## Facts

- S.A. Automobiles Berliet (Berliet), a French company, ordered a large volume of trailers, semi-trailers, and related truck equipment from S.A. Fruehauf Corporation (Fruehauf-France), a French manufacturer.
- Fruehauf-France was majority-owned by American shareholders affiliated with Fruehauf Corporation in Detroit (Fruehauf-Detroit) and supervised within the group by Fruehauf-International.
- Berliet intended to export the equipment to the People’s Republic of China.
- United States authorities began investigating the transaction as a possible violation of U.S. embargo controls under the Trading with the Enemy Act, which had been expanded to cover an embargo against China.
- In response to the U.S. pressure and investigation, Fruehauf-International directed Fruehauf-France to terminate the Berliet contract.
- Fruehauf-France asked Berliet to cancel the contract voluntarily; Berliet refused and threatened litigation if performance did not occur.
- The cancellation instruction triggered internal conflict at Fruehauf-France, including resignations and a dispute between French minority directors and officers (including President–General Manager Raoul Massardy, who later resigned) and the American directors and shareholders about whether the company should continue to perform the contract and how it should be managed.
- The French commercial court found that Fruehauf-France’s continued business was in doubt because the Berliet contract represented about 40 percent of its export business.
- The commercial court concluded that cancellation would expose Fruehauf-France to very large damages (reported as exceeding five million francs) and could jeopardize more than 600 French jobs if the company’s finances collapsed.
- The commercial court took measures affecting the operation and control of Fruehauf-France, including ordering that the Berliet contract be carried out; the American-controlled side appealed to the Paris Court of Appeal.

## Issues

1. Whether Fruehauf-France, a French corporation controlled by U.S. shareholders, was obligated under French law to follow U.S. embargo-based directives to terminate a French contract for export to China.
2. Whether the French courts could intervene in the internal management of Fruehauf-France to prevent cancellation and to ensure continued operations when cancellation would seriously harm the company, its workforce, and French economic interests.
3. Whether U.S. embargo rules could be treated as a sufficient legal justification in France for breaching a contract governed by French law and performed by a French company.

## Decision

- The Paris Court of Appeal upheld the commercial court’s intervention in the management and operation of Fruehauf-France.
- The court held, in substance, that Fruehauf-France was not bound as a matter of French law to comply with the foreign (U.S.) embargo directive when doing so would require breach of a valid French contract and would gravely damage the French company.
- The court accepted the lower court’s assessment of the immediate risk to Fruehauf-France, including the scale of the Berliet business (about 40 percent of exports), the magnitude of potential damages, and the threat to hundreds of French jobs.
- The court treated the foreign embargo policy as not controlling the obligations and management of a French-incorporated company operating in France, and it allowed measures that effectively compelled performance of the Berliet contract.

## Legal Principles

- A French corporation is not required to follow foreign governmental or corporate directives that would cause it to breach its contractual obligations under French law and inflict severe harm on its business.
- French courts may intervene in the governance and management of a locally incorporated company when control decisions threaten the company’s survival, expose it to massive liability, or endanger significant domestic employment.
- Foreign embargo or export-control rules are treated as foreign public-law measures and do not automatically override French contract and company law applied to a French enterprise.
- In conflicts between foreign sanctions pressure and a French company’s duties under French law, French courts may give priority to the company’s interests, its employees’ interests, and domestic economic policy.

## Conclusion

Fruehauf Corp. v. Massardy held that a French subsidiary controlled by U.S. shareholders was not required, under French law, to terminate a major French contract simply because U.S. embargo rules and parent-group instructions demanded cancellation; the Paris Court of Appeal approved French judicial intervention to keep the company operating and to compel performance where cancellation threatened severe financial harm and widespread job loss in France.


Fruehauf Corp. v. Massardy, D.S. Jur. 147 (Cour d’appel 1968)