The contract contains a termination clause: at the first missed payment, it is terminated automatically. The creditor has the text on its side. Does that mean it can use it in any way it likes? French law's answer comes down to a dividing line, and it lies at the heart of the Antibes case file.
The founding text
Until the 2016 reform, the governing provision was former article 1134 of the Civil Code, paragraph 3 of which had provided since 1804: “They must be performed in good faith.”
Since Ordinance no. 2016-131 of 10 February 2016, which came into force on 1st October 2016, the rule has been set out in article 1104: “Contracts must be negotiated, formed and performed in good faith. This provision is a matter of public policy.” Two useful clarifications, often glossed over:
- contracts concluded before 1st October 2016 remain subject to the former law, including for their effects and their termination after that date (article 9 of the ordinance);
- article 1134 still exists in the Civil Code, but with content that has nothing to do with the former one. Writing “article 1134” without specifying “former” is an error.
The rule: a termination clause invoked in bad faith does not take effect
The leading judgment was delivered by the first civil chamber on 31 January 1995 (appeal no. 92-20.654, published in the bulletin). On the basis of former article 1134, paragraph 3, the Court of Cassation holds:
“Agreements must be performed in good faith; a termination clause does not take effect if it has been invoked in bad faith by the creditor.”Court of Cassation, 1st civil chamber, 31 January 1995, no. 92-20.654
The case concerned a bank which, after six years of inaction, pursued enforcement for interest and penalties when the capital had been repaid. The solution has since been followed, for example by the third civil chamber on 19 November 2015 (no. 14-18.487).
The limit: good faith does not rewrite the contract
The judge's review nevertheless stops at a clear boundary, drawn by the commercial chamber in the so-called “Les Maréchaux” judgment of 10 July 2007 (no. 06-14.768, published):
“While the rule that agreements must be performed in good faith allows the judge to penalise the unfair use of a contractual prerogative, it does not authorise the judge to undermine the very substance of the rights and obligations lawfully agreed between the parties.”Court of Cassation, commercial chamber, 10 July 2007, no. 06-14.768
The franchisor therefore does not lose its right to terminate, nor its right to be paid. It is the exercise of the prerogative, not the right itself, that the judge can neutralise. To be accurate, it must be added that good faith is presumed: it is for the party alleging unfairness to prove it.
The network head's duty of fairness
Two judgments extended this reasoning to distribution relationships:
- The Huard judgment (Commercial chamber, 3 November 1992, no. 90-18.547, published): an approved distributor bound by an exclusive supply clause was being sold fuel at a higher price than the supplier sold it to the end consumer. The Court upheld the trial judges' finding that “by depriving Mr X… of the means to charge competitive prices, the company BP had not performed the contract in good faith”.
- The Chevassus-Marche judgment (Commercial chamber, 24 November 1998, no. 96-18.357, published): “relations between the commercial agent and the principal are governed by a duty of fairness and […] the principal must enable the commercial agent to perform its mandate”. Note, however: this judgment was delivered on the basis of article 4 of the law of 25 June 1991 on commercial agents, not article 1134.
Application to the Collorafi case file
This is exactly the reasoning that the Paris Court of Appeal applies in its judgment of 8 March 2000. The court holds that the termination clause is binding on the judge, but that it must be applied in good faith; that the restaurants operated by Bernard Collorafi formed an economic entity designed in synergy; that McDonald's, informed of the losses, should have proposed an overall plan; and that, as the orders to pay had been served in bad faith, the termination was wrongful.
The court draws measured consequences from this: bad faith does not relieve Bernard Collorafi of paying the fees owed, and the compensated damage remains limited - the court considering that, even with a recovery plan, the companies would have remained loss-making. This decision partially overturned the judgment of the Paris Commercial Court of 18 May 1998. The subsequent appeal to the Court of Cassation was not admitted in 2002.
On the way competition law came to encroach on contract law at the same period, the case file contains two contemporary scholarly articles: “Competition law and contract law” and “Viability and competition” by Serge Diebolt and Jean-Marc Durrieu.