Good Faith in French Contract Law: The Duty Article 1104 Imposes at Every Stage

Good faith in French contract law: the duty Article 1104 imposes at every stage

Article 1104 of the Civil Code states that contracts must be negotiated, formed and performed in good faith (bonne foi). The principle stands immediately after the affirmations of freedom of contract and of the binding force of the contract, and it dominates French contract law in the same way, as a duty of general interest intended to secure the probity of contractual dealings. Its second paragraph adds the feature that gives the duty its practical force: the provision is a matter of public policy (ordre public), so the parties cannot contract it away.

What the duty demands, however, differs at each stage. In negotiation it shapes how parties may deal with each other before any contract exists, and how negotiations may be broken off. In performance it generates duties of loyalty, information and reasonable conduct, and it disciplines the way a creditor exercises its rights. And it has a firm outer limit: French judges may police the exercise of contractual prerogatives, but they cannot use good faith to rewrite the rights and obligations the parties agreed. This article takes the principle, its content, its applications stage by stage, its limits and its sanctions.

Where does your good-faith question arise?

A statutory duty of public policy, which every contracting party is deemed to know

The requirement of good faith is imposed by the law, not by the contract: it is an effect of statute, to be treated under Article 1104 itself. It applies expressly to the negotiation, the formation and the performance of the contract, and every party is bound to know it. The Cour de cassation has held that no one can incur liability for having failed to remind a party of this elementary principle or of the consequences of transgressing it (Cass. 1e civ., 28 mars 2000, n° 97-18.737; Cass. 1e civ., 31 oct. 2012, n° 11-15.529). Good faith is presumed (C. civ. Art. 2274), so the party who complains of bad faith carries the burden of establishing it.

Article 1104, al. 2 states in terms that the provision prescribing the duty of good faith is public policy. Like any public-policy rule it can be arranged by the parties, but only up to the point where the arrangement does not come to validate bad-faith conduct. A clause organising how a right will be exercised is therefore possible; a clause that would immunise dishonest behaviour is not.

The public-policy character carries into cross-border dealings. The duties imposed on negotiators apply to negotiations conducted in France because, before any contract exists, the parties are third parties to one another and their failings fall under the rules of extra-contractual liability, which are those of the place where the relevant facts occur and which are, in France, public policy. Those duties remain applicable even where the envisaged contract is governed by a foreign law whose solutions would be contrary, because they are so many applications of the requirement of good faith, which belongs to French international public policy.

One clarification matters at the outset. Demanding as it is, the duty of good faith is not a duty of morality. The judge can sanction only a legally protected interest, and cannot, under cover of good faith, reproach a contracting party with a breach of morals that causes no prejudice to its counterpart, present or future. A fault is sanctioned only where it generates damage (C. civ. Art. 1240), which excludes the sanction of purely moral fault (Cass. 3e civ., 4 oct. 2018, n° 17-23.235). Conduct open to moral criticism which profits its author without harming the other party is therefore not, of itself, a breach of Article 1104.

What good faith means: loyalty, honesty and the duties courts have drawn from them

In its most current sense, good faith implies loyalty and honesty. The courts have given it a wider reach, allowing them to sanction any conduct by a party which harms, without valid reason, the interests of its counterpart. Case by case, they have made it concrete as an obligation to act without fraud, an obligation to act without deceit (Cass. 3e civ., 2 juill. 1975, n° 74-10.171), a duty of cooperation (CA Paris, 10 oct. 2003, n° 01/09341), duties of information, warning and advice, and, specially for the creditor, a duty of vigilance and restraint in the exercise of its rights.

The Paris Court of Appeal has offered a general formulation worth quoting: the obligation of good faith implies that each party abstain from any abuse, behave in a reasonable and moderate way, and neither act in its exclusive self-interest nor harm its partner in an unjustified manner. The court added that this is all the more so where one party holds the power to fix terms unilaterally, since the freedom such a power confers does not authorise abuse, and it is for the courts, through the control of the parties' good faith, notably where one of them is in a position of economic domination, to sanction the abuse (CA Paris, 24 oct. 2001).

