In Decision File No. 27 Cdo 2808/2017, dated 26 March 2019, the Czech Supreme Court admitted it was possible for a contract to be deemed concealed by a simulated contract, even if both contracts are of the same type, as long as the terms of the contracts were different.

The case concerned the validity of a share transfer agreement in which the share sold for the price of 396,000 CZK. When the Supreme Court examined the evidence, it found that even the transferee acknowledged in an email that the real price of the transferred share was higher than the price explicitly stated in the share transfer agreement.

The Supreme Court viewed the share transfer agreement as a simulated transaction, i.e., a transaction null and void as per Section 41(a)(2) and Section 37 of Act no. 40/1964, Civil Code, as a transaction not done seriously. The evidence presented to the Supreme Court showed that the actual intention of the parties was to sell the share for its market (i.e., higher) price. This led the court to conclude that the share transfer agreement was simulated to conceal another share transfer agreement concluded at the actual price agreed between the parties by email. Such a concealed agreement was held by the court to be null and void under Section 40(1) of Act No. 40/1964 Coll., Civil Code, due to the lack of the prescribed written form.

The Supreme Court further considered the issue of nature and purpose of contracts, concluding that the lower instances failed to sufficiently deal with the appellant’s claim concerning the dependence of the assessed contract upon share transfer agreements of the other shareholders, as well as upon the debt assumption agreement. The Supreme Court stressed that it is not sufficient to view the mutual dependence of such contracts solely in light of the approval of the transfers by a general meeting. Rather, the nature and purpose of the individual contracts are of paramount importance, and it is sufficient for such intended purpose to be communicated to the other party during the pre-contractual negotiations.

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