Excessive damage as a reason for annulment of the contract

The Croatian Law on Obligations (hereinafter: ZOO) stipulates that in the case when the contracting parties have entered into a paid legal transaction, and that at the time of concluding that contract there was a clear disproportion between the value of the act and the counter-act, the injured party has the right to request the annulment of the contract within one year from the date of conclusion of the contract.

Since the contracting parties proceed from the principle of equal value of mutual acts when concluding bilaterally binding legal transactions, the legal institute of excessive damage protects the contracting party which has been damaged by such legal transaction.

In accordance with the provisions of the ZOO, if it happens that the injured party seeks to annul the contract for excessive damage, such contract will remain in force if the other party offers a supplement up to the fair value. The injured party does not have the right to claim a supplement up to the fair value, because this right belongs only to the other party, and once the other party states that he is willing to pay the additional amount, then the annulment of the legal transaction can no longer be claimed in a civil proceeding.

In order for the injured party to be able to demand the annulment of the contract, it is important that at the time of the conclusion of the contract there was a clear disproportion in balance between the obligations of the parties and that the injured party did not know or could not know the true value of the counter-act.

An example of excessive damage can be the case of buying and selling real estate, timber, etc., when the contracted value is several times larger or smaller than the real value of the sale object, and the injured party did not know or could not know the true value of the obligation.

The case law defines how the injured party had to act when concluding the contract, in order to have the right to demand the annulment of the contract. Thus, in its judgment no. Gž-859/02, the Zagreb County Court stated that the contracting parties must act with the care of a good host, meaning an average conscientious and attentive person. It further states that each contracting party is expected to take certain steps before concluding the contract to determine and verify the market value of the real estate that is being sold or bought.

Therefore, only if the injured party has indeed tried to obtain information about the true value of the object of the contract in question and for justified reasons failed to obtain this information, will it be possible to successfully annul the contract in civil proceedings.

Finally, we emphasize that the annulment of commercial contracts, gambling contracts, public sale contracts, settlement agreements, and in all other cases expressly prescribed by law cannot be claimed because of the excessive damage.