On 22 April 2013, the Supreme Court (Hof van Cassatie/Cour de Cassation) held that if an obligation to perform is subject to a purely potestative condition (zuiver potestatieve opschortende voorwaarde/condition suspensive purement potestative), such a purely potestative condition alone cannot be declared null but the whole obligation shall be null.
Under Belgian law, contractual obligations which are subject to a purely potestative condition are null (Article 1174 of the Belgian Civil Code, hereafter “CC”). An obligation which is subject to a purely potestative condition means that the condition will be fulfilled only if the obligated party chooses to do so. To clarify by way of an example: the obligation of a borrower to repay a loan subject to the willingness of the borrower to finish constructing a house, will be considered to be a purely potestative condition. The borrower can choose never to finish constructing the house, and never to repay the loan. Consequently, the repayment obligation will be null. However, should the obligation to repay also be subject to other conditions that are not purely potestative, the underlying obligation remains enforceable.
Second, Article 1108 CC determines that each agreement must have a legal “cause” (“oorzaak”/”cause”). Article 1131 CC provides that if an agreement has no legal cause, the agreement cannot have any effect.
Third, the statute of limitations for a claim for nullity of an agreement or obligation is 10 years after the claim originated (Article 1304 CC).
Factual background
A loan agreement was concluded on 23 September 1997 for EUR 39,662.96. The loan agreement stipulated that the loan had to be repaid “at the latest on the day the 5,000 shares in the limited liability company Cofigraph are sold by [the borrower]”. The clause is a purely potestative condition, as the borrower will only have to repay the loan if he chooses to sell the shares.
On 22 March 2000, the company Cofigraph was declared bankrupt. The borrower never sold the shares, and never repaid the loan.
On 15 April 2008, the lender summoned the borrower in court to obtain repayment of the loan. As the claim to invoke the nullity of the obligation under the purely potestative condition originated on the date of the loan agreement, namely 23 September 1997, the claim for nullity became time-barred on 24 September 2007. Given the statute of limitations, the lender could no longer obtain the nullity of the obligation or the entire loan agreement.
Instead, the lender brought an action for reimbursement of the loan under the loan agreement. This action had not yet become time-barred. The lender argued that, as the repayment of the loan was subject to a purely potestative condition precedent, that condition was to be considered null rather than the underlying obligation. As a result, the underlying repayment obligation remained due. The Court of Appeal of Mons followed the lender’s reasoning, and ordered the borrower to repay the loan pursuant to the loan agreement.
Before the Supreme Court, the borrower argued that the nullity of the condition not only affects the pending condition for the repayment of the loan, but the underlying repayment obligation in its entirety. The borrower reasoned that if it was unable to sell the shares, it would never have agreed to the loan agreement. Consequently, the loan agreement is without legal cause for the borrower, and as such the repayment obligation should be declared null as well (Article 1131 CC).
In its judgment of 22 April 2013, the Supreme Court reversed the judgment of the Court of Appeal of Mons. Article 1174 CC clearly states that obligations which are agreed to under a purely potestative condition are null. Article 1174 CC does not mention that the condition is null, and that the once-pending obligation has now become due and payable. As such, the Court of Appeal was incorrect in deciding that the purely potestative condition was null and thus ordering the borrower to repay the loan. This is consistent with previous case law of the Supreme Court. However, the Supreme Court did not address the reasoning of the borrower who had argued that the whole agreement was null.
Conclusion
The Supreme Court clarified that if a party shies away from its contractual obligation by invoking a purely potestative condition, a court may not declare such a condition null and order the performance of the underlying obligation. The Supreme Court, however, did not clarify whether in case of a purely potestative condition, the entire loan agreement could be declared null for absence of a legal cause.
The relevance of this case law lies in the fact that parties often believe that a purely potestative condition cannot be invoked by the debtor. However, the opposite is true: the debtor may rely on it for its own benefit. However, this would not be the case if the underlying obligation was subject to other conditions precedent that are not to be considered purely potestative, or if a single condition was not purely potestative, but rather coincidental or mixed.
