The cancellation of a contract and an invalid contract both result in the termination of the agreement between the parties. However, it is necessary to clearly distinguish the two types above and legal consequences to ensure the interests of the contracting parties. In this article, Apolo Lawyers (Hotline: (+84) 903 419 479) will help you determine the difference between cancellation of a contract and invalidation of a contract.
The cancellation of a contract is the cancellation of obligations completely or partially by one party.
Performance of the contract between the parties may be stopped upon certain legal events. In case of partial cancellation of contractual obligations, the remaining parts of the contract will remain in effect.
When a party breaches a contractual obligation and is in accordance with the agreement of the parties, the contract may be canceled by the breached party.
According to Article 423, the 2015 Civil Code, A party has the right to cancel a contract and shall not be liable to compensate for loss and damage in the following cases:
The parties agree that a breach of contract by the other party gives rise to cancellation.
The other party commits a serious breach of contractual obligations; - Other circumstances as provided by law
An invalid contract is an agreement that is effectively illegitimate and unenforceable from the moment it is created. An invalid contract differs from an invalid contract because, while an invalid contract is one that was never legally valid, to begin with (and will never be enforceable at any future point in time), invalid contracts may be legally enforceable once underlying contractual defects are corrected. At the same time, invalid contracts and valid contracts can be nullified for similar reasons.
The current law does not have a specific definition for the term 'voidable contract'. However, the 2015 Civil Code (2015 ) stipulates that civil transactions without one of the conditions specified in Article 117 of this Code shall be invalid, unless otherwise provided for in this Code. Contracts are one of the types of civil transactions besides unilateral legal acts, we can apply this rule to interpret the definition of a voidable contract. Accordingly, a voidable contract is a contract that does not satisfy one of the conditions for the contract to be valid as specified in the Civil Code 2015 as follows:
The subject has civil legal capacity and civil act capacity in accordance with the established contract;
The subject participating in the contract is completely voluntary; and
The purpose and content of the contract do not violate the prohibition of the law, and do not violate social ethics.
The Civil Code 2015 stipulates the cases of invalid civil contracts from Article 123 to Article 130, specifically:
The invalidity of civil transactions due to breach of legal prohibitions or contravention of social morals
Invalidity of civil transactions due to falsification
Invalidity of civil transactions established and performed by minors, persons having lost their capacity for civil acts or having had their capacity for civil acts restricted, or persons having difficulty in awareness and control of their own acts
Invalidity of civil transactions due to misunderstandings
Invalidity of civil transactions due to deception, threat or coercion
Invalidity of civil transactions entered into by persons incapable of being aware of or controlling their acts
Invalidity of civil transactions due to non-compliance with form
Partially invalid civil transactions
According to Article 427, 2015 Civil Code, cancellation of contract can have certain legal consequences. Specifically:
- When the contract is canceled, the contract is not effective from the time of signing.
- The parties are not required to continue to perform their canceled contractual obligations, except for agreements on rights and obligations after contract cancellation and dispute settlement.
- The parties have the right to reclaim the benefits resulting from the performance of their obligations under the contract. That is, the parties must return to each other the properties received from the conclusion of that contract. If it cannot be returned in kind, it must be refunded in cash.
- The aggrieved party has the right to claim compensation in accordance with law.
According to Article 131, 2015 Civil Code; the cases that the contract is declared invalid:
An invalid civil transaction shall not give rise to civil rights and obligations with respect to the parties or to changes and termination of such rights and obligations as from the time the transaction is entered into.
Where 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 restitution is not able to be made in kind, it shall be valued in terms of money to return.
The bona fide party in collecting benefits or income is not required to return such benefits or income.
The party at fault which caused loss and damage must compensate.
Resolution of consequences of invalid civil transactions relating to personal rights is provided by this Code and other relevant laws.
>>> Read more: Legal service on penalties for breach of contract
>>> Read more: What happens if a contract is invalid?
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Distiguishing Criteria |
Contract cancellation |
Contracts invalid |
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Condition |
Violation of the agreed cancellation condition Serious breach of contractual obligations Violating the provisions of the law (Article 423 of the 2015 Civil Code) |
According to the cases where the law provides for invalid transactions: – Not having one of the conditions specified in Article 117 of the 2015 Civil Code; – Due to violation of the prohibition of the law, against social ethics; – Due to falsification; - Established and performed by minors, people who have lost their civil act capacity or have limited civil act capacity; – By mistake; – Due to being deceived, threatened or coerced; – Because the founder is not aware and in control of his or her behavior; – Due to non-compliance with regulations on form; – Due to an object that cannot be executed. (According to: Article 122, Article 407, Article 408 of the 2015 Civil Code) |
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Nature |
This contract is effective at the time it is signed, but due to the circumstances leading to its termination, this effect will not be recognized. |
The rights and obligations of the parties have never arisen. |
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Legal consequences |
The parties are not obliged to perform the agreed obligations, except for the agreement on sanction in case of violation, compensation for damage and agreement to settle disputes. The parties must return what they have received to each other after deducting the reasonable costs of performing the contract and the costs of maintaining and developing the goods. Must compensate for damage caused by the breach of other party of obligations. You have the right to claim benefits from the performance of contractual obligations (Article 427 of the Civil Code 2015; Article 314 of the Commercial Code) |
– The parties restore to the original condition, returning to each other what they have received. The party at fault causing damage must compensate. (Article 131 of the 2015 Civil Code) |
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Authority to decide |
– One of the parties – Court or Arbitration |
– Court or Arbitration |
We have listed the criteria that can help you distinguish between the cancellation of a contract and the invalidation of a contract. If you have any questions, please contact us via email at contact@apolo.com.vn or Hotline (+84)903 419 479.
APOLO LAWYERS.
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