On the order of 28.01.2025, the Supreme Court of Cassation ordered the initiation of interpretative case no. 2/2025 in the Supreme Court of Cassation – Civil and Commercial Divisions, for the adoption of an interpretative ruling on the following question:
“On what grounds is a contract with a real property transfer effect and subject matter involving real estate, concluded in connection with an agreement that is null and void based on Article 152 of the Obligations and Contracts Act (OCA), considered void, and does Article 17, paragraph 2 of the OCA apply in this case?”
Article 152 of the OCA: “An agreement that pre-arranges that, in the event of non-performance, the creditor will become the owner of the property, as well as any other agreement that pre-arranges a method for satisfying the creditor different from what is provided by law, is void.”.
Article 17, paragraph 1 of the OCA: “If the parties conceal the agreement between them with a fictitious agreement, the rules regarding concealed agreements apply, provided the requirements for its validity are met.”.
Article 17, paragraph 2 of the OCA: “The rights that third parties have acquired in good faith from the buyer under the fictitious agreement are preserved, unless they concern rights to real estate acquired after the registration of the lawsuit for establishing the fictitiousness.”.
Decision No. 788 of 04.01.2011 in Civil Case No. 1741/2009, First Civil Chamber of the Supreme Court of Cassation, quoted by the appellant in the case, states:
“The fictitiousness of the contract regarding its subject is present when the parties do not wish for the legal consequences of the documented contract to occur and instead use it to conceal another agreement whose consequences they desire. The contract for the sale of the property between the borrowers and the lender expresses the true intent of the parties. They have agreed that the borrowers will sell their property to the lender, and he will sell it back to them after they repay the loan. The legal consequences of the contract are those desired by the parties, and they have occurred. The contract is void as it violates the prohibition established in Article 152 OCA because it arranges a method of satisfying the creditor different from the one provided by law. Since the contract is not fictitious, invoking the provision of Article 17, paragraph 2 of the OCA is unfounded.”
This interpretation was adopted in Decision No. 62/20.07.2017 in Civil Case No. 4283/2016, Second Civil Chamber of the Supreme Court of Cassation.
In Decision No. 211 of 07.11.2017 in Civil Case No. 4793/2016, Fourth Civil Chamber of the Supreme Court of Cassation, quoted by the defendant in the cassation complaint, it is stated: “If, before or at the same time as the emergence of a claim, the parties agree that, in case of non-performance, the creditor will become the owner of a specific item or will be satisfied in a way other than what is provided by law, the agreement violates the prohibition of Article 152 OCA and is void due to its contradiction with the law. Such agreements are not concluded openly because their nullity is obvious and easily declared, so they are made under the guise of another apparent transaction for the transfer of ownership, which is permissible by law, but the parties agree that it will not bind them. Such an apparent transaction, concealing the true relations between the parties, is simulated and therefore void. A simulated transaction cannot produce legal consequences, but the simulation is inapplicable to third parties who have acquired rights from the apparent owner before the lawsuit for revealing the simulation has been registered. For third parties in good faith, the rights are as those arising from the apparent transaction, and the consequences of the defect in the simulated transaction manifest only in relations between the parties to it and their successors (unless the simulation is directed against them). When the simulated transaction conceals another agreement, it governs the relations between the parties if the requirements for its validity are met. If the concealed agreement is void on other grounds, the parties cannot be bound by it. There are limitations in proving the fictitiousness and content of the concealed transaction between the parties. However, these limitations do not apply when the apparent and concealed transactions were performed to break the law (there are no limitations on evidentiary means in case of breaking the law). Therefore, witness testimonies are admissible to prove that the apparent transfer agreement conceals a prior agreement to satisfy the creditor’s claim in a manner different from what is provided by law. Regarding third parties in good faith, neither the defect of the apparent transaction (which they see but do not know its defect) nor the defect of the concealed agreement (which they do not see and therefore cannot know its defect) can be opposed to them. The rights of third parties are preserved according to the sequence of the registration of the transaction with the apparent owner, whom they trusted, but if they were bad faith – knew of the defect, even though the lawsuit in which it was raised before the court has not been registered, not only the defect of the apparent transaction but also the defect of the concealed agreement may be opposed to them, but only after their bad faith – knowledge of the defect is proven (good faith is presumed).
The same applies in the case of a sales contract when the agreement for buyback is concluded in a separate contract – most often a preliminary one. In this case, the agreement for buyback is concealed, but it is the sale with a buyback agreement that is void, not the buyback agreement itself.”
This ruling was accepted in Decision No. 333/23.04.2010 in Civil Case No. 526/2009, First Civil Chamber of the Supreme Court of Cassation.
From the above, the Supreme Court of Cassation has concluded that there is conflicting case law on the issue in question, and it has initiated an interpretative case № 2/2025 before the Civil and Commercial Divisions of the Supreme Court of Cassation.
