Business Contracts

In the context of agency agreements, the performance of contractual obligations arising from acts performed by an agent, on behalf of and in the name of the principal, is the sole responsibility of the principal, with the result that the principal's third-party contractors can only engage the agent's liability in tort . 
The draft reform of contract law takes up this solution, providing that “unle …

Wrongful or fraudulent performance (exécution fautive /dolosive)

In the context of agency agreements, the performance of contractual obligations arising from acts performed by an agent, on behalf of and in the name of the principal, is the sole responsibility of the principal, with the result that the principal's third-party contractors can only engage the agent's liability in tort . 

The draft reform of contract law takes up this solution, providing that “unless the agent has made a personal commitment to the third party, he can only incur extra-contractual liability” .

According to settled case law, the agent is personally liable to third parties for any torts or quasi-torts (non-intentional) he may commit to their harm in the performance of his duties. 

According to case law, it is not necessary to establish a fault on the part of the agent, outside the scope of his or her agency agreement, in order to engage his or her own liability . An agent's contractual fault towards his principal can thus be characterized as an extra-contractual fault towards a third party, provided that it also constitutes a breach of a general obligation of due care and diligence . When the only fault that can be attributed to a marine insurance broker is a breach of his duty to advise the shipyard that commissioned him, this fault, which can only be claimed by his principal, is not such as to incur his liability in tort towards his principal's shipowning clients .

A tort or quasi-tort on the part of the agent may consist of an omission or a positive act . For example, a lawyer mandated by a property dealer to make a higher bid for a tenth of a property, who failed to report the higher bid within the allotted time-limit, committed a fault of negligence which, even if it is not detachable from the agency agreement, is likely to incur liability in tort towards the owner of the property, by reason of the harm resulting for the latter from the inadequacy of the auction price . Similarly, a real estate professional who could not have been unaware of apparent defects in a property sold through his or her intermediary is liable to purchasers under Article 1240 of the Civil Code if he or she fails to inform them of such defects . However, an agent's failure to look for latent defects in the property he is commissioned to sell does not constitute a fault on the part of the purchaser, such as to incur extra-contractual liability . 

The agent is liable to any injured third parties for the torts or quasi-torts he commits on his own initiative, but also on the orders of the principal . Consequently, a court of appeal cannot dismiss an action for liability brought by the bare owner of a building against the property manager entrusted with the rental management of the building by the usufructuaries, for having entered into a commercial lease, without permission, by attributing to the usufructuaries the false status of owners, on the grounds that the agent had been obliged to do so by the formal instructions of his principals, whereas the professional agent is required to verify the exact status of the principal he is engaging in a legal act, and is personally liable to injured third parties for any torts or quasi-torts he may commit, either unsolicited or even on the instructions of the principal, in the performance of his mission .  Similarly, the agent of a scrap metal dealer is liable in tort to a purchaser who has been the victim of an accident, where he had no qualms in selling for use a vehicle acquired as scrap metal, disregarding the potential drastic consequences of his criminal activity, and, to this end, using a certificate of sale falsely marked by the former owner . 

In addition to fault, fraudulent tactics or silence  on the part of the agent obviously engage his or her liability towards third parties. But can third parties claim damages from the principal as a result of the agent's fraud? 

The courts have been hesitant on this point. 

In principle, according to the Court of Cassation, tortious or quasi-tortious misconduct on the part of the agent does not result in the principal's liability on this basis, unless the agent's misconduct is personally attributable to that principal .  The principal is thus liable to purchasers, third parties acting in good faith, for fraud committed by his agent, acting within the limits of his powers, if he was aware of the misleading information communicated by the agent and took advantage of it .

 Similarly, transferors of shares in a non-trading property company (société civile immobilière) must compensate transferees for the harm resulting from their agent's fraudulent silence, which caused a mistake as to the material qualities of the shares acquired, when they gave him the power to sell the shares without exercising the slightest control, even though, given their close family ties with the agent and the size of their personal interests in the company, they could not have been unaware of the company's compromised situation .

 However, the Court of Cassation had also accepted, on the basis of the provisions of the Civil Code relating to fraud, that fraudulent maneuvers on the part of the seller's representative, who is not a third party to the contract, engage the liability of the principal . In a decision handed down by the mixed chamber on 29 October 2021, the Court of Cassation reversed this case law, stating that “while the principal is contractually liable for damage suffered as a result of the non-performance of commitments entered into by his agent within the limits of the agency agreement conferred, the agent's fraud in the exercise of his agency agreement only gives rise to extra-contractual liability on the part of the principal if he has personally committed a fault, which it is for the victim to establish” . In other words, the principal is only liable for fraud committed by his agent if he is at fault, within the meaning of Articles 1240 and 1241 of the Civil Code. However, the draft reform of the law on special contracts proposes to reverse this position, by providing that “the principal is liable for fraud or duress on the part of his agent, committed to the detriment of the third party contracting with him” . According to the drafters, fraud committed in the performance of the agency agreement by the agent, who acted within the limits of his powers, must be passed on to the principal, since the agent was representing him.

As the mixed chamber has also pointed out, the victim of fraud on the part of the agent in the performance of his agency agreement may also seek invalidity of the agreement on the basis of Articles 1137 and 1178, paragraph 1, of the Civil Code . Thus, the representative of the seller of leased equipment, charged by the credit institution with proposing its financing to potential customers and then recommending it for approval, is not a third party for the purpose of concluding contracts, so that the representative's fraudulent practices, which vitiate the customer's consent, are enforceable against the credit institution and justify cancellation of the contract for fraud .

