Meaning
Legal provision governing the nullity of sham transactions and the treatment of underlying concealed acts in civil juristic dealings. When parties perform a civil juristic act based on a false expression of intention, civil code article 146 dictates that such an act is void. The rule addresses the discrepancy between the external declaration and the internal will of the actors.
Where a hidden act exists beneath the false one, the validity of that concealed transaction is determined by the specific legal provisions applicable to its nature.
Sham Invalidity
Intentional fabrication of a legal relationship results in the automatic nullification of the outward contract. Because the parties never intended for the legal consequences of the apparent act to occur, civil code article 146 prevents the enforcement of the false agreement between the participants. Third parties who rely on the apparent act in good faith receive separate protection under general reliance principles.
Concealed Validity
Underlying transactions hidden by a false front remain subject to the laws that govern their actual substance. If a company uses a service contract to hide a high interest loan, civil code article 146 invalidates the service agreement while the court evaluates the loan against lending regulations. The hidden act might be valid if it meets all statutory requirements for that type of contract, or it might be void if it violates mandatory prohibitions.
Judges look past the surface labels to find the true economic intent and apply the corresponding regulatory standards. The process ensures that parties cannot bypass restrictive laws by naming their transaction something else.
Judicial Proof
Burden of evidence falls on the party asserting that the expression of intention was false. Verification involves examining the flow of funds and the actual behavior of the participants. Courts often look for evidence that the parties failed to perform the primary obligations of the apparent contract.
The check verifies that the transaction was a mere pretense.
