Unilateral purchase undertakings are widely used in share disposals. In a judgement of 16 September 2026 (Cass. com., No. 25-11.886, F-D), the Court of Cassation reiterates two rules concerning the exercise of an option and the compensation payable by the beneficiary. These rules are of direct relevance to practitioners involved in M&A transactions.

1/ The facts: an option exercised against the wrong party

In July 2019, a company entered a unilateral promise to purchase the shares of a target company. The price amounted to 27 million euros. Its director acted as guarantor for the promising company. The agreement provided for a ‘termination indemnity’ of €2 million should the beneficiaries fail to exercise the option. The offer expired on 30 November 2019.

On 20 November, the sellers’ representative sent the exercise notice to the director at her home address. The target company subsequently went into compulsory liquidation. The sellers sought enforcement of the sale. The liquidator, for his part, claimed the €2 million indemnity.

The Paris Court of Appeal ruled that the agreement was void. However, it classified the indemnity as a penalty clause and reduced it to one euro.

2/ The exercise of the option must comply with the stipulated terms

The Court of Cassation dismissed the sellers’ appeal. The agreement set out specific terms: a ‘Notice of Exercise’ issued by the ‘Sellers’ Representative’ and received by the ‘Purchaser’. The document designated the promisor as the purchaser, along with their contact details.

However, the status of legal representative is not to be confused with the person actually acting in that capacity. A letter sent to the managing director therefore does not constitute notification to the company.

3/ The compensation for loss of use is not subject to the judge’s discretion

The Court, however, quashed the judgment regarding the compensation. It referred to Articles 1124 and 1231-5 of the Civil Code.

Its reasoning is straightforward. A penalty clause penalises the non-performance of an obligation. The beneficiary of a unilateral promise, however, is under no obligation: they remain free to exercise the option or not. The penalty therefore compensates the promisor for the commitment they have undertaken. The court cannot reduce it, regardless of how it is described in the document.

This judgement calls for vigilance when drafting and executing promises:

• Clearly identify the recipient of the notice, with a dedicated address.

• Strictly adhere to the contractual formalities when exercising the option.

• Correctly describe the compensation, bearing in mind that it cannot be amended by a judge.

The External Growth/Corporate team is available to answer any questions you may have.

(External Growth / Corporate - Cloix Mendès-Gil) Please do not hesitate to contact us.