Supreme Court Ruling of December 21, 2009: the Purchase of Shares In A Company to Acquire A Hotel

16 April 2010

The Supreme Court ruled that the purchase of shares in a company which owned a hotel does not imply per se the purchase of the hotel itself, but only the company that owns and operates it.

The question concerns the legitimacy of the purchaser of all the shares in a company which runs a hotel it owns to file a lawsuit for breach of the share purchase agreement due to the failure to repair hidden defects in the hotel.

The Provincial Court ruled in favour of the purchaser. The grounds for the decision were based on the idea of the “motive” as the ultimate objective- buying the company to acquire the hotel- putting it on a level with the consideration for the agreement.

The Supreme Court quashed said ruling stating that: (i) the ultimate objective of the purchase is irrelevant if it is not the same as the agreement consideration, and (ii) the only legitimate actor to bring the action for hidden defect repair is the owner who, in turn, is the buyer of the property.

Based on this line of reasoning, the Supreme Court determined that the share purchaser is not the buyer and titleholder of the property; it was the company which was purchased.

However, this basis goes against the dominate doctrine as regards the sale and purchase of companies which states that the seller is liable for both the vicissitudes of the shares as well as of the assets, rights and obligations of the company since there is an obvious connection between both types of assets as manifested in: (i) the powers of control, use and possession of the property granted by the shares, and (ii) the price of the shares, determined as a function of the value of the corporate assets.

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