The importance of the Ordonnance n° 2016-131 of 10 February 2016 reforming the law of contract for industrial agreements
Under the leadership of the European Union, and after several aborted projects, the Law of obligations was finally reformed thanks to the adoption, on the 10th February 2016, of the Ordonnance n° 2016-131 reforming the law of contract, the general regime of obligations and proof of obligations.
The new text entered into force on the 1st October 2016 and applies, exceptions apart, to all contracts concluded, renewed expressly or tacitly since that date.
Firstly, the reform codified several principles that have emerged in case-law, it modernized the terminology used since the 1804 Civil Code (the “acte sous seing privé” for example became the “acte sous signature privé” which both translate as act under private signature), and it clarified certain legal concepts. This is how the article 1101 of the Civil Code now states that “A contract is a concordance of wills of two or more persons intended to create, modify, transfer or extinguish obligations.” It should also be noted that the legal concept of cause has disappeared; the new article 1128 now provides that “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”.
Furthermore, some innovations were implemented, included most notably the following:
- The introduction of three interrogatory claims :
- Regarding the pre-emption agreement: the article 1123 of the Civil Code states that the third party may give written notice to the beneficiary requiring him to confirm, within a period which the former fixes and which must be reasonable, the existence of a pre-emption agreement and whether he intends to take advantage of it. Such a written notice must state that if he does not reply within that period, the beneficiary of the pre-emption agreement will no longer have the right to claim either to be substituted in any contract concluded with the third party, or nullity of the contract;
- Regarding the authority of a representative appointed by contract: the article 1158 states that “A third party who, at the time of an act which he is about to conclude, doubts the extent of the authority of a representative appointed by contract may in writing request the person represented to confirm to him within a time which he may fix and which must be reasonable, that the representative is empowered to conclude the act in question”;
- Regarding the action for nullity: the article 1183 provides that “A party may claim in writing from a person who could rely on the nullity of the contract either to affirm it, or to proceed with an 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.” Therefore this possibility is limited because the text provides that the ground of nullity must have ceased and it can only be a relative nullity which can be confirmed.
- The enshrinement of frustration / the hardship rule: the article 1195 provides that if a change of circumstances that was unforeseeable at the time of the conclusion of the contract renders performance excessively onerous for a party, that party may ask to renegotiate the contract. In the case of refusal or the failure of renegotiations, the court may revise the contract or put an end to it. This new provision puts an end to the case-law rule of the French Supreme Court which established that the French courts do not have jurisdiction to amend contracts by taking into account time and circumstances even if it seemed fair and appropriate.
- The introduction of new remedies for breach of contract:
- An enforced performance of the contract “unless performance is impossible or if there is a manifest disproportion between its cost to the debtor and its interest for the creditor.”( article 1221);
- “A creditor may accept an imperfect contractual performance and reduce the price proportionally (…).”(article 1223) ;
- The enshrinement of the confidentiality duties during the negotiation phase: “A person who without permission makes use of or discloses confidential information obtained in the course of negotiations incurs liability under the conditions set out by the general law” ( article 1112-2). This disposition applies to commercial negotiations not covered by a non-disclosure agreement (NDA), or in the case of a defaulted NDA. Nevertheless we recommend concluding an NDA in order to specify the relevant information and the terms of its transmission.
- The introduction of a reinforced pre-contractual information duty: the article 1112-1 states that: “the party who knows information which is of decisive importance for the consent of the other, must inform him of it where the latter legitimately does not know the information or relies on the contracting party”. The text also specifies that: “Information is of decisive importance if it has a direct and necessary relationship with the content of the contract or the status of the parties”. This duty is incumbent upon both parties and the demonstration of intent of withholding information is not required anymore like it was regarding the case law rule in matters of fraudulent concealment.
- The enshrinement of economic duress: the article 1143 states that “there is also duress where one contracting party exploits the other’s state of dependence and obtains an undertaking to which the latter would not have agreed in the absence of such constraint”. The sanction provide by the article 1142 is relative nullity.
The importance of this reform should not be neglected in matters of industrial property, especially regarding the above mentioned novelties. Indeed specific contracts, such as license, legal transaction assignment, non-disclosure agreement, consortium agreement or partnership agreement, are governed by the general law.
Contact : Gwénaël TOUSSAINT