Can the validity and enforcement of contracts be left to the discretion of only one of the parties?

A contract exists since one party agrees to be bound to the other party to give something or to provide a service. And, the parties are free to stipulate the agreements and conditions they deem convenient. But in this collaboration, we are not going to go into these aspects in depth, we will focus on the submission of the effects of the contract to only one of the parties. Is this possible?

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What does the Civil Code say about the submission of the validity and performance of contracts to the discretion of one of the parties?

• Article 1256: “The validity and performance of contracts cannot be left to the discretion of one of the contracting parties.
• Article 1115: “When the fulfilment of the condition depends on the exclusive will of the debtor, the conditional obligation shall be null and void. If depends on the fate or the will of a third party, the obligation shall have all its effects in accordance with the provisions of this Code”.
• Article 1155: “(…) The nullity of the principal obligation carries with it that of the penal clause.

We present these fragments of the Civil Code, because in an infinite eagerness to protect contracts, we tend to forget them. A contract arises from the will of at least two parties. And, leaving the interpretation of validity or performance to one of them, entails the nullity of the agreement. It is especially relevant to say that it is null and void even if it is signed by the same parties. However, it is important to specify whether this submission to one of the parties is pure or relative. Why? Because that is what the jurisprudence of the Supreme Court does.

Example: If the seller of the Company does not get the opening license within one year the venture capital company may resolve to acquire the Company.

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Limits to the autonomy of will in contracts

Law, morality and public order, operate as limits to the autonomy of the will of contracts. But are there more limits?

Is this clause, null and void because the validity and performance of contracts are at the discretion of only one of the parties?

In the example above, we are not dealing with a condition of those called “purely facultative doctrine”, which determines the nullity of the obligation made dependent on it, as stated in the above-mentioned article 1115, but rather with a condition that is simply facultative, the validity of which offers no doubt.

According to the Supreme Court’s ruling of 3 December 1993 (RJ 1993\9830): “the pure facultative obligation makes null and void the obligation that depends on it according to the first paragraph of art. 1115 of the CC, in relation to art. 1256, of which it constitutes a mere specificity, but this is not the case with the simply facultative conditions, such as the one we are dealing with here, in which the obligation, if it depends partly on the will, also depends on other external facts, which makes the condition valid [SS. 29-11-1919, 4-3-1926, 22-11-1927, 6-2-1954 (RJ 1954\327) and 10-12-1960 (RJ 1960\3793)”.

What makes the Supreme Court distinctive?

Based on the above example, the Supreme Court makes the following distinction:

• PURELY optional obligations. Null and void, because their fulfilment depends exclusively on the will of one of the parties.
• SIMPLY optional obligations . VALID, because the fulfilment of the Obligation depends on the will of a third party.

Conclusions

In conclusion, a distinction must be made between optional conditions from the purely optional ones. In the former, compliance depends on the debtor’s will. As long as  it is related to different motives aside the obligation itself. (For example: I will complete the acquisition of the Company, only if I obtain financing for 50% of the acquisition price)

In the second case, compliance with the obligation depends on the discretion or will of the debtor, which is exclusively related to the obligation. For example: I will perfect the sale and purchase, if I consider it profitable.

Only these two ones are void (arts. 1115 and 1256 CC). The optional condition linked to reasonable grounds is valid (STS 16 May 2005 – RJA 4002).

If this article has been of interest, we also suggest you to read the following article published on our website: Are simulated contracts null and void?