The invalid contract and initiate a lawsuit to declare the contract invalid

An invalid contract is considered the most common case when the parties have a dispute and is also a complicated issue for individuals/enterprises when participating in Contract transactions.

Understanding the nature of invalid contract will help individuals/enterprises to ensure valid civil transactions and not be confused in resolving contract disputes. 

In this article, LMP Lawyers analyzes the definitions of invalid contracts and notes when filing a lawsuit in invalid contracts dispute.

A. The definition of an invalid contract

An invalid contract is a contract that does not satisfy the validity conditions of the contract which are determined similarly to the validity conditions of a civil transaction specified in Article 117 of the Civil Code 2015.

“Article 117. Conditions for effective civil transactions

1. A civil transaction shall be effective when it satisfies all of the following conditions:
2. a) Participants in the transaction have legal personality and/or legal capacity in conformity with such transaction;
3. b) Participants in the transaction act entirely voluntarily;
4. c) The purpose and contents of the transaction are not contrary to the law and/or social ethics.
5. The forms of civil transactions shall be the conditions for its effectiveness in cases where it is so provided for by law.”

B. Specific cases of invalid contract

From the general provisions, the law concretizes the cases leading to the contract being invalid from Article 123 to Article 129 and Article 408 of the Civil Code 2015. Accordingly, a contract is invalid in the following cases:

1. Invalid due to violation of the prohibition of the law, against social ethics;
2. Invalid due to forgery;
3. Invalidation is established and performed by a minor, a person who has lost his/her civil act capacity, a person with difficulties in perception and behavior control, or a person with limited civil act capacity;
4. Invalid due to mistake;
5. Invalid due to deception, threat or coercion;
6. Invalidation due to the creator’s failure to perceive and control his/her acts;
7. Invalid due to non-compliance with regulations on form;
8. Disabled due to non-executable object.

C. Legal consequences when the Contract is invalid and the statute of limitations requires declaring the Contract is invalid

Pursuant to Article 131 of the 2015 Civil Code, the consequences when a contract is invalid is similar to the invalid civil transaction.

“Article 131. Legal consequences of invalid civil transactions

1. An invalid civil transaction shall not give rise to, change or terminate any civil rights and obligations of the parties as from the time the transaction is entered into.
2. When a civil transaction is invalid, the parties shall restore everything to its original state and shall return to each other what they have received.

If the restitution is not able to make in kind, it may paid in money.

3. A bona fide person in receiving yield and/or income is not required to return such yield and/or income.
4. The party at fault which caused damage must compensate therefore.
5. The settlement of consequences of invalid civil transactions regarding personal rights shall be prescribed in this Code and relevant laws.”

In fact, there are many cases where the Contract is invalid, but the parties are not aware of the invalidation, leading to the parties continuing to perform under the Contract. Therefore, the law provides for the statute of limitations for declaring the Contract is invalid. Expires that period, if one of the parties does not request to declare the Contract invalid, the Contract will take effect. This is the principle of respecting the agreement of the parties.

• Circumstances where the statute of limitations for declaring the Contract invalid is not limited:

“1. Invalid due to violation of the prohibition of the law, against social ethics;

2. Invalid due to forgery;”

In any caes except the cases mentioned above, they have a statute of limitations for requesting to declare the Contract invalid for 2 years from the date the Contract is established.

D. Initiating a lawsuit to claim that the Contract is invalid

When knowing that the Contract is invalid or realizing that the invalidity of the Contract affects their rights and interests, the Client can initiate a lawsuit to request the Court to declare the Contract invalid.

The lawsuit may be initiated through a lawsuit petition at the Court according to the procedures specified in Article 186 of the Civil Procedure Code 2015.

Although the legal consequences of an invalid contract have been specified in Article 131 of the Civil Code 2015, However, due to the complexity of the transactions, involving many agencies and different law, the Court still has different views regarding the handling of invalid contracts. Therefore, when a dispute arises over an invalid contract, you should consult a lawyer to ensure accuracy.

LMP Lawyers is proud to be a law firm that successfully participates in resolving many civil/commercial disputes of great value and complexity.

LMP participates in consulting to businesses when entering into contracts, participates in drafting Contracts to ensure the validity of the Contract. At the same time, LMP appoints lawyers and customer representatives to participate in the proceedings in case of disputes.

With the above analysis, LMP Lawyers hope that individuals/enterprises can understand the definition of an invalid contract and have consideration and sanity in civil transactions to handle related disputes.

Note: The content presented above is for reference only. Depending on different times and audiences, the above content may no longer be relevant. For detailed advice, please contact LMP Lawyers.