Cases of absolute invalidity of civil transactions

A civil transaction is a legal act that consciously expresses the will of the subjects in a civil legal relationship in order to establish, change or terminate civil rights and obligations. Civil transactions are one of the most important and popular bases rising to civil legal relations. For a civil transaction to have legal effect, such a transaction must satisfy one of the conditions prescribed by law. According to the provisions of Article 131 of the 2015 Civil Code, a civil transaction is considered valid when the following four conditions are met:

1. Participants in the transaction have legal personality and/or legal capacity in conformity with such transaction
2. Participants in the transaction act entirely voluntarily;
3. The purpose and contents of the transaction are not contrary to the law and/or social ethics.
4. The forms of civil transactions shall be the conditions for its effectiveness in cases where it is so provided for by law.

In principle, a civil transaction that fails to satisfy one of the four conditions above will be considered invalid (according to Article 122 of the Civil Code). However, a question arises that when civil transactions violate which conditions, the order of absolute invalidation shall apply, and which conditions are violated, the order of relative invalidation shall be applied? Within the scope of this article, we will analyze the absolutely invalid civil transactions.

Absolutely invalid civil transactions are usually civil transactions that violate legal rules for the purpose of protecting the common interests of the community. A civil transaction is considered to be absolutely void in the following cases:

1. When violating the prohibitions of the law, contrary to social ethics;
2. When a transaction is artificially established to conceal another transaction
3. When the form of the transaction does not comply with the mandatory provisions of the law;
4. When the transaction of the legal entity is established beyond the permitted field of operation, register;
5. When the transaction is established by a person who has no civil act capacity (under 6 years old);
6. When the transaction is established by a person who has lost his civil act capacity.

Features of the absolutely invalid civil transactions

First, the invalidation order of the transaction. An absolutely invalid civil transaction is automatically considered invalid.

Second, the time limit requires declaring the transaction invalid. The time limit for asking the court to declare the transaction invalid is not limited.

Third, the legal effect of the transaction. A civil transaction subject to absolute invalidity has no legal effect, giving rise to the rights and obligations of the parties, even in the case when the parties have performed acts as committed. .

Fourth, the nature of the court’s decision. In both absolute and relative invalidity cases, the court can decide to declare the transaction void. But there is a fundamental difference in the nature of these two types of decisions. Civil transactions are absolutely invalid, regardless of the court’s decision. In other words, this transaction is still void even without a court decision. Therefore, the court’s decision on an invalid transaction is absolutely not judgmental, but merely one of the forms of recognizing the invalidity of a transaction based on statutory grounds.

Fifth, the legal consequences of civil transactions are void. According to the provisions of Article 131 of the Civil Code:

“1. An invalid civil transaction shall not give rise to, change or terminate any civil rights and obligations of the parties as from the time the transaction is entered into.

2. When a civil transaction is invalid, the parties shall restore everything to its original state and shall return to each other what they have received.

If the restitution is not able to be made in kind, it may be paid in money.

3. A bona fide person in receiving yield and/or income is not required to return such yield and/or income.

4. The party at fault which caused damage must compensate therefore.

5. The settlement of consequences of invalid civil transactions regarding personal rights shall be prescribed in this Code and relevant laws”.

Depending on each specific case of violation, the court can force the parties to bear the consequences in one of three different ways:

1. Bilateral restitution: Both parties must return to each other what has been received from the other party;
2. Unilateral restitution: One party will be refunded the transaction property and the other party’s transaction property (the violating party) will be confiscated to the public fund;
3. Confiscation of the whole: All trading assets of both violating parties will be confiscated to the public fund. This sanction is usually applied to civil relations in criminal cases.

For a civil transaction that is absolutely invalid, the court will apply one of the three methods on a case-by-case basis.

In addition, depending on each case, the parties have not performed or performed a transaction, but an absolute civil transaction will lead to different consequences on a number of issues as follows:

In case the civil transaction has not been performed

For the case of property settlement in a civil transaction that the parties to a newly established civil transaction have not yet performed, the parties shall not perform an invalid civil transaction. The civil transaction terminates immediately, the parties no longer have legal relations from that civil transaction. Therefore, it has not been implemented, so there is no problem of returning assets, or yields and profits (if not in good faith). In case the transaction has been established but the parties have not yet performed the agreed upon rights and obligations and have not transferred assets to each other, no material consequences shall be imposed. However, if the civil transaction is invalidated due to its fault and causes damage, the at-fault party still has to compensate.

In the case of civil transactions that have been, are being performed

In principle, if a civil transaction is invalid, the parties must restore the original state and return to each other what they have received, including yields and profits (if not in good faith); If not refunded in kind, refund in cash. This transaction has no effect from the time of signing, whether it has been declared invalid or not by the Court. The party at fault must compensate in proportion to its fault if any damage occurs. Depending on the cause of the invalid transaction and the content of the agreement, the Court may recognize or not recognize the agreement of the parties. Agreements on value, method, repayment period, and compensation are most often recognized by the Court.

Above is our consultancy about this issue. If you need more detailed advice and answers as well as how to access this service, please contact directly the Deputy Director of Sales: Lawyer Nhat Nam via hotline: 0912.35.65.75, 0912.35.53.53 or call the free legal consultation hotline 1900.6575 or send a service request via email: lienheluathongbang@gmail.com

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