The Scope of the Authenticity Principle on Indefinite Option Clauses in Judicial Procedure

Document Type : Research Paper

Authors

1 university of guilan

2 PhD student of Guilan University

Abstract

This paper explores the impact of the authenticity principle on indefinite option clauses within judicial procedures. In some contracts, the mechanism for terminating transactions hinges on these clauses. Upon agreement, either party terminating the contract must pay a fee. This typically deters uninformed parties from prematurely dissolving their contracts.
While the principle of honoring agreements implies the inclusion of indefinite option clauses, Article 401 of the Civil Code (BC) declares any option with no time limit null and void. This raises the question: can the authenticity principle prevent the dissolution of such contracts?
A close examination of Article 401 BC's purpose, contract annulment, and juristic opinions reveals a wide discrepancy regarding time limits in option clauses. Some scholars, like Sheikh Tusi, consider indefinite options valid and propose a three-day limit. They even claim consensus on their view. Conversely, others believe such contracts and conditions are invalid due to inherent ambiguity ("Gharar") potentially leading to fulfilling an unknown condition and ignorance about the transaction object.
However, both arguments against indefinite options have flaws.
Gharar:  The basis for voiding contracts with Gharar is the Hadith "Nahi al-Nabi an Bi'al Gharar." However, some jurists question its authenticity. Additionally, interpreting "Gharar" as trickery suggests a mandatory prohibition, not conditional nullity. Moreover, Sheikh Mortaza argues that relying on customary practices ("Orf") determines ambiguity. Only if the option period remains undetermined even by Orf would the transaction be void. Unknown conditions are also challenged, as the variables are likely defined, and ignorance cannot be assumed.
Article 401 BC's Oversimplification:** This article fails to distinguish between the types of indefinite periods and contracts based on transaction value. A temporary contract contingent on a future event (e.g., death) differs from a permanent one. Settlement agreements often include lifelong option clauses, with parties preferring a lifelong termination right. This raises doubts about the ruling's rigidity. While such agreements could transform binding contracts into revocable ones, this wouldn't necessarily conflict with their validity, as rules related to necessity and permissibility are not integral to the contract's nature. Additionally, a permanent option term wouldn't render the contract revocable, as death or absence of parties wouldn't dissolve it. Finally, the type of contract and its object value matter. Article 401 BC's generality might not apply to revocable contracts where detailed knowledge of the object is not crucial. The indeterminate value wouldn't impede their implementation.
This paper's comparative analysis of legal views and court rulings suggests that omitting a time period for option clauses is a common practice ("Orf").  However, to eliminate ambiguity, the findings advocate incorporating an Orf-based termination period. Failure to exercise the option within this period could be interpreted as an implicit forfeiture of the right. Notably, some jurists consider "Orf" a rule of general knowledge, deeming it sufficient for rulings as long as the transaction remains non-fraudulent and non-risky according to customary practices.
Finally, courts generally view contract annulment as a last resort, favoring the parties' implied will whenever possible. In some cases, the court might consolidate the option clause with the contract's fulfillment condition.  Alternatively, the time for fulfilling contractual obligations might be considered the termination period.  Regardless of the approach, courts often prioritize honoring the parties' agreement and interpret conditions narrowly to avoid extending Article 401 BC's application and dissolving the agreement.
While the principle of authenticity overshadows Article 401 BC in practice due to its conflict with common business practices, legislative intervention and amendment of this article seem necessary.

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References

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