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In the rapidly developing economic landscape, contract signing is an integral part of commercial transactions and business activities. However, not all contracts are executed smoothly without encountering legal issues.
In some cases, contracts may be declared invalidity of, jeopardizing the rights and interests of the parties involved and leading to legal disputes regarding property compensation and other legal consequences.
In Vietnam, the legal framework concerning invalidity of contracts has been established and adjusted in the Civil Code of 2015 (Law No. 91/2015/QH13) to safeguard the interests of parties engaging in civil transactions and to establish civil legal relationships through contracts. This article will analyze in detail the fundamental principles of invalidity of contracts in Vietnam, cases of contract invalidity, consequences of declaring contracts invalidity of, and resolution methods.
Legal Framework of Invalidity of Contracts in Vietnam
In the Vietnamese and international markets, contracts are considered the most common legal tool to establish civil legal relationships. These relationships may involve commitments among parties in fulfilling their rights and obligations, relating to the purchase and sale of goods, provision of services, leasing, or any other type of legal commitment.
The objective of a contract is to provide a legal basis for parties to fulfill their commitments and resolve disputes that may arise during contract performance. When entering into contracts, parties expect them to be effective and enforceable as a legal basis to ensure compliance with legal requirements by other entities.
However, in practical application, contracts may become invalidity of for various reasons, affecting the rights and interests of the parties.
Although the Civil Code of 2015 does not provide specific provisions on the concept of invalidity of contracts, Article 1 of Article 407 stipulates that civil transactions invalidity of from Article 123 to Article 133 of the Civil Code are also applicable to invalidity of contracts.
Article 116 of the Civil Code of 2015 also regulates civil transactions as contracts or unilateral legal acts that give rise to, modify, or terminate civil rights and obligations. Accordingly, provisions regarding invalidity of civil transactions will apply to invalidity of contracts.
Cases of Invalidity of Contracts
There are several reasons leading to the invalidity of contracts. Provisions from Article 122 to Article 129 of the Civil Code of 2015 list cases of invalidity of contracts, including:
Contracts that do not meet any of the conditions stipulated in Article 117 of the Civil Code of 2015.
According to Article 122 of the Civil Code of 2015, an invalidity of contract is a contract that fails to meet one of the conditions for the contract to be valid as stipulated in Article 117 of the Civil Code of 2015, which are:
- Parties with legal capacity and appropriate civil act capacity for the contract established;
- Parties enter into the contract entirely voluntarily; and
- The purpose and content of the contract do not violate the law’s prohibitions or social ethics.
It is noteworthy that in some cases, the failure of a contract to meet the above conditions may not necessarily render it invalidity. For example, if a person lacks the capacity for civil acts and cannot fully participate voluntarily in a contractual relationship, but the contract is entered into to meet the essential daily needs of that person, it will not be deemed invalidity of under the provisions of Article 125(2)(a) of the Civil Code of 2015.
Furthermore, contracts that do not meet the form requirements, which are conditions for the validity of contracts, will be invalidity of if the law so stipulates. For example, Article 119(1) of the Civil Code of 2015 specifies that civil transactions must be expressed orally, in writing, or by specific acts.
Corresponding to Article 116, it can be concluded that contracts not expressed orally, in writing, or by specific acts that fail to meet the form requirements of contracts will lead to contract invalidity.
Invalidity of Contracts Due to Violation of Law Prohibitions and Social Ethics
A contract will be declared invalidity if its purpose or content violates the prohibitions of the law or contravenes social ethics. According to the provision of Article 123 of the Civil Code of 2015, the prohibitions of the law refer to provisions that prohibit subjects from engaging in certain acts, while social ethics are general behavioral standards recognized and respected by the community.
Notably, if a contract is nullified for violating the prohibitions of the law or social ethics, it will be considered an absolute invalidity. Article 132(3) of the Civil Code of 2015 stipulates that for civil transactions invalidity of due to violation of the prohibitions of the law or contravening social ethics, there is no time limit for the court to declare the civil transaction invalidity
In nature, to invalid a civil transaction or contract, the party with rights or related interests must submit a request to invalid the contract, and the court must declare the contract invalidity; contracts are not automatically invalidity. In most cases, the party with rights needs to request the court to declare the civil transaction or contract invalidity of within two years.
In the case of contracts violating the prohibitions of the law or social ethics, they will be invalid by default without any time limit restriction on requesting the court to declare the contract invalidity.
A typical example of a contract invalidity of due to violation of law prohibitions is a television station in Vietnam having a contract to broadcast European sports events, while in those countries, gambling activities are legal, but in Vietnam, promoting and organizing gambling activities are strictly prohibited.
Regarding acts contrary to social ethics, a romantic contract involving exchanges or transactions between parties for physical and emotional benefits will be invalidity even if the contents of the contract are acknowledged and agreed upon by the parties voluntarily.
