Sale of a Business: When the Preliminary Contract Is Annulled but the Sale Is Upheld

Imagine: you are the owner of a business in Dax, and you sign a preliminary contract under private seal. Then, a few months later, you sign the notarised deed before the notary. But the buyer, after signing, changes their mind and wants to cancel the sale on the grounds that the preliminary contract was void. Can they succeed? The answer is no, according to the Court of Cassation, in a judgment of 27 June 2000. This decision protects the stability of property transactions, but raises questions for dissatisfied buyers. What exactly does this decision say? Who is affected? And above all, how can you avoid finding yourself in such a situation? Let's analyse it together.

The facts: a story that happens every day

In February 1988, the company Comaldis sold to the company Mobidif a business for the sale of… (the judgment does not specify the exact type, but it does not matter). The preliminary contract was signed under private seal, that is, without the presence of a notary. But the sale was not immediately completed: a notarised deed was signed later, in due form.

Problem: the buyer, the company Mobidif, considered that the initial preliminary contract was void. Why? Because, in its view, this private deed did not meet the legal conditions to be considered a sale of a business. In particular, it did not comply with the provisions of the Law of 29 June 1935 on the sale of businesses (now codified in the Commercial Code). The Rennes Court of Appeal, initially seised, had refused to annul the preliminary contract, holding that the subsequent notarised deed was valid and that the parties' intention had been maintained. The company Mobidif then appealed to the Court of Cassation.

But the Court of Cassation dismissed its appeal. It held that, even if the Court of Appeal was wrong to say that the preliminary contract was valid (it should have recognised it as a sale of a business subject to the 1935 Law), the buyer had no interest in seeking annulment. Because the notarised deed subsequently signed was free from the defects that affected the preliminary contract, and the parties had maintained their common intention. In other words, one cannot seek annulment of a first deed if the second, which replaced the first, is valid and has been executed.

The reasoning of the court — explained

The Court of Cassation relies on a simple but fundamental principle: to seek annulment of a deed, one must have an interest. If the final notarised deed is valid and the sale took place, the buyer cannot go back by attacking the preliminary contract. In other words, the nullity of the first deed cannot be invoked if the second deed, which replaced it, is free from nullity and the parties persisted in their intention.

In this case, the Court of Appeal had made an error: it had refused to recognise the preliminary contract as a sale of a business, which was contrary to the law. But this error had no consequence, because the subsequent notarised deed was valid. The Court of Cassation therefore validates the result (the dismissal of the claim for annulment) while criticising the reasoning of the Court of Appeal. This is what is called a dismissal with substitution of grounds: the Court of Cassation corrects the error of the Court of Appeal, but confirms its decision on another ground.

The legal basis is twofold: on the one hand, the articles of the Law of 29 June 1935 (now L. 141-1 of the Commercial Code) which impose mandatory statements in deeds of sale of businesses (price, turnover, etc.); on the other hand, the principle that no one can bring an action without an interest (Article 31 of the Code of Civil Procedure). The Court recalls that the interest to sue must exist at the time of the claim: if the buyer has already signed a valid notarised deed, they no longer have an interest in seeking annulment of the preliminary contract, because that would bring them nothing.

This decision is neither a reversal nor a major development: it confirms consistent case law. The courts are attached to the security of transactions: once the sale is completed by notarised deed, the earlier stages cannot be challenged, unless the notarised deed itself is vitiated.

What this changes for you — concretely

For selling owners, this decision is reassuring: it prevents a buyer from withdrawing by invoking defects in the preliminary contract, if the notarised deed was signed without challenge. For example, if you sell a business in Biscarrosse and the preliminary contract under private seal forgets to mention the turnover, but the notarised deed before the notary includes all the legal statements, the buyer cannot go back on the sale based on that defect.

For buyers, the lesson is the opposite: if you discover a defect in the preliminary contract, you must act before signing the notarised deed. Once you have signed before the notary, you lose the possibility of contesting the preliminary contract. For example, if the seller did not provide you with the accounts of the business, you must either refuse to sign the notarised deed or request a price reduction before signing. Afterwards, it will be too late.

For real estate professionals (agents, notaries), this decision reminds of the importance of properly drafting preliminary contracts under private seal. But it also offers a safety valve: even if the preliminary contract is imperfect, the notarised deed can regularise everything, provided both parties agree.

Four tips to avoid this type of dispute

• Check the mandatory statements from the preliminary contract: For a sale of a business, the preliminary contract must mention the price, turnover for the last three years, profits, stock, etc. (Article L. 141-1 of the Commercial Code). Do not wait for the notarised deed to correct: if the buyer changes their mind, they could invoke the absence of these statements to withdraw before the final signing.
• Have the preliminary contract reviewed by a lawyer or notary before signing: A private deed may seem simple, but it may contain ambiguous clauses. A professional can save you from errors that, even if regularisable, could give rise to negotiations or tensions.
• If you are a buyer and have a doubt, do not sign the notarised deed without obtaining all the information: You have a 10-day right of withdrawal for sales of businesses (Law of 29 June 1935). Use it to check the accounts, ongoing contracts, leases, etc. If something is wrong, you can cancel the preliminary contract before the final signing.
• In case of a dispute, act quickly: As soon as you notice a defect, seize the judicial court (formerly the tribunal de grande instance) to seek annulment of the preliminary contract. If you wait for the signing of the notarised deed, you risk losing your interest to sue, as in this case.

Further reading: related case law and developments

This decision is part of a consistent line of the Court of Cassation. For example, in a judgment of 13 February 1996 (No. 93-20.354), the Court had already held that the nullity of a preliminary contract of sale cannot be invoked if the subsequent notarised deed is valid and the parties have maintained their intention. More recently, a judgment of 5 July 2018 (No. 17-20.114) reiterated this principle for a standard property sale.

The trend of the courts is therefore clear: the security of transactions prevails over procedural defects, provided that the parties' intention was freely expressed in the final deed. This does not mean that defects are without consequence: they may justify damages if the buyer suffered a loss (for example, if they paid too high a price due to missing information). But the pure and simple annulment of the sale is only possible if the notarised deed itself is vitiated.

For the future, this case law could evolve if the Court of Cassation decided to strengthen the protection of buyers, particularly in matters of pre-contractual information. But for now, the message is stable: once the sale is concluded, there is no going back.

What you absolutely must remember

• A defect in the preliminary contract does not automatically lead to annulment of the sale if the notarised deed is valid.
• The buyer must act before signing the notarised deed to contest the preliminary contract.
• The seller is protected if the notarised deed regularises the defects of the preliminary contract.
• In case of doubt, consult a lawyer specialising in property law before signing the notarised deed.

Besoin d'un conseil personnalisé ? Contactez Maître Zakine — première consultation 30 min à 45€.

Are you in a similar situation? A first 30-minute consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →