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Invalidation of the contract: the line between abuse and legal guarantees

In the modern world, almost all relationships are formalized in an appropriate agreement. The turnover of treaties in civilized countries is simply amazing, not to mention the high culture of their implementation. Ukraine does not lag behind in terms of quantitative and qualitative indicators. However, if it comes to a culture of execution, most readers come up with countless legal disputes over the enforcement of contracts and the appeal of transactions already concluded.

This situation is due to the fact that a large number of counterparties abuse the rules of the law and, in order to avoid fulfillment of obligations or the maximum delay in enforcement, initiates disputes on appealing contracts. It cannot be stated unequivocally that most disputes are artificially created, but this percentage is quite significant.

In what cases can a contract be declared invalid?

If the law does not directly establish the invalidity of the contract, but one of the parties appeals it, it may be declared null and void in court.

The Civil Code of Ukraine contains a fairly wide list of grounds for invalidating an agreement. In particular, non-compliance at the time of the conclusion of the contract of requirements for compliance of the content with the requirements of the law, the interests of the state and society, regarding the completeness of civil capacity, the reality of the will and the onset of consequences (Articles 203, 215 of the Civil Code of Ukraine).

The Civil Code is not limited to the above grounds. The contract can also be declared invalid for the following reasons:

the contract is contrary to the interests of the state and society, its moral principles (part 3 of article 228 of the Civil Code of Ukraine);
the contract is concluded by a person who does not have a license for the type of economic activity (part 1 of article 227 of the Civil Code of Ukraine);
the party was mistaken regarding circumstances that were significant when concluding the disputed agreement (part 1 of article 229 of the Civil Code of Ukraine);
the contract was concluded under the influence of fraud (part 1 of article 230 of the Civil Code of Ukraine);
the contract is concluded by a competent person who at the time of conclusion of the contract did not realize the significance of her actions and could not manage them (part 1 of article 225 of the Civil Code of Ukraine);
the contract was concluded under the influence of violence, physical or mental pressure from the second side of another person (part 1 of article 231 of the Civil Code of Ukraine);
the contract was concluded as a result of a criminal agreement between the representative of one party and the other side (part 1 of article 232 of the Civil Code of Ukraine);
the contract was concluded on extremely unfavorable conditions under the influence of difficult circumstances (part 1 of article 233 of the Civil Code of Ukraine);
the contract is concluded without the purpose of the onset of legal consequences (fictitious contract) (part 1 of article 234 of the Civil Code of Ukraine);
the agreement was concluded with the aim of concealing a really committed transaction (an imaginary agreement) (part 1 of article 235 of the Civil Code of Ukraine).
As can be seen from the above list, the possibilities for initiating the invalidity of the contract are quite wide. According to the legislator, these norms are a guarantee of the protection of property rights. However, they lose their warranty role from the moment when one of the parties begins to use them in bad faith to evade obligations.

When guarantees become abuses, the court cannot stand aside

It is quite difficult to generalize all judicial practice on the invalidity of contracts in one article, if only because each type of contract has its own characteristics. If we talk about the numerous cases of recognition of contracts as invalid, then it immediately comes to mind such reasons as the lack of the necessary capacity (the conclusion of the contract without the decision of the general meeting) or the lack of will (discrepancy of the signature on the contract of signature of one of the parties).

For example, under a supply contract, the supplier delivered the goods to the customer’s warehouse, and the customer, after receiving it, filed a lawsuit in court to declare the supply contract invalid, justifying it by the fact that the director of the enterprise was not authorized by the relevant decision of the general meeting.

Another classic case: one of the parties to the loan agreement declares that it has not signed the corresponding agreement and has not received any funds and, as a result, appeals to the court with a view to invalidating the agreement.

In both the first and second cases, one of the parties, having received certain benefits, resorts to contradictory behavior aimed at avoiding fulfillment of obligations. Recently, in order to counter such contradictory behavior, judges of the Supreme Court, while resolving a dispute about the invalidity of a land lease agreement, expressed a special opinion that could change approaches in judicial practice in the future.

In case No. 596/2472/16-c, the landlord filed a lawsuit against the tenant to declare the land lease agreement invalid. Claims for the circumstance that the land lease agreement was concluded without the consent of the lessor and he did not sign it.

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