Abuse of rights in a contract - Articles 10 and 168 of the Civil Code of the Russian Federation

On January 1, 2021, 218-FZ of July 13, 2015 “On State Registration of Real Estate” (hereinafter referred to as the Registration Law) came into force; the amendments to this law allowed realtors to claim that now the consent of the spouse is not required for the transaction. Is it so? Let's figure it out.

In accordance with the provisions of paragraph 15 of part 1 of Article 26 218-FZ of July 13, 2015 “On state registration of real estate”, state registration is suspended by decision of the state registrar of rights, including if the submitted documents do not contain confirmation of availability in cases provided for by federal law, consent to a transaction subject to state registration of a right, restriction or encumbrance of a right, a third party, a body of a legal entity, a state body or a local government body, if it follows from the federal law that such a transaction is void.

Transactions are recognized as actions of citizens and legal entities aimed at establishing, changing or terminating civil rights and obligations. (Article 153 of the Civil Code of the Russian Federation).

The legislation provides for 2 options for invalid transactions - a voidable and void transaction

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What is invalidity of a transaction?

In essence, this is the non-occurrence of the outcome and result that the parties or one of the parties who entered into the agreement would have desired, but, on the contrary, the occurrence of such a result of the transaction that is required by law. In order to invalidate an agreement between the parties, it is necessary to take into account the nature of the violations committed during its conclusion. A voidable transaction and a void transaction are different.

Voidable transaction

In the event that after the conclusion of the agreement, even if it was concluded with some violations, none of its participants declared to the judicial authorities to declare it invalid, such an agreement can be executed by the participants. However, such a claim should not be filed by any interested parties.

Such execution of the contract will not contradict the law. That is, a voidable transaction is an agreement or a unilateral transaction, although completed in violation, but in certain cases entailing the appearance of a legal result for the participants who committed it.

In this case, the parties retain the right to judicial protection of their interests. An example would be a situation in which a minor child between the ages of 14 and 18 entered into a major deal. However, his parents did not give his consent to this.

Legally, there is a violation of the law, and parents have the right to file a claim in court with a claim to declare the concluded agreement invalid. However, they have the right not to file a claim, thereby, as it were, approving the conclusion of the transaction. This nature means that a voidable transaction is a relatively invalid transaction.

What is legal invalidity

The area of ​​​​concluding transactions relates to civil law: this means that both parties must perform their actions in the designated legal field (strictly within the framework of current legislation and in accordance with the requirements of regulations).

What are the relationships between fictitious, imaginary and sham transactions ?

As for transactions, they are characterized by 4 significant categories that determine their legal existence:

• parties (participants, subjects of the transaction);
• the external expression of the will of the participants is the subjective area of ​​the transaction;
• transaction form;
• conditions (content, subject of the transaction).

Any non-compliance with the law in at least one of these elements will invalidate the transaction.

On what grounds can a transaction be declared invalid ?

Types of voidable transactions

Thus, the legislator has provided citizens and legal entities with the opportunity to determine for themselves whether they need to contact the judiciary to protect their own interests, or whether there is no such need, and the parties themselves will resolve this issue. A voidable and void transaction can be divided into types, depending on the grounds. The list of these grounds is established by regulations. Civil legislation considers that a voidable transaction is a transaction completed:

• organization and beyond the boundaries of its legal capacity;
• under the influence of delusion;
• persons limited by the court in legal capacity;
• through a confluence of grave factors, violence, threat, deception, deliberate agreement between an agent of one party and the other;
• persons who cannot realize the significance of their own actions or control them;
• a person outside the boundaries of her powers;
• children aged 14 to 18 years.

Sham transactions and the nuances of their invalidity

A sham transaction is sometimes called a type of sham transaction. Part 2 art. 170 of the Civil Code of the Russian Federation thus characterizes a completed transaction, designed to replace in the eyes of the law another transaction, perhaps on completely different terms. A sham transaction always has two components:

• cover deal – one that is intended to play the “main role”;
• the one being covered up is the one from which the parties actually want to cause legal consequences.

FOR EXAMPLE.

1. One citizen buys a car from another. To simplify paperwork and reduce taxes, instead of completing a purchase and sale, as should be required by law, a transfer by power of attorney is executed. The money for the car is actually transferred to the seller.

2. A house is for sale, the seller and the buyer have agreed on a price of 950,000 rubles. A purchase and sale agreement is drawn up, which specifies a price of 300,000 rubles in order to reduce income tax.

