Contract law: useful reminder from the 3rd Civil Chamber

At the dawn of summer, the 3^rd Civil Division of the French Supreme Court (Cour de cassation) issued a reminder of an essential principle of contract law that we thought worth mentioning.

Since the publication of Order no. 2016-131 of 10 February 2016, the new article 1225 of the Civil Code provides that “the resolutory clause specifies the undertakings whose non-performance will result in the termination of the contract”.

This new provision was of particular interest to us as practising copywriters.

A strict interpretation by the judge could have led to the “escape clauses” in many contracts being called into question, under which any breach of contract would lead to the termination of the contract.

When questioned, the Law Commission was asked to specify that :

” The text authorises the survival of these so-called “sweeper” clauses. It requires only that the clause express the circumstances in which it will come into play and therefore does not preclude the insertion of a clause specifying that it will come into play in the event of non-performance of any obligation under the contract. The previous case law validating this type of clause is therefore likely to survive”[1].

In fact, this type of case law continues to exist.

In addition, the regulation of resolutory clauses could have led to fears that, in practice, resolution by notification, currently provided for in article 1226 of the Civil Code, would be ineffective.

In the event that the resolutory clause is triggered, the breach of contract is traditionally, and barring exceptions, subject to a prior formal notice expressly referring to the said clause – in the case of commercial leases, more precisely a summons – which has remained unsuccessful.

In addition to this contractual arrangement, under article 1226 of the Civil Code, the creditor of a non-performed obligation has the option of notifying its defaulting co-contractor of the termination of the contract at its own risk, by way of notice. In this case, too, and except in emergencies, it is up to him to give formal notice to the defaulting debtor to fulfil his obligation within a reasonable period.

In a ruling handed down on 8 June 2023 (Cass. Civ. 3^th8 June 2023, no. 22-13.469), the Cour de cassation recalled that the termination clause expressly stipulated in the contract did not deprive the creditor of the unfulfilled obligation of terminating the contract on the grounds of the seriousness of the debtor’s conduct.

This case concerned a private contract for drilling work on a geothermal package, concluded between a company and its subcontractor. The contract expressly provided that ” in the event of a breach by one of the parties of its contractual obligations which remains unremedied within a period of 10 clear days from receipt of the registered letter with acknowledgement of receipt notifying the breach in question, the other party may assert and invoke the termination of the contract by registered letter with acknowledgement of receipt. “.

However, the main contractor had noted delays in performance on the part of its subcontractor.

After unsuccessful formal notice, the company suspended its payments and appointed another company in place of the defaulting subcontractor, which subsequently sued for payment.

The Court of Cassation dismissed the subcontractor’s appeal, holding that the unilateral termination without observance of the 10-day time limit was justified on the following grounds:

• Subcontractor failed to meet performance deadlines
• Delays attributable to the subcontractor
• Difficulties encountered by the subcontractor in the performance of his assignment, but which he had accepted and never called into question during the performance of the contract.

Although the judgment was handed down under previous law, it confirms that the mechanism of rescission for non-performance remains, in any event, an autonomous remedy available to the creditor who is the victim of contractual non-performance in the event of serious non-performance.

This useful reminder from the high court leads us to conclude that the resolutory clause stipulated in the contract may :

• on the one hand, have a very broad subject matter, with stop-gap clauses remaining valid subject to certain reservations; and
• on the other hand, does not prevent the creditor of the unperformed obligation from implementing other means of resolution.

A useful reminder, however, is that termination is carried out at the injured party’s own risk, and that it is still essential to seek assistance in implementing it.

Let’s hear it ….

[1] Report No 22 (2017-2018) by Mr François PILLET