Contract Law Remedies | Contract Law Essays

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Contract Law Remedies | Free Contract Law Essay

The Remedies for unexcused non-performance of the contract under French and English Law. Comparative study considering the influence of the Principles of European Contract law

Introduction

The importance of contract law and its central place amongst the other disciplines in Private law has never been underestimated by both, scholars and practitioners. ‘A complex legal discipline in both its jurisprudential foundation and its practical function,’ it is often referred to as the cornerstone of the Private Law in every legal system and the most ‘rewarding’ legal field.

Consequently a definition of what a contract is seems necessary. If one turns to the French Civil Code, one will find the following definition in Art. 1101: ‘The contract is a convention whereby one or several persons bind themselves towards one or several persons to give, to do or not to do something.’ On the other hand, according to some authors, English Law does not offer a precise definition of a contract. For example, J. Beatson and W.R. Anson define the Law of Contract as ‘the branch of the law which determinates that a promise should be legally binding on the person making the promise.’ Those similar definitions result from the fact that both, the English and the French legal systems are based on the Latin statement ‘Pacta sunt servanda’ (pacts must be kept) and therefore lie on the duty of both parties to a contract to perform their obligations.

Thus, in both systems’ contract law, an essential feature of the contractual relationship is the performance of the contract as the principle that pact must be kept is firmly established and considered as the backbone of the contractual relationship. However, a problem could arise if a contract is not properly executed and one party refuses to perform its obligations. In this case the concept of non-performance and the remedies available for the aggrieved party, become relevant and therefore will represent the object of this note, which will try to offer comprehensive analyses of the contractual non performance in the English and the French legal systems, but also will take into account the possible influences of the Principles of European contract Law and further European development in the area of Contract law and assess the solutions offered by those.

Consequently important questions need to be examined such as what the contractual non-performance is in the Civil law legal system of France and the Common law system of England? Is the concept the same under both jurisdictions? In addition one should ask oneself whether the non-performance could be distinguished and how could it be distinguished from concepts such as the breach of contract? What are the remedies available for a party seeking relief because of the non-execution of the contractual obligations of the other party and are they different in both system because of the distinction between Civil and Common Law? Moreover, one should not neglect texts such as the Principles of European Contract Law (hereinafter referred to as the PECL), which could offer a new perspective of the concept of non-performance and the remedies available to the suffering party? Is the solution of the Principles in accordance with both jurisdictions? Have it managed to offer more suitable remedies than the pure Common and Civil Law traditions? Additionally, would the Principles play an important role for the future private European law development or they will be supplanted by new texts?

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In order to answer to those questions, we will first try to establish the differences between the concept of non-performance in the English and French legal systems with existing broader concepts such as the breach of contract (I). In a second part we are going to discuss whether substantial differences between the essential English and French remedies for contractual non-performance exist as a consequence of the distinction between Civil and Common law legal traditions (II). Eventually, this note will discuss the possible influences of the PECL and the remedies for non-performance they are offering (III).

Comparison of the French and English concept of non performance contrasted with the broader scope of the concept of breach

As it was already mentioned at the beginning of this research, the French and the English Law of contracts are based on the principle that pacts must be kept and ‘every contract,’ unilateral or bilateral (the latter is known under the term synallagmatic in French) ‘imposes obligations on at least one of the parties.’ Likewise, the rights and obligations on each party depend on the contractual terms that they have agreed on. As explained by G. Trei ‘Performance must be exactly in accordance with these terms.’ If one of the parties to a contract refuses or ‘fails to perform’ his contractual duties, this will be qualified as non-performance, which will also be prima facie qualified as a breach. Nonetheless, as clarified by the author, not every non-performance will amount to a breach of contract.

