Terminating a lump-sum contract: the contractor's fault

A building owner (maître de l'ouvrage) that terminates a lump-sum contract (marché à forfait) is not confined to Article 1794 of the French Civil Code alone. The third civil chamber holds that this right of unilateral termination does not deprive the building owner of the possibility of terminating the contract under the general law, in particular where the contractor's conduct is sufficiently serious. The breaches alleged must therefore be examined before any award of loss of profit.

The key points

• Article 1794 of the French Civil Code allows the building owner to terminate a lump-sum contract by its will alone, subject to compensating the contractor for its expenses, its work and what it could have earned.
• That right is not exclusive: the building owner retains the possibility of terminating the contract under the general law.
• Under Article 1184 of the French Civil Code, in its wording prior to Ordinance No. 2016-131 of 10 February 2016, the seriousness of one party's conduct may justify the other bringing the contract to an end unilaterally, at its own risk.
• Loss of profit cannot be awarded to the contractor by treating the termination as discretionary, without examining the breaches alleged against it.
• The termination letter should state unequivocally the basis relied on and the breaches invoked.

The dispute: a plumbing package terminated

The third civil chamber sets aside an award of loss of profit granted without any examination of the faults attributed to the contractor (Civ. 3e, 25 June 2026, No. 24-18.064). A building owner wished to build a new store and had entrusted the plumbing works package to a contractor, now in compulsory liquidation (liquidation judiciaire). The works contract was terminated by the building owner. The contractor challenged that termination and brought proceedings against it seeking compensation for its loss of profit and its non-pecuniary loss.

The judgment under appeal (CA Papeete, 11 April 2024, No. 22/00044) had found that the lump-sum contract had been terminated unilaterally under Article 1794 of the French Civil Code. The court of appeal had held that this right is exercised at the holder's discretion, without the building owner having to allege any fault by the contractor. It inferred from this an obligation to compensate the loss of profit and an additional award for abusive exercise of the right, regardless of whether the complaints made against the contractor were well founded.

The building owner argued, on the contrary, that the delays, defective work, work not carried out and abandonment of the site alleged against the contractor excluded the application of Article 1794. The third civil chamber sets aside the judgment in all its provisions and remits the case to the Papeete court of appeal, differently composed: the court of appeal could not reason as if the termination could only fall under Article 1794 (free translation).

It follows from the combination of these provisions that the building owner's right of unilateral termination of a lump-sum contract, provided for in Article 1794 of the French Civil Code, does not deprive it of the possibility of terminating the contract under the general law.

Termination of a lump-sum contract: two distinct bases

Termination of a lump-sum contract may rest either on the building owner's discretionary will or on a serious breach by the contractor, and the cost is not the same. On the first ground, Article 1794 of the French Civil Code provides that the owner may terminate "by its will alone, the lump-sum contract, even though the works have already begun, by compensating the contractor for all its expenses, all its work, and everything it could have earned in that undertaking". The price of the building owner's freedom is therefore high: it includes the profit the contractor expected from the project.

On the second ground, termination does not come at the same price. The seriousness of one party's conduct may justify the other bringing the contract to an end unilaterally, at its own risk, as the judgment under discussion recalls by citing a 1998 decision (Civ. 1re, 13 October 1998, No. 96-21.485). A building owner that terminates for serious breaches is not exercising the right under Article 1794: it is sanctioning a failure to perform. The characterisation adopted therefore governs the compensation.

For the contractor, the consequence is direct. Relying on Article 1794 is no longer enough to obtain loss of profit automatically once the building owner justifies its termination by specific breaches. For the building owner, the stake is symmetrical: a termination poorly founded under the general law exposes it to having its termination held wrongful, the judgment under discussion not prejudging the outcome of the dispute.

What remains to be decided by the court on remittal

The judgment clarifies the interplay between Article 1794 and the general law of termination, without deciding the fate of the disputed project. What is confirmed: the right offered by Article 1794 remains discretionary within its own scope and comes with broad compensation for the contractor. What is affirmed: that right does not absorb the other bases of termination, so that the lower courts must examine the breaches relied on instead of declaring them irrelevant.

What remains open is a matter for the lower courts' assessment. The court of appeal on remittal will have to say whether the alleged delays, defective work and abandonment of the site were sufficiently serious, and on what basis the termination took place. Since the setting aside covers all the provisions of the judgment, the award made disappears, including the one linked to the allegedly equivocal nature of the termination. The Court did not examine the other grounds of the appeal.

How to secure the termination of a construction project?

The basis of the termination is chosen before it is notified, never after the trial. A building owner that terminates for breaches is well advised to set out those breaches in its notice and to have recorded them beforehand: formal notices (mises en demeure) left without effect, site meeting minutes, records of defective work, timetables not complied with. A letter mixing technical dissatisfaction with a mere change of project weakens the building owner's position, because it leaves the court free to recharacterise the termination.

A termination pronounced on the ground of the seriousness of conduct is exercised at the risk of its author: the court may find the seriousness insufficient. That element of risk is reduced by evidence, not by the wording used. On the contractor's side, the defence consists in documenting the performance of its works and the external causes of the delays. The quality of the site file determines, in practice, the outcome of the compensation debate.

The checks to carry out before notifying a termination

• Identify the real basis of the termination: the building owner's own convenience, or the contractor's breaches.
• Check that the notice states that basis unambiguously and, where applicable, the breaches relied on.
• Gather, before the notice is served, the documents establishing the delays, defective work or interruptions of the works.
• Assess the cost of each route: Article 1794 of the French Civil Code requires compensation for the contractor's expenses, work and loss of profit.
• Anticipate the court's review of the seriousness of the breaches, which remains sovereign and is assessed in the light of the evidence produced.