In a ruling handed down on September 18, 2024, the French Supreme Court ruled that the seller’s fraudulent concealment of the target company’s financial situation always constitutes an excuse for the transferee’s error in failing to obtain sufficient information on the company’s financial situation.
In the case at hand, after acquiring the entire capital of a target company, the transferee summoned the transferor to annul the transfer, on the grounds that he had committed fraudulent concealment by not informing him of the liabilities of the target company, which predated the transfer and consisted of debts, contracts in progress and a bank loan.
The Court of Appeal rejected the request to annul the transfer, considering that the transferee (i) by virtue of his previous experience as the manager of a company, had a reinforced obligation to inform himself of the situation of the target company ; and that (ii) in the absence of steps taken by the transferee to obtain information on the financial situation of the target company, the absence of information on the part of the transferor as to the existence of debts and contracts binding the company with third parties could not be qualified as intentional concealment of the financial situation of the target company, constituting fraud.
The Court of Cassation overturned the appeal ruling, citing articles 1137 and 1139 of the Code, on the grounds that “fraud is the intentional concealment by one of the contracting parties of information which he knows to be decisive for the other party […] an error resulting from fraud is always excusable”.
Thus, fraudulent concealment always makes the error it has caused excusable.