The main differences between a sham transaction and an imaginary one:

• participants plan legal consequences, but not those guaranteed by the concluded deal;
• Only the pretended part of the transaction is invalid, and the true part will remain legally recognized if it complies with the law.

Legal consequences of invalidity of a sham transaction

If it is possible to prove that the transaction is fictitious, the consequences will be different from those caused by the cancellation of the fictitious one. In a sham transaction there is a share of true legal relations, which cannot be canceled if it is legal. Thus, the part of the deal that does not correspond to the real state of affairs will be canceled, and the very deal that the parties tried to disguise will come into force in its place.

Using the examples given above, let us consider what consequences will occur if these transactions are declared invalid:

1. The new owner of the car will not actually be its owner; he cannot completely dispose of the car at his own discretion. After the expiration of the power of attorney, if it is not renewed, which the true owner has every right to do, the “buyer” of the car will completely lose ownership of it.
2. If such a transaction is declared invalid, the buyer will be returned only the money indicated in the text of the contract - 300,000 rubles, even if in fact he transferred the entire 950,000 rubles to the seller. The house will remain the property of the seller.

Evidence of a fraudulent transaction

This is a particularly difficult task. Most often, the party affected by a sham transaction is the tax authorities. And since they are not participants in the transaction, they do not have the right to sue the real participants. But if the transaction was concluded between organizations covering up their actual financial affairs, tax authorities may require an audit and bring the violators to justice.

FOR EXAMPLE. The company purchased equipment from suppliers, indicating in the documents a price that was clearly below the market price. Thus, it is not a purchase or sale, but an actual donation of most of the goods. Donation between legal entities is impossible, so it will not be possible to restore the true transaction. The company will have to either return the goods to the suppliers, adding compensation, or pay the real price for it (thereby “without offending” the tax authorities).

Insignificant transactions

As already noted, there are two types of transactions that can be declared invalid. This is a voidable and void transaction. The difference between them is that the latter is considered absolutely invalid from the moment of its immediate conclusion. As a result of such conclusion of an agreement, the principles of civil law are seriously violated.

Recognition of a transaction as void is required when its completion, as well as further execution, grossly violate not only the rights of an individual citizen, but also the interests of the entire society. Such transactions contradict the established value system of society, and therefore cannot be made dependent on the will of its participants, as in a contestable transaction.

Features of an imaginary transaction

Civil Code of the Russian Federation in Part 1 of Art. 170 calls an imaginary transaction, which is concluded without any incentive to create real legal results, solely “for show,” and both parties are well aware of this. This is by no means an aimless transaction, it’s just that its purpose does not correspond to the stated one, it is hidden from external observers because it is illegal.

FOR EXAMPLE . The company is facing inevitable bankruptcy, and it “rewrites” part of its assets to another person. In this case, the property does not actually change hands at all, because the real purpose of the transaction is precisely to preserve it. After all, in the event of bankruptcy, assets will be sold for debts.

Another common example of a sham transaction is disguising a bribe. A “sale” of valuable property is formalized, only in reality the buyer does not pay any money agreed upon in the terms of the transaction.

How to distinguish an imaginary deal

Imaginary transactions have features that characterize them, in contrast to “normal” legal transactions, as well as from other types of invalid ones. Some of the features will certainly appear, and some may or may not occur.

Characteristic features of imaginary transactions:

1. There is a violation of the will, but the form is strictly observed and even excessively (for example, documents that do not require confirmation are certified by a notary, things that can be discussed orally are drawn up in writing, etc.).
2. After the transaction is concluded, its terms are not fulfilled or this occurs only in relation to part of the content. The transaction is carried out only on paper.
3. Both parties do not intend to fulfill the terms of the transaction, having agreed on this before its completion.
4. The real purpose of concluding such a transaction is contrary to legal norms.

Indirect features may also indicate that the transaction is sham:

• dependent, close or even family ties between the parties to the transaction;
• coincidence of legal addresses of the parties-legal entities;
• some persons or the entire composition of the founders of the organizations concluding the transaction are the same;
• For a certain period of time, no real actions occur that will inevitably cause the terms of the transaction to be fulfilled.

FOR EXAMPLE. An imaginary transaction was concluded for the purchase and sale of residential real estate. If we consider its validity in court, they will ask who is currently registered or living in the alienated property - the buyer or still the seller or their representatives. The court will also find out whether contracts with housing and communal services have been renegotiated, who pays for utilities, etc. The question of the circumstances surrounding the transfer of money will also be raised.

