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 to determine the existence of a cause of voidance in court proceedings 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 deemed voidable) by taking subsequent actions, which is not possible with annulled contracts. Legitimate parties in these court proceedings can only be contracting parties, and third parties have no right to request the determination of 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 a refund, that contracting party is entitled to adequate monetary 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 discovering the reason for the voidance, or the termination of coercion, but such a request must be made no later than 3 (three) years from the date of concluding the contract.

Substantive fallacy as a cause for contract voidance

Substantive fallacy is one of the defects of will which, under certain legal conditions, causes the contract to be voidable. The contracting party shall be substantively misled if that fallacy relates to:

1. the object of the contract,
2. the essential characteristics of the contract object,
3. the person with whom the contract is concluded, if it is concluded with respect to that person and /or
4. 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 enter into such a contract.

In the case of contracts without payment, an important fallacy, in addition to the above mentioned, is considered to be the fallacy about a reason that was decisive when taking 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. A case in point in which the Supreme Court ruled that this was indeed a substantial fallacy, is a case in which an elderly infirm person signed a donation contract thinking that they 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 contract voidance

Fraud is also one of the defects of 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.

In cases of fraud it is not required that the fallacy is substantial, the reason for that being 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 since it was concluded by deliberately misleading the other party, the misled party is also entitled to compensation for the damage caused by entering into such a contract. According to 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 concluding the contract, the contract shall 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.

An example can be cited from case law where 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 the 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).

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