Legal News January 2024: Is a prior notice always required before terminating a contract?

 

 

• Reminder:

According to article 1224 of the French Civil Code, terminating a contract without incurring liability requires:

• either to comply with a terminating provision set forth in the contract, which needs to be drafted in the clearest and most precise terms (always the preferred option);
• or, and without excluding the terminating provision, to require from the failing contracting party that he needs to comply with the breached or seriously non-performed obligation within a reasonable period of time;
• or, to be authorized to do so by a court decision (this third option is preferably to be avoided due to related delays and judicial uncertainty).

With respect to the second precited termination option, Article 1226 of French Civil Code (i) requires that, except in cases of urgency, the terminating party must, prior to any termination, send a formal notice to comply to the failing party and (ii) specifies that, only in case of a persisting non-performance, the termination shall be implemented.

Article 1226 of the French Civil Code also outlines the risk of this option for the party terminating at “their own risk”, such prior formal notice being regarded as a “mandatory step”, except in cases of urgency.

A welcomed decision from the commercial chamber of the Court of Cassation on October 18, 2023, acknowledges the possibility of terminating a contract without a prior formal notice in cases other than emergency.

• Key takeaway from the Supreme Court’s decision

In such case, one of the parties had notified the termination of a contract, without sending a prior formal notice, due to insulting and contemptuous remarks made by the managing director of the contracting company towards one of the collaborators of the terminating company.

The terminated party questioned the conditions of the termination that failed to comply with the prior formal notice such as required under Article 1226 of the French Civil Code.

In the aforementioned decision, the Supreme Court distances itself from the literal interpretation of Articles 1224 and 1226 of the French Civil Code and explicitly adds a new derogation (in addition to emergency) from the requirement of a prior formal notice, considering that, under such specific circumstances, such a formal notice is not required:

• "when it appears from the circumstances that it will not serve any purpose"
• since the managing director’s behavior of the terminated company is "of such gravity" that it makes "obviously impossible the continuation of contractual relations"

 

• Practical Implications:

In cases where no termination provision is set forth in a contract or is not applicable due to its imprecise drafting, it is now possible (subject to specific circumstances) for a contracting party to initiate a termination without being required to issue a prior formal notice; whenever the emergency matter prevents from doing so or when the wrongful behavior of the contracting party deprives the formal notice of any interest and leads to an impossible continuation of a relationship.

 

By Sarah Temple-Boyer                                                                                         Jessica Pereira Quaresma

Business Attorney                                                                                                  Legal Intern