Is a loan receipt a simulated transaction if the parties actually agreed on the sale of a car — the Supreme Court will review the approach

The Supreme Court referred to the United Chamber of the Civil Cassation Court a case on the recovery of UAH 170,000 under a receipt, as it sees grounds to depart from one of its previous conclusions regarding the application of Article 235 of the Civil Code on simulated transactions. The court noted that the parties' agreement on the future sale of property alone does not automatically mean that the loan receipt they executed is a simulated transaction.

Circumstances of the case

In July 2021, a citizen filed a lawsuit to recover UAH 170,000 under a loan agreement. He claimed that he lent this money to the defendant, which was confirmed by a receipt dated April 24, 2020, and that the latter undertook to repay it in installments of UAH 2,500 weekly until June 25, 2021. Since the money was not repaid, the plaintiff requested the court to recover the debt amount.

The defendant, in turn, filed a counterclaim to declare the loan agreement invalid. He denied receiving the money as a loan and argued that the receipt was drawn up within the framework of an agreement to purchase a Geely MK car in installments. According to him, the parties agreed on the sale of the car for UAH 170,000 with gradual payment, and the receipt was intended to guarantee the fulfillment of these agreements.

An important circumstance was that on the same day the parties executed another receipt. In it, the seller undertook to transfer ownership of the car to the buyer after full payment of the same UAH 170,000. Both documents contained the same amount and the same deadline for fulfilling obligations.

Moreover, materials from case No. 523/13382/21 showed that at the time the receipts were drawn up, the car did not yet belong to the person who promised to transfer it to the buyer. Ownership of the vehicle was registered in her name only on June 25, 2020.

Decisions of the courts of first and appellate instances

The Suvorov District Court of Odesa satisfied the claim for debt recovery and dismissed the counterclaim. The court concluded that the receipt contained all the necessary terms of a loan agreement, and the defendant did not prove the existence of a purchase and sale agreement for the car or other circumstances that would refute the loan.

The Odesa Court of Appeal overturned this decision and issued a new one. The court denied the recovery of the debt and satisfied the counterclaim, declaring the loan agreement invalid. The appellate court reasoned that the two receipts were interconnected and actually reflected the parties' agreement on the future sale of the car with installment payments. According to the court, the parties did not intend to conclude a loan agreement but used the receipts to formalize mutual obligations regarding the future purchase and sale of the vehicle.

What the Supreme Court stated

When reviewing the case in cassation, the Supreme Court did not resolve the dispute on the merits. Instead, the panel of judges concluded that the case raises an important issue regarding the application of Article 235 of the Civil Code of Ukraine on simulated transactions and requires the formation of a unified approach at the level of the United Chamber of the Civil Cassation Court.

The court recalled that a simulated transaction is one that parties enter into to conceal another transaction they actually intend to conclude. In doing so, the parties consciously express a will different from their true intention.

The panel noted that from the circumstances established by the appellate court, there is no indication that the parties concealed another transaction or circumvented legal restrictions traditionally associated with the concept of a simulated transaction. On the contrary, the appellate court effectively found that the parties openly agreed on the future sale of the car and used two interconnected receipts for this purpose.

The Supreme Court also emphasized that the concept of a simulated transaction is primarily applied when parties try to conceal another transaction or bypass certain legal restrictions. If participants in civil turnover use lawful contractual mechanisms and do not hide their agreements, there may be no grounds for applying Article 235 of the Civil Code of Ukraine.

Why the case was referred to the United Chamber

The panel established that in the ruling dated April 16, 2025, in case No. 523/2697/21, the First Judicial Chamber of the Civil Cassation Court expressed a different approach in similar legal relations. That case also involved two interconnected receipts concerning a car and money, and the court proceeded from the necessity to apply the rules regulating the transaction that the parties actually intended.

For this reason, the Second Judicial Chamber of the Supreme Court's Civil Cassation Chamber considers it necessary to depart from that conclusion and referred the case to the United Chamber. It proposes to formulate an approach according to which the absence of concealment of another transaction or circumvention of legal restrictions excludes the possibility of applying the concept of a simulated transaction.

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