Recognition of real estate alienation contracts as not concluded or invalid discussed by Supreme Court SAC Working Group

The Grand Chamber of the Supreme Court, through its decisions, shapes legal approaches regarding the validity / invalidity of transactions and must ensure the unity and consistency of judicial practice. Courts currently apply different approaches to resolving this issue. Taking this into account, judges of the Grand Chamber of the Supreme Court initiated a discussion with members of the Scientific Advisory Council at the SC on certain aspects of protecting civil rights and the legal consequences of parties' failure to comply with legal requirements when entering into a transaction.

This was noted by the Scientific Secretary of the Scientific Advisory Council at the Supreme Court and judge of the Grand Chamber of the SC, Oleh Tkachuk, during the meeting of the Supreme Court SAC working group. He proposed focusing the discussion on doctrinal approaches to qualifying transactions that have a defect of will or a defect of form.

Elaborating on the topic of the discussion, Grand Chamber judge Serhii Pohribnyi explained that until 2020, the relevant practice of the Supreme Court of Ukraine (and subsequently the Supreme Court) had been consistent. In particular, transactions involving the unlawful alienation of real property on behalf of its owner and based on forged documents were predominantly qualified by courts as invalid. In 2020, the Grand Chamber of the Supreme Court formulated a different approach, according to which courts, among other things, should declare such contracts not concluded. Thus, the application of varying approaches to resolving such disputes in Ukrainian judicial practice has become an impetus for returning to the discussion and unifying the practice. This primarily concerns situations where the mentioned contracts contain all essential terms, are notarized, and the property rights have been state-registered, yet the signatures on the contracts are forged.

The President of the Commercial Cassation Court within the Supreme Court, Larysa Rohach, emphasized that any deviation from the position of the Grand Chamber of the Supreme Court must be carefully considered and well-reasoned. The President of the Commercial Cassation Court reminded that under Article 202 of the Civil Code of Ukraine, a transaction is interpreted precisely as an action by a person aimed at acquiring, changing, or terminating civil rights and obligations. Therefore, within the discussion, the opinion of scholars regarding the relationship between a transaction as an action and a transaction as a form is particularly important.

Larysa Rohach noted that since the Civil Code of Ukraine regulates only those legal relations that comply with the provisions of this Code, the question arises: “Is it appropriate to consider a falsified, forged contract – when deciding on its invalidity – from the perspective of its compliance with the provisions of the Civil Code of Ukraine?”

Agreeing with Larysa Rohach's remarks, Oleksii Kot, Doctor of Laws, pointed out that the situation under discussion involves a falsified contract. The process of concluding a contract must be examined dynamically, starting with the fundamental question of whether the transaction involved a proper subject whose expression of will corresponded to their internal will (Part 3 of Article 203 of the Civil Code of Ukraine). As Oleksii Kot emphasized, the person who falsified the contract cannot be regarded as the proper subject – which is the owner of the real property. In such a contract, there is an absence of the characteristic required by Article 203 of the Code as a condition for its validity; therefore, one cannot proceed to the stage of declaring the contract not concluded. In the scholar's view, the situation in question should be treated as the invalidity of a fictitious transaction.

Volodymyr Ustymenko, Doctor of Laws, focusing on the very construction of a transaction under Article 202 of the Civil Code of Ukraine, drew attention to the fact that for a transaction as an action, the mandatory elements are will and its expression. Only if both exist can one speak of the presence of a transaction. In this case, however, the contract was falsified, so it is not concluded, because there was no party to the contract in reality - and consequently, no will or expression of will on their part.

In contrast, Inna Spasybo-Fatieieva, Doctor of Laws, warned that expanding the scope of transactions classified as not concluded is dangerous. When it comes to a notarized contract in which errors are discovered, such a transaction falls into the category of void (null and void) transactions.

Volodymyr Kossak, Doctor of Laws, observed that a contract – like any transaction – should be viewed both as the basis for the emergence, modification, or termination of civil rights and obligations, and as a legal fact, since any legal relationship arises on the basis of a legal fact. For a transaction as a legal fact, it is essential that the will and its expression by the participant coincide. In the scholar's conviction, in the proposed scenario there is no legal fact that could serve as the basis for the emergence of civil rights and obligations. In such circumstances, one should resort to a claim for the recovery of property from unlawful possession by another person (Article 1212 of the Civil Code of Ukraine).

Andrii Omelchenko, Doctor of Laws, addressed the criterion of the required scope of civil capacity of the person entering into the transaction (Part 2 of Article 203 of the Civil Code of Ukraine). He noted that in this case the person who performed the transaction lacked the proper scope of civil capacity. As a result of the actions of a person who concluded the transaction without having the requisite scope of civil capacity, unlawful possession of the owner's real property object occurred. Therefore, in Andrii Omelchenko's opinion, the relevant transaction violates public order and, pursuant to Part 2 of Article 228 of the Civil Code of Ukraine, is void (null and void).

Vitalii Oliukha, Doctor of Laws, pointed out that Part 4 of Article 202 of the Civil Code of Ukraine defines a bilateral or multilateral transaction as the coordinated action of two or more parties. “In the situation under discussion, it cannot be said that a bilateral transaction took place; therefore, the contract was not concluded at all – it does not exist as a legal fact,” he noted. Mykhailo Khomenko, Ph.D. in Law, added that, in his opinion, Article 203 of the Civil Code of Ukraine is a legal tool applied only when a transaction already exists as a legal fact. In the outlined situation, however, one of the elements of legal relations is absent – the subject. Therefore, in such a case, there is no transaction as a legal fact, and consequently, it cannot be examined for compliance with the requirements set forth in Article 203 of the Civil Code of Ukraine.

In Maryna Velykanova's view, Doctor of Laws, in the specific situation proposed for discussion, it is premature to speak of the contract being not concluded, because there was no genuine will or expression of will by the subject to enter into the transaction.

Vasyl Krat, judge of the Supreme Court in the Civil Cassation Court, explained that the current version of the Civil Code does not contain constructs such as “forged contract”, “non-conclusion of the contract”, and the like. Similar constructs are also absent in European legal systems. In such situations, the construct of invalidity is applied, with its varieties being contestability and nullity (voidness).

Therefore, as the judge emphasized, when resolving the discussed situation, one cannot speak of non-conclusion, “legal nothing”, or other similar constructs not enshrined in the Civil Code of Ukraine. In Vasyl Krat's opinion, a real estate sale contract – where the party's signature is forged, yet the contract has been notarized and state registration of property rights has been carried out – should be qualified as void (null and void) pursuant to Part 1 of Article 220 of the Civil Code of Ukraine.

The discussion also involved Vitalii Makhinchuk, Doctor of Laws; Yurii Mytsa, Ph.D. in Law; Viktor Smorodynskyi, Ph.D. in Law; Oleksandr Biriukov, Doctor of Laws; Volodymyr Prymak, Doctor of Laws; Vadym Belianevych, Ph.D. in Law; Secretary of the Grand Chamber of the Supreme Court Vitalii Urkevych; as well as Grand Chamber judges of the Supreme Court Olha Stupak and Oleksandr Banasko.