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10 March 2021

Corporate and Business Law

Cancellation or termination of a share purchase agreement on the grounds of fraud, Aliud Pro Alio and presupponition.

With judgment no. 907/2020, the Court of Milan ruled on the cancellation and termination of a share purchase agreement.

In this case, the plaintiff had requested against the defendant the cancellation or termination of the purchase agreement of 6% of the share capital of a limited liability company. The share purchase agreement included at the same time the possibility of employing the plaintiff's son in a group company. This latter subsequently found itself in an "extremely distressed condition", closed down the plant and consequently dismissed the guy. 

The claims submitted to the Court were the followings:

i) given the alleged inconsistency of the price at which the shares were sold in relation to the net assets shown in the company's balance sheet, the plaintiff sought the cancellation of the agreement for fraudulent intent on the assumption that the defendant had intentionally given the plaintiff "an altered representation of the facts relevant to the determination of the price" and that the amount of the share purchased - "catching him by surprise" - would have been communicated to him only at the time of the conclusion of the sale;

ii) termination of the agreement based on the objection of an aliud pro alio datum (i.e. delivery of an asset completely different from the asset sold) since the value of the shares was determined without a prior report on the feasibility and value of the industrial projects of the group companies, which were found to be lacking in technical foundation;

iii) cancellation on the basis of the rules related to the so-called presupposition (“presupposizione”), in the sense that the agreement was also to be regarded as 'subject to the unspoken condition' that the plaintiff's son be employed; according to the plaintiff, as soon as the employment contract was signed there were already preconditions for the subsequent dismissal, which was therefore preordained.

The Court rejected all the claims put forward by the plaintiff. More specifically, with regard to the claim for cancellation, according to the judges, the facts set out did not amount to deception, especially in view of the plaintiff's acknowledged business professionalism, which was also apparent from the way in which the negotiations had been conducted, and the advice he had received from a trusted professional throughout the negotiations. 

This allowed the judges to exclude the possibility that the plaintiff might have concluded the agreement by suggestion, naivety or misinformation: if the plaintiff "then complained about the conditions accepted, he could only impute it to himself". Secondly, the claim for termination on the basis of aliud pro alio was not upheld since the defendant, in addition to illustrating and documenting the value attributable to the group companies, provided evidence of the conclusion of three other similar transfers to parties of undisputed entrepreneurial competence for consideration that did not differ significantly from the price paid by the plaintiff. Finally, as regards the question of presupposition, the request for annulment was not accepted because the apprenticeship contract was in fact concluded with the plaintiff's son and the relationship lasted two years until the dismissal which took place for "justified objective reason", therefore not for reasons attributable to the employer. The "preordination" of the dismissal, alleged by the applicant, was therefore held to be unfounded.

The material in this article does not cover all aspects of the topics discussed. It is for informational purposes only and does not constitute, nor should it be construed as, legal advice or opinion.