Consequences of recognizing the invalidity of an imaginary transaction

Since the parties did not actually transfer anything to each other during the imaginary transaction, they should not return anything. Having proved the legal inconsistency of the transaction, the court will only cancel the transaction itself. And what this cancellation will lead to does not matter, since the legislative “status quo” must be restored.

FOR EXAMPLE . The citizen was sued, demanding payment of the debt. Knowing that he will be forced to fulfill the demand, wanting to avoid having his apartment seized, he enters into a deal to “sell” it to a person he trusts. In fact, he continues to live in an apartment that does not belong to him only formally. The court proves that the deal is sham. What's changing? The ownership that has been changed is returned. Now the creditor will be able to recover his funds by seizing and selling the apartment at auction, which will be carried out by the enforcement service. Please note that these consequences will occur if the apartment was sold after the creditor went to court. In a situation where the debtor has “insured himself” in advance, it will no longer be possible to prove anything, especially if a trusted person or relative has already resold the apartment legally.

IMPORTANT! If the court determines that there were no consequences for the transaction, it will be declared imaginary, regardless of whether proper registration has been completed or whether there are deviations from the norm (for example, the transaction has not yet been registered).

The imaginary deal was declared invalid, but what will happen to its participants, besides the return of the original rights? For those who made a sham transaction, liability may arise if additional charges are brought against them, for example, a police report for fraud.

Challenge me if you can! Hints from the Russian Armed Forces for completing the quest!

Sacrifice a plum to save a peach (李代桃僵

If the situation does not allow you to do without losses.

A weak position must be sacrificed

To further strengthen the strong.

Challenging transactions within the framework of bankruptcy is not only the responsibility of the administrator and the right of the creditors, but also, sometimes, almost the only way to at least somehow replenish the bankruptcy estate.

Bankruptcy legislation regarding challenging transactions has been repeatedly adjusted, defining the circle of persons who can challenge transactions, the statute of limitations, and the competition of grounds for challenging.

Understanding this is sometimes difficult. Shall we try?

WHO CAN PLAY

As a general rule, the manager, as well as creditors, can challenge a transaction if the amount of accounts payable to him included in the register of creditors' claims is more than ten percent of the total amount of accounts payable included in the register of creditors' claims, not counting the amount of claims of the creditor in respect of whom the transaction disputed, and its affiliates (Article 61.9 of the Bankruptcy Law).

At the same time, as has long been confirmed by judicial practice , creditors can combine their claims to overcome the 10 percent threshold.

At the same time, the RF Armed Forces are right about.

WHERE YOU CAN PLAY

As a general rule, the debtor's transactions are disputed in the bankruptcy case. Such rules apply to the manager and creditors if they challenge transactions on bankruptcy grounds.

The situation changes if the transaction is contested on general civil grounds. In this case, [ii]only the manager can challenge it in the bankruptcy case.

As explained in paragraph 17 of the resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated December 23, 2010 No. 63 “On some issues related to the application of Chapter III.1 of the Federal Law “On Insolvency (Bankruptcy)” in accordance with Chapter III.1 of the Bankruptcy Law (in by virtue of paragraph 1 of Article 61.1) are subject to consideration of the claim of the arbitration manager to invalidate the debtor's transactions both on special grounds provided for by the Bankruptcy Law (Articles 61.2 and 61.3 and other grounds contained in this Law in addition to Chapter III.1), and on general grounds, provided for by civil legislation (in particular, on the grounds provided for by the Civil Code or legislation on legal entities). At the same time, applications for recognition of the debtor's transactions as invalid on the general grounds provided for by civil law (in particular, on the grounds provided for by the Civil Code or the legislation on legal entities), submitted by persons other than the arbitration manager (for example, counterparties to transactions or the debtor during monitoring procedures or financial recovery), are subject to consideration in a claim in compliance with the general rules on jurisdiction and jurisdiction.

I wonder what a creditor should do when challenging transactions of a debtor-individual made before October 1, 2015, which, according to clause 13 of Art. 14 of the Federal Law of June 29, 2015 N 154-FZ may be declared invalid on the basis of Article 10 of the Civil Code of the Russian Federation at the request of the financial manager or bankruptcy creditor (authorized body) in the manner prescribed by paragraphs 3 - 5 of Article 213.32 of the Federal Law of October 26, 2002 No. 127-FZ “On Insolvency (Bankruptcy)”. It is obvious that such transactions are disputed in a bankruptcy case due to a direct indication of this circumstance

SPECIAL GAME CONDITIONS

When challenging transactions within the framework of bankruptcy proceedings, the legislator and the judiciary sometimes demonstrate a certain “procedural loyalty” when considering cases. In situations where, with a formal approach to the consideration of the case, the court, for example, had to terminate the proceedings, in bankruptcy cases, the court indicates the possibility of continuing the consideration of the case.

