Exception of early non-performance: can a contract be suspended before its expiry date?

Theexception of anticipatory non-performance allows a party to suspend the performance of its own obligations even before its contracting partner has actually breached its own. This particularly useful mechanism must nevertheless be used with caution: an unjustified suspension can itself constitute a breach of contract.

Established by the reform of contract law, the exception of anticipatory non-performance complements the traditional exception of non-performance. It allows a company to cease performing a contract when it is already clear that its partner will not fulfill a fundamental obligation upon its expiry.

This right may be exercised without prior judicial authorization. However, it is implemented at the risk of the person invoking it.

Classical and anticipatory non-performance exception: what's the difference?

The Civil Code distinguishes between two situations.

The exception of non-performance after the breach

Article1219 of the Civil Code allows a party to refuse to perform its obligation when:

• the obligation of its contracting party is already due;
• He does not carry it out;
• This failure to comply is serious enough.

This is the traditional exception of non-performance: a party reacts to a breach that has already occurred.

The exception of early non-performance before the due date

Article1220 of the Civil Code authorizes a party to suspend its obligation:

"when it is clear that its contracting party will not perform by the due date and that the consequences of this non-performance are sufficiently serious for it.".

The suspension must be notified as soon as possible.

Thedefense of anticipatory non-performance therefore arises before the date on which the other party was due to perform its obligation. It is based not on a non-performance already established, but on the sufficiently clear certainty of a future non-performance.

What are the conditions for the exception of anticipatory non-performance?

Article 1220 of the Civil Code sets out three cumulative conditions.

A future non-performance manifests

It is not enough that the execution of the contract appears uncertain or that the creditor has concerns about the ability of its contracting party to meet its commitments.

The future non-performance must be manifest. It must be deducible from objective, precise, and consistent evidence, for example:

• the express announcement by the other party to the contract of its refusal to perform;
• the cessation of activity necessary for the execution of the contract;
• the loss of an essential administrative authorization;
• repeated failures revealing the impossibility of meeting the next deadline;
• the absence of the material resources necessary for execution;
• a clear abandonment of the project or service;
• a financial situation objectively incompatible with the commitment undertaken.

Mere rumors, minor delays or a general deterioration of the business relationship are not necessarily sufficient.

Sufficiently serious consequences

Early non-performance must also be likely to have sufficiently serious consequences for the party suspending their own obligations.

This seriousness is particularly evident in light of:

• of the importance of the threatened obligation;
• of its essential nature in the economics of the contract;
• sums or resources already committed;
• of the impossibility of subsequently remedying the non-performance;
• consequences on the creditor's business, customers or other commitments.

A minor or easily remediable breach should not justify the suspension of the entire contract.

A notification as soon as possible

The party that decides to suspend its performance must inform its contracting partner as soon as possible.

This notification should, in practice:

• identify precisely the contract in question;
• to reiterate the respective obligations of the parties;
• to expose the elements that make future non-performance evident;
• describe the sufficiently serious consequences that would result;
• specify the obligations whose execution is suspended;
• specify the conditions allowing the contract to be taken over;
• reserve the creditor's other rights and remedies.

Even though the text does not impose any particular form, a written notification allowing its date and content to be established is essential.

What documents should be gathered before suspending the contract?

The party invoking the exception of anticipatory non-performance must be able to demonstrate that its conditions were met at the time when they suspended their obligation.

Therefore, it is advisable to retain:

• the letters and emails exchanged;
• formal notices;
• the statements of the contracting party;
• contractual deadlines;
• observations of delays or deficiencies;
• documents revealing the cessation or impossibility of execution;
• supporting documents for the foreseeable consequences of the breach;
• the notification of the suspension and proof of receipt.

The analysis must be carried out as of the date of the decision. However, the fact that the risk ultimately does not materialize could retrospectively weaken the position of the party that suspended its execution.

What are the risks of an unjustified suspension?

The exception of non-performance does not, in itself, cause the contract to disappear. It temporarily suspends its execution.

If these conditions are not met, the party that invoked it may be considered to have itself failed to fulfill its obligations. Its contracting party may then, depending on the circumstances:

• request the resumption of execution;
• continue the forced execution in kind;
• request the termination of the contract;
• to request a price reduction;
• to seek compensation for the harm suffered.

These various sanctions are listed inArticle 1217 of the Civil Code.

The suspension must also remain proportionate. It may be excessive to suspend all benefits when only a secondary obligation is threatened.

Can the exception of early non-performance be modified by the contract?

The parties can contractually define the conditions for the suspension of their obligations.

The contract may include, in particular:

• a prior alert procedure;
• a request for supporting documents;
• a period of time allowed for the contracting party to provide guarantees;
• a prior formal notice;
• a gradual suspension of services;
• events constituting objective signs of failure;
• the procedures for resuming execution.

These clauses must not, however, create a significant imbalance or allow for arbitrary suspension. They must also be coordinated with the mandatory provisions applicable to certain contracts.

Exception of anticipatory non-performance and collective proceedings

The opening of safeguard, receivership or liquidation proceedings requires particular vigilance.

According to ArticleL. 622-13 of the Commercial Code, applicable to safeguard proceedings and, by reference, to judicial reorganization, the co-contractor must continue to fulfill its obligations despite the non-performance, by the debtor, of commitments prior to the judgment of opening.

A similar mechanism applies in judicial liquidation under ArticleL. 641-11-1 of the Commercial Code.

The other party to the contract cannot therefore use breaches that occurred before the judgment to obstruct the special regime for the continuation of ongoing contracts. These breaches primarily give rise to a right to file a claim against the liabilities.

However, the continuation of the contract requires that the promised service to the other party be provided under the conditions stipulated by insolvency law. If subsequent obligations are not properly fulfilled, the mechanisms specific to ongoing contracts must be implemented.

In this context, the general legal exception for anticipatory non-performance should not be applied in isolation. The party concerned must take into account:

• from the date of the alleged breaches;
• of the decision to continue the contract;
• of the quality of the competent body;
• the nature, particularly monetary or non-monetary, of the expected benefit;
• special rules for terminating existing contracts.

A hasty suspension could be considered contrary to the mandatory rules of collective procedure.

What steps should be taken before suspending its execution?

Before invoking the exception of anticipatory non-performance, it is recommended to:

1. verify that the obligations are reciprocal and sufficiently linked;
2. identify objective evidence of future non-performance;
3. to concretely appreciate the seriousness of its consequences;
4. review the clauses regarding suspension and termination of the contract;
5. check for the possible existence of a collective procedure;
6. determine precisely which benefits to suspend;
7. send a detailed written notification;
8. keep all supporting documents;
9. regularly review whether the suspension remains justified;
10. Consider issuing a formal notice or requesting guarantees before any suspension.

The exception of anticipated non-performance thus constitutes an effective tool for protecting the creditor. However, its unilateral nature should not obscure the risk that accompanies its implementation: if the announced non-performance was not obvious or if its consequences were not sufficiently serious, the party seeking protection may itself become liable for a breach of contract.

The Contracts and Business Litigation department of ARST Avocats assists companies in analyzing the risks of non-performance, drafting suspension notices and dealing with difficulties affecting the performance of contracts.

Article written by Morgan Jamet