Contracts are the most common form of civil transaction in society today. However, there are many contracts that are signed but have no legal value because they are not in accordance with the provisions of the law. Therefore, the invalid contract is an extremely important legal issue. The parties before entering into the contracts need to pay attention to issues surrounding the validity of the contract in order to avoid the case that when a dispute arises, the contract is declared invalid, causing a severe impact on the interests of the parties to the contract. In this article, Apolo Lawyers (Tel: (+84).903.419.479) will outline the legal consequences of a contract being declared invalidity. 

According to Article 407, 2015 Civil Code, the provisions on the invalid civil transactions shall also govern invalid contracts. So, what happens if a contract is invalid? 

1. What is invalid contract? 

An invalid contract is a contract that does not comply with the validity conditions prescribed by law, so it has no legal value and does not give rise to the rights and obligations of the parties. 

According to Article 407, 2015 Civil Code, the provision on the invalid transactions in Articles 123 to 138 inclusive of this Code, shall also govern invalid contracts. Therefore, according to the provisions of Article 122 of the Civil Code, civil transactions that do not comply with one of the conditions specified in Article 117 shall be invalid, specifically, civil transactions that want to be valid must satisfy the following conditions: 

• Participants in the transaction have legal personality and/or legal capacity in conformity with such transaction;

• Participants in the transaction act entirely voluntarily;

• The purpose and contents of the transaction are not contrary to the law and/or social ethics.

Therefore, a contract is declared invalid when it does not comply with the conditions specified in Article 117, 2015 Civil Code. 

>>> Read more: How to determine the compensation for damages for the breach of contract? 

>>> Read more: Drafting a contract for the sale of goods

2. Types of invalid contract

Based on the main principles of invalid civil transactions, the cases of invalidity contracts can be divided as follows: 

2.1 The contract is invalid due to violation of the prohibition of the law, against social ethics. 

According to Article 123 of the Civil Code 2014, when the purpose and content of the contract violates the provisions prohibited by law, contrary to the general rules of conduct in social life, the contract will be considered invalid. 

2.2 The contract is invalid due to falsification

According to the provisions of Article 124 of the Civil Code 2015, falsification here is understood as a civil transaction created in an artificial way in order to conceal another transaction or avoid obligations to a third party. 

2.3 The contract is invalid by a minor, a person who has lost his/her civil act capacity, a person with difficulties in perception or behavior control, or a person with limited civil act capacity, perform. 

According to the provisions of Article 125 of the 2015 Civil Code, the contract in these is invalid because of violations of the regulations on the parties to enter into the contract because the above subjects do not meet the requirements of civil act capacity. However, there are the following exceptional factors that make the contract not invalid: 

• Contracts entered into by persons under 06, who have lost their civil act but for the purpose of their essential daily needs, 

• Such contract only gives rise to rights or only relieves the subjects of the above cases with the person who has entered into the contract with them 

• The contract is recognized by the person establishing the transaction to take effect after becoming an adult or after restoring his/her civil act capacity. 

2.4 The contract is invalid due to a mistake 

That is “there is a mistake that prevents one party or parties from achieving the purpose of establishing the transaction” - Article 126 of the Civil Code 2015. This confusion is determined by the 2 parties wrong perceptions and judgments about the transaction 

In case the purpose of establishing a civil transaction of the parties has been achieved or the parties can immediately remedy the confusion so that the purpose of the establishment of a civil transaction is still achieved, such transaction will not be invalid. 

2.4 Civil transaction is invalid due to deception, threat, or compulsion

Deception is defined as an international act to mislead the other party about the subject, nature of the object, or the content of the contract so that the contract should be entered into. A compulsion is an act of intentionally forcing the other party to perform a civil transaction in order to avoid damage to the life of someone, health, honor, reputation, dignity, or property,... 

The party who is deceived, threatened, or compulsion when entering into a contract has the right to request the court to declare the contract null and void. 

2.5 The civil transaction is invalid because the originator is not aware of and controls his/her actions. 

This case is stipulated in Article 128 of the 2015 Civil Code: “ A person who has legal capacity but has entered into a civil transaction at the time of he/she is lacking in cognition and behavior control shall have the right to request a court to declare such civil transaction invalid”. The contracting party has the right to request the termination of the contract within 2 years from the time of signing the contract. 

2.6 The contract is invalid due to non-compliance with regulations with the form

Article 129 of the Civil Code 2015 stipulates that a contract is considered invalid because of a violation of the regulations with form except for the following cases: one of the parties or parties has performed at least two-thirds of the obligations entered into the contract. 

2.7 The contract is invalid due to an object that cannot be performed 

>>> Read more: The dispute settlement of the contract for the sale of goods in Vietnam

3. The legal consequences of invalid contract. 

According to Article 131 of the 2015 Civil Code, A contract that is declared invalid would lead to the legal consequence: 

• 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.

•  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.

• A bona fide person in receiving yield and/or income is not required to return such yield and/or income.

• The party at fault which caused the damage must compensate therefore.

• The settlement of consequences of invalid civil transactions regarding personal rights shall be prescribed in this Code and relevant laws.

4. Legal service about the commercial contract of Apolo Lawyers. 

Apolo Lawyers is confident in supporting Clients who have problems with invalid contract, include the following:

• Consulting on how to draft the contract that satisfies with the provisions of Vietnamese Law about contracts to reduce the risks;

• Consulting to determine the basis for dispute settlement and legal basis for dispute settlement;

• Consulting, and preparing to contact and negotiate with related parties in the settlement of international contract sale of goods disputes;

• Guide customers to collect documents and evidence, provide information;

• Authorized representative lawyers meet and discuss with Arbitration, Courts, and judgment enforcement agencies to protect the legitimate rights and obligations of clients

For further information, please contact us: Apolo Lawyers 

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