Case 8: a requirements contract

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because Alloy’s own obligation to deliver is uncertain: the amount to be delivered has not been determined. Such an obligation may be void under art. 1129 of the Civil Code1 and kindred articles which require a contractual obligation to be definite. In any event, such an analysis would require the promise to be transformed into a contract of sale each time Motor Works exercised its option to purchase. It is impracticable to imagine Motor Works repeating such an operation each time it sends an order.

We therefore prefer to analyse the agreement as a framework contract to supply the amount of steel subsequently ordered. Nevertheless, this analysis does not get rid of the difficulty of how to quantify Alloy’s obligation: how many tons of steel is it obliged to deliver to Motor Works? If the answer remains ‘as many as Motor Works orders’, then the contract may still fall foul of the provisions of art. 1129 and related articles of the Civil Code.

These articles require a contractual obligation to be definite. Under art. 1108,2 the object of the contract must be certain. Under art. 1129, the subject matter of the obligations must be determined or determinable. Similarly, under arts. 15833 and 1591,4 in a sale, if the price of the goods or the amount to be delivered is undetermined or undeterminable, and the contract includes no mechanism for determination, the contract is void for uncertainty (l’indétermination de l’objet). If the contract were for the sale of specific goods, the contract would not have to contain any special provision as to quantity. It would be enough to specify the goods. But where, as here, generic goods are sold by quantity, both the type of goods (steel) and the quantity must be determined or determinable. The type of goods must be determined at formation of the contract; the quantity may be set later or may be determinable at the time of performance.

If determining the quantity required a new agreement by both of the parties, then the initial contract would be void for uncertainty. The judge has no power to set a price in the absence of contractual agreement. These principles have been applied by case law to framework contracts.

If the quantity were to be determined at the sole discretion of the promisor under the obligation, who could therefore decide whether or

3Article 1583: ‘The sale is perfect as between the parties, and the buyer obtains title as of right from the seller, as soon as they have agreed on the thing and the price sold, even if

the thing has not yet been delivered nor the price paid.’

4 Article 1591: ‘The price of the sale must be determined and fixed by the parties.’

not to be contractually obligated, it would constitute a condition potestative. The contract would then be void under art. 1174 of the Civil Code.5 This is not the case, as the quantity ordered does not depend on Alloy (the promisor of the relevant obligation) but on Motor Works.

Here, the quantity depends on the sole discretion of the promisee. The cases most closely in point concern contracts in which the price depends on the discretion of one of the parties. For a long time, the Cour de cassation held such a contract void for uncertainty under arts. 1129 or 1583 of the Civil Code. Recently, however, the Court overruled its prior decisions by holding that such indeterminacy no longer voids the contract. Nevertheless, a remedy will be granted if there is an abuse in setting the price. Damages may be awarded. Alternatively, or in addition, the contract may be terminated as to the future, although, despite the general rule of French law,6 it will be deemed valid as to past transactions.7 Therefore, a party complaining of indeterminacy will now claim relief on the grounds of an abuse of a right.

This result is an application of the theory of ‘abuse of right’ developed by the case law and by legal scholars which limits the exercise of a right by its owner. Although an abuse of right is most obviously characterized by an intention to harm another person, the concept extends to any behaviour deemed to be illegitimate.8 Assessing such behaviour is left to the lower court judges but they are subject to review by the Cour de cassation as the question raised is one of law: whether a right has been abused by infringing the liberty of another person.

In contracts in which the price is set by one of the parties, the traditional approach which voided the contract for uncertainty was an attempt to deal with the same basic problem as the new one which looks for an abuse of right. It is the problem of fairness. It is self-evident that some degree of certainty is necessary if an agreement is to be enforced. But the requirement of certainty also constitutes a guarantee for the parties, and particularly the promisee, that the other party cannot impose an excessive or unsatisfactory obligation on him.9 This need for protection has led

5 Article 1174: ‘Every obligation is void when it is made under the condition potestative of the promisor.’

6 A. Colin and H. Capitant, Cours élémentaires de droit civil français, 3rd edn, vol. II (1920–1), no. 2, p. 350; Ghestin, Jamin, and Billau, Traité de droit civil nos. 482 ff.

7 Ass. plén., 1 Dec. 1995, JCP 1996, II, 22565, concl. Jeol, note J. Ghestin; D 1996, 13, concl. Jeol, note L. Aynès.

8 Ghestin, Gorbeaux, and Fabre-Magnan, Traité de droit civil no. 761, pp. 747 f.; C. Jamin, ‘Réseaux intégrés de distribution’, JCP, 1996, I, 3959.

9 See Flour and Aubert, Droit civil 1; A. Colin, L’acte juridique, 7th edn (1996), no. 244, p. 165.

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the courts to refuse to enforce contracts in which a price depends on the sole discretion of one of the parties, for example, in franchising and in contracts for exclusive distribution. Imposing such a requirement in a framework contract might seem artificial since these contracts do not actually include prices, but merely an agreement for future sales contracts. However, the imposition of a limit on the discretion of a party over the content of the contract, and especially the price, was a recognition that in such a situation, the position of the promisee is weak. The policing of the manner in which the parties set the contract price was an indirect way of avoiding economic imbalance. It prevents the weaker party from being subject to the arbitrary economic power of the other.

The new approach to policing unfairness in such contracts by asking if a right has been abused has received both criticism and approval from scholars.10 It is clear, however, that the remedies it makes available – damages and non-retrospective termination – are easier to administer and more satisfactory in practice. The older approach – voiding the contract for indeterminacy – led to serious practical difficulties concerning restitution, and was not necessarily the appropriate corrective remedy that the promisee was really looking for.

If the cases on an indeterminate price are applied here by analogy,11 then the contractual obligation to deliver an undetermined quantity of steel will be valid but subject to a claim of abuse of right.

The consequence, in Case 8(a), is that Motor Works may validly order the amount of steel which it usually orders even if the market price has risen 20 per cent above the contract price. It will not have abused its right to determine the quantity it buys. The theory of imprévision or relief for changed and unforeseen circumstances is not accepted in French private law and therefore would not be applicable even if a rise in the market price constituted such a change. The French rejection of this theory is based on a strict interpretation by the courts of art. 1134 of the Civil Code. French law does grant relief for force majeure, but that is a quite different doctrine which applies only when performance has become impossible.12

In Case 8(b), in contrast, Alloy could receive a remedy for abuse of right if it succeeds in proving that Motor Works ordered twice as much steel

10For the diversity of opinions, see ‘Le contrat-cadre de distribution’, JCP 1997, ed. E., and particularly, J. Ghestin, ‘La notion de contrat-cadre et les enjeux théoriques et pratiques qui s’y attachent’ 7 f.; L. Aynès, ‘La question de la détermination du prix’, 16 f.

11Terré, Simler, and Lequette, Les obligations no. 262, p. 219.

12For an explanation and criticism of the refusal of French law to accept the theory of imprévision, see Ghestin, Jamin, and Billau, Traité de droit civil no. 260, pp. 288 ff.