The new contract law
On 1 January 2023, Book 1 “general provisions” and Book 5 “obligations” of the Civil Code entered into force. A new year and a long-awaited update of the old contract law from the Code Napoléon.
We set out some of the main changes.
Entry into force
With its entry into force on 1 January 2023, the new law of obligations will apply to contracts concluded as from this date.
It will therefore not apply to contracts concluded before this date, unless the parties mutually agree otherwise.
In addition, the amendment also does not apply to legal acts – and facts dating from after 1 January 2023 – which, however, relate to an obligation arising from a legal act or fact before this date. You might think, for example, of a commercial lease being renewed.
Consequently, the old and new contract laws will continue to coexist for a long time.
Creation of an agreement: General terms and conditions
When parties wish to contact each other, they often put forward their own general terms and conditions. The question then arises: whose general terms and conditions now apply?
Under the so-called “Knock-out rule” – which the legislator has now explicitly chosen to apply – both sets of general terms and conditions apply, except for the incompatible provisions. In other words, the incompatible clauses are excluded from the contract and thus (for these clauses only) one falls back on the common law.
There is an exception to this rule if a party expressly indicates beforehand or briefly (read: without undue delay) that it does not want to be bound by such an agreement (and not by its own general terms and conditions). In that case, the “Knock-out rule” does not apply and the agreement does not come into being.
With this explicit choice of the “Knock-out rule”, the legislator ends the legal uncertainty that has existed around this issue for some time.
Changing circumstances: force majeure and imprevention
Changing circumstances are hot topics in current times. They are also a focus of attention in the new law of obligations.
Force majeure is a well-known legal figure: the performance of an obligation becomes impossible due to circumstances beyond the control of the parties. Imprevision is a less well-known but similar legal figure. Here it concerns situations where performance of the contract has not become impossible, but has become “unreasonably onerous” due to unforeseeable circumstances not attributable to a party (e.g. unforeseeable increase in the price of raw materials).
In this case, the debtor can request the creditor to renegotiate the agreement with a view to modifying or terminating it. However, during the renegotiation, the parties must continue to fulfil their obligations.
Do the renegotiations fail? Then, at the request of one of the parties, the court can amend the agreement to reflect the change in circumstances or can proceed to terminate the agreement in whole or in part
The mechanism of imprevisal can only be invoked in exceptional circumstances and if five strict conditions are met:
- There is a change of circumstances after the conclusion of the contract that makes its performance excessively onerous for the debtor.
- This change was unforeseeable when the contract was concluded.
- The change must not be imputable to the debtor invoking it.
- The debtor must not have assumed the risk in question.
- The law or the contract must not have precluded recourse to this mechanism. Since this is a suppletive rule, the parties can therefore completely waive or limit the application of the imprevision doctrine.
Given the potential consequences of applying this mechanism, due consideration should be given when drafting contracts as to whether or not it is worthwhile to exclude or limit this doctrine.
Default sanctions: anticipatory sanctions
What if, as a creditor, you see problems coming from miles away with your debtor and the performance of his or her commitment? You would like to intervene before the problems pile up, but until now there always had to be a pre-existing default, which would only allow you to react after the fact. Under so-called “Anticipatory Sanctions”, however, it becomes possible to act sooner.
Today, the creditor of an obligation has the possibility – when it becomes clear that the debtor will not (or will not be able to) perform its obligation – at the end of the performance period and when the consequences of non-performance are sufficiently serious for the creditor, to suspend the performance of its obligation. Thus, as a creditor, you can anticipate sanctions when you fear your debtor’s non-performance (“Anticipatory suspension”).
In exceptional circumstances, the creditor can even terminate the agreement (“Anticipatory termination”) – when it is clear that the debtor will not honour its commitments (after being reminded to provide sufficient guarantees within a reasonable period of time) and with again the condition that there are sufficiently serious consequences for the creditor
Parties can contractually exclude this possibility.
Want to know the implication of these and other changes on your contracts and operations? We will be happy to advise you!