An extract from The Complex Commercial Litigation Law Review, 2nd Edition

Contract formation

A contract is defined as 'a concurrence of wills between two or more persons to create, modify, assign or terminate obligations'. 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.

i Contract conclusionNegotiations

The initiative, conduct and termination of negotiations are free but must be conducted in good faith.

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 these benefits. 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 said information concerns the value of the consideration offered. Breaching this duty may result in the nullity of the contract and the allocation of damages by the breaching party. It is thus crucial to respect this duty, especially for significant operations such as mergers and acquisitions.

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. An offer may only be withdrawn after the expiration of the time period stipulated or after the expiration of a reasonable time.

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

Preliminary contracts

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

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

Any natural person over 18 has the capacity to contract unless he or she is under protection, as per Article 425 of the Civil Code. As for legal persons, their capacity to contract is limited by the specific provisions that govern each of them. Contracts are signed by the company's legal representative or by any person to whom such powers have been delegated.

Validity of consent

Parties' consents are not valid when given only by error, obtained by violence or induced by dol.

Indeed, if a party's error concerned an essential component of the contract, that party cannot have understood its real implications. Consent is also void when a party only agreed under an illegitimate moral, physical or even pecuniary threat. As per the dol, a civil law concept, it can be defined as a fraud committed to induce another party into entering into a contract.

Defined and lawful subject matter of the contract

A contract's content must not breach public order and must be based on a present or future obligation that must be both possible and determined or determinable.

In a bilateral contract, the fact that the obligations are unbalanced is not a cause of nullity. 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.

iii Form of the contract

As a principle, contracts are consensual. Consensualism is a principle of French contract law according to which a contract is legally binding whether concluded orally or in writing.

Nevertheless, some types of contracts must be formalised in writing and might 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. Not only must they comply with their explicit provisions, but also with all other terms implied by equity, customs or the law.

Contracts can only be modified or revoked if both parties consent to it, unless otherwise specified by law. However, a contract may be renegotiated if some unpredictable events occur.

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

As a general rule, one may only bind oneself in one's own name and for oneself. However, some contracts have third-party beneficiaries (third-party provision, third-party performance promise, mandate, commissioning agents, etc.).