A small ruling for a big change.
On November 29, 2023, the Commercial and Financial Division of the French Supreme Court (Cour de cassation)[1] reversed case law that had been consistent for over twenty years, and for once, in the direction of greater flexibility.
In clarifying the conditions governing the signature of a commitment by a company in the course of formation, the Cour de cassation has gone back on a well-established practice, leaving it to the judge to interpret the will of the parties.
As we know – and the French Commercial Code explicitly states this – a legal entity has legal personality from the moment it is registered in the Trade and Companies Register.
However, for practical reasons, a company that has not yet been registered may sometimes need to enter into commitments – in this case, contracts – before it is registered, and therefore before it has a real legal personality.
Persons who have acted in the name of a company in formation are jointly and severally liable for the acts and commitments they have entered into until the company is registered and takes over its acts.
For many years, the French Supreme Court (Cour de cassation) has ruled that for a registered company to be able to take over commitments previously entered into, they must have been entered into “in the name of” or “on behalf of” the company being formed. Commitments entered into “by the company” without legal personality were null and void.
As this requirement is not explicitly set out in any text, the Cour de Cassation has reversed its position and now states that “it seems possible and desirable to give the judge the power to assess, on a sovereign basis, by examining all the circumstances, both intrinsic to the deed and extrinsic, whether the common intention of the parties was that the deed should be entered into in the name of or on behalf of the company in formation, and that this company could then, after acquiring legal personality, decide to take over the commitments entered into”.
In other words, the mere absence of the words “in the name of” or “on behalf of” the company in formation can no longer render the deed in question null and void. It is up to the judge to assess the intentions of the parties.
It should also be noted that the fact that the commitment is entered into by a person who is not ultimately a partner in the company, or that the company is incorporated in a form other than that referred to in the deed, does not de facto mean that the deed is necessarily null and void.
While the Court’s position is commendable, deferring to the sovereign appreciation of judges is not necessarily the most comfortable option.
It’s a safe bet, therefore, that practice will remain largely unchanged, and that references to “in the name of” or “on behalf of” the company in formation will continue to flourish.
[1] Cour de cassation, Chambre commerciale financière et économique, November 29, 2023, 22-12.865
