Corporate Officer's Duty of Loyalty Towards Transferring Shareholder

Extract

[...] - Good faith implies that the contracting party must not harm his co-contractor. He must be loyal and cooperative, both in pre-contractual matters (Manoukian case law) (Cass. Com nov n° 00-10.243) and at the time of the conclusion of the contract, Baltus case (Cass. Civ. 1ère May 2000, n° 98-11.381) and the present judgment. - The duty of loyalty of the director allows the co-contractor to have a free and informed consent so that the contract is not tainted with vices. [...]

[...] Court of Cassation, Civil Chamber 3 October No. 20-17.681 - Is the confidentiality of agreements between a social leader and a third party an obstacle to disclosing information to the outgoing partner? - Introduction and detailed plan Procedure : M. the plaintiff, brought an action before the Commercial Court of Lyon to claim damages and interest from M.Z and M.X, defendants, based on a breach of their duty of loyalty. In a judgment dated 9 March 2009, the first-instance judges dismissed M.Y's claim. [...]

[...] The constitutive elements of the dolous reticence - The judgment rendered by the Court of Cassation in its commercial chamber on 22 February 2005, n°01-13642, states that dolous reticence consists in knowingly concealing information whose existence and importance for the co-contractor are known. - The present judgment, which is the subject of the commentary, fits into this logic, a director who concealed the resale price of the shares he acquired from one of his associates practices a dolous reticence. - The sanction is the annulment of the disputed sale or the payment of damages and interest to the injured associate corresponding to the amount of the profit made by the said transfer, Cass. Com March 2013 n°12-11970. [...]

[...] Thus, this obligation to inform is therefore strengthened. - The present judgment recalling that the director holding important information that may affect the consent of the transferor must be disclosed at the risk of a breach of his duty of loyalty characterized by a deceitful reticence in the direct line of the judgment Cass com February 1996, n°94-11241. II) The social director's lack of knowledge of his duty of loyalty sanctioned on the basis of deceitful reticence : The manifestations of the breach of the duty of loyalty: the retention of determining information of consent - It is characterized when the social director 'orients' the decision of the transferor to his exclusive benefit. [...]

[...] Question of law : Is the confidentiality of agreements between a social manager and a third party an obstacle to disclosing information to the outgoing shareholder? Solution : The Court of Cassation states that a corporate officer who fails to inform the transferring shareholder of circumstances that may influence the transfer, breaches their duty of loyalty, even if such circumstances are covered by confidentiality. This omission constitutes fraudulent concealment that engages their liability. Problématique : Does the protection of the transferring shareholder's consent imply a strengthened duty of loyalty of the corporate officer that can engage their own liability when they themselves participate in a transfer of shares acquired from the same transferring shareholder? [...]