Liquidation of the Defendant is not a basis for terminating proceedings on an application to challenge the transaction. This conclusion is contained in the judicial act of the RF Armed Forces[iii]

At the same time, the highest court proceeds from the following: “The priority task of the bankruptcy institution is fair and proportionate repayment of creditors’ claims.

At the same time, the debtor’s presence in bankruptcy proceedings may indicate that there are not enough funds to repay the debt to all creditors. If each new claim is recognized as justified, the share of satisfaction of the claims of other creditors decreases, and therefore, they are objectively interested in ensuring that only actually existing debt is included in the register.

Indeed, as a general rule, if one of the parties to a transaction is liquidated, the dispute regarding recognition of this transaction as invalid cannot be considered by the court and the case must be terminated. This rule is based on the objective impossibility of considering a claim in a situation where the proper defendant has lost legal capacity and for this reason cannot defend against the claim .

However, in the case under consideration, the Vikhr company, before its liquidation, ceded under an assignment agreement the right to claim debt collection under agreement No. 1/15 to the SibDorStroy company, which, through an arbitration court, collected the debt from the customer and included it in the register with the claim.

The liquidation of the assignor, a party to a contested transaction with the debtor, should not be opposed to independent creditors, the arbitration manager, and should not interfere with their right to protection from unfounded claims. A different approach upsets the balance of legal capabilities of interested parties and, in relation to bankruptcy procedures, increases the likelihood of including an unreasonable claim of the successor (assignee) due to the elimination of one of the mechanisms for its verification, which is unacceptable.”

That is, the Supreme Court of the Russian Federation in its judicial act made an important clarification that the possibility of challenging a transaction in the absence of a legally capable defendant is not always possible, but only when the procedural failure to challenge such a transaction for the specified reason will lead to a possible violation of the rights of creditors.

CO-OP GAMES 2 IN 1.

It is no secret that when challenging transactions, several grounds may be asserted. In such a situation, it is necessary to find a balance between creating conditions for the applicant to challenge the transaction and possible procedural tricks for the applicant, for example, to extend the statute of limitations.

As is known, bankruptcy grounds for challenging transactions are the basis of contestability and the statute of limitations for them is one year, while on general civil grounds the statute of limitations is three years, which, of course, seems more interesting from the point of view of procedural possibilities.

It is allowed to use both bankruptcy grounds for challenging and the construction of Art. Art. 10, 168 Civil Code of the Russian Federation.

What do you need to know about this?

Firstly, the presence in bankruptcy legislation of special grounds for challenging transactions does not in itself prevent the court from qualifying a transaction in which there was an abuse of law as void under Art. 10 and 168 of the Civil Code of the Russian Federation. This is stated, among other things, in paragraph 4 of the resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation No. 63, paragraph 10 of the resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated April 30, 2009 No. 32 “On some issues related to challenging transactions on the grounds provided for by the Federal Law “On Insolvency (Bankruptcy”) )“".

Secondly, the above-mentioned clarifications deal with transactions with defects that go beyond the defects of transactions with preference or suspicious transactions (resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation dated June 17, 2014 No. 10044/11 in case No. A32-26991/2009, definitions Supreme Court of the Russian Federation dated April 29, 2016 No. 304-ES15-20061 in case No. A46-12910/2013, dated April 28, 2016 No. 306-ES15-20034 in case No. A12-24106/2014). Thirdly, when qualifying a transaction as void, it is necessary to establish how, in the conditions of competing rules on the validity of the transaction, the circumstances of the identified violations went beyond the disposition of Part 2 of Article 61.2 of the Bankruptcy Law. A different approach leads to the fact that the content of Part 2 of Article 61.2 of the Bankruptcy Law loses its meaning, since it is completely absorbed by the content of the rules on abuse of law and allows the person who has challenged a suspicious transaction to bypass the rules on the limitation period for contested transactions, which is unacceptable[iv].

In other words, in order to challenge the transaction under Art. 10, 168 of the Civil Code of the Russian Federation, it is necessary to establish the illegality of the parties’ behavior and the presence of criteria that go beyond the grounds for suspiciousness of the transaction.