Invalidity of Contracts Due to Forgery
Similar to cases of contracts invalidity due to violation of law prohibitions or contravening social ethics, forged contracts established by related parties to conceal another contract or civil transaction will be invalidity, while the concealed contract remains valid, except when that contract is also invalidity according to the Civil Code of 2015 or other relevant laws.
Furthermore, if a forged contract is intended to evade obligations with a third party, it will also be invalidity. Cases of contracts invalidity of due to forgery may also be classified as cases of absolute invalidity since there is no time limit restriction for requesting the Vietnamese court to declare the contract invalidity.
It is noteworthy that for cases of contracts violating the prohibitions of the law, contravening social ethics, or forgery, they may be invalidity of without depending on a court decision; they may be inherently deemed invalid because these civil contracts or transactions seriously violate the law, so the State does not protect or recognize their legal existence.
Conversely, for cases where the court declares a contract invalidity and imposes time limits on submitting requests, the court’s decision will be the basis for rendering the transaction invalidity.
A typical example of a forged contract being invalidity is real estate transfer contracts agreed upon by parties, declaring lower prices than the actual transfer price to evade tax obligations or reduce tax liabilities. In this case, the forged contract submitted to the notary office will be invalidity, while the valid real estate transfer contract agreed upon by the parties will remain effective.
Invalidity of Contracts Due to Being Established and Performed by Minors, Persons with Incapacity, or Limited Legal Capacity
Contracts made by minors, persons lacking civil act capacity, those with cognitive difficulties or inability to control behavior, or those with limited legal capacity will be declared invalidity if, according to the law, these contracts must be established, executed, or agreed upon by their legal representatives.
Essentially, these individuals lack full cognitive ability, leading them to not fully understand their rights and responsibilities when entering into civil contracts. Due to this characteristic, to maintain and manage their normal lives, they need a representative capable of establishing and executing contracts on their behalf.
Invalidity of Contracts Due to Mistake
In cases where a contract is established between parties with a mistake leading to one or more parties failing to achieve the intended purpose of the contract, the mistaken party has the right to request the court to declare the contract invalidity.
When a party signs a contract making an unintentional error, without the intention to deceive the other party regarding the content of the civil contract established, the mistaken party has the right to request the other party to amend the content of the contract. However, even though unintentional, in many cases, this mistake may benefit the party causing the error, leading them to refuse to amend the contract or not to amend it entirely. If the two parties cannot reach an agreement, then the mistaken party has the right to request the court to declare the contract invalidity.
A civil contract established with a mistake is not invalidity if the purpose of establishing the contract has been achieved or if the parties can immediately rectify the mistake so that the purpose of the contract is still fulfilled.
Therefore, in cases where there is a mistake but it can be rectified, compensated for, or mutually resolved by the parties in good faith and cooperation, the contract will not be declared invalidity.
However, currently, the concept of mistake is still debated due to the lack of a specific definition and scope for this term. In practical application, there are many cases where mistakes are inevitable due to the specific nature of the field, leading to the contract not being declared invalidity. For instance, when two parties sign a contract for the sale and purchase of a used car, both the seller and the buyer cannot fully verify all the defects in the performance of the vehicle.
In such a situation, the buyer knows and must acknowledge the possibility of the seller’s mistake, understanding that mistakes are unavoidable. The buyer must agree that this mistake is a risk to accept when signing the contract.
Invalidity of Contracts Due to Fraud, Threats, or Duress
Article 127 of the Civil Code of 2015 defines fraud in civil transactions as the intentional act of one party or a third party to mislead the other party about the subject, nature, or content of the civil contract, thereby establishing that transaction.
In contrast to cases of contracts being invalidity of due to mistake, contracts being invalidity of due to fraud are determined when one party has the intention to mislead the other. The mistake of this party is caused intentionally by the other party, resulting in a deviation in the content, purpose, and intention of the civil transaction between the parties.
A typical example of a civil contract determined to be fraudulent is when two parties agree to buy, sell, or transfer real estate, but the seller knows and does not disclose to the buyer that part or all of the property is within the city’s future planning area. This significantly reduces the value of the property, and the buyer can use this as a basis to request the contract be declared invalidity of due to fraud.
Furthermore, contracts can be invalidity due to intentional threats or coercion in civil transactions by one party or a third party, forcing the other party to perform the civil transaction to ainvalidity harm to their life, health, dignity, reputation, integrity, or property or that of their loved ones.
Even though the damage is caused by the actions of the party committing fraud, threats, or coercion, the defrauded, threatened, or coerced party still needs to request the nullification of the contract and must be accepted by the court. The time limit for requesting the court to declare the contract invalidity of is two years from the date the defrauded party knew or should have known about the established transaction due to fraud or from the point when the party committing the threat or coercion ceased such actions.
