800 euros. To finance this purchase, they also take out a loan with a bank. After noticing an irregularity in the contract binding them to their seller, the couple sued the seller and the bank to have the judge declare the sales contract and the affected credit contract null and void. The Nîmes Court of Appeal (2) declares both contracts null and void, and consequently orders the vendor to :

• Recover at its own expense all items relating to the installation of photovoltaic panels,
• To pay restoration costs,
• to guarantee the couple's payment to the bank of the sums loaned, and
• To pay the sum of 10,800 euros in damages. The French Supreme Court (Cour de cassation) overturned the decision, ordering the seller to pay 10,800 euros in damages. As this sum in fact corresponded to the sale price of the invalidated contract, the Court overturned the appeal ruling and ordered the seller to pay the same sum by way of restitution of the sale price, and not damages, as "the restitution to which a contracting party is condemned following the annulment of a contract does not in itself constitute a compensable loss" (3).

 

• Why did the Cour de cassation requalify the seller's conviction?

The action for nullity of the contract, which gives entitlement to restitution, is different and must be dissociated from the action for reparation, which gives entitlement to damages. In an action for nullity of a contract, a person challenges the validity of the contract: the contract is so defective that it should never have been concluded. For a contract to be valid in law, it must meet three requirements: (i) The unvitiated consent of the parties ; (ii) The capacity of the parties to contract ; (iii) Lawful and certain content. If these three elements cannot be met, the contract is null and void. Specific legislation may specify certain circumstances in which contracts are null and void. This is the case of the French Consumer Code, which stipulates, for example, that a professional is obliged to provide the consumer with a copy of the contract on a durable medium to which the withdrawal form is attached when the contract is concluded off-premises (5). The consequence of nullity is that the contract is deemed never to have existed (6), and the parties and the things to which the contract relates must be restored to their situation prior to its conclusion (7). Nullity therefore has retroactive effect. Obviously, there is no such thing as a return to the past, which is why the annulment of an act gives rise to restitution of the services performed under the annulled contract or, where this is not possible, to compensation. The aim is to undo everything that has been done in application of the annulled act. Article 1352 of the French Civil Code states that: "The restitution of a thing other than a sum of money takes place in kind or, when this is impossible, in value, estimated on the day of restitution". On the other hand, an action for damages is designed to compensate for a prejudice or wrong suffered by a person as a result of someone else's actions. This action may be based on the non-performance or improper performance of a contract, or on the law. In extra-contractual matters, the law generally states that "Any act whatsoever of man, which causes damage to another, obliges the person through whose fault it was caused to make reparation for it" (8). In order to claim compensation for a loss suffered, there must have been :

• A fault
• A loss/damage
• A causal link between the fault and the loss.

The notion of loss is quite broad. It can be an attack on the physical integrity of the person who suffers it (bodily injury), an attack on their property or savings (economic injury), or on their feelings (moral injury). Compensation can be in the form of a sum of money (damages) or in kind (i.e. the provision of a service). These two actions, while clearly distinct, are not mutually exclusive. In fact, the performance of a contract annulled after the fact may also have caused damage. The claim for compensation is then necessarily based on the principles of extra-contractual liability, since a void contract is deemed never to have existed, and therefore cannot serve as a basis for a claim for compensation. When a person wishes to ask the judge for damages in addition to the annulment of a contract and its restitution, this request must not aim to compensate for the disappearance of the contract, but to compensate for the occurrence of a distinct loss resulting from a fault. However, in the case under review, the supplier's order to pay the sum of 10,800 euros was simply the logical consequence of reimbursing the couple for the price of the cancelled sale. The distinction is important, because the judge is bound by the requests made to him, so it is extremely important to know how to qualify them so that the judge can grant them.  

• IN SUMMARY

Action for nullity of contract Basis: Articles 1178 et seq. of the Civil Code (on the principle of nullity of the contract) / Articles 1352 et seq. of the Civil Code (on restitution) Objective: Disappearance of the effects of the contract on persons and things, return to the situation prior to conclusion of the contract. Consequence: Restitution of services rendered under the contract, whether in kind or in value.   Action for damages Basis: Articles 1217 et seq. of the Civil Code (on contractual liability) / Articles 1240 of the Civil Code (on extra-contractual liability) Purpose: To compensate for damage caused by a person or thing. Consequence: Compensation in kind (injunction to do or not to do) and/or damages.   (1) Cass. 1st civ. 20th December 2023, n°21-16.491 (2) Nîmes, March 18, 2021, no. 19/02900 (3) Cass. 1st civ. 20th December 2023, n°21-16.491 (4) Article 1128 of the French Civil Code (5) Articles L.221-9 and L.242-1 of the French Consumer Code. (6) Article 1178 of the French Civil Code (7) 3rd Civil Court, October 2, 2002, 01-02.924 (8) Article 1240 of the French Civil Code