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In its Judgment 462/2021, of June 29, the Supreme Court (“SC”) ruled on the effects of the purchaser’s waiver of conditions precedent established in its favor in a trademark assignment agreement. The SC ruled in favor of the purchaser (i.e., the claimant in this case) as follows.
The defendant was a company manufacturing heated textiles (e.g., electric blankets or heating pads) that operated through various trademarks owned by its partners (the “Trademarks”), which were co-defendants in this case.
On February 19, 2013, the defendant was declared insolvent, and after the company’s winding up, the company’s main assets were set to be transferred, including the Trademark use licenses. As a result, the claimant, i.e., an Italian textile company that had shown interest in acquiring the Trademarks to enter the Spanish market, contacted the Trademark owners and entered into two trademark assignment agreements on November 28, 2013 (the “Trademark Assignment Agreements”).
Both Agreements provided for the transfer of the Trademarks and all related rights subject to certain conditions precedent: the assignors must (i) terminate any licensing agreements related to the Trademarks, including the licensing agreements with the defendant; and (ii) previously submit to the purchaser the letter for the insolvency administration on the new conditions of the Trademark licensing agreements that would be concluded with third parties and most likely included in the insolvency administration’s winding up plan.
The Trademark Assignment Agreements allowed the purchaser to terminate these Agreements if the assignors did not fulfill the conditions precedent before February 28, 2014. They also included an exclusivity clause under which the assignors agreed not to transfer or encumber the Trademarks or to engage in any negotiations related to them, unless a third party acquired the defendant’s business unit during winding up, and it was required to be the licensee in the Trademark licensing agreements.
On December 13, 2013, the claimant submitted a draft Trademark licensing agreement for the winding up. However, the bankruptcy administration’s final plan (i) provided for the sale of the defendant’s business unit; and (ii) stated that the Trademark owners were willing to negotiate with the potential assignee of the business unit an exclusive Trademark licensing agreement for a specific time period, although subject to terms and conditions other than those of the Trademark licensing agreement proposed by the claimant.
Following the offer submission process, in which the claimant participated, a third party was awarded the defendant’s business unit on April 3, 2014, including the Trademark use licenses subject to the terms proposed by the insolvency administration, which were different from those first suggested by the claimant. Immediately after the award, the claimant expressed to the assignors that it (i) was still interested in acquiring the Trademarks and fulfilling the Trademark Assignment Agreements and (ii) waived the condition precedent.
According to the assignors, the Trademark Assignment Agreements should be considered terminated because the business unit had been transferred under the bankruptcy administration’s plan subject to terms and conditions other than those of the Agreements. Given the circumstances, the Italian company filed a claim seeking (i) that the court declared that it had acquired the Trademarks under the Trademark Assignment Agreements, plus (ii) damages.
Both the court of first instance and the court of appeal ruled in favor of the claimant. The defendant then filed a cassation appeal based on three grounds discussed below. The SC dismissed all of them.
- Validity of the condition precedent and the waiver
First, the defendant argued that the Trademark Assignment Agreements should not have been considered effective because they were subject to conditions precedent and one of them was not fulfilled. Second, the defendant claimed that the condition precedent was non-waivable having expired the contractual deadline for fulfillment.
The SC rejected both arguments, highlighting that the conditions precedent were “partially unilateral” (as opposed to “fully unilateral”), since their fulfillment not only depended on the assignors but also on external aspects. Therefore, the SC concluded that the conditions precedent were valid. The SC recalled that (i) the conditions precedent in the Trademark Assignment Agreements were in favor of the purchaser; and (ii) the purchaser (i.e., the claimant) was entitled to waive the conditions and terminate the Agreements if the conditions precedent were not fulfilled before February 28, 2014.
The defendant considered that article 1117 of the Civil Code had been breached. This article provides that “obligations subject to the occurrence of an event before a given deadline will become unenforceable when (i) the deadline expires; or (ii) there is no doubt that the event will not occur.”
The SC pointed out that the parties had not agreed on a deadline to fulfill the conditions precedent under the Agreements, so a reasonable time period according to the parties’ will should apply. The SC considered that the deadline was the date on which the business unit was awarded, since only then it would be possible to know whether the terms and conditions proposed by the claimant would apply. Also, the SC noted that the purchaser (i.e., the claimant) could waive one or more conditions precedent both before verifying non-fulfillment and shortly after (as it did; immediately after becoming aware of the award, on the same day, the claimant informed the assignors that it was still interested in acquiring the Trademarks and that it waived the condition precedent).
Finally, the defendants claimed that the purchaser’s acts were contrary to the doctrine of estoppel (breaching art. 7(1) of the Civil Code). They argued that the claimant’s waiver to the condition precedent was inconsistent with its previous actions, specifically that the claimant (i) had not agreed with the assignors on the terms and conditions governing future Trademark licenses for the potential assignees of the business unit. Consequently, the insolvency administration’s plan provided terms and conditions other than those proposed by the purchaser, and it expressed to the assignors that it could not agree to the transaction under those conditions; and (ii) the claimant had participated in the defendant’s offer submission process.
The SC also rejected this argument, concluding that neither (i) nor (ii) above are inconsistent with the claimant’s waiver to the conditions precedent, since they had been provided in the claimant’s favor, and it had the right to waive them.
The SC ruled that (considering the terms and conditions agreed for the Trademark assignment) the absence of an agreement on the terms and conditions governing future Trademark licenses during winding up did not suffice to create legitimate expectations in the assignors that the assignment would not be effective after non-fulfillment of the conditions precedent. This was because the claimant could have still acquired the Trademarks if, having submitted an offer, they had been awarded to it. The claimant thus waited until the end of the award procedure during winding up before waiving the conditions for an objective reason, not frustrating the assignors’ “legitimate expectations” that the Agreements would no longer be effective after the absence of an agreement on the terms and conditions of the licenses during winding up.
Authors: Nora Oyarzabal and Paula Conde
This post is also available in: Español