In our second of three LawFlashes about the contract law reform in France, we examine the interrogatory processes and the assignment of claims, debts, and contracts.
Ordinance No. 2016-131 of 10 February 2016 (the Ordinance), which reforms contract law, the general regime, and rules of evidence, applies to contracts entered into after 1 October 2016.
However, an exception exists for the provisions relating to interrogatory processes that have been applicable since the Ordinance took effect on 10 August 2016.
After addressing the issue of contractual nonperformance in our previous LawFlash (Contract Law Reform: Part One), here we briefly describe other new features of the reform: the interrogatory processes and the assignment of claims, debts, and contracts.
Interrogatory Processes (new articles 1123, 1158, and 1183 of the Civil Code)
The interrogatory process consists of serving a person with a notice to declare whether such person intends to exercise a right (under penalty of forfeiture) in order to clear any doubts about who the beneficiary of the process is and to secure the contract.
New articles 1123, 1158, and 1183 of the Civil Code introduce the interrogatory process for three different situations:
a) When a third party wishes to know whether a preemption agreement exists and whether the beneficiary intends to invoke it (new article 1123).
b) When a party is in doubt about the extent of the agent’s power in respect of a deed that the party is about to sign and wishes the principal to confirm the power of representation (new article 1158).
c) When a party to a contract that is subject to a relative ground for invalidity that has ceased wishes to know whether the holder of the right to sue for invalidity wishes to exercise the same or, on the contrary, confirm the contract (new article 1183).
The beneficiary of the process must submit the request in writing, set a reasonable time limit for response, and mention the consequence of failure to respond. In terms of action for invalidation, the time limit is set at six months.
The interrogated person’s failure to respond entails direct consequences: loss of entitlement for the beneficiary of the preemption right to claim substitution or invalidity of the contract entered into in fraud of his rights (for item a above), the agent’s right to sign the deed (for item b above), or confirmation of the contract in the absence of suit for invalidation (for item c above).
The beneficiary of the process must carefully assess the benefits of using these processes because it may be more advantageous, in terms of invalidity, for instance, not to take the risk to disclose an invalidity that the other co-contractor was not aware of.
Claim Assignments (new articles 1321 to 1326 of the Civil Code)
New article 1321 of the Civil Code defines the assignment of claims as “a contract whereby the assigning creditor transfers, against payment or free of charge, all or part of his claim against the debtor to a third party referred to as the assignee”. The regime that applies globally to claim assignments remains unchanged, except in certain respects.
Hence, the assignment must be established in writing (under penalty of nullity) and is enforceable (i) against the debtor, after the assignment’s notification or acknowledgement by said debtor, and (ii) against third parties, on the date of the written document. It is thus no longer necessary to notify debtors pursuant to article 1690 of the Civil Code, which compelled assignees to have a bailiff notify assignments to debtors for said assignment to be enforceable against third parties.
Note that competition between successive assignees is now settled in favor of whoever comes first with a right of appeal against an assignee that would have received an undue payment.
The provisions relating to plea enforceability and to the guarantee attached to a claim assignment have been subject to minor changes only.
Debt Assignment (new articles 1327 to 1328-1 of the Civil Code)
The assignment of debts is a new legal feature introduced by the Ordinance.
The feature allows a debtor to settle a debt by proposing to his creditor another debtor while respecting the creditor’s rights.
The assignment can only be made with the creditor’s agreement, due to the obvious importance of the debtor’s person for the creditor. The creditor whose debt is assigned, if he had given his agreement beforehand or if he was not a party to the assignment, can only rely on the assignment as from the day on which the assignment has been notified to him or on which he has acknowledged it.
The discharging effect of the assignment requires the creditor’s consent. The future discharge of the debtor can only occur if the creditor expressly accepts such discharge. Failing this, the assigning debtor remains jointly and severally liable with the assignee debtor.
The pleas against the creditor are enforceable by the substituted debtor and, as the case may be, the original debtor. New article 1328 distinguishes between the pleas inherent to the debt that both the debtor and substituted debtor may enforce and the personal pleas specific to each debtor.
Contract Assignment (new articles 1216 to 1216-3 of the Civil Code)
New articles 1216 to 1216-3 of the Civil Code implement a general regime for assignment of contracts that was until now a mere case law practice, recognized by the law in certain cases only (commercial leases and employment contracts, for instance).
Contract assignment is a legal mechanism that allows replacing a party to the contract while retaining the previous legal relationship.
The assignment can be carried out subject to two conditions:
- It must be recorded in writing, under penalty of absolute invalidity.
- The co-contractor whose agreement is assigned must give its consent. It may give such consent at the time that the transaction is complete or that the transaction is anticipated to be completed, in which case the assignment will take effect only when the assigned co-contractor (cocontractant cédé) receives notification or when the latter has acknowledged the same. The assignment’s notification does not need to meet the requirements of article 1690 of the Civil Code (service by a bailiff).
The assignor (cédant) is only discharged from its future obligations if the assigned co-contractor (cocontractant cédé) expressly consents thereto. In the absence of any clause to that effect, the assignor (cédant) is jointly and severally liable for the assignee’s (cessionnaire’s) obligations.
The assignee (cessionnaire) may enforce against the assigned co-contractor (cocontractant cédé) the pleas inherent to the debt as well as all pleas available to the assignee (cessionnaire) personally. The assigned co-contractor (cocontractant cédé) may enforce against the assignee (cessionnaire) all pleas that the assigned co-contractor (cocontractant cédé) could have enforced against the assignor (cédant).