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Business Contracts: what is the lawyer‘s role?

Home > French Business Law | Updated 2014-11-17 | Published 2010-12-30

Commercial contracts are very complex by nature. Trying to rely on standard contracts without the assistance and expertise of a lawyer proficient in commercial law carries an increased risk for complications.

Due to the generality of trade laws, the specific rules that apply to each type of commercial contract are closely linked to broader rules and regulations. Indeed, there is a wide variety of trade contracts including commercial leases, contracts for sale of goodwill, franchise agreements, distribution etc.

This will be discussed in greater detail in future articles.

Firstly, the question of whether the rules of commercial contracts apply to an act must be decided in order to qualify a case.

Indeed, the existence of an act creating rights and legal obligations renders it necessary to distinguish with utmost specificity the scheme which must be applied to each case. This is critical: with a failure to classify the system, the contract may be deemed nonexistent and even inapplicable.

In practice, qualification, which is not explicitly required, is often decided implicitly by the parties involved. It is derived from the obligations of the act itself.

Thus, the qualification of a commercial contract can be inferred easily in accordance with certain characteristics already specified by the court.

Indeed, the contract is one of “trading” when it concerns a commercial transaction or is carried out by a merchant for the purposes of his trade. It is then applicable to trade rules and regulations as well as the general theory of contract.

However, to facilitate its characterization, a presumption has been made on the part of the law: all contracts entered into by a merchant are indeed acts of commerce.

Because of this conjecture, the trader must prove that a contract, a source of litigation, was established without relation to his professional activity. He will bring forward this evidence based on the nature of the issue at hand or cause of the contract. In this case, said entity may benefit from the protections of consumer law, which is undoubtedly favorable to consumers.

The engagements entered into by a merchant in consideration of its consumers are classified as mixed acts. Typified as civil obligations, they are on one hand derived from the responsibilities of trade developed by the trader and on the other hand are created at the expense of the clients.

Nonetheless, the laws protecting the consumer do not explicitly define this concept; a fact which encourages, in each case, the parties involved to clarify the specific obligations between a merchant and consumer.

In this case, it is often difficult to distinguish and separate the division between specificity and generality.

A broad approach encourages the parties to consider that the act of a merchant signing a contract for his business is considered to be outside the activity of a consumer.

A more narrow perspective maintains that the consumer is only the individual who enters into a contract on behalf of personal or family need.

In a landmark decision on January 30, 1996, the First Civil Chamber, after much reluctance, affirmed that an act was an act of commerce when it directly related to the professional activity of the trader.

The existence of mixed contracts and interpretations is exacerbated by various adaptations of consumer laws and the innovative processes which result in the creation of new types of commercial contracts. These acts serve as factors which cause increased complexity within the legal regime of the commercial contract.

This complexity rationalizes the intervention of an experienced lawyer in order to avoid the traps that arise from intricate legislation and case law originating from the sheer volume of information and details regarding contract negotiation.

Indeed, once the classification of a commercial transaction is decided, a specific legal system is then applied.

Therefore, the qualification of acts of trade involves the application of two fundamental rules; that of jurisdiction and of proof.

The rules of jurisdiction involve the commercial court of the domicile of the defendant. Said court exercises jurisdiction over such disputes.

However, merchants may request and produce arbitration clauses before submitting their judgment of disputes to arbitrators.

They can also be specified in the jurisdiction clauses calling for a commercial court to hear their dispute.

Such clauses must be handled with utmost attention and delicacy and typically include the provision of alternative dispute resolution (ADR). We must ensure the validity of their content. The worst case scenario would be the discovery, as the conflict unfolded, of a violation of the right to act which would be considered null and not taken into consideration by the judge.

Therefore, in drafting such clauses, particularly because of these “traps” and loopholes, it is critical to have access to the advice of an informed and experienced attorney.

In terms of the mixed acts (specifically those between traders and non-traders), several difficulties arise which are directly applicable to the rule of jurisdiction: those of an institution’s acts of commerce as well as the civil law.

The Court maintains that the non-trader may choose to summon the party to court as a civil court business case while the trader could choose to only involve the civil court.

The second rule to keep in mind in terms of a commercial contract is the burden of proof (Article L. 110-3 of the Commercial Code).

It is obvious that this rule necessitates the validity of the proof of claims of both parties. Therefore, a sharp analysis of rhetoric and prose is the best way to avoid many unnecessary complications.

In addition, case law is limited in terms of the scope of this article. Thus, this rule deserves additional consideration and clarification.

The rhetoric of the Civil Code necessitates joint written evidence for all acts involving more than €1,500 (Article 1341 Civil Code).

The rule of burden of proof determines several notions, including:

By any means, proof of the contract must be produced.

If rhetoric has been finalized and decided, evidence may be furnished against the written entries by all means.

Concerning mixed acts, Article L.110-3 of the Civil Code is beneficial to the non-trader since the action against the trader has an open case while the action of a trader to a non-merchant is subject to the rules and regulations of civil law.

Recommended conduct and deportment for a commercial contract helps the entity avoid later disputes as they are static over time, leaving less room for varied interpretations.

This involves obligations arising in connection with trade between traders and non-traders, spanning no longer than ten years.

Finally, if all traders adhere to contractual obligations for the needs of their business, they are jointly liable.

Thus, the general rules applicable to all commercial acts via legislation are rules that favorably facilitate trade by allowing greater freedom among traders.

They also subscribe to the principle that the merchant is a skilled professional who does not need the same protection afforded to consumers.

Nevertheless, in recent years increased legislative activity has occurred in this field, as seen with the NRE Act of 2001 designed to protect weaker parties against complaints of larger companies, specifically in the context of distribution contracts.

Indeed, the open-ended contracts may be breached unilaterally since perpetual contracts do not exist in French law.

In a commercial contract, breach of a sudden permanent contract which had existed for several years may have serious consequences for the small supplier to the retail side.

NRE 2001 thus formalized the unilateral termination of a contract between traders by penalizing any sudden breach.

Therefore, under Article L442-6-1-5 of the Commercial Code, generalized treatment of the party wishing to break respected notice of the terms has not been clarified by the legislature.

The parties have a vested interest in the state of their contracts at a time when their relationship has not further deteriorated.

If such precision was not mentioned in the contract, the company wishing to break off should take a number of precautions to avoid being convicted for breach of contract.

The presence of a lawyer is necessary during all stages of a commercial contract for an indefinite period of time, from its genesis to its conclusion until the establishment of litigation to enforce its rights.

This article is available online for public information purposes. It is updated regularly, as needed. Due to the constant evolution of the laws and the legal system, we cannot guarantee that the information in this article is still applicable. We invite you to contact us with any legal questions or concerns you have regarding this topic at +33 1 56 79 11 00. In no way can this firm be held liable for articles that contain inaccuracies or are now out of date.

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