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In review: contract formation in France

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Contract formation

A contract is defined as ‘a concurrence of wills between two or more persons to create, modify, assign or terminate obligations’.8 French contract law is based on the freedom of contract principle, according to which parties have the freedom to contract with the person and the content they choose to the extent permitted by the law.9

i Contract conclusionNegotiations

Pre-contractual negotiations may be initiated, conducted and terminated freely but must be conducted in good faith.10

Any misconduct carried out in the course of negotiations may trigger a claim for compensation by the alleged victim; however, the amount of damages may not include the loss of benefits expected from the aborted contract nor the loss of opportunity to get those benefits.11 Only damages such as the costs incurred for the negotiations can be retrieved.

A duty of good faith implies a duty of information. Parties must communicate to each other the information unknown by the other that is relevant for the latter’s consent unless the information concerns the value of the consideration offered.12 Breaching this duty may result in the nullity of the contract and the allocation of damages by the breaching party.13 It is thus crucial to respect this duty, especially for significant operations such as mergers and acquisitions as the parties may neither limit nor exclude this duty.

Offer and acceptance

The offer must contain all the essential elements of the contract. It must express the will of its author to be bound in case of acceptance; otherwise, it only qualifies as an invitation to negotiate.14 An offer may only be withdrawn after the expiry of the period stipulated or, in the absence of such period, after the expiration of a reasonable time.15

The reunion of both an offer and an acceptance whereby parties express their will to contract forms the contract.16 Consent can either be drawn from parties’ statements or by their unequivocal behaviours.17 Silence is not construed as acceptance unless otherwise implied by law, customs, business relationships or specific circumstances.18

Preliminary contracts

The 2016 reform introduced two preliminary contracts that are already vastly used in practice:

  1. the pre-emption agreement, whereby a party commits to offering to negotiate first with the beneficiary of the preliminary contract if this party wishes to contract;19 and
  2. the unilateral promise, whereby a party gives the other the right to unilaterally trigger the conclusion of a contract of which the essential elements are stated in the preliminary contract.20

ii Conditions of validity of a contract

Three requirements must be satisfied to conclude a valid contract:

  1. consent of all parties;
  2. parties’ capacity to contract; and
  3. defined and lawful subject matter of the contract.21

Capacity and representation

Any natural person over 18 has the capacity to contract unless he or she is subject to a measure of legal protection, in accordance with Article 425 of the Civil Code.22 As for legal persons, their capacity to contract is limited by the specific provisions that govern each of them.23 Contracts are signed by the company’s legal representative or by any person to whom such powers have been delegated.24

Validity of consent

Parties’ consents are not valid when given only by error, obtained by violence or induced by wilful misrepresentation (dol).25 If a party’s error concerned an essential component of the contract, the party cannot have understood its real implications.

Consent is also void when a party only agreed under an illegitimate moral, physical or pecuniary threat. As for dol, a civil law concept, it can be defined as fraud committed to induce another party into entering into a contract.26

Defined and lawful subject matter of the contract

A contract’s content must not breach public order,27 and the object of the obligation arising from it must be a present or future performance that must be both possible and determined or determinable.28

In a bilateral contract, the fact that the obligations are unbalanced is not a cause of nullity, unless otherwise specified by law;29 however, the onerous contract is null if the consideration provided to a party was illusory or derisory at the time of the conclusion of the contract.30

iii Form of the contract

As a principle, contracts are consensual.31 Consensualism is a principle of French contract law according to which a contract is legally binding regardless of whether it was concluded orally or in writing. Nevertheless, some types of contracts must be formalised in writing and may even require an authenticated deed (land transfers, marriage contracts, etc.) or specific handwriting mentions.

iv Enforcement of the contract

Contracts are binding for their parties.32 Not only must they comply with their explicit provisions but also with all consequences that equity, customs or law may give them.33

Contracts can only be modified or revoked if both parties consent to it, unless otherwise specified by law;34 however, a contract may be renegotiated if some unpredictable events that make it prohibitively expensive to carry out occur.35

Regarding the transfer of ownership, unless the parties have decided otherwise, the transfer occurs upon conclusion of the contract.36 After that, the seller must deliver the good as promised and preserve it until delivery.37

As a general rule, one may only bind oneself in one’s own name and for oneself;38 however, some contracts have third-party beneficiaries (third-party provisions,39 third-party performance promises,40 mandates,41 commissioning agents,42 etc.).

This article is made available by Latham & Watkins for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. Your receipt of this communication alone creates no attorney client relationship between you and Latham & Watkins. Any content of this article should not be used as a substitute for competent legal advice from a licensed professional attorney in your jurisdiction.