Partners’ agreements, also known as extra-statutory agreements, are agreements between two or more company partners aimed at regulating their internal relations. Partners’ agreements have the full force of the law and, consequently, are opposable by the contracting parties thereof, and thus obligate them to comply with what is agreed, and the compliance thereof is enforceable against the party in breach. Nevertheless, there may be cases in which, despite the existence of an in force partners’ agreement, it is not opposable to the rest of the contracting partners.
This is so established by the Spanish Supreme Court in Judgment 674/2023 of 5th May 2023. The case examined by the court dealt with the opposability of a partners’ agreement signed in 2004 by two partners, which was never implemented and was disregarded by the partners for more than a decade. Through this agreement, the partners instituted reinforced majorities for the implementation of agreements on certain matters reserved for the general meeting, such as the modification of the management organ, the dismissal and appointment of directors, establishing the number of members of the board of directors, and the modification of the company bylaws, among others.
Twelve years after signing the partners’ agreement, one of the partners filed a claim against the other and requested that the agreement be declared terminated on the grounds of the serious breach on the part of the defendant, ordering the defendant to pay compensation for the damages arising from the breach of the agreement, which was estimated at more than six million Euros.
The court which heard the case in first instance completely dismissed the claim. The judgment was appealed, and the court of second instance upheld the initial judgment, which was subsequently appealed in cassation and became the subject of an appeal for procedural infringement, which was heard by the Supreme Court. The High Court ratified the judgment deeming that although it is true that the defendant breached the partners’ agreement, said agreement was not applied by either of the parties. Both parties acted outside of the provisions established in the partners’ agreement, each of them acting in their respective areas within the company without submitting their decisions to the provisions of the partners’ agreement. For this reason, in application of the doctrine of “one’s own acts” and the “exceptio non adimpleti contractus” (exception of a non-performed contract), the Court understands that the plaintiff cannot now claim based exclusively on the other partner’s breach, when it never complied with the provisions of the partners’ agreement either, as this would be to go against its own acts.
In fact, it was not until twelve years following the signature of the partners’ agreement that the claimant called for the defendant to comply with the contents of the agreement. For the court, this is a demonstration that the claimant accepted, albeit tacitly, the action taken by the defendant.
According to the case law of the Supreme Court, the application of the doctrine of one’s own acts requires the establishment of facts with a legal significance and effectiveness contrary to the action being brought. The act must be of a conclusive and indubitable nature, with full and unequivocal significance, so that there is an incompatibility or contradiction between the previous conduct and the claim being formulated, in the sense that this leads to a breach of good faith.
The prohibition of going against one’s own acts (“nemo potest contra propim actum venire”) has its basis in article 7.1 of the Spanish Civil Code, which enshrines the principle of good faith, through which the trust which is fundamentally created in others is protected when operating in legal transactions. This principle demands that the law is not abused, that it is not exercised contrary to the trust placed in the other party, that it is consistent with one’s own conduct and that one’s rights are not unfairly exercised.
In view of the foregoing, the High Court rejects the plaintiff’s claim, considering that the power of termination cannot be granted to a party that has failed to comply with the obligations assumed in a partners’ agreement.
Joan Lluís Rubio
Vilá Abogados
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3rd November 2023