Thus, the legislation prevents the parties to a transaction that causes harm from benefiting from their dishonest behavior (clause 4 of Article 1 of the Civil Code of the Russian Federation), however, the presence of similar elements of an offense does not mean that the totality of the same circumstances (signs) can be qualified both under paragraph 2 of Article 61.2 of the Bankruptcy Law and under Articles 10 and 168 of the Civil Code of the Russian Federation. Since a certain set of signs is singled out as an independent offense provided for in paragraph 2 of Article 61.2 of the Bankruptcy Law (suspicious transaction), qualification of a transaction causing harm under Articles 10 and 168 of the Civil Code of the Russian Federation is possible only if the circumstances of its commission go beyond the criteria of a suspicious transaction. Otherwise, challenging a transaction under Articles 10 and 168 of the Civil Code of the Russian Federation on the same grounds as in paragraph 2 of Article 61.2 of the Bankruptcy Law opens up the possibility of circumventing the shortened statute of limitations established for contested transactions and the period of suspicion, which clearly does not correspond to the will of the legislator[v].

WHEN THE COURTS FIND ILLEGAL CONDUCT

Consideration of the presence of abuse of rights and unlawful behavior of the parties for the possibility of challenging the transaction using the construction of Art. Art. 10, 168 of the Civil Code of the Russian Federation, the prerogative of the court. Our goal is to convince them that there are grounds to challenge the transaction that go beyond the criteria of suspicion.

To establish the presence or absence of abuse of their rights by participants in civil legal relations when making transactions, it is necessary to study and evaluate the specific actions and behavior of these persons from the perspective of possible negative consequences for these relations, for the rights and legitimate interests of other citizens and legal entities. Consequently, in cases where a transaction is declared invalid due to abuse of the right of one of the parties during its execution, the circumstances that have legal significance for the correct resolution of the dispute and must be established are the presence or absence of a purpose for completing a transaction that is different from the purpose usually pursued when making the corresponding type of transactions , the presence or absence of actions of the parties to the transaction that exceed the limits of the exercise of powers permitted by civil law, the presence or absence of negative legal consequences for the parties to the transaction, for the rights and legitimate interests of other citizens and legal entities, the presence or absence of other obligations for the parties to the transaction, the fulfillment of which the transaction creates or will create obstacles in the future[vi].

Let's look at some examples.

[vii] THE PURPOSE OF INCREASED VALUE is artificial debt to control bankruptcy

Criteria:

— An unreasonably high cost, which is not typical for ordinary legal relations, together with other circumstances, may indicate an abuse of right.

- Failure of the party that established the cost to provide documents, from which one could understand its usual prices for services for preparing for a court hearing, drafting a response to a statement of claim, the cost of representation in one court hearing of each of the courts, including hourly, etc., which is common practice in the legal services market.

- through the use of a contractual structure for the provision of paid legal services, the cost of which was many times higher than the market average without any justification, of the company "Legal S.S." and Orbita pursued the only goal - to artificially create debt to control the bankruptcy of the Orbita company. Under such circumstances, the disputed agreement is void and is qualified under Articles 10 and 168 of the Civil Code of the Russian Federation.

The use of the construction of abuse specifically under such a plot is numerous[viii].

A THIN GAME

The difficulties of qualifying transactions depending on the specific circumstances of the case sometimes require a thorough study of all the nuances of the disputed transaction, and, in addition, require monitoring the practice of the Supreme Court of the Russian Federation, which willingly shares its legal provisions regarding the applicability of certain grounds when challenging transactions.

In a specific case, where the alienation of a share belonging to the Debtor occurred as a result of actions to increase the authorized capital through the contribution of a third party and the subsequent withdrawal of the Debtor, the court, when determining the grounds for the challenge, indicated the following.

No payment - art. 170 Civil Code of the Russian Federation

In a situation where the sole participant of a business company makes a formal decision to increase the authorized capital due to an additional contribution from a third party, this third party fails to make a real additional contribution (or makes a symbolic additional contribution), and when circumstances are established indicating the interconnectedness of the mentioned actions (inaction) and subsequent actions to leave the company of the former sole participant, redistribute his share in favor of a new participant, the corresponding transactions are subject to recognition as sham (clause 2, article 170 of the Civil Code of the Russian Federation), covering up the direct gratuitous alienation of the share. In turn, a covered transaction made in violation of the provisions of paragraph 1 of Article 174.1 of the Civil Code of the Russian Federation is invalid (void).