First, if we try to define the concept of non-performance, we will see that in both systems it reflects the refusal of one party to perform what has been agreed in contract. In France, the contract has the force of ‘loi’ (law) between the parties and has to be respected. Thus, French Law considers that the contract obliges the debtor to accomplish a service or an action, which he should not have been obliged to perform if there was no contractual relationship. Similarly, English law requires that the parties perform their obligations as they have agreed when they concluded the contract. Consequently, both legal systems seem to accept that contractual performance is an essential duty in the contractual relationship and try to give solutions to the situations where one of the parties will refuse to continue the performance of the contract. However, non-performance could not only be the result of voluntary action or inaction, but could also be the consequence of external elements, independent from the willingness to perform of the parties to the contract. Therefore, one need to understand that the liability for non-performance could be due to a fault from one of the contractors, but will also arise in some cases ‘independently of fault’ (strict liability). This one should also remark that although non-performance will usually amount to a breach of contract, it will not always be the case. Thus, a non-performance could be ‘excused by some rule of law, or by the terms of the contract’ and examples of excused non-performance could be found ‘under the doctrine of frustration’ or the ‘force majeure’ in French law. Other reasons, excusing the non-performance could be ‘that the duty has not yet arisen,’ ‘le fait du prince’ and the ‘cas fortuit’ in the French system.

If a party refuses to perform or does not perform efficiently its obligations, it becomes necessary to enquire about the main remedies available to the affected party. This note will be interested in the remedies for unexcused non-performance, which will be discussed is in the next party of this note. As ‘failure to perform a contract is generally a breach,’ the remedies available for breach of contract such as performance in specie and damages will be discussed bellow. The other types of remedies available to the claimant could be avoidance of the contract and the possibility to refuse performance if the other contractor has not compelled with his undertaking. All these deserve our full attention and will be considered in the next part of this study, dedicated to the remedies for non-performance in the French and English legal systems.

Comparison of the remedies for non-performance of the contract in France and England

In a first part we are going to concentrate on a comparison of the French and English domestic provisions relating to non-performance and the remedies offered (A). However, in the French legal system, one must distinguish between the pure French domestic law and, therefore the French Civil Code and other international provisions the country has ratified, such as the Vienna Convention on International Sale of Goods (hereinafter referred to as the CISG ). The latter will be discussed in a second point (B).

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The remedies for non-performance offered by both legal systems’ domestic laws

As it was already explained above, when one of the parties refuses to carry out his obligations, the question of what recourse the other party has against this non-performance, arises. Thus, it becomes necessary to assess both jurisdictions’ approaches towards the remedies for defective performance. The first remedy to be considered by this paper is known as the ‘exception d’inexécution’ in French law, its parallel in English law being the ‘unpaid seller lien’ or retention right (a). The second point will be dedicated to a comparison of the importance of the ‘execution en nature’ in the French legal system contrasted with the role of ‘performance in specie’ (b). Another part will analyse the place of damages (c), whereas a last part will review the principle of judicial résolution in France and the right to unilateral termination of the contract in English Law (d).

L’exception d’inexécution and unpaid seller’s lien

The remedy of ‘exception d’inexécution,’ ‘non adimpleti contractus’ or as it is translated in English: the ‘defence of unperformed contract’ is the first French remedy that we will be interested in. Well established in French Law, it will intervene only if one party does not respect his contractual duties but requires that the other party still compel with his part of the contract, the most important condition being that the obligations should be ‘concurrent.’ As the principle in bilateral contracts is that both actions should be performed simultaneously, if one refuses to honour his obligations, the remedy allows the creditor to refuse the execution of his contractual obligations ‘unless the other party performs his’ own obligations.

According to Prof. Nicholas, the French and Latin denominations are deceptive as the language used could wrongly imply that the remedy has the effect of a ‘moyen de defence’ (mean of protection) against an action, whilst in fact the remedy gives the opportunity to a party to not perform the contract, without needing to resort to court, if the other party refuses to carry out his duties.This possibility to resolve the dispute arisen without resorting to national courts is the main particularity of the remedy. It is often qualified as a ‘voie de justice privée’ (remedy for private justice). A practical application of the principle, could be found for example, in sales contracts, where the seller could refuse delivery if he has not received payment. Furthermore, the remedy could be used by the landlord, who can refuse to maintain the building in good condition if the tenant refuses to pay the rent.