That decision places abuse under the cover of good faith, and the two notions can indeed cover the same reality. They must nevertheless be distinguished when the offending conduct falls to be sanctioned: the sanction of an abuse of rights always engages the extra-contractual liability of its author, whereas the sanction of a breach of good faith in performance can be contractual. The distinction determines the applicable rules of liability, and it maps onto the stages of the contract's life, since the applications of the duty divide according to whether the conduct in question belongs to the precontractual phase or to the performance of the contract.

Good faith in negotiation and formation: free to break off, not free to mislead

Before the contract is concluded the parties are strangers in law, and breaches of good faith at this stage fall under extra-contractual liability (Cass. com., 11 janv. 1984, n° 82-13.259). The starting point is freedom: unless a negotiation agreement fixes conditions for withdrawal, each party may break off negotiations freely (C. civ. Art. 1112) if it considers that it has no interest in concluding the envisaged contract, and it cannot be reproached for declining to reveal the motives of its decision.

Freedom is bounded by four duties. First, a duty of prudence and diligence: the courts place on every negotiator a general duty of care (Cass. 1e civ., 6 oct. 1993, n° 91-13.925), under which each is deemed to know the professional usages of its own activity and to have made the reasonable enquiries its competence and the nature of the contract call for. The negligent negotiator can neither claim damages for a prejudice caused by its own carelessness nor contend that the other party failed to contract in good faith (Cass. 1e civ., 18 avr. 2000, n° 98-12.056). Secondly, a duty of honesty: a negotiator must not exploit for its own ends the information gathered from its partner with a view to the contract, whether by passing it to competitors or by using it for its own account (Cass. com., 3 oct. 1978, n° 77-10.915), and the unauthorised use or disclosure of confidential information obtained in negotiations engages liability under the general law (C. civ. Art. 1112-2). Thirdly, a duty of sincerity: the negotiator must give the other party exact information (Cass. 1e civ., 31 oct. 2012, n° 11-15.529) and must not provoke in it an unconsidered belief in his will to contract. He is not, however, bound to reveal that he is conducting parallel negotiations unless he undertook to abstain from them (Cass. com., 12 mai 2004, n° 00-15.618), although a company director who buys out an associate without disclosing the negotiations under way with a third party for the resale of the shares breaches his duty of loyalty, whatever the state of advancement of those negotiations (Cass. com., 10 juill. 2018, n° 16-27.868). Fourthly, a duty of consideration for the other side's interests, which the courts have applied to negotiators who make surprising unreasoned offers or delay an expected confirmation.

As to the formation of the contract, the obligations of loyalty, good faith and sincerity apply in contractual matters and their observance is assessed at the day of the conclusion of the contract or the exchange of consents; where the contract is preceded by a unilateral promise, the relevant day is that of the contract, not of the promise (Cass. 3e civ., 19 janv. 2022, n° 20-13.951).

Breaking off becomes wrongful where its author decided it with the intention of harming the other party or in bad faith (Cass. com., 12 avr. 1976, n° 74-11.770). The decided examples are conduct cases: maintaining the partner in the illusion of an imminent conclusion (Cass. com., 18 juin 2002, n° 99-16.488), or keeping a partner in prolonged uncertainty over the sale of shares while, discussions still running, selling them to someone else without warning, knowing the partner had incurred costs (Cass. com., 18 janv. 2011, n° 09-14.617). Conversely, the rupture is not wrongful where it was decided without intention to harm, without surprise, in negotiations only some six months old and far from concluding (Cass. com., 12 janv. 1999), or in the presence of subsisting disagreements of which both parties were aware (Cass. com., 19 oct. 2010, n° 09-65.382).

The measure of reparation is strict. The party at fault engages its extra-contractual liability and must indemnify the expenses incurred and losses suffered by reason of the negotiations (Cass. com., 26 nov. 2003, n° 00-10.243; Cass. com., 18 janv. 2011, n° 09-14.617), but reparation can compensate neither the loss of the advantages expected from the unconcluded contract nor the loss of the chance of obtaining those advantages (C. civ. Art. 1112, al. 2; Cass. com., 5 juin 2024, n° 23-14.904). Bad faith in negotiation costs its author the other side's wasted outlay, never the value of the deal that failed.

