1. Admissibility of the works council's appeal for annulment due to abuse of power
2. Clarification on the form and content of a warning to declare a claim
3. The sale of jointly owned property may be ordered in the event of insolvency proceedings against a co-owner
4. Clarification regarding mismanagement
5. Action for recovery of movable property: burden of proof
6. Fate of the co-surety of a discharged guarantor
7. Clarification on the concept of significant imbalance
8. Obligation to deliver
9. Compensable damages upon termination of business relations
10. Condition for the validity of a demand for payment of the guarantee
11. Procedures for the removal of the auditor
1. Admissibility of the works council's appeal for annulment due to abuse of power
Com. February 17, 2015 (No. 14-10.279) FS-PB:
The appeal of the judgment approving the transfer plan filed by the central works council of a company in receivership was declared inadmissible by the Court of Appeal. In support of its decision, the Court of Appeal specified that the consultation of the works council prior to the adoption of the plan providing for redundancies is purely advisory and does not allow the works council to claim the status of a party to the decision.
The Court of Cassation quashed the judgment. According to the Court, even if, pursuant to the provisions of Article L. 661-6 III of the French Commercial Code, an appeal to overturn the judgment ruling on the transfer plan is only available to the debtor, the Public Prosecutor's Office, the transferee, or the contracting party, the works council can file an appeal for annulment on the grounds of abuse of power.
2. Nature and content of the warning to declare
Com. February 17, 2015 (No. 13-24.403) FS-PB:
In this case, the receiver of a company in receivership notified a creditor to file its claim. The notice reproduced the provisions of Article R.622-21 of the French Commercial Code in a version prior to its current application. The Court of Appeal ruled that the notice was irregular and had not triggered the filing deadline for the secured portion of the claim.
Two questions were put to the Court of Cassation. First, it was necessary to determine whether the irregularity of the notice could be sanctioned in the absence of evidence of prejudice, and second, whether a notice to file a claim is irregular simply because it contains an earlier version of the relevant provisions.
The Court of Cassation initially ruled that the notice is not a procedural act. The invalidity of the act is therefore not subject to the application of Article 114 of the Code of Civil Procedure, which notably requires proof of prejudice caused by the irregularity. The Court then quashes the judgment insofar as the Court of Appeal failed to determine whether the notice in question was sufficient to inform the creditor of their rights and obligations.
3. The sale by auction of jointly owned property may be ordered in the event of insolvency proceedings against a co-owner
. Com. February 10, 2015 (No. 13-24.659) FS-PB:
A building, which became jointly owned after the owners' divorce, was occupied by the husband. He repaid the loan installments, renegotiated the terms, and then obtained a new loan designating him as the sole borrower. Invoking the borrower's default, the borrower was sued by the bank and brought his co-owner into the proceedings as guarantor. After the wife's death, her heirs continued the proceedings.
The division of marital assets also presented difficulties, and a judgment dated February 8, 2011, addressed these difficulties and ordered the sale of the property. The husband appealed this judgment after being placed under court-ordered reorganization on January 20, 2011. As part of these proceedings, a judgment dated January 26, 2012, approved the reorganization plan and declared the property inalienable. In the appeal proceedings, the heirs filed a third-party objection to the final judgment.
The Court of Appeal notably rejected the heirs' request for the sale of the jointly owned property. According to the Court of Appeal, the third-party objection filed by the heirs was inadmissible because it was filed too late, and only the debtor can file a motion to lift the inalienability.
The Court of Cassation partially quashed the judgment on the grounds that, according to Article 815 of the Civil Code, no one can be compelled to remain in joint ownership and that partition can always be demanded.
4. Clarification regarding mismanagement
Com. March 10, 2015 (No. 12-15.505) FS-PB:
The manager of a liquidated limited liability company (SARL) was found liable for mismanagement that contributed to the company's insufficient assets on the grounds that she had not contributed sufficient funds when the company was created.
The judgment was quashed by the Commercial Chamber of the Court of Cassation insofar as the insufficiency of contributions made to a company at its formation, which is attributable to the shareholders, does not constitute mismanagement.
5. Action for recovery of movable property: burden of proof
Com. March 10, 2015 (No. 13-23.424) FS-PB:
A creditor of a company placed under judicial reorganization claimed professional kitchen equipment that had been sold to the creditor with a retention of title clause and for which the price was partially unpaid. The Court of Appeal held that the debtor had not provided proof that the claim concerned movable property incorporated into other property, the separation of which could not be effected without damage, or property permanently attached to the property, and authorized the creditor to recover certain items.
The Court of Cassation adopted the opposite position and overturned the judgment. According to the Court of Cassation, it is incumbent upon the claimant to establish the existence in kind of the claimed property within the debtor's assets on the date the insolvency proceedings were initiated and, consequently, that the separation of movable property incorporated into other property can be effected without damage.
6. Fate of the co-surety of a discharged surety
Mix. February 27, 2015 (No. 13-13.709) PBRI:
In this case, the plaintiff, manager of a company to which several loans had been granted, had acted as joint and several guarantor for these loans. His co-guarantor having been released from his obligations due to their manifest disproportion, only the plaintiff was subsequently sued for payment following the company's default. The plaintiff then argued against the bank that he had been deprived of recourse against his co-guarantor and claimed the benefit of Article 2314 of the Civil Code, which provides that a guarantor is released when, due to the creditor's actions, subrogation to the creditor's rights, mortgages, and privileges can no longer be effected in favor of the guarantor.
The question was therefore put to the Court of Cassation as to whether a guarantor can invoke against the creditor the impossibility of any subrogation of the latter's rights against another guarantor.
