The Manoukian ruling (Cass. com., November 26, 2003, No. 00-10.243) established two rules that continue to shape the law governing pre-contractual negotiations: wrongful termination of negotiations gives rise to the author’s tort liability, but recoverable damages exclude the profits expected from the contract that was never concluded and the loss of a chance to obtain them. These principles were codified in Article 1112 of the French Civil Code by the ordinance of February 10, 2016, and further clarified by the law of April 20, 2018.
Exact scope of recoverable damages after the Manoukian ruling
The line drawn by the Commercial Chamber is clear: only expenses incurred during negotiations and rendered futile by their wrongful termination are eligible for compensation. Audit fees, preliminary studies, travel expenses related to negotiations, and advisory fees are included. The profits the contemplated contract would have generated are excluded.
This exclusion is not limited to expected profits. It also extends to the loss of a chance to earn those profits, which is the ruling’s most debated contribution. For a detailed commentary on the Manoukian ruling, this exclusion remains at the heart of the academic debate.
In practice, the claimant must identify expenses directly caused by the wrongful conduct and distinguish them from ordinary business development costs. Due diligence expenses commissioned before serious negotiations have even begun will not be recoverable. The success of the claim depends on distinguishing negotiation expenses from opportunity costs.
Wrongful termination of negotiations: criteria applied by the Court of Cassation
The principle is that parties are free to terminate negotiations. Article 1112, paragraph 1, of the French Civil Code makes this clear: everyone is free to enter into, conduct, and end negotiations. The fault lies not in the termination itself, but in the circumstances surrounding it.
In the Manoukian case, Stuck and its shareholders continued negotiations with Manoukian while entering into a promise to sell with a competitor. Continuing negotiations to drive up the price after already committing to a third party constitutes bad faith amounting to wrongful conduct.
The indicators used in case law to establish fault include:
- The duration and progress of the negotiations: the further negotiations have advanced, the more an abrupt termination without legitimate grounds weighs in the claimant’s favor.
- Active conduct by the party terminating negotiations that fosters a legitimate belief that the contract will be concluded (exchanging draft agreements, setting signing dates).
- Concealed parallel negotiations with a competing third party, especially when they result in a secret agreement before the official termination.
Termination need not be abrupt to be wrongful. Terminating negotiations late, after deliberately prolonging them without any genuine intention to conclude a contract, is subject to the same rules.
Third-party liability and limits on claims
The Manoukian ruling also addresses the third party that concludes the contract instead of the claimant. The Commercial Chamber held that a third party is liable only in cases of fraudulent conduct or intent to cause harm. Simply entering into a contract with a party that is negotiating with someone else does not constitute wrongful conduct.
This rule protects the smooth functioning of commercial transactions. A competing buyer making a more advantageous offer is not required to check the status of the seller’s previous negotiations. The burden of proving fraudulent conduct rests with the party whose negotiations were terminated, making claims against third parties rare in practice.
Codification in Article 1112 of the French Civil Code and subsequent clarifications
The ordinance of February 10, 2016, incorporated the principles of the Manoukian ruling into the French Civil Code. Article 1112 enshrines freedom of negotiation, subject to the requirement of good faith. The ratification law of April 20, 2018, added a decisive clarification: damages may not include either the benefits expected from the contract or the loss of a chance to obtain them. This clarification was declared interpretative, meaning that it applies retroactively.
The interpretative nature of this provision reinforces the significance of Manoukian: the rule does not date from 2018, but derives from the original 2016 text, which itself codified the 2003 case law. This demonstrates a continuous chain of legal authority on this point.
Recent application in case law
In a 2024 ruling, the Court of Cassation reaffirmed this exclusion, overturning a decision that had awarded damages for the loss of a chance to acquire a business after the wrongful termination of negotiations. The ruling confirms that the limit established in Manoukian also applies to claims framed as loss of a chance, not just to directly expected profits.
Nuance regarding recoverable loss-of-chance claims in negotiations
The prohibition on compensating for loss of a chance specifically concerns the chance of obtaining the profits from a contract that was never concluded. It does not rule out all claims involving other types of lost opportunities.
A party that can show it passed up the opportunity to contract with another partner while negotiations were wrongfully prolonged may seek compensation for this distinct loss of a chance. The Commercial Chamber opened this avenue as early as 1998 (ruling of April 7, 1998, No. 95-20.361). The reasoning is straightforward: if the wrongful conduct consisted of artificially prolonging negotiations, the resulting loss may include alternative opportunities sacrificed during that period.
This distinction remains difficult to apply. The claimant must prove that serious parallel negotiations were abandoned because of the wrongful negotiations and quantify the likelihood that the alternative contract would have been concluded. Without tangible evidence (documented competing offers, interrupted exchanges), the claim will fail.
Wrongful termination of negotiations, as circumscribed by the Manoukian ruling and codified in Article 1112 of the French Civil Code, remains a form of tort liability limited to expenses actually incurred and lost. This strict approach to defining damages, reaffirmed as recently as 2024, requires practitioners to document every expense from the outset of negotiations.