One could be surprised to learn that this remedy was inexistent in Roman law, on which French Law is mainly based, but originated only in the Middle Ages. It finds its source in the ‘principe de retention’ (the principle of retention), which allowed a party to the contract to keep the object of the agreement as a collateral, until the other party performed its obligations. Although, being the basis of the today’s concept of exception d’inexécution, the principle of ‘retention’ should not be confused with the former as it has narrower application. However, as it is observed by scholars, it was only in the 20th century that the jurisprudence made generalised application of the principle ‘to all synallagmatic contracts’. In order to justify its position, it ‘founded it’ on one of the essential elements for the constitution of a contract: ‘the doctrine of the cause’, which requires that ‘each obligation is the cause of the other.’ As a result, if one party refuses to perform its part of the contract, the other will find justification in ‘the cause’ to refuse to perform its obligations.

One important point that needs to be clarified, however, is that the suspension of contractual performance that will result, will be ‘temporary and provisional.’ It will not bring the parties’ contractual obligations to an end. Hence, if the infringing party decides to perform his duties, the party, which has resorted to the remedy of exeption d’inexécution, should also be required to perform his own obligatons. However, the inconvenience that could arise from this type of situations for the party originally willing to carry out his obligations should not be neglected, as for example, in sales contracts, this party will have to refuse delivery, if not paid. Nevertheless, it should still be ready to perform and therefore deliver the goods, if the debtor eventually decides to complete its part of the contract. Therefore, it will not be able to dispose with the goods, because of the temporary effect attached to the remedy and this could result in substantive losses for him. The only possibility for him then will be to ask for resolution of the contract (this remedy, however, will be discussed lately in our note) in order to be liberated from his duties.

This remedy has been widely used in the French legal system. However, it is also an area of concern for scholars as they consider that ‘it is capable of abuse’, because one party could try to rely on the remedy unjustifiably. Nevertheless, one should not forget that even in these cases, the party against whom the remedy has been used, could ask the judge to decide whether the exception d’inexécution has been unjustifiably employed, and if this is the case this party will be allocated damages. Thus, even though it is not necessary to go to court in order to apply for the remedy, the court will still have the power to scrutinise the recourse to the remedy and therefore limit its abusive use.

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In English law on the other side, the French remedy of ‘exception d’inexécution’ amounts to what is knowns as the ‘unpaid seller’s lien,’ reference to which could be found in Sect. 39 et 41 and following of the English Sale of Goods Act from 1979. The first provision recognises the right for a seller, ‘notwithstanding that the property in the goods may have passed to the buyer,’ a lien, or right to retain the goods ‘for the price while he is possession of them.’ Thus in cases of ‘insolvency of the buyer,’ the unpaid seller has a right of stopping the goods in transit after he has parted with the possession of them’ and ‘a right of re-sale as limited by’ the Sale of Goods Act. Even when ‘the property in goods has not passed to the buyer, the unpaid seller has (in addition to his other remedies) a right of withholding delivery similar to and coextensive with his rights of lien or retention and stoppage in transit where the property has passed to the buyer.’ Moreover, Sect. 41 lays emphasis on the fact that ‘the unpaid seller of goods who is in possession of them is entitled to retain possession of them until payment or tender of the price’ if ‘the goods have been sold without any stipulation as to credit,’ if they ‘have been sold on credit but the term of credit has expired,’ or ‘where the buyer becomesinsolvent. These provisions imply that the seller has the right to refuse delivery, if he is still ‘in possession’ of the goods ‘until the buyer performs his obligations. In addition to this, alike in French law, it appears that the Sale of Goods act does not consider the contract rescinded by the mere fact that he seller has exercised his lien. This implies that the remedy is also temporary and not definitive. Performance from the creditor will still be required if the debtor decides to honour his obligations.

