Validity of testamentary provisions for the disassociation of voting rights from shares

The Provincial Court of Madrid reaffirms that testamentary provisions can establish the disassociation of voting rightsof shares without violating corporate public policy.

Facts of the case

In his will, Mr. Alfredo bequeathed the bare ownership of shares in Aceites Toledo S.A. to his sons, Mr. Evelio and Mr. Cándido, while his wife, Mrs. Evangelina, received the life usufruct of said shares. However, the right to vote was assigned to another son, Mr. Everardo, for a period of eight years.

After the death of Mr. Alfredo and the division of the inheritance, several shareholders’ meetings were held in which Mr. Everardo exercised the right to vote the shares of his brothers. Ms. Evangelina challenged the validity of one of these meetings, arguing that the testamentary disposition violated the Capital Companies Act (LSC) and corporate public policy by dissociating the right to vote from the ownership of the shares. She requested the annulment of the resolutions adopted, the unenforceability of the testamentary disposition and the rectification of the company’s register of registered shares. 

Decision of the Provincial Court

The Commercial Court dismissed the lawsuit, and subsequently, the Provincial Court of Madrid upheld the ruling, dismissing the appeal. First, the Provincial Court based its decision on the validity of the testamentary dispositions and the para-social pacts. It considered that, like para-social agreements, testamentary dispositions operate in a sphere unrelated to company law and are governed by the principle of freedom of will. Although these dispositions cannot be enforced against the company, they do bind those who accept them, as in this case happened with Ms. Evangelina and her children when they accepted the division of the inheritance.

Secondly, the challenge to the agreements was rejected on the basis of the doctrine of estoppel. By having accepted the inheritance and having participated in previous meetings without challenging the resolutions, Mrs. Evangelina generated legitimate expectations in the other heirs. The Provincial Court concluded that the acceptance of the legacy entailed a binding to its terms, subsequently preventing its challenge.

Finally, the Provincial Court argued that it is not always necessary to apply the special regulations on challenging corporate agreements when the conflict can be resolved by general principles of law, such as good faith. In this case, Mrs. Evangelina’s adherence to the terms of the inheritance and the consistency with her previous actions were decisive in dismissing the lawsuit.