Cases where the contract is invalidated according to Vietnamese law

Cases where the contract is invalidated according to Vietnamese law

A contract is an agreement between the parties on the arising, changing and terminating the rights and obligations of the parties in the contract. When signing a contract, the parties always expect the contract to be valid and implemented in reality. However, for various reasons, the contract can be declared void by the Court. The following article aims to analyze cases of contract being invalidated and the consequences arising.

Conditions for effective contract according to Vietnamese law

A contract shall be effective when it satisfies all of the following conditions:

1/ Participants in the contract have legal personality and legal capacity in conformity with such transaction;

2/ Participants in the contract act entirely voluntarily;

3/ The purpose and contents of the contract are not contrary to the law and social ethics;

4/ The forms of contract shall be the conditions for its effectiveness in cases where it is so provided for by law.

Classification of invalid contract in Vietnam

1/ The entire contract is invalid

A contract is totally invalid that is the case where the entire contents of the contract are invalid.

2/ A part of the contract is invalid

A contract is partially void when a part of the contract is invalid but does not affect the validity of the remaining parts of the contract.

Cases where the contract is invalidated according to Vietnamese law

A contract that fails to satisfy one of the conditions for the contract to be valid as described above is invalid, specifically as follows:

Invalidity of contracts due to breach of legal prohibitions or contravention of social ethics

Contracts with objectives and contents which breach legal prohibitions or which contravene social ethics shall be invalid.

The purpose of a contract is the benefit that the contracting parties want to achieve when entering into that contract.

Legal prohibitions mean provisions of law which do not permit entities to perform certain acts.

Social ethics are common standards of conduct as between persons in social life, which are recognized and respected by the community.

Invalidity of contracts due to falsification

If the parties falsely enter into a contract for the purpose of concealing another transaction, the false contract shall be invalid and the concealed transaction remains valid, unless it is also invalid under the provisions of Civil Code or relevant laws.

If the parties enter into a contract falsely for the purpose of evading responsibilities to a third person, such contract shall be invalid.

Invalidity of contracts established and performed by minors or legally incapacitated persons or persons with limited cognition and behavior control or persons with limited legal capacity

When a contract is established or performed by a minor, a legally incapacitated person, a person with limited cognition and behavior control, or a person with limited legal capacity, a court shall, at the request of the representative of that person, declare such contract invalid, if it is provided for by law that such contract must be established and performed by or with the consent of the representative of that person.

A contract of a person prescribed above shall not be invalid in any of the following cases:

– The contract of a child less than 6 years of age or a legally incapacitated person established for his/her daily needs;

– The contract only either arising rights or exempting from obligations for the minor, the legally incapacitated person, the person with limited cognition and behavior control, the person with limited legal capacity and their contracting parties;

– The contract of which validity is recognized by the person established such transaction that become an adult or restore his/her legal capacity.

Invalidity of contracts due to misunderstanding

If there is a misunderstanding in a contract that make a party or the parties fails to meet the objectives of the transaction establishment, the mistaken party shall have the right to request a court to declare such contract invalid.

A contract having misunderstanding shall not be invalid if the parties may meet the objectives of the transaction establishment or the parties may correct the misunderstanding resulting in the achievement of the objectives of the transaction establishment.

Invalidity of contracts due to deception, threat or compulsion

Any party entering into a contract as a result of deception, threat or compulsion has the right to request a court to declare such contract invalid.

Deception in a contract means an intentional act of a party or a third person for the purpose of misleading the other party as to the subject, the nature of the entity or contents of the contract which has caused the other party to enter into such contract.

Threat or compulsion in a contract means an intentional act of a party or a third person which compels the other party to conduct the contract in order to avoid danger to the life, health, honor, reputation, dignity and/or property or that of its relatives.

Invalidity of contracts established by person lacking in cognition and behavior control

A person who has legal capacity but has entered into a contract at the time of he/she is lacking in cognition and behavior control shall have the right to request a court to declare such contract invalid.

Invalidity of contracts due to non-compliance with form

A contract shall be expressed verbally, in writing, or through specific acts. In cases where it is provided for by law that a contract must be expressed in writing, notarized, authenticated, registered or permitted, such provisions must be complied with.

A contract violating conditions for validity pertaining to form shall be invalid, except for any of the following cases:

– If the form of a contract, required to be established in writing, does not comply with regulations of law, but a party or the parties has/have fulfill at least 2/3 of the obligations in the contract, a court, at his/her/their request(s), shall issue a decision on recognition of the validity of such contract.

– If the form of a contract, required to be established in writing, violates against regulations on notarizing or authorization, but a party or the parties has/have fulfill at least 2/3 of the obligations in the contract, a court, at his/her/their request(s), shall issue a decision on recognition of the validity of such contract. In this case, the parties need not perform the notarizing or authorization.

Invalidity of contracts due to impossibility of performing subject matter

If, immediately as from the time a contract is signed, it is impossible to perform the subject matter of the contract for objective reasons, the contract shall be invalid.

If, when entering into a contract, one party knew or should have known that it was impossible to perform the subject matter of the contract for objective reasons but failed to notify the other party which entered into the contract, the former party must compensate the latter party for damage, unless the latter party knew or should have known that it was impossible to perform the subject matter of the contract.

The above provision shall also apply to a contract containing one or more parts with subject matter which is impossible to perform, but the remaining parts of the contract shall remain valid.

Legal consequences of an invalid contract in Vietnam

A invalid contract does not give rise to, change or terminate the rights and obligations of the parties from the time the contract is signed. When the contract is invalid, the parties have the following obligations:

– The parties restore the original condition and return to each other what they have received. Only the righteous party in the collection of yields and profits is not required to return such yields and profits.

– The party at fault causing damage must compensate the other party.

Time limit for requesting court to declare contract invalid in Vietnam

– Time limit for requesting court to declare contract invalid when such contract was established and performed by minors or legally incapacitated persons or persons with limited cognition and behavior control or persons with limited legal capacity: 2 years from the date on which the representative of a minor, a legally incapacitated person, a person with limited cognition and behavior control or a person with limited legal capacity knows and should know the ward established and/or performed the transaction himself/herself.

– Time limit for requesting court to declare contract invalid due to misunderstanding and cheating: 2 years from the date on which the mistaken or cheated person in a transaction knows and should know that such transaction is established due to misunderstanding or cheating.

– Time limit for requesting court to declare contract invalid due to threat or compulsion: 2 years from the date on which the person that threatened or compelled other persons in a transaction put an end to such acts.

– Time limit for requesting court to declare contract invalid when such contracts were established by person lacking in cognition and behavior control: 2 years from the date on which the person lacking in cognition and behavior control establishes his/her transaction.

– Time limit for requesting court to declare contract invalid due to non-compliance with form: 2 years from the date on which the contract was established in non-compliance with form.

– Time limit for requesting court to declare contract invalid due to breach of legal prohibitions or contravention of social ethics or falsification: shall not be restricted.