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22 de junho de 2024
The Superior Court of Justice rules on the fictitious implementation of condition in share agreement
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Paulo Guilherme de Mendonça Lopes and Alexandre Paranhos

On March 12th, the Superior Court of Justice (“STJ”) ruled a Special Appeal (Resp 2.117.094/SP) concerning the application of condition in quotas assignment contracts, in which the Third Panel established an important precedent for the interpretation of conditional clauses in business contracts.

Practice shows that contracts for the sale of shareholdings are constantly entered into suspensive conditions, making their effectiveness subject to future and uncertain events. Depending on the specifics of the case, various conditions will be attached at the time of signing, mainly through “earn out” clauses.

Therefore, earn-out clauses link part of the payment of a transaction to the future performance of the acquired company, requiring the achievement of specific targets after the closing of the transaction for a certain part of the agreed amount to be effectively paid.

By recognizing the constructive introduction of the conditional clause precedent, the 3rd Panel provided a guideline for similar cases, in which the conduct of the parties may affect compliance with contractual terms, and thus emphasizes the importance and need for a more comprehensive, careful and attentive approach in the execution and conclusion of business contracts, stressing the importance of good faith and transparency in business relationships.

In March 2024, it was rendered a court decision clarifying what happens if the buyer, holder of the acquired stocks, acts to hinder the achievement of these targets in order to benefit from the non-payment. The presented case was filed by a former partner of Target company, after an arising controversy from its contract of assignment of quotas signed with the purchasing company, in which the former partner, pursuant to the contract, transferred 75% of his quotas to the target company.
After completing the Business Plan of the company, Target sales price was established, with a portion to be paid to the former partner after the plan was fulfilled, within a maximum period of up to three years.

However, the former partner claimed that the acquiring company, upon taking control of Target, showed no interest in developing the company through the implementation of the Business Plan, thus jeopardizing the payment of the remaining portion of the contract.

Within this scenario, the 1st Civil Court of Justice of São Paulo (TJSP), applied article 129 of the Civil Code, concluding that the buyer acted maliciously by imposing a condition that it supposedly knew in advance would not be implemented. The claim, in this sense, was upheld, considering the fictitious implementation of the condition.

Therefore, the company filed an appeal against the judgment, but it was not granted. As a result, the company filed a Special Appeal, arguing that willful misconduct had been wrongly presumed by the ordinary courts and contesting the impossibility of attributing malicious conduct in relation to the non-implementation of the Business Plan.

The case was submitted to the 3rd Panel of the STJ, under the report of the Appellate Judge Ricardo Villas Boas Cueva, which after a comparative analysis was made between articles 120 of the Civil Code of 1916 and 129 of the Civil Code of 2002 noticed that here was doctrinal divergence on the interpretation of the expression “maliciously obstructed”.

Fabio Menke stated that the word “maliciously”, applied in both articles, makes it clear that only commissive or omissive conduct carried out with intent or fraud shall be subject to inclusion in the factual basis at hand.

On the other hand, Gustavo Tepedino and Milena Donato understand that the term “maliciously” used by the Lawmaker may be related to the same as informed by the Principle of Objective Good Faith, with a meaning dissociated from the intentional element, restricted only to the identification of the faulty behavior of those who practice it.

The understanding of Orlando Gomes, however, was based on a conciliatory approach, with the purpose of resolving the mentioned conflict of authority, and when analyzing article 120 of the Civil Code of 1916, he understood that even though the constructive verification of the condition requires proof of the fraud, as they are facts that occurred during the period of validity of the Civil Code of 1916, are not associated with a specific result, but rather with an intentional practice of facts that gave the opportunity for the non-implementation of the condition, or the implementation in the opposite hypothesis.

Therefore, this was the reasoning employed by the Judging Panel in the judgment of Special Appeal n. 2.117.094/SP, even if the acquiring company did not intend to obstruct the receipt of the additional amount by the former partner, it was its intentional conduct, that made it impossible to comply with the Business Plan within three years, which justified the application of the legal precept in question to consider the fictitious implementation of the suspensive condition.

The trial represents an important milestone in the interpretation of suspensive clauses in business contracts, once it recognized the fictitious implementation of the suspensive condition, providing s guideline for similar cases, where the conduct of the parties may affect compliance with the contractual terms.

Therefore, the High Court´s ruling reinforces the need to be more cautious when executing and concluding commercial contracts, always highlighting the importance of good faith and transparency in business relationships.

Published in Lexology.