Payment at par – clause 2 of Art. 61.2. Bankruptcy Law

If, in pursuance of the decision to increase the authorized capital through an additional contribution of a third party, the latter made a contribution equal to the nominal value of the share received by him , the transaction to increase the authorized capital is subject to verification for compliance with the requirements of paragraph 2 of Article 61.2 of the Bankruptcy Law, taking into account the following.

When an investor receives a share that gives him property and corporate rights that clearly do not correspond to the amount of additional contribution he made, the exchange of values ​​is not equivalent. In this case, in essence, the acquisition of a share is carried out by the investor both through his additional contribution and through investments in the company previously made by the former sole participant, that is, the investor’s assets increase due to a decrease in the asset of the former sole participant (a decrease in the size of his share in value terms), thereby causing harm to the latter’s creditors.

Ruling of the Supreme Court of the Russian Federation of May 10, 2021 N 304-ES15-17156

[ii] Ruling of the Supreme Court of the Russian Federation dated August 14, 2018 No. 305-ES18-3667

[iii] Ruling of the Supreme Court of the Russian Federation No. 302-ES18-8995 (2) dated May 28, 2021

[iv] Ruling of the Supreme Court of the Russian Federation dated August 31, 2017 No. 305-ES17-4886

[v] Ruling of the Supreme Court of the Russian Federation dated March 6, 2021 No. 305-ES18-22069

[vi] Determination of the RF Armed Forces dated December 1, 2015 No. 4-KG15-54

[vii] Ruling of the Supreme Court of the Russian Federation No. 305-ES18-18538 of February 14, 2021

[viii] Determination of the Supreme Court of the Russian Federation dated February 14, 2019 No. 305-ES18-18538; Determination of the State Revenue Committee of the Armed Forces of the Russian Federation dated April 18, 2021 N 77-KG17-7 or Determination of the IES of the Armed Forces of the Russian Federation dated June 13, 2021 No. 301-ES16-20128

Accrual of interest for unjust enrichment in case of bilateral restitution

If the benefit received by one of the parties as a result of concluding a transaction significantly exceeds the benefits received by the other party, it would be advisable to apply to such legal relations the rules of civil law regulating the problems of unjust enrichment.

In particular, the difference between the amounts of funds received by the parties, in accordance with the provisions of paragraph 1 of Art. 395 of the Civil Code of the Russian Federation, interest may be accrued, the amount of which is determined based on the key rate of the Central Bank of the Russian Federation in force during the period of use of the money received by the illegally enriched party. At the same time, in para. 2, paragraph 55 of the resolution of the Plenum of the Armed Forces of the Russian Federation “On the application...” of March 24, 2016 No. 7 contains an indication that the accrual of interest begins from the moment when the acquirer of funds learned about the fact of his unjust enrichment.

Provisions par. 1 clause 55 of Plenum Resolution No. 7 indicates that material benefits received by participants in an invalid transaction are subject to simultaneous mutual return. At the same time, untimely fulfillment by one of the parties of its obligations to pay funds/return property in kind, in accordance with paragraph 56 of the same resolution, is the basis for applying the provisions of Art. 395 of the Civil Code of the Russian Federation and the accrual of interest on the amount of the debt incurred for unjust enrichment.

How to invalidate a contract

Can the concluded agreement turn out to be illegal and by what signs can we understand this? What are the grounds for invalidating an agreement? We are talking about agreements under which there should not be any legal consequences for the parties due to their contradiction to the current legal order. The parties are not obliged to fulfill the obligations established by the text of such a document. Confirmation of the invalidity of a contract or part thereof is allowed either by decision of the judicial authorities or without it - the contract is recognized as void on the legal grounds listed in the Civil Code of the Russian Federation.

When a contract is declared void

When the law mentions agreements that are declared invalid by a decision of the judicial authorities, we are not talking about void, but about voidable transactions: a closed list of grounds for declaring a transaction void is directly named in paragraph 2 of Chapter 9 of the Civil Code of the Russian Federation. Such agreements are not the basis for the emergence of civil rights and obligations, the establishment of which was intended by the participants. Invalidation in part (specific points) or in full occurs regardless of the court's decision.

Types of invalid contracts

The legislator classifies all invalid transactions into 2 types:

Types Voidable Void

Void contract

A void contract is flawed by its nature, from the very beginning, it obviously violates the foundations of morality or legal order, and the parties, at least the capable party, must know about this. In accordance with Art. 166 – 172 of the Civil Code of the Russian Federation, transactions are void:

• imaginary - concluded for show, without the intention of creating corresponding legal consequences;
• feigned - covering another transaction, with different actual conditions;
• in relation to property, the disposal of which is prohibited or restricted;
• committed by a person incapacitated due to a mental disorder or by a minor (under 14 years of age).