Individuals Established the Contracts Are Unaware of and Unable to Control Their Actions
Individuals with legal capacity to act but who establish a transaction at a time when they are unaware of and unable to control their actions have the right to request the court to declare that civil transaction invalidity
Similar to cases of contracts being invalidity due to mistake, contracts being invalidity due to lack of awareness and control of one’s actions apply to individuals who are minors, lack legal capacity to act, have difficulties in understanding and controlling their actions, or have limited legal capacity to establish and perform contracts. Even individuals with legal capacity to act may establish and sign a contract at a time when they do not have full awareness of their actions, leading to them not fully understanding their rights and responsibilities when entering into the contract.
For example, if a party is intoxicated or under the influence of drugs to the extent that they are unable to fully comprehend their actions, read and understand all the terms in the contract, they may request the court to declare the contract invalidity because at the time of establishing the contract, they were unaware of and unable to control their actions.
However, accurately determining whether the signing party indeed lacked full awareness of their actions when signing the contract can be challenging. It’s not just because they signed the contract while intoxicated, but also because the contract is presumed invalidity by default.
The signing party needs to actively gather evidence, documentation, and witnesses to prove to the court that at the time of signing the contract, they were intoxicated due to consuming alcohol or beer, as these are stimulating drinks capable of impairing perception and cognitive functions, rendering them unable to fully comprehend and control their actions, and their participation in the civil transaction was not voluntary.
In addition to the cases of invalidity contracts as stipulated in the general provisions of the Civil Code of 2015, specialized laws also regulate invalidity contracts in specific areas.
For instance, according to Article 49(1) of the Labor Code 2019 (Law No. 45/2019/QH14), a labor contract will be invalidity in its entirety when its entire contents violate the law; the party entering into the labor contract lacks authority or violates the principles of entering into labor contracts; or the work stipulated in the labor contract is prohibited by law.
Declaration of Invalidity Contracts
Currently, confusion regarding the concept of invalidity still exists in the legal system. In practical application, many judgments declaring contracts invalidity or terminating invalidity contracts are incorrect because canceling or terminating a contract is a measure for disputes over valid contracts, while an invalidity contract has already lost its legal effect.
In these cases, the contract needs to be declared invalidity by the court; there is no legal concept of canceling or terminating an invalidity contract.
To declare a contract invalidity, the requesting party has the obligation to prove to the court the grounds for this request. If the evidence and arguments of the requesting party are reasonable, the court will issue a decision declaring the contract invalided.
It should be noted that for cases where contracts are absolutely invalided without relying on a court decision, the contract must be invalided to protect the public interest, so it must be declared invalidity. For other cases of invalidity contracts, the court’s decision remains the crucial basis for protecting the interests of the contracting parties.
Furthermore, declaring a contract invalided will not entirely depend on the provisions of the Civil Code of 2015, as analyzed above, but will also depend on specialized laws governing contract relationships in that particular field.
Therefore, to have sufficient grounds to declare a contract invalidity, the court will also need to consider related provisions in specialized laws, guidance documents for the implementation of those laws to determine whether the request for declaring the contract invalided falls under exceptional cases or requires adjustments.
Consequences of Invalidity Contracts and Resolution Directions
Article 131 of the Civil Code of 2015 lists the legal consequences of invalidity contracts.
Legally, an invalided contract will be considered as having no legal effect because it does not give rise to, alter, or terminate the civil rights and obligations of the parties from the time of establishing the contract.
In terms of benefits, in the case of an invalided contract, the parties must restore the original state and return what they received to each other. When engaging in a transaction, each party expects to receive some form of benefit. Therefore, the invaliding of a contract resulting in no rights and obligations arising, changing, or terminating will not generate the benefits the parties expected.
Additionally, when invaliding a contract and restoring the original state by returning what was received, issues such as changes in assets, yield, and income of the assets must also be considered.
According to Article 109 of the Civil Code of 2015, yield are natural products that assets yield, and income are the gains obtained from the exploitation of assets. For example, if two parties engage in a transaction to buy and sell cows, and during the contract period, the cow gives birth to one or more calves, these calves will be the yield that the buyer does not need to return to the seller. This provision also applies to third parties who are not one of the parties to the contract.
Regarding compensation for damages, in cases where a contract is declared invalidity due to the fault of one party, such as in cases of invalidity contracts due to fraud, threats, or coercion, the party at fault must compensate the injured party.
The specific amount of compensation is not explicitly regulated and may be resolved through agreements between the parties. If no agreement is reached, the court will determine the level of fault of the parties to correspondingly allocate compensation responsibilities. In principle, parties are only liable to compensate if there is actual damage. In cases where no damages occur, the parties will not be liable for compensation.
Currently, determining the fault of the parties when resolving the legal consequences of invalidity contracts is determined according to the guidelines in Article 2(4) of Resolution 01/2003/NQ-HĐTP.
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