After this reading of the Sale of Goods Act, one can conclude that the English legal system mirrors the French point of view in relation to non-performance and authorises a party to refuse to perform his part of the contract if the other party has not compelled with his obligations. It is also a remedy available for the non-performance of ‘concurrent obligations’ (i.e. delivery of the goods and payment of the price’ as explained by the Sale of Goods Act, Sect. 28. Furthermore, in both jurisdictions it represents a remedy of temporary nature, and should not be considered on its own as a rescission of the contract. The ‘exception d’inexécution’ is however wider than the lien or right of retention, as ‘the creditor is not confined to retaining a specific thing to which the debtor is entitled.’ However they both have the same effects and very often are ‘undistinguishable.’ The ‘exception d’inexécution’ and the unpaid seller’s lien could be defined as successful means of pressure against the reluctant debtor, as they authorise the creditor to retain the goods object to the contract until the debtor performs his undertaking. Under the Common law system, however, the seller will lose his right of lien or retention if he has not reserved the right of retention on the goods, if the buyer ‘lawfully obtains possession of the goods’ or ‘by waiver’ of this right. This is slightly different from the French position which does not contain those limitations. In spite of this, the main points of the remedies are akin in both legal systems.

After having compared these two remedies, particular attention should be drawn to another remedy: this of performance in specie in both systems.

The importance of the ‘execution en nature’ in the French legal system contrasted with the role of ‘performance in specie’ under English law

As performance of the contract is essential in French law, ‘a contractor is in principle entitled to demand that his contract be performed in specie.’ This implies that a party can apply to court and request that the judge ‘orders the defendant actually to perform his undertaking.’ As it is rightly observed by scholars these orders will require ‘positive’ performance, and will therefore compel one party to accomplish an action. One the other hand, there are orders prohibiting a party to continue an action: ‘negative’ orders (referred to in English law, as injunctions).’

Performance in specie is a well established remedy in the French legal system whose importance should be contrasted with its place amongst the other English remedies for defective performance. In fact, one should understand that performance in specie is a primary remedy in Civil Law countries, but constitute a concern for Common law lawyers. The French Civil Code in its Art 1184 emphasises that:

‘La condition résolutoire est toujours sous-entendue dans les contrats synallagmatiques, pour le cas où l’une des deux parties ne satisfera point à son engagement.

Dans ce cas, le contrat n’est point résolu de plein droit. La partie envers laquelle l’engagement n’a point été exécuté, a le choix ou de forcer l’autre à l’exécution de la convention lorsqu’elle est possible, ou d’en demander la resolution avec dommages et interêts.’

This article gives the opportunity for the aggrieved party to choose between the performance in specie of the contractual obligation (execution en nature), or the resolution of the convention and recovering damages. This possibility to apply for the performance of the contractual obligations is, however, not without limitations. Thus, as it is observed by K. Zweigert and H. Kotz, an order for performance in a kind could be awarded only to the extent ‘that (it) is still possible’. The authors have remarked that in the case of sales contracts, for example, Art. 1610 French Civil Code states that if the seller fails to deliver the goods on time, the buyer could ask for the resolution of the sales contract or the ‘possession of the goods’. Specific performance finds its justification in the idea that ‘what the creditor expects from an obligation is its performance in a kind.’ When one does not compel with his undertaking, but his creditor requires ‘execution en nature,’ ‘the law will if necessary enforce that performance’ (‘execution forcée’). The ‘execution en nature’ is only one element of the execution forcée, the other being the ‘réparation par équivalent’, or as it is commonly known ‘damages’ (the latter is going to be discussed in our next part).

In English law on the contrary, although recognised as a remedy for non-performance, performance in specie does not occupy as important place as it does in French law. This is due to the fact that ‘the common law did not specifically enforce obligations except those to pay money.’ Therefore ‘there is no right to specific performance: the remedy is equitable and discretionary.’ This underlines the big difference between the Common and Civil systems as orders for positive and negative performance do not seem to have a real legal recognition and be remedies that one could expect to be awarded for sure in case of non-performance in England, while in Civil law countries there are clearly accepted as primary remedies. This is due to the importance that Civil law systems, and therefore French law, give to the ‘saving’ of the contractual relationship. English law, on the other hand privileges damages and if possible it will always award damages instead of performance in a kind. Only if damages are cannot offer the aimed relief that the court could decide to resort to order for performance. This brings the question of situations where damages would not be enough to compensate for the loss that the aggrieved party suffered. These will include contracts for ‘unique goods’ such as pieces of art, sales of specific ‘land or of a house’, ‘commercially unique things as ships or machinery,’ etc. This need for ‘uniqueness’ of the goods in dispute has been the essential factor considered in order to decide whether or not specific performance or injunctions can be awarded. More recently the decision of whether to order performance in specie has shifted from the question whether damages could be an appropriate remedy to this of ‘whether specific performance is the most appropriate remedy.’ Thus, the relevant factor becomes the degree of ‘inconvenience’ that an order for specific performance could cause. An order of specific performance depends on the sovereign appreciation of the court, which could ‘refuse specific performance even where the remedy will be a more appropriate one than damages.’ Therefore, there is no guarantee that although performance in a kind will be more appropriate than damages, it will be granted by the court. It may be refused because of the ‘undue hardship to the defendant’ and therefore where the ‘cost of performance’ is excessive. Another important reason could be the ‘gross unfair’ nature of the contract or certain ‘unfair’ behaviours of the creditor.

