How To Terminate a Contract under French law?

The French civil code defines the contract as “an agreement between two or more people to create, modify, transmit or extinguish obligations.”

Once the parties enter into a contract, it becomes legally binding until the contract’s specified term ends, or if the contract does not have a specified term, until the parties decide to terminate it.

Except for the permanent contract, the parties must wait for their contract term to expire before terminating it.

So, how do you terminate a fixed-term contract?

I. Annulment of The Contract

Annulment of the contract and places the parties in the position they were in before the commencement of the contract. This generally requires that parties must return to each other what they gained during the contract’s existence.

One can request annulment of a contract in three situations:

Error:

If you or the co-contracting party committed an “error”. The error’s victim can ask for annulment of the contract. An error can relate to the co-contracting party’s identity or the essential elements of the contract.

Willful Misrepresentation:

If you are the victim of a willful misrepresentation, you must prove that the other party lied to induce you into the contract. Without this deception, you wouldn’t have entered into the contract. Another name for this under English law is fraud in the inducement.

Coercion (Physical, Psychological, And Economic Violence):

An individual can be a victim of coercion by physical, psychological, or economic violence. Depending on the circumstance, the victim must prove that they have been assaulted or threatened or subjected to psychological pressure.

For companies, the only violence that can be proved is economic violence. To establish “economic violence” you must prove that the victim has been subjected to fear or pressure to commit, or by abuse of the party’s dominance.

The French Commercial Code also provides for competition law rules that could allow you to seek annulment of your contract and getting away from your contract. It mostly concerns prices fixation rules, power equivalence …. (See article L.420-3 of French commercial code).

II. Termination of Contract for Non-Performance

When a party doesn’t fulfill its obligations under the contract, the aggrieved party can choose a sanction from the sanction list under article 1217 of the French civil code.

One of the sanctions available under this list of sanctions includes “triggering the contract termination.” There has to be a significant breach under the terms of the contract to for this sanction to be upheld, otherwise the judge won’t validate the termination. In such a scenario, the contract will still be enforceable and the party who unsuccessfully initiated the contract termination may be liable for damages to the other party.

III. Seeking Judicial Resolution of a Contract

A party can always ask a judge to terminate the contract. However, the party must demonstrate the other party’s non-performance, regardless of how minor the breach may be.

In general, except for emergencies, a civil trial can take up to 4 years (3 years and 9 months on average). Seeking judicial resolution can be a lengthy process. During this time, all parties must continue to fulfill their obligations.

IV. Certain Clauses Survive Termination of a Contract

Regardless of the method used to terminate your French contract; certain clauses in your contract will survive the termination of the contract.

This usually applies to clauses related to arbitration, confidentiality, non-competition clauses, and generally all clauses intended to have protective effects even in the event of termination.

Thus, if a party terminates a contract which contains an arbitration clause, the process of the termination must adhere to the procedures outlined in the arbitration clause.