The Court of Cassation's reasoning unfolds in two stages. First, the Court clarifies that the sanction provided for in Article L.341-4 of the Consumer Code renders the guarantee agreement ineffective with respect to both the creditor and the co-guarantors, who cannot subsequently take action against the guarantor released from their obligation. It then considers that, in the absence of the transfer of a right of which they were deprived, the co-guarantor cannot claim the benefit of Article 2314 of the Civil Code in their relationship with the bank.
7. Clarification on the concept of significant imbalance
. March 3, 2015 (No. 13-27.525) FS-PB:
In this case, the Minister for the Economy sued a distributor to stop practices that created a significant imbalance in its relationships with its suppliers.
This significant imbalance resulted from two clauses in a standardized agreement used by the distributor. The first clause concerned the procedures for revising the tariff, while the second addressed the calculation of the service rate and the penalties owed by the supplier in the event of a breach.
The tariff revision clause stipulated that a tariff reduction initiated by the distributor would automatically trigger an obligation for the parties to renegotiate, while the suppliers would be required to justify any increase with objective criteria, it being understood that any modification required the distributor's consent.
Due to the lack of reciprocity in the conditions for implementing the tariff revision, depending on whether the initiative came from the distributor or its suppliers, the Court of Cassation held that the significant imbalance was established.
The penalty clause, for its part, stipulated a penalty system in the event the supplier failed to meet a minimum service level of 98.5%, without providing a precise definition.
The Court of Cassation ruled that the general and imprecise nature of the disputed clause rendered this penalty system automatic, thus creating an imbalance between the rights and obligations of the parties.
It is important to note that the Court of Cassation conducted a comprehensive analysis of the significant imbalance in both cases. Regarding the price revision clause, the lack of reciprocity in the contractual provisions, coupled with the distributor's failure to provide evidence of the existence of a clause capable of rebalancing the contract, established the significant imbalance between the rights and obligations of the parties to the contract. The significant imbalance resulting from the penalty clause was characterized by the lack of reciprocity and of any compensation for the imbalance in question.
Furthermore, the Court of Cassation clarified here that lower court judges, in order to characterize a significant imbalance in the rights and obligations of the parties to a contract, must analyze not only the disputed clauses but also conduct a concrete and comprehensive assessment of the contracts in question.
We can therefore assume that if another clause, certainly likely to cause an imbalance between the parties but this time in favor of the supplier, had been inserted into the said contract, thus rebalancing the rights and obligations of the parties, the Court of Cassation would probably not have upheld the appeal court's judgment, according to which the distributor was ordered to cease these practices and to pay a civil fine.
8. Obligation to Deliver.
Com. February 10, 2015 (No. 13-24.501) F-PB:
In this case, a company ordered a machine financed by means of a lease. After signing the acceptance report, the buyer stopped paying rent, claiming that no prototype parts had been manufactured with the precision to which the supplier had committed. The buyer then sued the supplier and the lessor for rescission of the sales contract, and the lessor sought a judgment against the buyer for various sums and the return of the equipment.
The Court of Appeal ruled that the sale was rescinded due to a breach of the delivery obligation. The supplier then appealed this decision to the Court of Cassation. According to the supplier, the lessee's unconditional acceptance and the sending of the acceptance report to the lessor constituted acknowledgment of the equipment's conformity to the contractual specifications.
The Court of Cassation upheld the Court of Appeal's decision, ruling that the obligation to deliver complex machinery is only fully fulfilled once the sold item has been effectively commissioned.
9. Compensable damages upon termination of business relations
(Com. 10 February 2015, No. 13-26.414):
The Court of Cassation reiterates here that only damages resulting from the abruptness of the termination, and not from the termination itself, are compensable.
10. Conditions for the validity of a claim for payment of the guarantee
(Com. 10 February 2015, No. 12-26.580, FS-PB):
In this case, a company had paid a deposit for a purchase. The guarantor had issued a first-demand guarantee for the return of this deposit, expiring on September 30, 2008. As the seller was subject to judicial liquidation, the contract was not performed. On September 25, 2008, the buyer, represented by his counsel, proposed to the guarantor, who accepted, an extension of the guarantee until November 30, 2008. The guarantor ultimately refused to honor the guarantee after the buyer's representative issued a payment demand on November 25, 2008. The buyer therefore sued the guarantor for payment.
In this ruling, the Court of Cassation dismissed the appeal against the Court of Appeal's decision declaring the guarantee demand irregular and rejecting the payment claims. Indeed, the Court of Cassation states that " after having declared that strict compliance with the formal and drafting requirements for calling upon the guarantee, as provided for in the letter of guarantee and the Uniform Rules for Demand Guarantees, ICC Publication No. 458, is the counterpart to the autonomy of the guarantee, that the beneficiary must comply with them in order to invoke it, and that the guarantor must verify the apparent regularity of the request addressed to it before paying, the judgment holds that the request for payment of the on-demand guarantee was made by the company's lawyer, who was required to provide proof of special authorization for this purpose, which has not been shown to have been attached to the faxes of September 25 and November 25, 2008, or to the letters confirming them ."
11. Procedures for the removal of the auditor
. February 10, 2015 (No. 13-24.312) FS-PB:
The CEO and Chairman of a company whose accounts were being audited sued the auditor to have him removed from office. The auditor argued that the action was inadmissible due to the company's lack of standing. The Court of Appeal rejected this objection, ruling that the summons had been issued by the company itself, represented by its CEO and Chairman.
The Court of Cassation overturned the lower court's decision, finding that the company whose accounts were being audited was not among the persons or entities entitled to request the removal of its auditor.
