On Cass. com., 16 September 2026, No. 25-11.886 and 25-11.904, F-D
Exercising the option in time is good.
Sending it to the promisor is better.
Such is the first lesson, harsh but unanswerable, of an unpublished judgment handed down on 16 September1.
It is not the only one: the judgment also offers a welcome reminder of what a penalty clause is.
The terms of the promise
On 31 July 2019, LTB France undertook to purchase all the shares of Arteum Services, a company running museum shops, for 27 million euros.
Article 1.4 of the unilateral promise provided that the sellers could accept the offer “by the sending of a notice of exercise by the Sellers’ Representative to the Purchaser”.
The Purchaser was defined as “LTB France, société par actions simplifiée”, with its registered office and trade register number.
Article 4.3, for its part, provided for a “break-up fee” of two million euros, payable by the sellers if the transaction was not completed by 30 November 2019 “for any reason whatsoever attributable to the Sellers”.
On 20 November 2019, ten days before the option period expired, the sellers’ representative gave notice of exercise, by email and by registered letter.
To Ms E., the Purchaser’s legal representative. At her personal address, in London. Not to the Purchaser, a legal entity, at its registered office.
The question: was the sale concluded?
The Paris Commercial Court ordered specific performance of the sale and ordered Ms E. to pay the price2. It held that a company can only act through natural persons, that Ms E. had negotiated and signed, and that the draft share purchase agreement annexed to the promise designated precisely her London address for notices to the Purchaser.
The Paris Court of Appeal reversed3. In its view, the option had not been validly exercised, and the promise had lapsed.
Was the option validly exercised?
In principle, exercising an option is subject to no formality. It is enough for the beneficiary to bring its decision to contract to the promisor’s attention within the time allowed.
Consensualism does the rest.
Unless, that is, the parties have agreed otherwise. As early as 1987, the Third Civil Chamber held that “while acceptance of a promise to sell is in principle subject to no formal requirement, this is so only in the absence of contrary stipulations”4.
Here, the contrary stipulation lay in a single defined term: the Purchaser, with a capital P. The Cour de cassation upheld the Court of Appeal, which had “correctly inferred that, the notice requirements not having been complied with, the option had not been exercised and the promise to purchase had lapsed”.
The will was indeed expressed, and sent. But it never reached the promisor, whereas the promise required the notice to be received by the Purchaser before the offer period expired, failing which the offer would lapse. It could not, therefore, strike the spark of life that makes a contract.
As the Cour de cassation holds, following the lower courts, the capacity of legal representative “is not to be confused with the person who exercises it”. Notice to the legal representative is not notice to the company.
The “break-up fee”
The promise provided for a “break-up fee”. According to the Court of Appeal, its purpose was “to compel the sellers to be diligent in exercising their option” (§ 22).
A penalty, then. With a coercive function.
One might be quick to see it as a penalty clause (clause pénale), and to seek its reduction under Article 1231-5 of the Civil Code.
That temptation should be resisted.
Admittedly, the clause was ill-named (“break-up fee”) and had the ring of a sanction: it applied if the transaction failed “for any reason whatsoever attributable to the Sellers”.
Yet the fact is that the “break-up fee” sanctioned the breach of no obligation; it was payable merely because the sale had not taken place5.
Hence the Commercial Chamber’s logical ruling, under Articles 1124 and 1231-5 of the Civil Code and Article 12 of the Code of Civil Procedure: “the indemnity paid to the promisor by the beneficiary of a unilateral promise to purchase is not intended to secure the performance of an agreement, since the beneficiary makes no commitment to sell, so that it cannot be characterised as a penalty clause”.
The solution is not new. More than forty years ago, the Court already approved lower courts for stating that the beneficiary, “not being bound to purchase, does not breach any contractual obligation by refraining from requiring the promisor to perform its promise”6.
Whether called an “immobilisation” fee or a “break-up” fee, the stipulated sum is not the sanction for breach of an obligation but the consideration for tying up the promisor, bound to purchase throughout the option period: what the Court once called, for a promise to sell, “the price of the exclusivity granted to the beneficiary of the promise”7.
The consequence is clear. No penalty clause, no power for the court to reduce it.
Takeaways
- Where a unilateral promise sets out how the option is to be exercised, in particular to whom notice must be given, a non-compliant exercise is ineffective and the promise lapses on expiry.
- Notice sent in a personal capacity to the managing director of the promisor company is not notice to the company: the capacity of legal representative is not to be confused with the person who exercises it.
- The indemnity payable to the promisor by the beneficiary of a unilateral promise to purchase who does not exercise the option is not a penalty clause and falls outside the court’s power to reduce penalties (French Civil Code, Arts. 1124 and 1231-5).
Notes
- Cass. com., 16 September 2026, No. 25-11.886 and 25-11.904, F-D (unpublished). Translations of quotations are the author’s. ↩
- Paris Commercial Court, 9 September 2022, No. 2020037390, as reported in the Court of Appeal’s judgment. ↩
- Paris Court of Appeal, Division 5, Chamber 9, 19 December 2024, RG No. 22/16933. ↩
- Cass. 3e civ., 7 January 1987, No. 85-14.930, published in the Bulletin. ↩
- Compare, for a stipulation that sanctioned an obligation actually undertaken and was therefore recharacterised as a penalty clause, Cass. 3e civ., 24 September 2008, No. 07-13.989, published in the Bulletin (purchaser’s duty of diligence under a condition precedent); see also, for a bilateral promise of sale, Cass. 3e civ., 30 January 2020, No. 18-24.105. ↩
- Cass. 3e civ., 5 December 1984, No. 83-12.895; Cass. 3e civ., 5 December 1984, No. 83-11.788, both published in the Bulletin. ↩
- Cass. 1re civ., 5 December 1995, No. 93-19.874, published in the Bulletin; see also A. de Bissy, “L’indemnité d’immobilisation”, RDI 2000, p. 287; S. Pimont, Rép. civ. Dalloz, “Clause pénale”, updated January 2026, for whom a stipulation fixing the consideration for a contractual prerogative is not a penalty clause. ↩