Good faith in performance: the loyalty duties, and the creditor's duty of restraint

Every contracting party, together with the employees for whom it answers, is bound to perform the contract in good faith (C. civ. Art. 1104, al. 1). No statutory provision specifies the content of good faith in the course of performance, so the courts have made it concrete case by case: towards any contracting party, obligations of loyalty, information, warning or advice and an obligation to act reasonably; towards the creditor, an obligation of vigilance and restraint in the exercise of its rights. A recent illustration of the loyalty limb: La Française des jeux was held liable for a breach of contractual loyalty for having approved, as principal, a new tobacco outlet to sell its scratch, draw and sports-betting games fifteen metres from an outlet it had already approved (Cass. com., 5 juin 2024, n° 22-20.930).

Fundamentally the courts require the parties to act loyally towards one another, without fraud and without malice, and even to show the cooperation their agreement presupposes (CA Paris, 10 oct. 2003, n° 01/09341). The party who fails in this duty is generally deprived, in one form or another, of the advantage it expected to draw from its attitude. The decided cases give the duty its content. A company which, in exchange for a warehouse placed at its disposal for five years, had promised the provider exclusivity over operations on the wines it imported and exported could not end that undertaking before its term, because contractual good faith required it to carry on an import and export activity in keeping with the storage capacity made available to it (Cass. com., 1 oct. 1991). An oil company which undertook to integrate a distributor into its network and then denied him the means of charging competitive prices, when it could lawfully have granted them, failed in its obligation to act in good faith and owed damages (Cass. com., 3 nov. 1992). And the sudden suppression of rebates established by a constant practice over several years was held contrary to the legitimate expectation of a counterpart whose turnover had nearly doubled in the relevant year (CA Versailles, 7 juin 1999).

Performance in good faith also means keeping the other side informed of any circumstance liable to compromise the contract. A company director turned liquidator who continued business dealings with a contracting partner after the company's dissolution, without warning it, was held personally liable (Cass. com., 16 mars 1976), and a supplier who kept up deliveries to a business tenant without alerting the guarantor of mounting unpaid invoices answered for the resulting prejudice (Cass. com., 31 mai 1994). The duty has limits drawn with the same precision: a party is not obliged to inform its creditor counterpart of the opening of its own insolvency proceedings (Cass. com., 11 oct. 2011, n° 10-20.604) and incurs liability on that account only for fraud, the creditor having to prove that the concealment was intentional (Cass. com., 13 nov. 2007, n° 06-14.372). Parties must also abstain from taking each other by surprise or acting with calculation to prevent the other from reacting: sending, at the start of the summer holidays, a formal demand to pay rent within eight days on pain of automatic termination of the lease was sanctioned on precisely that ground (Cass. 3e civ., 15 déc. 1975, n° 75-15.377). Bad faith remains a matter of disloyalty, not of clumsiness: a serious negligence does not of itself characterise the bad faith of the party responsible (CA Paris, 8 avr. 2009, n° 08/21196).

The creditor's duty of vigilance and restraint has its own line of authority. The creditor commits no fault by pursuing its debtor late, so long as it acts within the limitation period, save abuse in the exercise of that right, which the judge must examine if asked (Cass. com., 2 nov. 2016, n° 14-29.723). But restraint is policed: a landlord's demand for the regularisation of service charges, presented for the first time after five years, without any explanation and for more than triple the sums provisioned, was held disloyal and brutal and a fault in the performance of the contract engaging the landlord's liability, although the demand was legally admissible and arithmetically exact (Cass. 3e civ., 21 mars 2012, n° 11-14.174). And the creditor must not obstruct performance and then complain of it: a landlord could not invoke the termination clause of a lease for the tenant's failure to restore the premises where the works had been made necessary by his own failure to deliver the cellar he had promised (Cass. civ., 7 nov. 1978).

What good faith does not allow: the judge controls prerogatives, never the substance of the deal

The power of the judge under Article 1104 has a boundary the Cour de cassation restates constantly. In the name of performance in good faith, the judge cannot set aside mandatory statutory provisions, such as the statute of commercial leases (Cass. 3e civ., 9 déc. 2009, n° 04-19.923), and cannot interfere with the rights and obligations legally agreed between the parties: his power bears only on the control of the exercise of contractual prerogatives (Cass. 3e civ., 20 avr. 2023, n° 21-24.848). Nor can the judge, in the name of good faith, touch the payment terms the parties fixed, for instance by reproaching a creditor with not having granted time to pay to rescue a debtor in financial difficulty (Cass. com., 19 juin 2019, n° 17-29.000).

