Business Contracts

Article 1124, paragraph 1 of the Civil Code defines a unilateral promise to sell as “a contract by which one party, the promisor, grants the other, the beneficiary, the right to opt for the conclusion of an agreement, the essential elements of which are determined, and for the formation of which only the beneficiary's consent is needed”. Under the terms of this provision, the promisor therefore ma …

Classification

Article 1124, paragraph 1 of the Civil Code defines a unilateral promise to sell as “a contract by which one party, the promisor, grants the other, the beneficiary, the right to opt for the conclusion of an agreement, the essential elements of which are determined, and for the formation of which only the beneficiary's consent is needed”. Under the terms of this provision, the promisor therefore makes a unilateral commitment to sell to the beneficiary, who has the right to acquire or not to acquire, it being understood that when the beneficiary exercises the option, the agreement is formed.

Previously, case law defined unilateral promises to sell in negative terms, as opposed to bilateral promises. Assuming that the promise to sell, which contains reciprocal commitments on the part of each of the parties, is bilateral in nature, the Court of Cassation has inferred the unilateral nature of the promise from the absence of reciprocal obligations in the agreement . However, difficulties arose when the Court accepted that the existence of reciprocal obligations on the part of the parties did not exclude classification as a unilateral promise, if these obligations were not “ evenly symmetrical ”. A private deed must therefore be reclassified as a unilateral promise to sell which, by stipulating a penalty in the event of non-compliance with the promise by the seller, and an indemnity of one tenth of the price in the event that the buyer does not exercise his option to purchase, provides for reciprocal obligations, but which are not “ evenly symmetrical ”, as the indemnity payable by the beneficiary to remunerate the advantage temporarily granted to him, and to compensate for the holding-up of the property during the agreed time-limit, is exclusive of any coercion to purchase in a roundabout way, and in no way alters his power of choice .

To remedy these difficulties of classification, the Court of Cassation then looked for the existence of an obligation to sell on the part of the promisor alone, or to the exclusion of any obligation to purchase on the part of the beneficiary, in order to retain the classification of a unilateral promise. A contract is unilateral when one or more persons are obliged to one or more others, without any commitment on the part of the latter . Consequently, the contract by which the party referred to as the “seller” declares the sale of a building to a company referred to as the “purchaser”, subject to the suspensive condition that the latter confirms its definitive intention to purchase within a time-limit of one month, is a unilateral promise to sell, since the condition to which the sale is subject implies that only the party referred to as the selleris bound . 

Similarly, a promise to sell in which the defining statements do not contain, in return for the commitment to sell, a correlative commitment to buy, is not a bilateral promise, but a unilateral promise to sell . A deed by which an undertaking reserves the right to purchase, if it so wishes, without making a commitment to do so, is also a unilateral promise to sell, and may not be reclassified as a bilateral promise to sell, as long as it does not impose any obligation linked to the sale on the beneficiary . On the other hand, a promise stipulating that the beneficiary undertakes definitively to acquire the property as soon as the obligations incumbent on the promisor have been fulfilled by a certain date, thus depriving the beneficiary of any option, constitutes not a unilateral promise to sell, but a bilateral promise to sell .