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From what we have seen until now, it prima facie appears that the French and English systems differ sharply in relation to the remedy requiring performance in a kind. The French system is really attached to the preservation of the contractual performance, to the extent that it is still possible, whereas English law will be more willing to compensate the suffering party, than to award specific performance. It could therefore appear that while in French law performance in a kind is the usual remedy, in the Common law world, it represents the exception. It should, however, be pointed out that although in principle the French legal system recognises specific performance as a primary remedy, in practice, its role could be altered. In fact, Art. 1142 Code Civil privileges the award of damages in case of ‘obligation de faire ou pas faire’ and ‘prohibits any judgement’ forcing a debtor to ‘act or to refrain from acting in a particular way’: ‘Toute obligation de faire ou de ne pas faire se résout en dommages et intérêts, en cas d’inexécution de la part du débiteur.’ This article seems to privilege the award of monetary relief instead of specific performance in case of ‘obligations to do.’ It indeed seems to offer a similar to the English position and one could conclude that it could reduce the remedy of specific performance to an exception. However, after profound reading of the disposition and the Civil Code, we will see that this is incorrect. The restrictive view of this provision could be explained by the fact that ‘it is often impossible to oblige one to do what he does not want to do… in the case of personal obligation.’ Thus, if a painter refuses to deliver the portrait commissioned by the client, he cannot be obliged to perform his obligation. This case is a perfect illustration of the practical consequences of Art. 1142. One should, nonetheless, understand that the application of this article, although reducing the cases where specific performance could be awarded, is quite exceptional. Therefore, the effect of the article appears to be limited. In fact, the reading of Art. 1142 prohibits specific performance in case of ‘obligation to do’ involved, giving preference to damages as the most appropriate remedy. Thus, it becomes necessary to make the distinction between the ‘obligations to do’ (obligation de faire) and ‘to give’ (obligation de donner). Distinguishing both is important as while the first is usually ‘self-executing’ (when relating to specific or ascertained goods), this is not the case of the second. Moreover, even though ‘the obligation to give’ is ‘self executing’, it still involves an element of an ‘obligation to do’ because ‘there will commonly remain an obligation to deliver.’ Consequently, the question of whether specific performance could be obtained in this case remains. As explained by scholars, in this case the performance could be required ‘since the creditor is already owner and the obligation to deliver’, which is an ‘obligation to do’, ‘is closely related to the obligation de donner.’ Therefore, even though there is an element of an ‘obligation de faire’ involved, Art. 1142 will not find application.

As it was already explained, the limited role of Art 1142 has further been bound by the Civil Code itself and the jurisprudence, even where an ‘obligation de faire’ is involved. Art. 1443 states that ‘in case of obligation de ne pas faire,’ the party suffering the non-performance could ask the court ‘to order the destruction of this what has been done against the contract.’ Not only can he ask for the destruction of the thing in question, but he also can be authorised by the judge to accomplish this on his debtor’s expense. This does not amount the right of the aggrieved party to obtain compensation because of the non-performance of the contract from the other side. Furthermore, Art. 1144 offers the possibility for the debtor to procure the goods or the services in question elsewhere on its debtor’s expenses. Besides, since recently the judge may order that all the expenses necessary for ensuring the performance of the services or the delivery of the goods by a third party, will be covered in advance by the debtor.

