Judgment of the Supreme Court of Justice No 15/2014, published in Diário da República (Portuguese official gazette) No 24 of 2014-12-22

Insolvency – Insolvency Administrator – Presumption of bad faith

With this judgment, and after two contradictory decisions concerning similar facts , the Supreme Court of Justice (SCJ) settled the case law relating to Article 120(4) and 49(1) and (2), (c) and (d) of the Código da Insolvência e da Recuperação de Empresas (Code of Insolvency and Recovery of Companies), establishing a presumption of bad faith of the public limited liability company that purchases assets from a quota company declared insolvent where the director of the public limited liability company is the son of the managing partner of the insolvent quota company.

The case concerned the sale by a quota company, less than six months before the filing of the procedure that declared the company insolvent, of three real estate units to a public limited liability company, where the managing partner of the former was the father of the sole director of the latter.

The fundamental legal question was whether the fact that the legal representative of a company was a person with a special relation with the insolvent company implies that the presumption of bad faith can be extended to the latter, therefore entailing the termination, for the benefit of the estate, of those acts that are prejudicial to it that were performed or omitted within the two-year period prior to the procedure.

Judgment of the Supreme Court of Justice of 2014-11-13

Contracts – Source of Obligations – Contractual Termination – Change of Circumstances

In this judgment, the SCJ decided that, in the scope of bilateral contractual relations, the change of circumstances should amount to an unexpected and anomalous obstacle to the normal development of the contractual framework, obstacle which should arise due to a fact unrelated to the will of the parties.

The case concerned an advertising contract between the Claimant, a Means and Publicity agency and the Defendant, a Bank, under which the latter undertoo k to make investments in publicity through the former for a minimum period of two years.

It so happens that, less than a year after the conclusion of the contract, the Defendant stopped requesting the publicity services of the Claimant since the trademark it held would cease to exist as a result of a merger between the former and another bank, justifying the non-compliance with the contract on grounds of a change of circumstances.

According to the SCJ, such situation cannot amount to a change of circumstan ces inasmuch as the Bank was free to self regulate (define and change) its legal relations and interests and the merger with another bank was requested by it and approved within the scope of its private autonomy.

It further concluded that such possibility does not relieve the Bank from the obligation to act in good faith in its negotiations and that the Bank was obliged to comply with the obligations assumed under the contract in the name of the security of legal relations and the stability of contracts.