Legal Updates

The termination date of an agreement does not necessarily apply to later addendums thereto

November 12, 2021

A fashion business entered into an agreement for the provision of logistics services until February 2023. Later, following the Covid-19 crisis, the business signed an addendum to the agreement referring to a project of product collection, sorting, storage and redistribution. However, the addendum did not stipulate a termination date.

The Court held that the addendum is to be terminated earlier than the principal agreement. The starting point when interpreting an agreement is its wording. Out of this, two interpretive principles derive: One, that the wording sets the parties’ intent and creates the boundaries of interpretation; and the other, that there is a presumption that the interpretation should follow the simple, ordinary and natural meaning of the text. In addition, great importance is to be given to the essence of the transaction, its goals and the commercial logic behind it. Here, the use of the word "project" only in the addendum indicates that it was not intended to continue until the date of termination of the main agreement and the lack of time limit for the project indicates the existence of a negative arrangement; The parties' intent indicates that this is a one-time project incepted following the Covid-19 crisis, and the commercial logic also indicates that it planned to sell the goods collected as part of the project within maximum two seasons, where in practice 80% has already been distributed. Thus, the addendum is not intended to stipulate that the project will continue until the date of termination of the principal agreement and its term is shorter.