Voidness of a contract

Voidness of a Contract

Voidness of a contract refers to a situation in which a contract does not produce the legal effects that would arise if it were valid, meaning it contains such defects and violations of legal provisions that it produces no legal effect.

According to the Obligations Act (Zakon o obveznim odnosima), a contract is void if it is contrary to the Constitution of the Republic of Croatia, mandatory legal provisions, or the morality of society, unless the purpose of the violated rule indicates another legal consequence or the law provides otherwise in a particular case.

Any party to a contract may invoke voidness, and this right does not lapse due to the statute of limitations. Courts review voidness ex officio, and its effect is ex tunc, i.e., from the moment the legal transaction was concluded.

Types of Voidness

There are two types of voidness: partial and total.

In the case of partial voidness, the voidness of a single contractual provision does not render the entire contract void if the contract can survive without that provision, and it was neither a condition nor the decisive motive for entering into the contract. Exceptionally, a contract may remain valid even if the void provision was a condition or decisive motive, provided the voidness was established with the purpose of allowing the contract to remain valid without that provision.

Grounds for Voidness

The primary ground for voidness is lack of legal capacity. Legal capacity is the ability of a natural or legal person to create legal effects and acquire rights and obligations through their own declarations of intent. Natural persons acquire legal capacity upon reaching the age of majority, or exceptionally earlier if they marry.

Defects of will include: mistake (misunderstanding), simulation (a contract not concluded with real consent but only to create the appearance of a contract), duress (if a person is forced by physical coercion to enter into a legal transaction)

Voidness also arises when the agreed performance is impossible, unlawful, indefinite, or indeterminable.

Violation of form requirements: Although Croatian law generally follows the principle of non-formality of contracts, if the law prescribes that a particular contract must be concluded in a specific form, the lack of the prescribed form renders the contract void.

A legal transaction is also void if it is contrary to public order or mandatory legal provisions.

Consequences of Voidness

In the event of a contract being void, each contracting party is obliged to return to the other everything received under the contract. If this is impossible or the nature of what was received prevents restitution, an appropriate monetary compensation must be paid, based on the value at the time the court decision determining the voidness of the legal transaction is made, unless the law provides otherwise.

A party responsible for entering into a void contract is liable to their counterparty for any damage suffered as a result of the voidness, provided the counterparty was unaware, or under the circumstances could not have been expected to be aware, of the cause of voidness.