Business Contracts

Before the reform of contract law, it was accepted, on the basis of the interpretation of former Article 1183 of the Civil Code , that rescission entailed the retroactive extinction of the contract . In particular, the courts held that clauses limiting liability did not apply when a contract of sale was rescinded, since rescission entailed retroactively rendering null and void the contract and res …

Effect

Before the reform of contract law, it was accepted, on the basis of the interpretation of former Article 1183 of the Civil Code , that rescission entailed the retroactive extinction of the contract . In particular, the courts held that clauses limiting liability did not apply when a contract of sale was rescinded, since rescission entailed retroactively rendering null and void the contract and restoring matters to their previous state . As the retroactivity attached to rescission has been abandoned by virtue of the reform, Articles 1229 and 1230 now specify the effects of rescission, thus remedying the gaps in the Civil Code, which previously only sanctioned contractual non-performance by awarding damages .

Article 1229 of the Civil Code stipulates that: “Rescission brings the contract to an end”, irrespective of how it is implemented, it being specified that “rescission does not affect clauses relating to the settlement of disputes, nor those intended to produce effect even in the event of rescission, such as confidentiality and non-compete clauses” (Art. 1230).  Next, by stipulating that rescission takes effect “as the case may be, either under the conditions provided for in the resolutory condition, or on the date of receipt by the debtor of the notification served by the creditor, or on the date fixed by the court or, failing that, on the date of the summons to appear before the court”, this provision no longer gives retroactive effect to rescission. Lastly, it separates the question of restitutions, which become a simple legal effect, from retroactivity, by stipulating: “When the services exchanged could only be rendered useable by the full performance of the rescinded contract, the parties must make full restitution of what they have obtained from each other. Where the services exchanged have become valuable in the course of mutual performance of the contract, there is no right to restitution for the period prior to the most recent service for which no consideration has been received; in this case, the rescission is considered to be a termination. Restitution is made in accordance with the conditions set out in Articles 1352 to 1352-9” .

The main innovation of the reform in the field of restitution is to be found in Article 1352-3, which determines the scope of restitution of a thing other than a sum of money, by providing, contrary to previous law , that proceeds must be restituted, without such restitution depending on the good or bad faith of the debtor of the restitution. Moreover, this provision entitles the buyer to compensation for the enjoyment of the thing, in contrast to the case law of the Court of Cassation . 

Finally, where the contract of sale is indivisible, i.e. closely connected to another contract, its rescission renders the second contract null and void (Art. 1186, al. 2, Civil Code).

Former Art. 1183, Civil Code: "A resolutory condition is one which, when fulfilled, revokes the obligation, and restores things to the same state as if the obligation had not existed.

It does not suspend performance of the obligation; it merely obliges the creditor to return what he has received, in the event of the occurrence of the contingency provided for in the clause".

Cass. 3e civ, 24 November 1999, LawLex202300005901JBJ: the rescission of a sale for lack of conformity leads to the extinction of the contract on the day it was concluded, and the resolutory clause disappears with it; 29 January 2003, LawLex202200003459JBJ,: when a bilateral contract is rescinded for non-performance by one of the parties of its obligations, the situation must be restored to the same state as if the obligations arising from the contract had never existed.

Cass. com. 5 October 2010, LawLex202200000829JBJ. See, e.g., Cass. 3e civ, 7 January 2016, LawLex202300006213JBJ, considering that a building owners' association cannot exercise a right of resale (droit de suite) against the seller of a building where the sale has been rescinded, since the rights accrued on the building have been extinguished by the retroactive effect of the rescission, and that it therefore does not have the status of a third-party debtor; Cass. com, 8 January 2020, LawLex202200003509JBJ: the rescission of a bilateral agreement restores the parties to the state they were in, so that restitution of the price must also include the VAT previously recovered.

Civil Code, former Art. 1146: “Damages are due only when the debtor is in default of fulfilling his obligation, except however when the thing which the debtor was obliged to provide or perform could only be provided or performed within a certain period of time which he has allowed to pass. Formal notice may be given by means of a conventional letter, if sufficient notice is given”. For an  application by the courts, see Cass. 3e civ, 10 November 1992, LawLex202300005277JBJ, holding that following rescission of the contract, the seller can only claim damages and not performance of the obligation.

Cass. com., 26 February 2025, LawLex202500001264JBJ.

Cass. 3e civ, 11 February 2021, LawLex202200003382JBJ, holding that the restitution of the proceeds generated by the property following the sale constitutes a legal consequence of the voiding of the contract due to its rescission, but cannot be imposed on its own motion by the court, and that it is subject to the possessor's good faith in application of the provisions of Articles 549 and 550 of the Civil Code.

Cass. 1re civ, 11 March 2003, LawLex200400003428JBJ: due to the retroactive effect of the rescission of the sale, the seller is not entitled to an indemnity corresponding to the sole use of the vehicle by the purchaser [Editor's note: solution since invalidated by Article 1352-3 of the Civil Code, resulting from the reform of the law of contracts, which lays down the principle of compensation for the enjoyment that the thing has procured]; Cass. 3e civ, 13 July 2016, LawLex202200000342JBJ, holding that in the event of rescission of the sale, the seller cannot obtain an indemnity linked to the use of the thing sold or to the wear and tear resulting from this use due to the retroactive effect of the rescission [Editor's note: solution invalidated by article 1352-3 of the Civil Code, resulting from the reform of the law of contracts, which lays down the principle of compensation for the enjoyment that the thing has procured].

Cass. mixte, 13 April 2018, LawLex202200003204JBJ; Cass. 2e civ., 2 July 2020, LawLex202200003258JBJ, holding that the rescission of a contract of sale entails, by operation of law, the voiding, on the effective date of the rescission, of the lease contract with option to purchase, as well as the inapplicability of the terms provided for in the event of rescission of the contract. See previously, Cass. 1re civ, 10 September 2015, LawLex202300004073JBJ, and Cass. mixte, 23 November 1990, LawLex202300006613JBJ, holding that the rescission of the contract of sale necessarily entails the termination of the leasing agreement, subject to the application of terms intended to regulate the consequences of such termination.

Business Contracts

250. Effect

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250. Effect

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