As a Chief executive officer or individual, you are required to conclude agreements whether in a business relationship with your clients, your suppliers, your service providers, your subcontractors… or within a private setting: bank, insurance, trading. But what happens when one of the parties does not respect its obligations or when the contract is not duly performed as a result of a breach of contract ? What are your rights and remedies? Picovschi Lawyers, by its expertise in Business Law, informs you on these issues.
In which case to act on a contractual liability’s basis?
In a case of a contractual liability whether civil, commercial, professional or criminal, it is required to meet several conditions, otherwise, a suit will struggle to succeed.
As a rule, when one party to a contract does not fulfil its duties, the other party, weakened by this lack, is entitled to engage its contractual liability in order to obtain compensation, such as damages.
To this end, three conditions must meet so the action for contractual liability is received by the Court and has a chance to succeed: non-performance or improper performance of duties by the opposite party can cause a prejudice, resulting from this breach of contract, which is called the «causal relation”.
What are the targeted duties?
Keep in mind here that we refer to contractual obligations in France; In other words, the parties’ duties as agreed in the contract. For example, in the framework of a property sale, the obligation for the purchaser to pay the price and the seller to deliver the property.
However, French courts have been able to identify obligations related to the contract that the parties did not necessarily foresee when the consents were exchanged ; for example, information requirements (loan contract, endorsement, etc.), advice (sale, etc.) and security (passenger transport contract, etc.)
Note that the case law is even more severe regarding the performance of these duties in relations between professionals and consumers because of the imbalance existing between both parties. The French legislation also recognized this inequality by providing for professionals a legal security obligation towards consumers. Such legal enshrinement gives it all the more strength.
In which cases is there non-performance or undue performance of contractual obligations?
When a party complains that the contract is not performed or improperly performed, such party will not necessarily succeed, without providing some kind of proof.
Improper performance of contractual obligations occurs when one party partially fulfils its obligations, or performs them poorly, and not according to the provisions settled in the contract. For instance, the courier who delivers a damaged machine; or the owner of an apartment who delivers a ransacked house.
The non-performance corresponds to the situation where duties of one party have not been carried out. This is the case when a buyer does not pay the price of the house.
However, if you are a party to a contract and want to claim contractual liability, you can only do it if the other party is passed the deadline to comply. Indeed, if a deadline has been mentioned in the contract, you can not act before the closing date. If no deadline has been mentioned, it is mandatory to send a first notice to the other party requiring the latter to fulfil its obligations.
In France, the burden of proof is on the party that has failed to meet its obligations, it has to prove that it has been prevented from doing so by an unforeseeable situation that it could not overcome.
In these situations, a lawyer is essential to be successful in a lawsuit and ensure that your interests are properly defended from the outset.
When a prejudice occurs from a breach of the contract
Contractual liability is a remedy for a disappointed party in a contract to obtain damages from a loss of profit. In France, we distinguish two types of losses:
- loss that can occur from the expenditures to conclude the agreement or fulfil an obligation;
- and loss of earnings, strictly speaking, which is the profit that would have occurred if the contract would have been duly executed.
For example, in Purchase for resale, both kinds of losses can meet: if a supplier does not deliver on time, then the seller cannot resale the goods as intended. In such case, the seller suffers a loss and shall receive damages from the supplier.
Compensation is strictly limited to the losses that can be foreseen. Which differs from other types of liabilities in French law, especially tortious liability that offers whole damages.
To claim for contractual liability, the prejudice must be directly caused by the misconduct. In France, you must prove 3 elements: Prejudice, Breach and a causal link between both. If these three elements are gathered, the other party can be sued.
A party to the contract can prevent financial difficulties resulting from its liability. To this end, a party can draft various provisions in the contract:
- Liability provision or limitation clause, to constrain the liability and lessen the amounts of damages in case of a breach. However, these provisions shall be used carefully if you want them to be enforceable.
- Penalty clause or “remedies”, to settle the amount of damages in case of contractual liability. These amounts shall be drafted with caution because the Court can intervene.
- Liability waiver is a provision that shall be handled with care as they are strictly limited by law and courts. The French Highest Court, “la Cour de cassation”, has already prohibited the partial or total liability waiver that are aimed at preventing suit against hidden defects or flaws. This kind of provision is prohibited, as are the ones that limit the liability on an obligation that is essential to the contract.
In this matter, a lawyer’s expertise is crucial, so as to draft the right provision and to prevent the contract to be render unenforceable or voidable.
The French legislator also took at hand the issues of “abusive clause” which are the ones that create a significant imbalance between the rights and duties of the parties. A professional shall not draft a contract that significantly reduces its obligations towards the costumer.
The French “Consumer code” provides that “withdrawing or reducing the right of a non-professional or a consumer to be entitled damages due to a breach of the professional of any of its obligations” is considered as “abusive”, and void, unless proven otherwise. The party that wishes to secure its liability shall be assisted by a qualified and resourceful lawyer if he doesn’t want to fall under the law.
Of course, this article is only a brief summary of the subtleties of French Law, Picovschi Lawyers is at your disposal for a more accurate and case-based analysis.
Moreover, because this field is complex and technic, a lawyer is an invaluable asset and a mandatory counsel before the French civil courts to argue the most skilful cases in contractual liability.