Price reduction in case of imperfect execution of the contract: how to apply it?

When a contracting party fails to perform its obligations imperfectly, its creditor is not necessarily compelled to seek termination of the contract or to limit itself to claiming damages. It may also obtain a proportional price reduction.

Provided for byArticle 1223 of the Civil Code, this sanction allows the contract to be maintained while restoring, at least partially, its economic balance. Its implementation, however, requires compliance with several conditions and raises a major difficulty: how to calculate the reduction that corresponds exactly to the imperfection in the performance?

What is the price reduction in case of imperfect execution?

The reform of contract law has established a sanction which allows the creditor to accept an imperfect performance while refusing to pay the full price.

The price reduction is distinguished as follows:

• of the exception of non-performance, which allows the suspension of the performance of one's own obligation;
• of specific performance, which aims to obtain the initially promised service;
• of the resolution, which results in the termination of the contract;
• damages, which compensate for the harm caused by non-performance.

A price reduction does not directly repair damage. It adjusts the financial compensation to the actual value of the service received.

For example, it may be considered when a service provider has only performed part of the services ordered, when the services provided are of a lower quality than agreed, or when delivered equipment has fewer functionalities than those provided for in the contract.

This sanction may, when their respective conditions are met, be combined with a claim for damages intended to compensate for a separate injury.

What are the conditions for the price reduction?

The application of Article 1223 of the Civil Code presupposes first an imperfect performance of the service.

The mechanism therefore primarily concerns situations in which a service has been provided but does not fully correspond to what was agreed upon. The imperfection may include, in particular:

• quantitative, when only part of the goods or services have been provided;
• qualitative, when the service does not present the expected characteristics;
• functional, when certain promised features are lacking;
• temporal, when a delay affects the value or usefulness of the service.

The price reduction is not intended to penalize mere subjective dissatisfaction. The creditor must be able to precisely characterize the discrepancy between the contractually promised service and the service actually delivered.

It is therefore essential to have a sufficiently precise contract, written exchanges, reservations, findings or, when the difficulty is technical, an expert opinion to establish the reality and importance of the breach.

Is a prior formal notice mandatory?

A creditor who intends to reduce the price must, in principle, first give his debtor formal notice to properly perform his obligations.

This formal notice must clearly identify:

• the contractual obligation that has not been properly performed;
• the defects or deficiencies observed;
• the expected corrective measures;
• the time allowed to the debtor to remedy the breach.

An imprecise dispute or a simple commercial complaint will not always establish that the conditions of Article 1223 have been met.

The formal notice should therefore be considered a genuine legal step. It gives the debtor a final opportunity to provide a compliant service and, in case of failure, prepares the way for a price reduction or legal action.

How can the price be reduced when it hasn't been paid yet?

When the creditor has not yet paid all or part of the price, he may, after the formal notice, notify the debtor of his decision to reduce the amount due proportionally.

The notification must be issued as soon as possible. Above all, it must explain the reasons for the reduction and clarify how it was calculated.

However, the price reduction decided by the creditor only becomes indisputable if the debtor accepts it in writing.

In the absence of an agreement, a creditor who unilaterally deducts part of the price does so at their own risk. The debtor may contest the existence of the breach, the extent of the defective performance, or the amount of the reduction, and demand payment of the outstanding balance.

It is therefore inadvisable to apply a flat-rate or intuitive discount without being able to precisely justify its amount.

What should be done when the price has already been paid?

When the creditor has already paid for the service, they cannot physically withhold part of the price. They must seek an agreement with their contracting party or ask the judge to order the restitution of the portion of the price corresponding to the imperfect performance.

The distinction made by article 1223 is therefore based on the payment situation:

• before full payment, the creditor may notify a price reduction;
• After payment, if no agreement is reached, he must seek partial restitution through legal proceedings.

In both scenarios, an amicable solution can naturally be formalized by a protocol or an addendum.

Can one take legal action before paying the price?

The wording of article 1223 had created an uncertainty: did the creditor who had not yet paid necessarily have to make a unilateral reduction, or could he ask the judge directly to set the reduced price?

The Court of Cassation answered this question in a ruling dated December 18, 2024. It held that a price reduction can be requested in court even when the creditor has not yet paid all or part of the service.