Cass. com. 9 May 1985, LawLex202200008684JBJ, noting that the agent's liability to a person other than the principal can only be engaged on the basis of tort or quasi-tort.

Cass. 1re civ, 13 October 1992, LawLex202300012067JBJ.

Cass. mixt. 26 March 1971, LawLex202200008978JBJ, adding that, as co-perpetrators of the damage caused by their common fault, the principal and the agent should be ordered to pay jointly and severally all damages to the victim.

Cass. 1re civ.., 23 May 1977, LawLex202200009560JBJ, holding that since the purchasers of shares in a non-trading property company (société civile immobilière) were unaware that this company constituted a de facto partnership with another company, and that their two patrimonies were merged, with the result that they had to be declared bankrupt, the trial courts were able to deduce from their mere ignorance of these factual elements, which affected the very person of the non-trading company, that their will had been compromised by an excusable mistake, caused by the fraudulent silence of the sellers' agent, concerning the material qualities of the shares acquired, these shares being those of an undertaking with an individuality and assets different from the undertaking whose shares they thought they were acquiring.

Cass. 3e civ, 15 April 2021, LawLex202200008690JBJ, stating that, as the tort or quasi-tort fault of the agent does not engage the liability of the principal, the project owner can only be condemned on the basis of Article 14-1 of Law No 75-1334 of 31 December 1975 if he has personal knowledge of the presence of the subcontractor on the site.

Cass. 3e civ, 29 April 1998, LawLex202300002311JBJ.

Cass. 1re civ. 23 May 1977, LawLex202200009560JBJ. See also. Cass. 3e civ, 12 October 2017, LawLex202300003328JBJ, noting that the property developer, who was aware of the saturation of the rental market at issue, and his agent, who, despite the difficult local economic situation, assured buyers that the transaction was safe and profitable in the short term, using misleading statements that went beyond the accepted need to promote the product offered for sale, were guilty of fraudulent maneuvers that caused the purchasers to make a mistake about the profitability of their acquisition, justifying the cancellation of the contract of sale on the grounds of fraud and the imposition of various penalties against them.

Cass. 3e civ, 5 July 2018, LawLex202200009557JBJ.

Cass. mixte, 29 October 2021, LawLex202100006463JBJ, ruling that, in the absence of any evidence that the agent's wife and children had personally participated in his fraudulent arrangements, the Court of Appeal correctly deduced that they could not be held civilly liable simply because they had given the agent the power to transfer their shares.

Cass. mixte, 29 October 2021, LawLex202100006463JBJ. Also see Cass. com, December 13, 2016, LawLex202200009152JBJ, holding that, in order to declare inadmissible the lessee's counterclaim against the lessor for invalidity on the grounds of fraud in a video surveillance rental contract, a court of appeal can only hold that fraud is a cause of invalidity of the agreement if it emanates from the party towards whom the obligation is contracted, and that this would not be the case here, without investigating, as it was requested to do, whether said company, whose representative had been the plaintiff's sole interlocutor and had made him sign the rental contract in the lessor's name, had not acted as the lessor's agent, from which it would follow that the maneuvers imputed to the representative would, assuming they were established, be enforceable against the lessor.

Cass. 3e civ, 6 January 1999, LawLex202300008055JBJ, holding that a court of appeal cannot declare a subcontractor inadmissible in his action for payment against the delegated project owner on the grounds that the demonstration of a fault external to his agency agreement would alone enable the latter to be held liable, whereas the agent is personally liable to third parties for torts or quasi-torts which he may commit to their harm in the performance of his mission.

Cass. com, 24 May 1994, LawLex200500005941JBJ, adding that a clause in a lease agreement stipulating that none of the difficulties arising from the borrower's relations with his supplier of goods are enforceable against the credit institution, does not have the effect of rendering fraudulent maneuvers committed by the seller's representative and negotiator of financing unenforceable against thatinstitution; 13 June 1995, LawLex202200008958JBJ; 10 February 1998, LawLex202200008959JBJ.

Cass. com, 17 June 1997, LawLex202300013739JBJ. See in this respect Cass. com. 23 November 1999, LawLex202300013741JBJ, ruling that where the situation of a bank account, having regard to the amount of the overdraft usually authorized, permits payment, the bank domiciliary of a bill of exchange, which has received a commitment to pay from the drawee, incurs extra-contractual liability towards the third party bearer, if it fails to carry out this commitment.

Cass. com. 17 June 1997, LawLex202300013739JBJ.

Cass. 1re civ, 11 April 1995, LawLex202300008315JBJ.

Cass. 1re civ, 18 May 2004, LawLex202300013740JBJ.

Cass. 1re civ, 18 April 1989, LawLex202300013699JBJ.

Cass. 1re civ, 20 June 1995, LawLex202300013700JBJ. See in the same sense, Cass. 1re civ, 1 February 2000, LawLex202300013701JBJ, holding that it is not for the general agent, the insurer's agent, to verify the accuracy of the policyholder's declarations as to the value of the property declared, nor to warn him of the consequences of an inaccuracy which he has no reason to suspect, so that the claim for damages brought against him by the insured for breach of his duty to advise must be dismissed.

Cass. 1re civ, 28 January 1964, LawLex202300013743JBJ; Cass. mixt, 26 March 1971, LawLex202200008978JBJ; Cass. 1re civ, 20 April 1977, LawLex202300013744JBJ; 13 October 1992, LawLex202300012067JBJ.

Business Contracts

499. Wrongful or fraudulent performance (exécution fautive /dolosive)

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499. Wrongful or fraudulent performance (exécution fautive /dolosive)

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