Invalidity of contracts according to the Bulgarian law of obligations

Contracts that violate legal requirements or show other legal deficits are invalid. Regarding invalid contracts, there are two subgroups to distinguish: void contracts and voidable contracts.

Initially, voidable contracts are contract that are valid and binding unless avoided or declared void by a party to them on the grounds prescribed by the law. General legal provisions regarding these grounds are provided in the Bulgarian Obligations and Contracts Act (OCA); specific legal provisions are (inter alia) contained in the Family code, the Law on Protection of Competition and the Inheritance law. According to Article 27 of OCA contracts concluded by incapable persons or by their representatives not respecting the specific legal provisions for representation, as well as contracts concluded in cases of mistake, fraud, threat or stringent necessity are voidable.

- Mistake - According to Article 28 of the Act, a material mistake may cause the cancellation of the contract. If the contract has been concluded with regard to a specific person being one of the parties to it (intuitu personae) a mistake concerning this person may render the contract void. A mistake related to a calculation cannot serve as a ground for invalidity of the contract but yet must be amended/ corrected. The party seeking the proclaim the invalidity of the contract (the one that has made the mistake) must compensate any damages that have occurred due to the conclusion of the contract unless he proves that he is not responsible for the mistake or if the mistake has been known to the other party.

- Fraud - According to Article 29 of the Act, a fraud may cause the cancellation of the contract under the condition that one party has been deceived maliciously to enter into the contractual relationship. If the fraud has been induced by a third party, the deceived party may request the cancellation of the contract if the other party knew or ought to have known of the fraud.

- Threat - According to Article 30 of the OCA, a contract may be cancelled if one of the contracting parties concluded the contract out of reasonable fear induced by threats from the other party or third person.

- Incapacity to comprehend one’s own actions - If a person capable of acting is enabled to comprehend his own actions while concluding a contract, the contract may be cancelled. Such a contract may not be cancelled after the death of the contracting person unless the concluded contract provides evidence for his inability to act.

- Stringent necessity - The contract is voidable as well if it has been concluded under stringent necessity and under apparently unfavourable conditions for one of the parties. The court may cancel the contract completely or in the future. If the other party offers to compensate the damages, the contract may remain in force. The cancellation right expires within a time limit of 1 year after the conclusion of the contract. The cancellation due to stringent necessity does not affect the rights of third parties that have been acquired before the claim for cancellation has been filed.

In general, only the party on whose behalf the cancellation is permitted by the law may request the cancellation. For the grounds other than stringent necessity the cancellation right expires within a time limit of 3 years (Article 33 (2)). The contestation period begins on the day that the person reaches the age of majority, when the interdiction has been renounced, upon the discovery of the mistake or fraud or with the cessation of the threat. After the expiration of the time limits the right to seek the invalidation of the contract may be exercised only in the form of an objection raised in a judicial trial.

The party entitled to invalidate the contract can confirm it by a written validation, indicating the reason for the cancellation. The contract is considered confirmed also when the party knowing the reason for the cancellation, fulfils completely or partially its contractual obligations. It is to be noted that a contract that is subject to cancellation due to stringent necessity may not be confirmed.

Void contracts are contracts that from their conclusion are neither valid nor enforceable. Neither party is bound to perform his obligation under that contract and no legal action can be maintained against him if he fails to do so. The grounds for this type of invalidity are mainly heavy legal shortcomings and imperfections which may not be corrected. The legislator uses the term “void” to address the legal transaction as if it had never been performed. According to Article 26 void contracts are contracts contradicting the law or avoiding its prohibitions as well as contracts violating the good morals and those with subject - the legacy of living persons. Contracts with an impossible subject matter, lack of acceptance, not in the prescribed form and without a cause for their conclusion are also void. The cause is presumed until proof is provided otherwise.

Partial invalidity - It must be noted that the invalidity of few clauses does not render the entire contract void given that the clauses may be replaced by binding prescriptions of the law or if the transaction is supposed to have been concluded even without the void clauses.

If the contract is declared invalid, each party must pay back what he has received from the other party.

Reinterpretation - If an invalid contract complies with the requirements of another legal transaction, the former is valid and considered transformed in the latter given that the parties would have agreed to conclude the latter.