Termination of a fixed-term contract and damages for compensation

Terminating a contract before its term is a classic business dispute: services contract stopped, maintenance contract terminated, distribution agreement interrupted, construction contract abandoned. For a businesses, the issue is immediate: can it claim payment for the entire remaining term of the contract, or only compensation? And how can this compensation be quantified without being criticized for overvaluation?

In French law, the answer is now very clear: after early termination of a fixed-term contract, the price of services not performed is not due; compensation is based on damages assessed according to the actual loss suffered, taking into account the costs avoided.

The French Supreme Court (Cour de cassation) strongly reiterated this in a ruling dated December 3, 2025 (Cass. com., December 3, 2025, No. 24-17.537).

I. Understanding the framework: fixed term, early termination, and penalties

A. The principle: a fixed-term contract must be performed until its term

Under common law, a contract entered into for a fixed term (contrat à durée déterminée) is supposed to be performed until the agreed expiry date: each party commits to the fixed period.

Practical consequence: terminating for convenience before the end of the term (without a clause, without legal grounds, without sufficiently serious non-performance) exposes the party doing so to contractual liability.

B. Termination, rescission, exception of non-performance: what are we talking about?

Legally, when sanctioning a breach, we are often in the realm of termination (judicial, by resolutive clause or unilateral), with the full range of sanctions for breach of contract (Art. 1217 of the Civil Code).

Unilateral termination (résiliation unilatérale) requires, with some exceptions, a formal notice that has remained unsuccessful and a motivated notification (Art. 1226 of the Civil Code).

Important point for managers: even if the termination is “effective” (the contract ends), this does not settle the financial issue. It is then necessary to determine who bears the cost of the termination and how the loss is calculated

II. The key rule: the future price is not due, only compensation for the loss is

A. The price is only due in return for a service performed

The French Supreme Court expressly states: “in the event of early termination of a fixed-term contract, the price is only due if the agreed service has been performed” (Cass. com. December 3, 2025, No. 24-17.537).

In other words, the aggrieved party cannot demand full payment of what remained to be invoiced “until the end,” since these services will not be performed.

This line of reasoning is consistent with older case law, already established in the area of service provision: wrongful termination only gives rise to damages, possibly fixed by a penalty clause, but not to payment of the price of services not performed (e.g., Cass. com., May 3, 2011, No. 10-15.884; Cass. com., December 2, 2020, No. 18-17.330).

B. The basis: full compensation (loss suffered + loss of profit)

French law sets the standard: the damages owed to the creditor are “in general, the loss he has suffered and the gain he has been deprived of” (Article 1231-2 of the Civil Code).

This principle is linked to the idea of full compensation “without loss or profit”: compensating for all the damage, and nothing but the damage.

III. How to calculate compensation: operational method

A. Step 1: identify the right type of damage

1. Lost profits: net profit that the company could have expected from continuing the contract until its term.
2. Losses incurred: expenses that became useless or necessary as a result of the termination (mobilization of equipment, recruitment, specific purchases, studies, logistics, etc.).
3. Loss of opportunity: only if the expected gain depended on a contingency (conditional commission, performance bonus, success fee, uncertain future volume).

B. Step 2: Deduct avoided costs (the point that is often overlooked)

The ruling of December 3, 2025 is key: the French Supreme Court censured an appellate court that had awarded compensation for a “loss of opportunity to obtain full payment of the outstanding price of the services,” even though the victim had not incurred the costs that it would have incurred if the contract had been carried out to completion.

Logical conclusion: the loss cannot be confused with the unpaid balance of the price; it must be assessed taking into account the expenses not incurred, i.e., based on the gross margin on variable costs.

This is where a lawsuit can be won (or lost):

• if you are the plaintiff, you must document your lost margin and explain why certain costs were unavoidable (fixed costs that could not be reduced, dedicated fixed assets, subcontracting already committed, etc.);
• if you are the defendant, the argument of avoided costs is a powerful lever for reducing a claim that is too close to the contract price.

C. Step 3: Prove and structure (evidence + narrative)

Judges assess the damage in concrete terms. They expect figures that are consistent and related to the contract:

• Duration, price, volume, schedule, termination terms
• What was performed before the breach (invoices, correspondence)
• Lost margin over the remaining period (remaining turnover – avoided variable costs)
• Unamortized costs / specific expenses.

D. Calculation example

A service provider was to invoice €500,000 over the remaining 6 months. After the contract was terminated, the services were no longer performed.

If the termination is wrongful, the service provider's loss would be calculated as follows:

• Avoided variable costs (subcontracting, labor, raw materials, travel): $150,000.
• Non recoverable costs (dedicated team already recruited, equipment rented, rent): $200,000.
• Additional expenses (logistics costs, disruption to the business, communication expenses): €50,000.
• Expected margin: 500,000 – 150,000 – 200,000 = €150,000.
• Plausible loss: lost margin (€150,000) + Non recoverable costs (€200,000) + additional expenses (€50,000) = €400,000.

IV. The role of clauses: penalty clauses, caps, and the power of the judge

A. Penalty clause: lump-sum compensation

The parties may agree in advance on a termination indemnity (often equal to a fraction of the remaining monthly payments, or to the “remaining balance” capped). This indemnity remains in the nature of damages, even if it is calculated by reference to the remaining price.

Please note: if a penalty clause exists, in principle, this compensation cannot be combined with another claim that would compensate for the same loss of earnings.

B. The judge may reduce (or increase) an excessive penalty clause

The Civil Code provides that the judge may, even on his own initiative, moderate or increase the penalty if it is manifestly excessive or derisory (Art. 1231-5 of the Civil Code).

In practical terms, a clause stipulating “100% of the outstanding amounts” may be challenged if it results in manifest overcompensation, particularly when the costs avoided are significant.

C. Point to note: do not compensate the same loss twice

The principle of full compensation prohibits double compensation: you cannot charge twice for the same period or the same loss of earnings (for example, claiming both the equivalent of commissions until the end of the term and “notice” compensation covering the same period).

V. Case law illustration: the Valgo/Recyclage de l'Epine case (2024-2025)

A. The facts of the case

A pollution control company (Valgo) and a service provider (Recyclage de l'Epine) were bound by a contract for a crushing project, announced to last approximately 18 months. Recyclage de l'Epine's services were suspended by Valgo.

The service provider notified the termination of the contract for breach (unpaid invoices + unilateral modification).

B. The Court of Appeal (Rouen, April 18, 2024): compensation for loss of opportunity

The Court of Appeal ruled that the service provider could not claim payment of the balance of the contract after termination, but only damages. It characterized the damage as a “loss of opportunity” to complete the contract and obtain full payment, estimated at 90% of the balance (€428,376.96).

C. The French Supreme Court (December 3, 2025): reminder of the “margin and avoided costs” logic

The French Supreme Court (Cour de cassation) partially overturned the decision on the grounds that the appeal judges could not compensate the victim as if it were entitled to full payment of the balance of the price (or a fraction of the balance in the case of a loss of opportunity), when it had not borne the costs of complete performance: the avoided costs must be taken into account, and therefore the reasoning must be based on variable costs.

The French Supreme Court's ruling lacks clarity on this point, but it was also possible to question the relevance of the nature of the damage upheld by the Court of Appeal (loss of opportunity rather than loss of profit).

VI. Conclusion

The early and wrongful termination of a fixed-term contract is remedied using a simple but strict logic: no payment of the price, only damages based on the actual loss (loss suffered + lost profit), calculated according to the expected margin minus the avoided costs.

Need assistance with the early termination of a fixed-term contract? Contact Grelier Avocat now.