An investor in a real-estate project in Mexico was given a personal guarantee from the shareholders that the land is owned by the selling company. Following legal proceedings in Mexico, it turned out in hindsight that the real owner of the land was a third party and the selling company lost its rights to the land. The shareholders refused to repay the money to the investor contending that their statement was 'correct for the time'.
The Court accepted the investor's claim and obligated the shareholders to repay the investment amount and compensate the investor for his expenses. In interpreting commercial contracts, the language of the agreement, the circumstances of its conclusion, as well as the commercial logic and economic plausibility must be examined. Here, the shareholders vouched for the representation in the investment agreement that the seller is the owner of the rights to the land. The commitment did not concern the presentation regarding the registry at that time, which in retrospect turned out to be incorrect, but regarding the true ownership. The agreement was to ensure that there will be no gaps between the presentations and the "real situation" and to mitigate risk for the investor. The shareholders' interpretation, under which the agreement addressed a real riskless risk (whether the land is registered in the name of the company), does not make sense from a commercial point of view because the essence is not the registration but the ownership of the land. The shareholders took upon themselves the risk regarding the status of the rights in the land and therefore must meet this obligation, when the risk has materialized, and repay the investment money to the investor and even compensate him for his expenses.