The Civil Code is not the only source of limitation for the significance of Art. 1142. The jurisprudence has also played an important role for restraining its application. The first of the proceedings coming to limit the importance of the said article is ‘la saisie’ or as it is known in English: the seizure of the goods. As it is observed by Y. Buffelan-Lanore, since 1867, only the debtor’s movable and immovable goods, could be seized, but this procedure cannot be used for ‘biens insaisissables.’ These orders for ‘saisie’ will be executed by an ‘officer of the court’: ‘un huissier de justice’. Another limitation of Art 1142 is ‘l’expulsion.’ In fact, in cases concerning the illegal occupation of property, the obligation to leave this property is an ‘obligation to do’ and therefore, if the text of the Code Civil was applied, the obligation to do should have been remediated in damages. Damages, however, will not give the expected relief for the aggrieved party. The only appropriate remedy could be the eviction of the wrongful occupant. Once more, the importance of Art. 1142 is greatly reduced in practice. Eventually, the practical importance of the text could also be reduced by the mean of ‘astreinte’- a sum that should be paid by the debtor for each day of late performance or non-performance. As it is a very important means of persuasion for the infringing party an overview of it should be presented. Its particularity consists in the fact that though not an individual remedy, it intervenes as a mean of pressure to the debtor and aims to make him comply rather sooner than later with his original undertaking. The ‘astreinte’ represents a court order obliging the non-performing party ‘to pay to the creditor a specified sum for each day that he remains in default.’ It intends to cause ‘considerable prejudice’ to the breaching party, which should become more and more important the longer the contract is not performed. There are two types of ‘astreinte’ existing: ‘astreinte provisoire'(temporary) and ‘astreinte definitive'(definitive), provided that if not qualified as ‘definitive’ by the judge it will be considered as ‘provisoire.’ Whereas the amount of the former can vary depending on the ‘time of performance and the difficulties that the debtor has experienced,’ this of the latter cannot be changed.

One of the major problems that has long time been related to the orders for ‘astreintes,’ was this of their legal basis, as they were not contained in a legal text. This issue found eventually solution by the adoption of the law of 5 July 1972 and today ‘astreintes’ have been clearly accepted in French Law. However, their ambiguous nature has been source of controversy in relation to their ‘nature juridique’ as they have been confounded with ‘a variant of an order for damages’ This was source of a weakness, as the ‘astreinte’ was imagined as a mean of pressure for compelling the non-performing party to execute his obligations, while if assimilated to damages, their pressure power and their importance will be greatly diminished.

After having offered an overview on the limitations that the performance in specie could have, we need to turn attention to another mechanism relating to this remedy for non-performance in the French legal system: ‘la mise en demeure,’ necessary step before performance in a kind could be granted. Essential difference between both systems’ remedies could be found in the way of ‘mise en oeuvre’ of the remedy of performance in specie. In fact, under the French system, if the creditor wants to resort to the remedy of performance in a kind, he has first to ‘mettre en demeure’ the debtor. The ‘mise en demeure’, although not a remedy on its own, is an essential prerequisite for requiring specific performance or for calculating damages. Thus, unlike the English legal system, in France there are two steps in the remedy of performance in a kind, the first of these being the ‘mise en demeure’ an element of fundamental importance for the second step, which is the performance in a kind. The creditor needs to detain a ‘title establishing the inexecution of the obligations of the other party’ in order to obtain performance from the other side. This title represents the proof of the faulty performance of one of the parties. The ‘mise en demeure’ is necessary in order to ‘establish that the debtor knows that the creditor requires performance.’ On the other side it is not required when an obligation ‘de ne pas faire’ is concerned, when there is specific provison in the contract for that purpose, when performance is no longer possible or when ‘the nature of the obligation is such that’ its performance is solely possible during a laps of time defined for the performance and it has already ‘elapsed’ etc..

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The French system appears to be far more complex than the English Common Law system. Not only it privileges the performance of the contract as long as possible, instead of damages, but it also requires the fulfilment of a condition known as the ‘mise en demeure’ before ordering performance in a kind. In our opinion the Continental French approach offers greater advantages than the English approach, because it tries by any means to save the

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