Comparative analysis of an option to conclude an agreement and an option agreement

Murdalov Deni Ruslanovich LLM, Senior Associate of AB "A2" 121099, Russia, Moskva oblast', g. Moscow, ul. Smolenskaya, 10, kv. 161 dmurdalov@yandex.ru Other publications by this author

The right to dispose of a choice, including entering into a contract or demanding a certain action from the other party, may constitute an independent subject of the transaction. Such a transaction has received the name "option" in global practice (from the English verb "to opt", which in translation into Russian means "to choose"). The prevalence of options is directly predetermined by their flexibility, as well as the relevance of risk insurance in the modern world.

To one degree or another, an option is always a form of direct or indirect hedging of risks. If we summarize this idea, we can give an example when, knowing about the possibility of a negative circumstance, we can try to smooth it out by agreeing on the conditions defined today, thereby ensuring the risk. In this regard, it is not surprising that options have become so popular, including on stock markets.

In Russia, professional turnover participants, even before the introduction of the tools in question, made creative attempts to adapt it to their economic needs, using the mechanisms that existed at that time. Already in 2006, in the proceedings of the Supreme Arbitration Court of the Russian Federation, there was a case on the recognition of ownership rights to a share in the authorized capital of the company under a purchase and sale agreement on the terms of an option concluded back in 2002.^[1] Later, in 2010, the Eighteenth AAC considered a dispute in which contracts for the purchase and sale of stock options were disputed.^[2] All this suggests that familiarity with options in the domestic legal field occurred even before the introduction of the relevant changes, which will be discussed further.

Officially, in Russian legislation, the option as a general design was implemented in the Civil Code of the Russian Federation^[3] (hereinafter – "The Civil Code of the Russian Federation") with the introduction of the Federal Law "On Amendments to Part One of the Civil Code of the Russian Federation" dated March 08, 2015 No. 42-FZ^[4] (hereinafter referred to as "FZ No. 42") under Articles 429.2 and 429.3 of the Civil Code of the Russian Federation. It is noteworthy that the legislator did not provide for any one design, but two models at once, while very similar in nature at first glance. It is the introduction of an option to conclude a contract and an option contract at the same time that determines the importance of considering them in a comparative context.

An option to conclude a contract in accordance with clause 1 of Article 429.2 of the Civil Code of the Russian Federation can be defined as an agreement under which one party, through an irrevocable offer, grants the other party the right to conclude a contract. Based on clause 1 of Article 429.3 of the Civil Code of the Russian Federation, it is possible to define an option agreement as an agreement under which one party has the right to require the other party to perform certain actions within a specified period.

Both constructions provided for by the Civil Code of the Russian Federation have a number of related characteristics, they are synallagmatic, consensual, urgent, as well as compensatory.

Speaking about the related features of options, first of all, it should be emphasized that they are united, according to the author, by a single goal. The latter is expressed by the order of the "right to choose" the occurrence or non-occurrence of certain legally significant consequences, such as the conclusion of a contract on certain conditions or the transfer of property. At the same time, the disposal of the "right of choice" is the subject of these constructions, although with noticeable differences in relation to the time of their occurrence.

It is obvious that persons entering into option agreements fall into an asymmetric relationship in which one person has the "right of choice" regarding the occurrence of legal consequences for another person. Such a relationship must be balanced in some way. And that is why an essential element of options is that they are paid by default, unless the opposite is directly fixed by the parties.

In accordance with clause 1 of Article 429.2 of the Civil Code of the Russian Federation, "an option to conclude an agreement is provided for a fee or other counter-provision, unless otherwise provided by an agreement, including one concluded between commercial organizations," and clause 2 of Article 429.3 of the Civil Code of the Russian Federation says that "for the right to make a claim under an option agreement, the party pays the amount provided for by such an agreement a monetary amount, except in cases where an option agreement, including one concluded between commercial organizations, provides for its gratuitousness, or if the conclusion of such an agreement is due to another obligation or other legally protected interest that arise from the relations of the parties."

As can be seen, both norms provide for some kind of counter-provision for the right and withdrawal in the form of the possibility of the parties to agree on a gratuitous nature, including in relations with the participation of commercial organizations. At the same time, with a more detailed analysis of the norms, it is possible to notice small, but very important, differences in terms of the form of counter-provision. For example, an option to conclude a contract is granted for (1) a fee or (2) another counter-provision, i.e. the norm explicitly provides for the possibility for the parties to determine the form of counter-provision (money and/or other benefit). While clause 2 of Article 429.3 of the Civil Code of the Russian Federation provides only money as payment for the right to make a claim under an option agreement. However, the same rule, as an alternative to paying a sum of money, provides for the possibility of concluding an option agreement conditioned by a legally protected interest. It is assumed that the latter takes place, including in situations where the option contract has an accessory character and performs a security function. Despite this, it remains not entirely obvious why the legislator expanded the forms of counter–provision in the case of an option to conclude a contract, and narrowed it in another option contract.

