The case in question involved the sale of 136 shares in a company. Shortly after the SPA had been executed and the shares transferred, the original holder (the seller) sent a letter to the purchaser in which it claimed that the transfer is invalid in relation to one share because of the “misleading circumstances in which the SPA was agreed”. As such, the seller believed it should remain a shareholder in the company.
Under Czech law, a part of an agreement can be deemed invalid if the grounds for invalidity apply to that part of the agreement and if such a part can be separated from rest of the agreement. The general courts and, following a special appeal, the Supreme Court had to decide whether a tiny part – 1 out of 136 shares – could be separated from an SPA that was apparently designed and entered into to concentrate control of a company in the hands of a single shareholder. In the given case, the seller’s right to protection against being misled in relation to one share stood in conflict with the business sense of the entire transaction where, for the purchaser, the stake was more than a mere aggregate of individual shares since he also received the “added value” of becoming the sole shareholder.
In proceedings before the Supreme Court, the seller claimed that share certificates can be separated by definition and he attempted to marginalize the significant fact that the SPA related to the sale of a “stake” rather than individual shares. However, the Supreme Court did not accept such formal reasoning and held that it is not important whether the subject matter of the agreement can actually be divided or not. Instead, the key question is whether the contested part of the legal act is severable. At the same time, the will of the parties needs to be scrutinized in terms of the result or purpose that they had in mind when they entered into the agreement. If it was clear that the seller wished to sell and the purchaser wished to purchase all of the seller’s shares (and the purchaser was not interested in purchasing anything but the entire stake), the business sense of the entire transaction could not be jeopardized by the possibility of a part of the agreement regarding a fraction of the stake being declared invalid. In connection with older case law, the Supreme Court once again confirmed that the severability of a part of an agreement must be looked at and understood in practical terms, principally in the context of the entire transaction.