Certain unilateral promises to sell are subject to formal requirements, under penalty of invalidity, such as the registration formalities stipulated by Article 1589-2 of the Civil Code for unilateral promises to sell relating to an immovable property, a real property right, a business, a right to a lease covering all or part of an immovable property, or shares in undertakings covered by Articles 728 and 1655 of the General Tax Code. The party with an interest in having the validity of the sale recognized, despite failure to comply with this formality, sometimes seeks to have the contract reclassified as a synallagmatic promise to sell, arguing that the amount of the immobilization indemnity paid by the beneficiary is such that it deprives him of his right of option and commits him just as much as the promisor. A unilateral promise to sell a business which provides for an indemnity of such an amount that it does not simply constitute compensation for the tying up of the business for a period of three months, but expresses the buyer's commitment to take possession on the agreed date , must therefore be reclassified as a bilateral promise. On the other hand, a unilateral promise to sell a building in which the beneficiary pays an immobilization indemnity equal to 10% of the sale price cannot be reclassified as a bilateral promise, since such an amount is not of such significance that it would have obliged the beneficiary to acquire the building in question . Similarly, it has been argued that the payment by the beneficiary of a security deposit equal to 25/26ths of the total sale price obliges him to purchase, so that the unilateral promise must be reclassified as a bilateral promise to sell. However, according to the Court of Cassation, the payment of a security deposit of an amount almost equal to the sale price in no way harms the classification of the promise . This solution is justified insofar as the security deposit in no way deprives the beneficiary of his right to acquire or not acquire the property: if he exercises the option, the security deposit is treated as a deposit, and if he does not exercise it, this sum is refunded.

In addition, a court of appeal had ruled that the option to substitute another beneficiary provided for in a promissory sale agreement was incompatible with the conclusion of a contract for the sale of real estate, an “instant contract” which is implemented by the agreement between the buyer and seller on the property and the price, and that in the absence of certainty as to the identity of the party likely to purchase, the deed had to be considered as a unilateral promise to sell, even if it included mutual commitments. However, the Court of Cassation rejected this judgment: the substitution option stipulated in a promise to sell has no effect on the unilateral or bilateral nature of the contract . The Court of Cassation reiterated this solution, specifying that in a promise to sell, neither the right of substitution granted to the purchaser, nor the clause excluding arbitration by the notary in the event of a dispute, has any effect on the bilateral or unilateral nature of the promise .

Finally, a unilateral promise to sell is also distinct from another type of pre-contract common in the sale of buildings prior to completion  (VEFA agreement ), i.e. reservation agreements, which are contracts by which, in return for a deposit paid into a special account, the seller undertakes to reserve a building or part of a building for a buyer. According to the Court of Cassation, the reservation agreement, which involves mutual obligations whereby the seller undertakes to reserve a building or part of a building for a potential buyer in return for a deposit, cannot be equated with a unilateral promise to sell, accepted for the purposes of Article [1589-2 of the Civil Code], the provisions of which are of strict interpretation . In practice, to distinguish between these two preliminary agreements, the courts take into consideration the sector concerned by the VEFA agreement rather than the nature of the agreement itself. Article L. 261-15 of the Construction and Housing Code , provides that the reservation agreement is the only type of pre-contract authorized, under penalty of invalidity, when the VEFA concerns buildings in the protected sector, i.e. buildings for residential use or for mixed residential and professional use. On the other hand, in the non-protected sector, which concerns the construction of buildings for purposes other than residential or mixed use, the sale may be preceded by the conclusion of a unilateral promise to sell, subject to the registration formality stipulated in article 1589-2 of the Civil Code, as long as it relates to a building. Thus, according to the Court of Cassation, an agreement by which one party grants another party the option of acquiring real estate “without any obligation to acquire”, and which, in the event of non-exercise of this option, undertakes to pay the other party an indemnity equal to 5% of the sale price, must be construed as a unilateral promise to sell real estate, insofar as the intended transfer of ownership was for the purpose of implementing buildings not for residential or professional and residential use, but for use as “warehouses, shops and offices”, and as the promise in question is null and void for failure to register it in accordance with the provisions of Article 1589-2 of the Civil Code .

Cass. com. 9 November 1971, LawLex202100006420JBJ.

Cass. com. 8 November 1972, LawLex202200002087JBJ; 29 November 1994, LawLex202200002399JBJ.

Cass. 3e civ, 28 June 2006, LawLex202100006398JBJ.

Cass. 3e civ. 4 July 2007, LawLex202100006434JBJ.

Vente d'immeuble en l'état futur d'achèvement

Cass. 3rd civ. 27 October 1975, LawLex202300004992J.

