The Conclusion of a Contract in Order to Avoid Liability for One's Obligations Is Not a Conclusion Under the Influence of a Grave Circumstance

The former owner of a share filed a lawsuit against the new owner of the share to invalidate the contract of the share donation in the authorized capital of a housing and construction cooperative (HCC).

The claims are substantiated by referring to the circumstances that the contract of the share donation in the authorized capital of the housing cooperative concluded between the plaintiff and the defendant is void because:

• the contract was fictitious, because it was not aimed at the acquisition, change or termination of civil rights and obligations, that is, to the real onset of legal consequences due to it, and did not correspond to the internal will of the plaintiff, because the plaintiff did not intend to donate to someone his corporate rights which have such a significant value;
• there were mistakes on the part of the plaintiff regarding the legal nature of the documents drawn up with his participation, because the plaintiff did not understand and could not understand that the documents drawn up by him constituted a written donation contract, since without observing the written form, the contract on the donation of corporate rights is null and void;
• the transfer by the plaintiff of his corporate rights in regard the HCC to another person took place in the presence of a grave circumstance for the plaintiff, which consisted in an attempt by the bank to seize and foreclose on the disputed share of the plaintiff under his guarantee obligations to the bank.

By the decision of the commercial court, upheld by the ruling of the commercial court of appeal, the claim was rejected. While leaving the decision of the courts of previous instances unchanged, the Commercial Cassation Court within the Supreme Court focused on the following.

The plaintiff did not deny that by signing the statement and voting at the general meeting of the founders (members) of the cooperative he was aware that he had declared a gratuitous assignment of a share of the authorized capital in favour of the defendant. In addition, the plaintiff alleges that he knowingly wished to withdraw his share in the cooperative in order to avoid the seizure and collection of it by a person to whom the plaintiff had an obligation. The plaintiff did not prove that he had not understood the nature of the transaction and had believed that he was concluding a different transaction, because the gratuitous withdrawal of a share in the authorized capital and its donation have the same legal nature.

According to the plaintiff, the transfer by him to another person of his corporate rights to the cooperative took place solely because of the threat of these rights being foreclosed for the debts of another person.

In view of the specified conditions, the presence of the plaintiff's civil legal obligations to other persons (in particular, the bank) and his actions to conclude a donation contract in order to avoid responsibility for his obligations are not the circumstances with which the legislation of Ukraine associates the possibility of invalidating the concluded contract on the grounds of its conclusion under the influence of a grave circumstance.

The panel of judges agrees with the conclusions of the courts of first and appeal instances that, taking into account the principles of justice and good faith of civil law, as well as the principle of proper fulfillment of obligations, the plaintiff did not prove the existence of a grave circumstance, which forced him to make the disputed transaction.

The plaintiff failed to prove that the defendant had not tried to achieve a legal result in the disputed legal relations and had not exercised his rights arising from the conclusion of the disputed transaction. The defendant's failure to submit a tax declaration based on the results of the transaction may indicate non-compliance with the provisions of the current tax legislation in the event of a violation being established by the relevant regulatory authorities, however, it cannot independently serve as confirmation of the fictitious nature of the transaction. In addition, the plaintiff in the statement of claim indicated his intention to temporarily transfer the share under the contested transaction. This was carried out as a result of the conclusion of a controversial transaction, as a result of which changes were made to the constituent documents of the HCC. Therefore, this transaction had legal consequences.

The text of the Resolution of the Commercial Cassation Court within the Supreme Court of June 08, 2022, in case No. 912/574/21 can be found at the following link - https://reyestr.court.gov.ua/Review/104871554.

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