With regard to the gratuitousness of options, it can be assumed that any subject of civil law, guided by economic rationality, will not want to enter into a relationship that obliges him in relation to another person, but does not oblige the latter in relation to him. According to the author, such an assumption in itself, including in relation to commercial legal entities, is caused by the desire of the legislator to make options as flexible as possible. The fact is that in complex relationships in which retribution is not obvious at first glance, it is always assumed. An example is the sale of a business whose financial indicators cannot be calculated on a certain date. In order to insure himself, the buyer acquires the company, but enters into an option with the sellers in relation to it, according to which the latter, if they do not achieve the minimum indicators, will buy back the sold company. On the one hand, it may seem that sellers are not interested in such a thing, but on the other hand, they understand that otherwise their company would not have been sold, and believe that the company will achieve results and it will not have to be bought back.

It should also be mentioned that options are assumed to be fixed-term transactions, which should have some foreseeable period of granting the "right of choice". Based on clause 2 of Article 429.2 of the Civil Code of the Russian Federation, it can be said that the legislator took care of all options for concluding a contract in which there is no deadline, providing, firstly, that the option must contain a deadline, and secondly, that if there is no deadline in the option to conclude a contract, it is 1 (One) year. There are no such indulgences in the option agreement and the term for it is an essential condition. ^[5] Non-compliance with the requirements for setting the deadline may lead to non-conclusion of the contract. ^[6]

Another important element of optional structures is their shape. In accordance with clause 5 of Article 429.2 of the Civil Code of the Russian Federation, the option to conclude a contract must be in the form established for the contract to be concluded. In turn, Article 429.3 of the Civil Code of the Russian Federation does not regulate the issue of the form of the option contract in any way, due to the specifics of the design. It can be assumed that if under an option agreement one party has the right to require the other party to conclude a contract, then the form of such an option agreement must correspond to the form required for the conclusion of the contract. Thus, if there are no contradictions, then the option transactions in question can be made orally or in writing.

Here I would also like to draw attention to the following paragraph of Article 429.2, paragraph 6, which explicitly provides that an option to conclude a contract may be included in another agreement, unless otherwise follows from the substance of such an agreement. However, by virtue of clause 3 of Article 421 of the Civil Code of the Russian Federation, civil subjects have the right to conclude a contract that contains elements of various contracts provided for by law or other legal acts (a mixed contract). It should also be noted that the issues of including the text of one agreement in another are rather issues of legal technique applied to a particular agreement. In this regard, the approach of the legislator in this part is not entirely clear and the question remains why there is a clause in the article on the option to conclude a contract that repeats, albeit indirectly, the provisions of the article of the Civil Code of the Russian Federation on freedom of contract, but there is no similar clause in relation to Article 429.3 of the Civil Code of the Russian Federation. According to the author, the absence of an independent clause in the article of the Civil Code on the possibility of including an option contract in another agreement does not prevent this possibility in any way. Moreover, it can be concluded that Clause 6 in Article 429.2 of the Civil Code of the Russian Federation is redundant.

Among other differences between the designs, one can single out the built-in possibility of assignment of the right to acceptance in the option to conclude a contract, unless otherwise provided by the parties to such relations or does not follow from the substance of the agreement being concluded. This also implies the possibility of limiting the assignment of the right of acceptance. In turn, according to the author, the right under the option agreement can also be assigned without any restrictions in accordance with the relevant articles of the Civil Code of the Russian Federation.

Finally, it should be noted that both articles on options contain a reference to the fact that the specifics of certain types of options can be established by law. Is it possible in this regard to call, for example, the issuer's option such a special type of option? It should be assumed that this is an independent subject of research. At the same time, there is no doubt that the versatility of modern relations, as well as the rapid development of digital technologies, can lead to the emergence of special options that have an unambiguously specific relationship to the structures under consideration.

If we summarize the research, we can conclude that, despite the apparent similarity, an option to conclude a contract and an option contract are fundamentally different legal structures that have a common goal and similar characteristics. It is also obvious that the regulatory regulation of options under Articles 429.2 and 429.3 of the Civil Code of the Russian Federation is imperfect and requires modernization in one part, and unification in the other.

^[1] Resolution of the Federal Antimonopoly Service of the Ministry of Defense of 24.03.2008 N KG-A41/1999-08-P // SPS "ConsultantPlus".

^[2] Resolution of the Eighteenth AAS of 27.12.2010 N 18AP-10982/2010 in the case N A76-5680/2010 // SPS "ConsultantPlus".

^[3] The Civil Code of the Russian Federation (part one) of 30.11.1994 No. 51-FZ (ed. of 28.06.2021) // Collection of Legislation of the Russian Federation. – 05.12.1994. – No. 32. St. 3301.

^[4] Federal Law No. 42-FZ of 08.03.2015 "On Amendments to Part One of the Civil Code of the Russian Federation" // Collection of Legislation of the Russian Federation.  – 09.03.2015. – No. 10. – St. 1412.

^[5] Resolution of the Arbitration Court of the Moscow District of 06.06.2018 N F05-11409/2017 in the case N A41-60107/16 // SPS "ConsultantPlus".

^[6] Ibid.