Art. L. 261-15 of the Construction and Housing Code:

 "I.- The sale provided for in Article L. 261-10 may be preceded by a preliminary agreement by which, in return for a deposit paid into a special account, the seller commits to reserve a building or part of a building for a buyer.

The agreement must contain the essential details of the building, the standard of construction and the deadlines for completion of the work, as well as the size, location and price of the reserved premises.

The funds deposited as security are unavailable, non-transferable and non-seizable until the conclusion of the sales agreement.

They are returned to the depositor within a three month period if the agreement is not concluded due to the seller's fault, if the suspensive condition stipulated in Article L. 313-41 of the Consumer Code is not implemented, or if the proposed agreement shows an abnormal difference in relation to the forecasts in the preliminary agreement.

III - All other promises to purchase or sell are null and void".

Cass. com. November 16, 1994, LawLex202100006423J. See Cass. 3e civ, 29 January 1980, LawLex202200002088JBJ, considering that the agreement by which one undertaking grants to another, and the latter accepts it, the option of acquiring a building to be constructed, while undertaking to sell it to that undertaking in the event that the other undertaking avails itself of this option once the building is completed, does not constitute a reservation contract, but must be analyzed as a unilateral promise to sell a residential building to be constructed, which is null and void by virtue of Article [L. 261-15 of the Construction and Housing Code] under which any promise to purchase or sell other than the preliminary reservation agreement is null and void ;  24 September 2014, LawLex202300005027JBJ, stating that the private agreement entitled “preliminary contract of sale in the future state of completion of a building to be built” which relates to business premises and three garages, subject to the suspensive condition of obtaining a loan, constitutes, in view of the ambiguity of the terms of the agreement, a unilateral promise of sale, void unless registered.

Cass. 3e civ, 21 November 1984, LawLex202100006451JBJ; 2 March 2003, LawLex202300002646JBJE, holding that a court of appeal cannot hold that a promise to sell which does not contain, in return for the promisor's undertaking to sell subject to a suspensive condition, a correlative commitment to purchase on the part of the beneficiary, must be considered as a unilateral promise to sell, void for failure to register in accordance with the provisions of Article [1589-2] of the Civil Code, even though the agreement concluded between the parties constituted a transaction involving reciprocal concessions.

Cass. 3e civ, 21 November 1984, LawLex202100006451JBJ.

Cass. com. 8 November 1972, LawLex202200002087JBJ; 29 November 1994, LawLex202200002399JBJ: a promise to sell a building which confers “if it sees fit"(“si bon lui semble” )the right to purchase to an undertaking which "does not make a commitment to buy” constitutes a unilateral promise to sell.

CA Paris, 3 February 2005, LawLex202200002403JBJ.

Cass. 3e civ, 23 January 1991, No 89-10.489.

Cass. com. 13 February 1978, LawLex202200002402JBJ. The preliminary draft reform of the law of special contracts provides, in the forthcoming Article 1590, paragraph 3, of the Civil Code: “When the amount of the agreed sum is manifestly excessive in terms of the beneficiary's freedom to refrain from purchasing, the unilateral promise is re-characterized as a sale with a forfeiture clause”. According to the drafters of the proposed text, promises with financial compensation are incompatible with the classification of a unilateral promise. In this draft, the beneficiary still has the option not to purchase, but loses the sum of money. In the event of re-characterization, he will be considered as the owner from the outset, whereas in the case of a unilateral promise to sell, he would only become the owner when the option is exercised. 

CA Paris, February 3, 2005, LawLex202200002403JBJ. See Cass. com, 8 November 1972, LawLex202200002087JBJ.

Cass. 1re civ., 1 December 2010, LawLex202100006424JB, noting that a deed in which only one party, the seller, makes a firm and definitive commitment to the prospective buyer, who acknowledges this commitment but does not undertake to enter into the final agreement, while having an option allowing him in the future to give or withhold his consent to the sale, is a unilateral promise to sell, even if the beneficiary has paid a security deposit of an amount almost equal to the sale.

Business Contracts

68. Classification

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68. Classification

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