The reform of the law of obligations that came into force in 2016 reorganized the Civil Code provisions on contractual non-performance. Articles 1231 to 1231-7 now set out the conditions under which a creditor may claim damages when the other party to the contract fails to meet its obligations. Two provisions form the basis of this framework: Article 1231, which requires prior formal notice, and Article 1231-1, which establishes the right to compensation in the event of non-performance or delay.
Prior formal notice: the procedural hurdle under Article 1231
Article 1231 of the Civil Code provides that damages are payable only after the debtor has been given formal notice to perform, unless the non-performance is definitive. This is no mere formality: it is a prerequisite for the claim for compensation to be admissible.
The formal notice must give the debtor a reasonable period in which to perform. The trial courts have discretion to assess what constitutes a reasonable period, so no fixed timeframe applies. A notice that allows too little time or is poorly worded may be enough to defeat a claim for damages.
Where the non-performance is definitive, formal notice is unnecessary. This is the case, for example, when the expected performance can no longer be provided (delivery of a destroyed item, or a contractual deadline that has passed). In such circumstances, the creditor may claim damages directly, without any prior formality. A clear understanding of Article 1231 of the Civil Code and how it relates to the following provisions helps avoid confusing this procedural hurdle with the legal basis for compensation itself.
Article 1231-1 and the conditions for compensation for contractual loss
Article 1231-1 is the foundation for compensation. The debtor may be ordered to pay damages for either failure to perform an obligation or delay in performing it, unless they prove that force majeure prevented performance.
Three cumulative conditions must be met for contractual liability to arise:
- Total or partial non-performance, or delay in performing an obligation arising from the contract. The breach may concern an obligation of means (in which case the creditor must prove fault) or an obligation to achieve a specific result (where proof of non-performance alone is sufficient).
- Loss suffered by the creditor, whether material, non-material, or in the form of loss of a chance. Compensation for loss of a chance is calculated according to the likelihood of the hoped-for outcome, not as if that outcome were certain.
- A direct causal link between the non-performance and the loss. The creditor bears the burden of proving the loss and its causal link, including where the debtor is bound by an obligation to achieve a specific result.
The distinction between obligations of means and obligations to achieve a specific result determines who must prove fault, but it never relieves the creditor of the need to establish the loss and causation.
Scope of damages: foreseeability and gross negligence
Article 1231-2 establishes the principle of full compensation: damages cover both the loss suffered and the profit lost. Article 1231-3 introduces a limitation specific to contractual liability: only loss that was foreseeable when the contract was entered into is recoverable.
This foreseeability rule clearly distinguishes contractual liability from tort liability, where loss is compensated in full, whether foreseeable or not. In contractual matters, a supplier who delivers late will only be liable for consequences that a reasonable contracting party could have anticipated when signing the agreement.
This limitation does not apply if the debtor has acted with gross negligence or wilful misconduct. Where the breach results from particularly serious negligence or an intention to cause harm, unforeseeable loss is also recoverable. The line between ordinary and gross negligence is assessed by the courts on a case-by-case basis, making the classification uncertain in some complex commercial disputes.
Penalty clauses and judicial adjustment
Article 1231-5 allows the parties to set the amount of compensation in advance through a penalty clause. The court may reduce the penalty if it considers it manifestly excessive, or increase it if it is derisory. In the event of partial performance, the penalty may be reduced proportionately.
This mechanism gives the parties greater budgetary certainty, but it does not guarantee that the agreed amount will be applied as written. The court may review a penalty clause whenever a party requests it.
Contractual liability limitation clauses: what the law allows and prohibits
The parties may agree on how the consequences of non-performance will be handled. Limitation of liability clauses cap the amount of damages payable. Exclusion clauses eliminate compensation for certain types of breach.
These provisions are generally valid, but their effectiveness is subject to clear limits. A limitation clause cannot cover gross negligence or wilful misconduct by the debtor. If the breach concerns an obligation that goes to the heart of the contract, case law tends to set the clause aside on the grounds that it would deprive the undertaking of its substance.
The distinction between contractual liability under Article 1231-1 and tort liability also matters for third parties. A third party who suffers loss as a result of the non-performance of a contract to which they are not a party is not covered by Articles 1231 et seq. Their claim is based on the rules governing non-contractual liability, which provide for different compensation rules, including no foreseeability cap.
The framework established by Articles 1231 to 1231-7 of the Civil Code balances the protection of the creditor with predictability for the debtor. Formal notice filters out premature claims, foreseeability limits financial exposure, and judicial review of penalty clauses prevents contractual excesses. In every case, proving the loss and the causal link remains the decisive issue in whether a dispute is won or lost.