Therefore, bringing a case before a judge is not limited to those who have already paid the price. This solution allows creditors who do not wish to expose themselves to the risks of a unilateral price reduction to have the amount of the reduction determined judicially.

It remains necessary, however, to demonstrate the imperfect performance and to justify the requested reduction. Court of Cassation, First Civil Chamber, December 18, 2024, No. 24-14.753

How do you calculate a proportional price reduction?

The main practical difficulty lies in calculating the reduction.

When the non-performance is purely quantitative, the operation may seem relatively simple. If a specific quantity of goods has not been delivered or if certain precisely quantified services have not been performed, their value can generally be isolated.

The exercise becomes much more delicate when the non-performance relates to the quality of the service.

The price of a contract is not always the sum of individual services to which a value has been assigned. It may include:

• fixed costs;
• design or preparation costs;
• a trade margin;
• inseparable benefits;
• a value linked to the quality, reputation or availability of the service provider;
• commitments whose usefulness cannot be measured in isolation.

The proportionality required by article 1223 is therefore not always reduced to a simple rule of three.

The amount of the discount can be assessed based on:

• of the contractual value of the unperformed service;
• of the difference between the value of the promised service and that of the service actually received;
• the cost needed to correct the defects;
• of the loss of usefulness of the service;
• price criteria or service levels defined in the contract.

An expert assessment may be necessary. However, the expert must not only identify technical defects but also provide the judge with the information needed to measure their economic impact.

Can price reduction and damages be combined?

Price reduction and damages do not serve exactly the same purpose.

The first adjusts the financial compensation for an imperfectly executed service. The second repairs the harmful consequences of the breach.

A combination of claims may therefore be considered when the creditor demonstrates a loss distinct from the lower value of the service: loss of operation, additional expenses, damage to image or disorganization, for example.

However, double compensation must be avoided. The same economic imbalance cannot be offset first by a price reduction and then a second time by damages.

Can the contract stipulate a price reduction?

The difficulty of determining a proportional reduction through legal proceedings justifies anticipating this issue when drafting the contract.

The parties may, in particular:

• to precisely define the essential characteristics of the service;
• break down the price into several services or execution phases;
• plan quality indicators and service levels;
• organize a procedure for identifying non-conformities;
• set the deadlines for complaints and remediation;
• provide for price reductions or credits corresponding to certain shortcomings;
• to link the price reduction with penalties, contractual liability and termination;
• to institute a preliminary amicable expert assessment.

The possibility of completely disregarding Article 1223 must be examined with caution. A clause modifying the penalties for non-performance must not, in particular, deprive an essential obligation of its substance or disregard the mandatory rules applicable to certain contracts, especially in relations with consumers.

What reactions should be adopted when faced with an imperfectly executed service?

Before suspending a payment or applying a price reduction, the creditor should:

1. check the content of the contract precisely;
2. identify the obligations that have been imperfectly executed;
3. retain evidence of the defects found;
4. send a detailed formal notice;
5. objectively assess the economic impact of the breach;
6. to offer, where possible, a justified reduction;
7. formalize in writing any agreement reached;
8. In the event of a serious dispute, the matter should be referred to a judge.

The debtor against whom a reduction is being applied must, for their part, respond promptly and in writing. Their silence should not be mistaken for the written acceptance required by law.

A useful sanction, but one that must be secured

Reducing the price in the event of imperfect execution offers a particularly useful intermediate solution: it allows the contract to be kept without forcing the creditor to pay in full for a service that does not correspond to the one that was promised.

Its apparent simplicity is nevertheless deceptive. The difficulties lie in proving the breach, adhering to the procedure, and, above all, determining a truly proportionate reduction.

Contractual anticipation therefore remains essential. A precise definition of obligations, an intelligible breakdown of the price, and an appropriate price reduction mechanism can significantly limit the risk of litigation.

ARST Avocats' Business Law and Commercial Contracts department assists companies in drafting and auditing their contracts, as well as in disputes related to their performance. ARST Avocats can help you secure a price reduction, contest an unjustified discount, or negotiate an amicable settlement. Contact us .