08 Jul Spousal consent: a practical lesson
Business and personal life regularly mix, for instance when a managing director personally guarantees debts of the company that he or she is managing. This may result in a managing director assuming private commitments that may significantly impact the matrimonial community of property. In order to protect spouses of business owners and managing directors, the law provides that a spouse’s consent is required for the performance of certain juridical acts by the other spouse (known in Dutch as an “Article 1:88 Statement”). The Article 1:88 Statement is required, for instance, on the sale of the marital home and for guarantees and contracts for a purchase in instalment that do not fall within the scope of the normal exercise of a profession or business. If the consent is lacking, the spouse may have the juridical act annulled.
Case law provides numerous examples of cases in which a juridical act is annulled on the grounds of the absence of an Article 1:88 Statement. Many of these examples relate to personal guarantees or bank guarantees. In such cases the discussion focuses on the question whether the juridical act was entered into outside the normal exercise of a business or profession. Due to the far-reaching consequences of successful reliance on annulment, the Article 1:88 Statement is almost always included in one-off and recurring contracts under which the business owner personally stands surety.
Recent ruling on hire purchase
Another type of legal transaction that requires the spouse’s consent is “purchase in instalments”. Annulment of this type of contract is mainly relied on in consumer law, such as in the Dexia affair. In business life, it is apparently less readily assumed that a purchase in instalments may require an Article 1:88 Statement. But wrongly so, as a recent judgment of the Court of Appeal of Den Bosch has shown.
In the case in question a business owner had privately purchased the shares in a clothing shop for an amount of EUR 10,000. In order to pay the purchase price, the business owner had agreed with the seller of the shares that the purchase price would be paid in 20 instalments (as a loan). His wife had not given her consent for the payment arrangement. When the clothing shop subsequently went bankrupt, the business owner had not yet paid off the loan, and the seller called in the loan. At that point the business owner’s wife annulled the purchase agreement and the corresponding loan, because she had not given her consent, despite it being required.
Court of Appeal’s judgment
The Court of Appeal ruled that the agreement constituted a purchase in instalments outside the ordinary course of business. The spouse’s reliance on annulment of the purchase in instalments contract on the grounds of lack of consent was successful. On the annulment of the contract, the seller lost its claim against the business owner and the seller became the owner again of the now bankrupt clothing shop with retroactive effect. All in all a very unfortunate and undesirable outcome for the seller – and one that could have been prevented by having the wife consent to the purchase contract and the repayment arrangement.
In practice, it is important to remember that business owners that purchase shares in a private capacity for a deferred purchase price (often in the form of a vendor loan) are in fact entering into a contract for a purchase in instalments. The business owner’s spouse must give consent for that contract. The absence of such consent may constitute grounds for annulment of the contract, with all the consequences that entails. For the sake of completeness, it should also be noted that shares are generally purchased by companies, rather than privately. This Article 1:88 Statement problem does not apply to such transactions.
This article was published in the Newsletter Vestius of July 2021