Court of Cassation, contractual freedom, sale price, social shares, leonine clause, Article 1844-1, Civil Code, share transfer, profit distribution, loss contribution
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Abstract
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Abstract
The Court of Cassation affirms contractual freedom in determining the sale price of social shares, clarifying that a promise of sale clause is not a leonine clause if it doesn't exempt an associate from contributing to social losses.
Extract
[...] The Court of Cassation, in its June ruling, considers that the promise of sale clause, although providing for a fixed price of transfer in advance, has no impact on the distribution of profits and losses between associates. This restrictive interpretation of Article 1844-1 is consistent with previous case law, notably the Cass. com May 1994 ruling, which specifies that agreements related to the transfer of titles, even concluded between associates, do not necessarily affect the distribution of gains and losses, provided they are freely negotiated and do not concern the internal management of the company." B. [...]
[...] The judgment of the Commercial Chamber of the Court of Cassation of 20 May 1986 illustre perfectly this point. The solution of the Court of Cassation respects between the contractual freedom, here allows partners to determine the content of their commitments, including price and the need to preserve thethe integrity of the social pact, by preventing clauses from weakening participation in losses. The Court's approach seeks to prevent sales promises, particularly with price minimum clauses, should not be diverted from their initial purpose to unjustly protect certain associates against social risks. [...]
[...] The Court of Cassation clarifies that the promise of sale, even if it concerns the transfer of social shares, is not linked to the social pact in terms of the distribution of profits and losses between associates. The promise of sale provides for the transfer of shares at a determined price, with a discount in the event of departure of one of the associates, but this does not affect the distribution of internal results within the company. This clause is therefore foreign to the order of profits and losses, and the Court concludes that it is legal. [...]
[...] The Court of Cassation confirmed the decision of the Court of Appeal by declaring that the transfer clause, which set a sale price after the revocation of the associate, was not a leonine clause. However, although the Court of Cassation annulled the judgment of the Court of Appeal of Chambéry on certain points related to the transfer of H2P titles, it maintained its rejection of the qualification of leonine clause, thereby validating the promise of sale. This judgment highlights the tension between contractual freedom and the mandatory principles of company law. [...]
[...] The company H2P and the founder ont contested the validity of the sale promise before the Court of Appeal of Chambéry, invoking notably the qualification of clause léonine. On June the Court of Appeal rejected their requests. The founder and H2P argue that article 4 of the sale promise of December imposes the transfer of shares at a fixed price, regardless of the actual value of the titles, thus preventing the promisor from benefiting from any potential increase in their value. [...]
