General about the voidance
According to the provisions of the (Croatian) Law on Obligations, the existence of certain defects of will when entering into a contract causes the legal transaction to be null or void.
Voidance is a legal institute which, unlike nullity, does not act under the law itself, because it is necessary in court proceedings to determine the existence of a cause of voidance and to demand the annulment of such a contract. However, the contracting parties are left with the possibility to convalesce such a contract (which is determined voidable) by taking subsequent actions, which is not possible with annulled contracts. Legitimate parties in this court proceedings can only be contracting parties, and third parties have no right to request the determination of the voidance and the annulment of the contract.
Once the contract has been annulled, the contracting party who has fulfilled something has the right to a refund, and if this is not possible or the nature of the fulfilled obligation opposes the refund, that contracting party is entitled to adequate money compensation. This fee is calculated according to the prices at the time of the court decision.
The deadline for requesting the annulment of the voidable contract expires after 1 (one) year from the day of finding out the reason for the voidance, or the termination of coercion, but such request must be made no later than 3 (three) years from the date of conclusion of the contract.
Substantive fallacy as the reason of the contract voidance
The substantive fallacy is one of the defects of the will which, under certain legal conditions, causes the contract to be voidable. The contracting party shall be substantively misled if that fallacy relates to:
- the object of the contract,
- the essential characteristics of the contract object,
- the person with whom the contract is concluded, if it is concluded with respect to that person and /or
- the circumstances which are considered to be decisive by the parties or by trade customs, and because of which the other party would not otherwise conclude such a contract.
In the case of contracts without payment, an important fallacy, in addition to the above mentioned, is considered to be a fallacy about an initiative that was decisive to take on an obligation.
It is important to mention that the law does not specify what is considered to be a substantive fallacy, but the decision as to whether it is a substantial fallacy will depend on the circumstances of each particular case. As an example of a decision in which the Supreme Court ruled that this was a substantial fallacy, we cite a case in which an old and sick person signed a donation contract thinking that she had actually signed a lifetime maintenance contract, which the court considered to be a fallacy with respect to the essential features of the contract (VSRH Rev 3057 / 1999-2).
Fraud as a reason of the contract voidance
Fraud is also one of the defects in the will that causes the contract to be voidable. Fraud is a situation in which one contracting party misleads the other party or keeps the other party misled, in order to persuade the other party to conclude a contract. In that case, the party who was misled could seek the annullment of the contract even when the error was not substantial.
The reason that when there is a fraud it is not required that the fallacy is substantial, lies in the fact that a person acts with the intention of deceiving another, and therefore such conduct in legal transactions is more severely punished.
In addition to a claim for annulment of a voidable contract for the reason that it was concluded by deliberately misleading the other party, the misled party is also entitled to a compensation for the damage caused by entering into such a contract. According to the case law, this right is exercised even when the contract concluded under fraud has not previously been annulled (VSRH, Rev-646/89).
The law specifically regulates situations where fraud is committed by a third party. In these cases, if the contracting party knew or had to know about the fraud at the time of the conclusion of the contract, the contract will be voidable. The exceptions are contracts without payment, which will always be voidable, regardless of whether the other person knew or should have known about the fraud committed by the third party.
The example from the case law is the following: The plaintiff concluded a pretence sale and purchase contract with the defendants, which was, in fact, formally supposed to be a claim insurance contract for the benefit of a third party until the plaintiff was granted loan. However, under this contract defendants were registered as the owners of the real estate. In this case, the court ruled that the third party acted fraudulently, that the defendants knew it, and therefore it annulled that contract (VSRH Rev 501 / 10-2).