All contracts to be considered legal and produce legal effects must meet certain conditions:
- the declaration of the intention must be given by a person who has the necessary legal capacity, serious – made to produce the legal effect, and not for any other purpose, free (that there is no defect of consent) – delusion, fraud and/or the threat, in the necessary form, that the desired legal actions are per law and morality
- that the basis of the contract exists
- that the condition is allowed and possible.
The sanction for non-fulfilment of these conditions is the invalidity of the contract, which can be different, depending on the type of defect.
For the most serious defects, the sanction is the nullity of the contract (absolute nullity), while for those who have a lower degree of violation, it is annulment – destruction (relative nullity). There is also a third sanction under contracts, recognized by legal science, which consists of non-existent contracts.
The Law on Obligations does not acknowledge non-existent agreements, but only contains provisions on void contracts. There is no practical need to differentiate between non-existent and null and void contracts, given that their legal consequences are equal.
Null and Void Contracts
A contract contrary to compulsory regulations, public policy or fair usage shall be void unless the purpose of the rule violated refers to another sanction, or unless the law provides for something else in the specific case.
Should entering into a particular contract be prohibited to one party only, the contract shall remain valid, unless otherwise provided by law for the specific case, while the party violating the statutory prohibition shall suffer corresponding consequences.
Consequences of Nullity
In case of nullity of contract each contracting party shall restitute to the other that what is received on the ground of such a contract, and should this be not feasible, or should the nature of that what has been performed prevent the action of restitution, an adequate redress in money shall be extended according to prices at the time of passing the court decision, unless otherwise provided by law.
However, should a contract be void because of its contents or purpose being contrary to compulsory regulations, public policy or fair usage, the court may, entirely or partially, deny the request of the party not being in good faith for the restitution of that what has been given to the other party; the court may also direct the other party to hand over the value received on the ground of the prohibited contract, to the municipality in whose territory such party has its seat of business, residence or domicile.
In deciding, the court shall consider the good faith of each and both parties, the significance of endangered property or interests, as well as the existing conceptions of morality.
Nullity of a contractual provision shall not imply nullity of the entire contract, if it can stand without the null provision and should such provision be neither a requirement for contract nor a motive decisive for making it. But the contract shall remain valid even should the null provision be a requirement or a decisive motive of contract, after nullity was established exactly in order for the contract to be exempted from such provision and to become valid without it.
Should a null contract meet the requirements for validity of some other kind of contract, such other contract shall be valid as between the contracting parties, should this prove conformity with the purpose envisage by the contracting parties at the moment of entering into contract, and should it be possible to presume that they would enter into such contract had they been aware of the nullity of their contract.
Subsequent Disappearance of the Cause of Nullity
A null and void contract shall not become valid if the prohibition or other cause of nullity subsequently disappeared. However, nullity shall not be claimed should the prohibition be of minor importance and after the contract has been performed.
Liability of Person at Fault for Nullity of Contract
A contracting party at fault because of entering into a null and void contract shall be liable to the contracting partner for loss suffered due to nullity of contract, if the latter was not aware or, according to circumstances, was not supposed to be aware, of the existence of the cause of nullity.
The court shall keep in view the nullity as his task in line of duty, while it may be claimed by every person interested.
The right to claim nullity shall not expire.
A contract shall be rescindable after being concluded by a party having a limited business capacity, should its conclusion be followed by shortcomings in terms of intention of the parties, or should this be determined by the present Law or a particular precept.
Nullifying a Contract
A contracting party benefitting from the possibility of rescission specified in the contract, may request that the contract be nullified. But such party’s contracting partner may request from him to declare, in a specified time limit not shorter than thirty days – as to whether he is going to honour the contract or not, since in the contrary case that partner shall consider the contract nullified.
Should the contracting party being addressed fail to declare within the above time limit, or should he state that he does not honour the contract, the contract shall be considered nullified.
Consequences of Annulment
Should on the ground of nullified rescindable contract some commitment be honoured, restitution shall be effected, and should this prove not feasible, or should the nature of that what has been honoured be incompatible with the restitution, a redress in money shall be realized.
Redress in money shall be realized at the prices at the time of restitution, that is at the time of rendering the court decision.
Restitution and Redress in Case of Nullification of a Contract of a Person with Limited Business Capacity
After a contract is nullified due to limited business capacity of one contracting party, the contracting partner of such person may request only the restitution of that part of the honoured commitment which forms the property of the person with limited business capacity, or which was used to his benefit, as well as the restitution of that what was intentionally destroyed or transferred to another.
Liability for Nullification of a Contract
A contracting party at fault for the cause of rescinding a contract shall be liable to his contracting partner for loss sustained due to the contract being annulled if he was not aware or did not have to be aware of existence of the cause of rescission.
Liability of a Person with Limited Business Capacity
A person with limited business capacity shall be liable for loss caused by nullifying a contract after persuading his contracting partner, by using misrepresentation, that he was a person with full business capacity.
Termination of Rights
A right to claim nullity of a rescindable contract shall be terminated one year after becoming aware of the ground for making a contract rescindable, namely after the termination of coercion. That right shall in any event be terminated within a three year period from the day of entering into contract.