Larios Tres Legal 

Billionaire’s contract on a restaurant napkin (Part II)

In order to be agile citizens in the conduct of business and secure agreements, it is important to have a thorough knowledge of the basic requirements for the regulation of any type of contract. Nulidad

Because many times, what we thought would be a safe business deal turns into a nightmare when it is unexpectedly frustrated by formal or material deficiencies, making it legally ineffective.

The aim of this series of articles is to provide the reader with the basic skills to be able to navigate and ensure success in any of the business deals that the entrepreneur or businessman makes; so that, in 5 minutes, he can close a contract under any type of circumstance, and that this is, in turn, infallible for any counterparty.

In the first instalment of this series, entitled ‘Billionaire contract on a restaurant napkin (I)’, we analysed the figures of perfection and consummation and the difference between the two, which are usually confused.

In this second instalment, we are going to deal with the figures of nullity and voidability with their most common casuistry in order to ensure that the contract or agreement is not vitiated and has full real effectiveness, regardless of whether ‘for formal purposes’ it has been validly constituted.

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Autor

Fernando Aguilar Vijande

Fernando Aguilar Vijande
Abogado - Attorney

Contact Information
 + 34 630849627
 fernando.aguilar@lariostreslegal.com

Services

Court Law, litigation and arbitration. 
Transactions and private law
Investments and financial markets
Banking and mortgage law

What differences are there between nullity and annullability?

Both nullity and annullability fall within he/she is called in law ‘causes of ineffectiveness’.

We must begin by acknowledging that a contract can be ineffective (invalid, without generating legal effects) for different reasons.

It may be ineffective from its inception because it is not in conformity with the law or because of some subsequent events.

Firstly, we indicate the causes of ineffectiveness due to non-conformity of the contract with the law. These include, for example, the following:

  • Inexistence: due to the lack of some of the essential elements for its formation (in this group would be the formal defects that we saw in the previous article).
  • Full nullity / radical nullity: when the contract is contrary to a legal prohibition.
  • Annullability / Relative nullity: the contract suffers from some defect or flaw that, only through legal action, could be declared ineffective in whole or in part (for example, this group includes cases of annullability due to defects in consent, lack of transparency, etc.).
  • Rescission: in these cases the ineffectiveness is a consequence of an injury or damage to the parties or to a third party (1.290-1299 CC.).

Secondly, we have the causes of ineffectiveness due to subsequent events, for example:

  • Resolutory condition: the parties introduce it in the contract as a guarantee, ‘…. If “X” occurs, the contract will be terminated’.
  • Termination: it is produced by the tacit will of the parties, one of the contracting parties, harmed by the non-performance of the other party, requests the termination of the contract with retroactive effects, together with compensation for damages in its event (applying art. 1.124 CC.).
  • Revocation: The contract ceases to be effective by the unilateral declaration of one of the parties, who communicates it to the other.

But the most common and important are nullity and annullability.

What are the differences between them?

In this respect, it is important to distinguish between two of these causes of ineffectiveness Radical nullity or nullity as of right and relative nullity or annullability.

RADICAL NULLITY

On the one hand, absolute or full nullity (art. 6.3 CC) applies to acts that are either considered non-existent due to the lack of any of the essential elements for their formation, i.e. the absence of consent, of a certain and determined object, or of the cause for their formation (art. 1.261 CC); or those that are contrary to prohibitive or imperative rules and considered illegal.

Both radical nullity and full nullity prevent “ipso iure ’ the contract from producing effects, and it is considered non-existent without having to resort to an express judicial declaration.

It is non-existent ‘per se’ according to the classical maxim: ‘Quod Nullum est nullum effectum producit’ (he/sheis null and void, nullumeffectumproducit). For this reason, unlike annullability, the action has a series of reinforced guarantees in these events, such as the non-applicability of the statute of limitations , the broad legal standing for injured third parties, or the fact that it cannot be remedied by confirmation.

ANNULLABILITY – RELATIVE NULLITY.

The other figure is annullability, or relative nullity. This implies the existence of a contract in which, given consent, object and cause, and given the circumstance of not being contrary to the law, morality or good customs, it suffers some kind of defect, and therefore, it is susceptible to annullability by one of the contracting parties before the courts by means of the exercise of a declaratory action at the request of a party.

These defects may be: error, violence, intimidation or fraud.

Therefore, it is a less energetic imperfection that would give rise, in the event of being proven, to an action for nullity or challenge, if it is judicially exercised in accordance with Article 1.300 CC.

As it is less forceful than the radical one, the latter does produce effects, the action prescribes after 4 years (art.1.301CC), and is in any event confirmable according to articles 1.309 and 1.310CC. Although, if upheld, the effects of said annullability would be retroactive to the time of conclusion of the contract according to article 1.303 CC.

Therefore, if we understand the basis and operation of these concepts, and we familiarise ourselves with them, we can be infallible negotiators when closing any type of agreement, gaining weight when it comes to the fulfilment of the agreements, as we will have a clear understanding of the basis that governs our system. Protecting a complete legal security by having closed an unbeatable contract before any court.

Via Civil Code, Legal News. Wikipedia.

Image | IA Larios Tres Legal

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