For the parties, the direct judicial recognition of a void transaction as invalid does not play a role; the claims of the interested party are aimed at applying its consequences.

Example

The mother of a minor applied to the judicial authorities with an application to apply the consequences of the invalidity of the purchase and sale of a telephone worth 80,000 rubles without her consent. The store voluntarily refused to return the money.

The court decision confirmed the recognition of the contract as void, the basis was the buyer’s minority, consequences were applied in the form of bilateral restitution, and at the meeting it was established that the buyer was under 14 years old at the time of purchase.

The defendant's arguments that the purchase was a small household transaction were rejected by the judge, and the claim was satisfied in full.

Voidable contract

In accordance with Art. 166, 173 – 179 of the Civil Code of the Russian Federation, agreements made are voidable:

• without the legally required consent of third parties or government authorities;
• outside the legal capacity of the organization;
• a person or body with limited powers;
• to the detriment of the interests of a legal entity, by conspiracy or if the other party knew about the damage;
• minors aged 14 to 18 years without the consent of their legal representatives, when such consent is required;
• a citizen limited in legal capacity to dispose of property without the consent of the trustee;
• a citizen incapable of understanding the meaning of his actions or managing them;
• under the influence of material error, deception, violence, threat or unfavorable circumstances, enslaving transactions.

Example

The heir by law learned about the existence of a will, which was certified by a notary 2 weeks before the death of the testator and contained an order to transfer all inherited property to a friend of the testator.

The heir appealed to the judicial authorities, challenging the legality of the will due to the fact that the testator was seriously ill and could not understand the significance of his actions. A post-mortem forensic psychiatric examination was carried out.

The conclusion contained an unambiguous conclusion that the testator understood the significance of his actions. The plaintiff's claim was denied.

Conditions for invalidation

To declare an agreement illegal, certain conditions specified in the law must be met:

• the requirements must come from the persons specified in the article of the Civil Code of the Russian Federation. For example, a legal representative, founders, a victim, third parties - and only from them;
• the person making the claim must have a legitimate interest in this;
• You will also need proof of such an essential condition for recognizing the contract as invalid, such as the attitude of the other party to the transaction towards its completion (knew or should have known about the defect);
• the person referring to invalidity must act in good faith, otherwise it is impossible to recognize the transaction as invalid; the Civil Code of the Russian Federation in Article 166, paragraph 5, directly states this. In such a case, the declaration of invalidity has no legal significance.

The procedure for invalidating an agreement

To challenge a transaction, the interested party performs a certain sequence of actions - the procedure for declaring an agreement illegal:

1. Determines the type of invalidity of the agreement in accordance with the grounds and conditions specified in the law.
2. Determines jurisdiction (court of general jurisdiction or arbitration court).
3. Draws up a statement of claim in accordance with the requirements of Article 131 of the Civil Procedure Code of the Russian Federation (Article 125 of the Arbitration Procedure Code of the Russian Federation - for arbitration cases).
4. Prepares evidence in the case (documents confirming the grounds, defects).
5. Pays the state fee.
6. Files a claim with the judicial authorities with the relevant requirements.

This procedure for invalidating a transaction will make it possible to quickly and efficiently obtain a positive decision from the judicial authorities in the case.

Unilateral restitution

A special case of the legal consequences of the invalidity of a transaction is unilateral restitution, in which only one party receives the right to receive and use the results of an agreement concluded and declared invalid. A similar situation may arise in the case provided for by the provisions of Art. 169 of the Civil Code of the Russian Federation.

The consequences of a transaction recognized as void may be recovered in favor of the state if such a transaction was made in violation of the principles of legality and order in force on the territory of Russia. An example could be an agreement concluded under the influence of illegal actions of an unscrupulous party (deception, violence, threats, coercion, etc.).

Moreover, unilateral restitution is applied only if such a goal was pursued by only one of its parties, to which the specified sanction is applied. The property belonging to it, transferred as a result of the transaction to a bona fide participant, is transferred to the state.

In addition, unilateral restitution is used if it is impossible to apply bilateral restitution due to the fact that the benefits were received by only one party to the agreement. Examples include:

• gift agreement;
• a lease agreement, which, if invalidated, returns all rights to the property owned by the lessor. At the same time, the rental payments received by him are not returned to the tenant, since such a return will entail unjust enrichment of the latter (see the decision of the Bryansk Region Arbitration Court dated November 9, 2016 in case No. A09-407/2016).

