Business Contracts

Article 1112 of the Civil Code stipulates that while the initiative, conduct and termination of pre-contractual negotiations are free, they must satisfy the requirements of good faith. 
The principle of freedom in the pre-contractual phase is therefore limited by the obligation on negotiators to conduct talks in good faith, a notion which, since the reform of contract law, has become one of the in …

Duty to negotiate in good faith

Article 1112 of the Civil Code stipulates that while the initiative, conduct and termination of pre-contractual negotiations are free, they must satisfy the requirements of good faith. 

The principle of freedom in the pre-contractual phase is therefore limited by the obligation on negotiators to conduct talks in good faith, a notion which, since the reform of contract law, has become one of the introductory provisions of the Civil Code. Under the new Article 1104 , good faith governs not only the performance of the agreement (as it did under the previous Article 1134), but also its negotiation and formation. According to case law, fairness in the conduct of pre-contractual discussions requires, in particular, that the parties inform each other of the elements of the discussion, allow a reasonable period of reflection on each important point of the negotiation, refrain from making “unacceptable” proposals for the other party, avoid artificially prolonging the negotiations when the decision to break them off or to deal with another party has already been made, and refrain from conducting parallel negotiations if the parties have undertaken to conduct exclusive negotiations for a given period .

Bad faith in negotiations, which gives rise to liability, can take various forms.

In the absence of any preliminary agreement, the requirement of loyalty applies first and foremost to the conduct of negotiations .  According to the Court of Cassation, the mere fact that negotiations are unsuccessful cannot in itself be considered wrongful, in the absence of proof of bad faith during the negotiations, or of a desire to harm by continuing the talks . Thus, apart from breaking off negotiations, maintaining the other party in the belief of a certain outcome to the talks  or prolonging discussions even when there is no longer any intention to contract  constitutes a breach of the duty of loyalty in the conduct of talks. This is also the case when an undertaking in talks to acquire shares fails to inform the transferors of its financial difficulties and the bank's refusal to finance it, maintaining them in the illusion of having obtained financing . Similarly, at a stage when negotiations were already well advanced, a candidate for the purchase of the capital of an undertaking, who was in need of a bank loan and did not inform the other party of this fact, leaving the latter to believe that he would eventually be able to pay the balance of the price with his own funds, only to inform the other party the day before signing the promissory agreement that no guarantee had been obtained, demonstrated wrongful conduct in the course of the negotiations by allowing talks to continue that would inevitably result in costs . A seller who continues to conduct negotiations on the basis of a manifestly overvalued price, while at the same time offering a third party a price half that of the purchase price, is acting in bad faith with the sole aim of derailing the negotiations .

Furthermore, the requirement of good faith applies to the termination of a contract. The Court of Cassation considers that an undertaking which suddenly and unilaterally breaks off very committed negotiations is in breach of the rules of good faith in commercial relations . Thus, the transferor of company shares, who, without legitimate reason, suddenly and unilaterally broke off the advanced talks he was holding with his partner, who had already, to his knowledge, incurred costs, and whom he voluntarily kept in prolonged uncertainty by leading him to believe that the deal was going to be concluded to his benefit, has breached the rules of good faith in commercial relations by contracting with a third party . The same is true of the licensor who, while in talks with the plaintiff undertaking, made various demands, all of which were met, and prompted him to incur certain expenses, without disclosing the fact that he was considering talks with a third-party undertaking to which he eventually entrusted the concession of his vehicles , or of the exclusive distributor of machines manufactured by an American undertaking who, after having entered into advanced negotiations for the sale of one of these machines with an undertaking, voluntarily kept the latter in a state of prolonged uncertainty before breaking off negotiations, without any legitimate cause, abruptly and unilaterally, even though he was aware that the latter had already made a major commitment .

According to the courts, good faith during negotiations is assessed on the basis of a number of indicators such as the duration of the talks, the costs incurred during negotiations, and the existence of a consensus on the essential aspects of the planned agreement. In view of the fact that the negotiations lasted almost a year, the existence of an agreement on both sides on the property for sale and its price, and the studies and expenses undertaken by the potential buyers, the sudden termination of the talks by the sellers must be considered as faulty in terms of their obligation to contract in good faith .

Art. 1104 Civil Code: “Agreements must be negotiated, formed and performed in good faith. This provision is of public order”. Cf. Art. 1134, para.. 3, former Civil Code “agreements [...] must be performed in good faith”.

CA Versailles, 16 May 2024, LawLex202400004584JBJ.

Cass. com. 18 January 2011, LawLex202200001340JBJ.

Cass. com. 11 October 1994, LawLex202200001349JBJ.

Cass. com, 20 March 1972, LawLex20220000000266JBJ.

CA Metz, 14 October 2014, LawLex202200001489JBJ.

CA Paris, 8 April 2008, LawLex202200008244JBJ.

Cass. 1re civ, 12 April 1976, LawLex202200001341JBJ: the seller of a plot of land having neglected to verify the extent of his rights when he was only the co-owner, and having given assurances to the potential buyer which induced him to incur expenses which were rendered unnecessary following the refusal to sell by one of the co-owners, is not at fault in the absence of proof of his bad faith during these negotiations or of a desire to cause harm by continuing the talks.

Cass. com. 3 May 2012, LawLex202100006134JBJ.

CA Paris, 8 April 2008, LawLex202200008244JBJ, cited above, upheld by Cass. com. 13 October 2009, LawLex202200001343JBJ. Also see Cass. com. 11 July 12000, LawLex202200001342JBJ: a court of appeal cannot hold that the breaking off of talks between two professionals who had entered into discussions with a view to forming a partnership was not wrongful in the absence of manifest bad faith on the part of the perpetrator who was not guided by a desire to harm, whereas the latter had presented his colleague as his partner with the termination of the talks taking place at a very late stage whilst the victim was kept in the hope of a partnership which the other party had given up on. 

CA Versailles, 17 January 2012, LawLex202200008254JBJ.

Cass. 1re civ, 6 January 1998, LawLex202200009167JBJ.

Cass. 2e civ. 4th June 1997, LawLex202200001310JBJ.

Cass. com, 22 April 1997, LawLex202200009166JBJ.

Business Contracts

59. Duty to negotiate in good faith

Demandez un accès gratuit
au contenu exclusif Livv – juristes d’entreprise

Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

59. Duty to negotiate in good faith

Demandez un accès gratuit au contenu exclusif Livv – juristes d’entreprise

Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

Demandez un accès gratuit
au contenu exclusif Livv – juristes d’entreprise