One payment is sufficient

In the case of undertakings to cease and desist with contractual penalty promises given by a company and its organ (here a managing director), if a breach occurs which is attributable to the company, only one contractual penalty is incurred. The company and its organ are jointly and severally liable for this contractual penalty.

The proprietor of a trademark had warned a retailer who distributed military clothing on the Internetby cease and desist letter. The retailer gave a penalty-stipulated undertaking to cease and desist, in which both the GmbH and the managing director of the GmbH undertook to refrain from the objectionable conduct in future. A contractual penalty was agreed upon for any breach of the undertaking to cease and desist.

Following breaches of the undertaking to cease and desist, the rights holder called upon both the GmbH and the managing director of the GmbH to pay the contractual penalty.

Court's Decision

By judgment of 08.05.2014 – Az.: I ZR 210/12, the Federal Court of Justice (BGH), in continuation of its established case law, decided that the GmbH and its managing director are liable as joint and several debtors and have not each incurred a contractual penalty.

Although the obligations of multiple debtors who are liable for cessation and, in the event of a breach, for a contractual penalty, are generally independent of one another, this does not apply to the obligation of the company and its organ, which is in question here.

The Federal Court of Justice (BGH) had already ruled in 2012 that in the case of culpable breaches of a court order to cease and desist, which has been issued against both a legal entity and its organ, a fine may only be imposed against the legal entity. The culpable conduct of the organ, which is attributable to the legal entity, constitutes its breach, but does not give rise to imposing enforcement measures against the organ, which is also a person bound by the title. It would be difficult to reconcile with the purpose and object of enforcement measures, which apart from their function as a civil enforcement measure to prevent future breaches also have a repressive penal-like sanctioning character, to impose one and the same enforcement measure against multiple persons on the basis of a breach committed by a natural person. The inclusion of the organ in the enforcement title does not become superfluous; rather, it acquires its true significance only when the conduct of the organ is no longer attributable to the legal entity under § 31 BGB.

These considerations apply accordingly to contractual penalties arising from undertakings to cease and desist. Penalty-stipulated contractual undertakings to cease and desist are intended to replace a court order to cease and desist. It therefore corresponds – according to the Federal Court of Justice (BGH) – as a rule neither to the interest of the debtors nor to that of the creditor of such an agreement that the managing director, who is obligated to cease and desist by way of accession to the debt alongside the legal entity, is placed in a worse position than in the case of a court judgment.

As a rule, it should therefore be assumed that in the case of undertakings to cease and desist with contractual penalty promises given by company and organ, in the event of a breach which is attributable to the company under § 31 BGB, only one contractual penalty is incurred.

However, an undertaking to cease and desist lacks the threat of substitute coercive detention to be enforced against the organ, so that the corresponding application of the principles developed for court orders to cease and desist to undertakings to cease and desist leads to assuming not only a subsidiary, but a joint and several liability of the organ. An undertaking to cease and desist cannot, on the other hand, be interpreted to mean that the contractual penalty doubles upon each breach by one of its organs attributable to the legal entity as the enterprise operator.

Conclusion

Where a GmbH and its managing director have given an undertaking to cease and desist, practice has often attempted to demand the contractual penalty in the event of a breach from both the company and the managing director. The Federal Court of Justice (BGH) has rejected such simultaneous recourse against both the company and the representative body with this judgment.

In the event of a breach which is attributable to the company, only one contractual penalty is therefore incurred.

However, it should be noted that a managing director can nevertheless be sued separately alongside the GmbH for the payment of a contractual penalty if his conduct is not attributable to the company.