Compensatory restitution

If, as a result of concluding an invalid transaction, one party (as well as several) transferred things that do not have distinctive features (for example, money or bearer securities), they are depersonalized and mixed with other material assets belonging to the acquirer. In this case, we can talk about the latter’s unjust enrichment.

A similar situation arises when a party to a contract receives money, but does not fulfill its obligations. In both cases, the unjustly enriched person will have to return his own money to the party from whom it was received.

The legal form of such a return depends on the reason why it is not possible to return the property in kind. If the received property was alienated (for example, transferred to a third party), the return is formalized through the fulfillment of an obligation arising as a result of unjust enrichment. If the property was lost (damaged or destroyed), obligations to compensate for losses are subject to fulfillment.

Procedure

The right to invalidate a transaction is granted by the Civil Code of the Russian Federation only to the court, which makes an appropriate decision upon the application of the injured party or other interested parties. Depending on the jurisdiction, such cases are considered by courts of general jurisdiction or by an arbitration court.

A demand for invalidation of a void transaction may also be made by a party to the agreement, and in cases provided for by law, by another person.

The application is sent to the court at the place of residence (for citizens) or location (for legal entities) of the defendant in order to restore the violated rights of the other party or other persons.

The law establishes that a declaration of invalidity has no legal significance if the person referring to the invalidity of the transaction himself acts in bad faith, in particular, if his behavior after the conclusion of the agreement gave grounds for other persons to consider it valid.

Consequences

In accordance with Art. 167 of the Civil Code of the Russian Federation, an invalid transaction does not entail legal consequences and is invalid from the moment of its completion: there are no consequences for recognizing the contract as void or voidable. Accordingly, according to general principles, bilateral restitution applies to counterparties, i.e.

e. the parties must return to each other everything received under the agreement.

Such return is carried out in kind, and if it is impossible (including when what is received is expressed in the use of property, work performed or service provided), they are obliged to reimburse its cost, unless other consequences are provided for by law.

It is also possible that the contract may be partially invalidated. In this case, if the agreement could have taken place without a voidable condition, it is permissible to recognize the clause of the agreement as invalid without prejudice to the remaining contractual obligations that remain in force.

Arbitrage practice

Of the variety of grounds for the invalidity of transactions, two grounds can be identified on which lawsuits are most often filed in court.

For citizens, this is challenging the alienation of property by offended relatives who claim that the citizen at the time of concluding the contract was not able to understand the meaning of his actions or manage them, or challenging on this basis wills drawn up by the testator during the period when he suffered from some illness.

However, judicial practice proceeds from the fact that the presence of a disease, even a mental disorder, in itself is not a basis for considering a donation or will invalid.

It is necessary that the party challenging the deed of gift or will prove that the donor or testator at the time of signing the documents did not understand the significance of his actions or could not direct them.

For legal entities, it is quite common to recognize a transaction as void when it was made with the aim of causing harm to creditors in bankruptcy or is aimed at withdrawing funds on corporate grounds.

According to established arbitration practice, in such cases a contract can be declared invalid only if it actually violates the rights of the applicants.

Please note that it will not be possible to conclude a settlement agreement to invalidate the contract after filing an application with the court.

The court simply will not accept it from you, since the parties do not have the right to decide on the invalidity of the contract; this is the prerogative of the court.

Invalidation of a void transaction: sample request

Legal consequences of declaring a transaction invalid - what are they?

The consequences of an invalid transaction depend on the following factors:

• the stage of its execution at which it was recognized as such;
• the impact they have on existing norms of law and order and/or morality;
• presence/absence of profits/losses on its part.

In this case, several consequences are possible in legal practice:

1. Cancellation (if the transaction was not executed).
2. Restitution (if the transaction was executed in whole or in part), and it can be bilateral or unilateral.
3. Non-application of restitution.
4. Other property consequences (for example, payment of interest due to unjust enrichment or compensation for losses incurred by one of the parties to the transaction as a result of its conclusion).

If the parties did not fulfill their obligations, they will not have to take any additional actions in relation to each other, since the transaction is automatically canceled without the execution of additional papers. If the transaction was executed (regardless of the volume of fulfilled obligations), the question arises about the property consequences that it entails. The main consequence of the invalidity of a transaction of this kind is restitution.