In 2017 the section of the French Civil Code on the law of contract was amended and restructured in its entirety. The reform’s objectives were to increase legal certainty regarding unilateral promises in agreements made after 1 October 2016.
Shareholders’ agreements frequently contain unilateral promises to sell or buy shares of the company. The Civil Code now defines the unilateral promise. This is the contract by which one party, the promisor, grants to the other, the beneficiary, the right to opt for the conclusion of a contract the essential elements of which are determined, and for the formation of which is lacking only the beneficiary’s consent (Civil Code Article 1124, paragraph 1).
Forced execution of the promise is not possible if the beneficiary has not exercised the option during the agreed period, because the promise then lapses (Cass, 3rd civ 22-9-2010). It is also not possible when the promise is concluded under a condition precedent, as long as the condition is not fulfilled.
The law now provides that the revocation of its promise by the promisor during the time left to the beneficiary to opt does not prevent the formation of the promised contract (Civil Code Article 1124, paragraph 2). Previously, in the absence of a text, the French High court allowed the promise to revoke its promise during the option period without the beneficiary being able to request the forced execution of the contract (Case 13-9-2011 no. -19.526), the beneficiary can only then claim damages (CA Paris 27-9-2012 No. 11-20031).
The new provisions apply to unilateral promises made after 1 October 2016. One can imagine that the Court of Cassation, reversing jurisprudence, applies the new legal solution to promises made before that date.
Still, execution in kind must be possible. If the promisor has sold the promised shares to a third party, the sale will be void only in the event that he knew the existence of the promise (Civil Code Article 1124, paragraph 3). In the opposite case, the forced execution of the promise will prove impossible and the beneficiary will only be able to obtain damages. To prove the third party’s knowledge of the promise, the beneficiary will encounter the same difficulties as those already exposed.
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