The applications are numerous and consistent. The judge cannot refuse to a buyer of shares the right to invoke the liabilities guarantee (garantie de passif, the seller's guarantee against undisclosed liabilities) promised for the case of a tax reassessment, on the pretext that, as director and principal shareholder, the buyer knew the company had been exposed to that risk (Cass. com., 10 juill. 2007, n° 06-14.768). He cannot deny a landlord the right to invoke a clear clause of the lease on the calculation of service charges (Cass. 3e civ., 26 mars 2013, n° 12-14.870), or the contractually agreed indexation of the rent, whatever the landlord's motive in claiming it (Cass. 3e civ., 2 mars 2017, n° 16-10.600). He cannot deprive a company bound for the design and manufacture of specified promotional boxes of the right to make different boxes for other customers (Cass. com., 24 nov. 2015, n° 14-20.512), nor deprive the shareholder of a French simplified company (SAS) of the statutory right to remove the president, by condemning him in damages for having used that right in order to trigger a contractually agreed buyout of the president's shares (Cass. com., 8 nov. 2016, n° 14-29.770). He cannot bar a seller of shares from relying on a forfeiture clause attached to the liabilities guarantee (Cass. com., 19 juin 2019, n° 17-26.635). And where the parties made the naming of a sponsored team the very consideration of the sponsorship's financial terms, the judge cannot refuse the sponsor the right to oppose a change of name, because those terms constitute the very substance of the rights and obligations legally agreed (Cass. com., 9 mars 2022, n° 19-18.934).

Inversely, the judge may control, through good faith, the exercise of the prerogatives the parties reserved to themselves on the footing of freedom of contract. A car manufacturer entitled under its selective distribution contracts to fix the number of its distributors at its discretion could not appoint a new distributor whose establishment would alter the contractual equilibrium of the earlier contracts by creating more unfavourable conditions of competition (Cass. com., 7 juin 2016, n° 14-22.093). A commercial tenant who knew that the landlords' favourable tax regime depended on the continued furnished letting, and who had a break clause inserted allowing it to leave at the end of the first three-year period, breached contractual loyalty by exercising that contractual prerogative (Cass. 3e civ., 5 oct. 2017, n° 16-17.533). The line is the one the court has drawn in terms: prerogatives are open to control; the substance of what was agreed is not.

The same discipline governs modification. Contracts can be modified or revoked only by the parties' mutual consent or on grounds authorised by law (C. civ. Art. 1193). The mere refusal of a party to renegotiate a contract cannot constitute a fault (Cass. com., 18 sept. 2012, n° 11-21.790), and neither can the attempt to renegotiate its terms (Cass. com., 18 déc. 2012, n° 11-27.296). A refusal could nevertheless become wrongful if it infringed the obligation of loyalty and performance in good faith that its author owes its counterpart (Cass. 1e civ., 16 mars 2004, n° 01-15.804). Good faith polices the manner of the refusal; it does not create a right to a renegotiated contract.

Can the conduct you face be sanctioned as bad faith?

Sanctions: how bad faith is punished at each stage

The breach of the duty of good faith is sanctioned differently according to the moment at which it occurs. In the course of precontractual negotiations, it constitutes a damage of extra-contractual nature (Cass. com., 11 janv. 1984, n° 82-13.259), repaired within the strict measure described above: expenses and losses caused by the negotiations, never the advantages of the contract that was not concluded nor the chance of obtaining them (C. civ. Art. 1112, al. 2; Cass. com., 5 juin 2024, n° 23-14.904).

In the course of performance, breaches of good faith infringe contractual obligations and incur the same sanction as non-performance of the contract. The courts have generally retained the contractual liability of the party who acted in bad faith and awarded damages to the victim (Cass. com., 1 oct. 1991; Cass. com., 3 nov. 1992). The disloyal party is also, in practice, deprived in one form or another of the advantage it expected from its conduct: the rebates withheld are ordered paid, the termination it engineered is refused effect, the demand it presented brutally engages its liability. One sanction is excluded: the bad-faith non-performance of a contract does not entail its annulment (Cass. 3e civ., 6 mai 2021, n° 20-15.094). Nullity sanctions defects at formation; bad faith in performance is a matter of liability.

Frequently Asked Questions

This article is for general information only and reflects French law as published at the date shown above. It does not constitute legal advice. Always seek qualified advice before acting.