When concluding contracts, it is important to take measures to avoid violation of the interests of the parties. However, some transactions are concluded under circumstances that are not approved by law, which leads to unjustified risks. To protect your rights, it is worth understanding the concept and conditions of contestability of a transaction.
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What is a voidable transaction?
A voidable transaction is a transaction concluded without complying with the requirements of the law.
A transaction is invalid on the grounds established by law, due to its recognition as such by the court (voidable transaction) or regardless of such recognition (void transaction).
Art. 166 of the Civil Code of the Russian Federation
A voidable transaction gives rise to rights and obligations that can only be canceled through the court.
A voidable transaction may be declared invalid through the court. This is the main difference from void transactions, the invalidity of which does not need to be challenged. In addition, the legal consequences of a contested transaction remain until it is canceled by the court.
The signs of a voidable transaction are the following circumstances:
- the possibility of challenging the transaction in court;
- persons challenging the transaction must be included in the list of persons who legally have such powers.
Legislative regulation of the procedure
Voidable transactions and their legal regulation are discussed in detail in the Civil Code of the Russian Federation. Articles 168–179 regulate classification, the procedure for invalidation and other subtleties. Chapter 1 of the Civil Code of the Russian Federation provides comprehensive information about all the nuances associated with voidable transactions. However, in addition to the Civil Code of the Russian Federation, there are other legal acts:
- The Plenum of the Supreme Court of the Russian Federation and the Plenum of the Supreme Arbitration Court of the Russian Federation in the resolution of 01.07.96 No. 6/8 “On some issues related to the application of part one of the Civil Code of the Russian Federation.”
- Arbitration Procedural Code of the Russian Federation, Article 288.
- Federal Law of July 21, 1997 No. 119-FZ “On Enforcement Proceedings”.
- Federal Law of the Russian Federation dated November 27, 1992 No. 4015–1 “On the organization of insurance business in the Russian Federation.”
- Federal Law “On the Privatization of State and Municipal Property” dated December 21, 2001 No. 178-FZ.
- Federal Law of November 14, 2002 No. 161-FZ “On State and Municipal Unitary Enterprises.”
- Federal Constitutional Law of the Russian Federation “On Arbitration Courts in the Russian Federation”.
- Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation dated November 12, 2002 No. 6288/02.
- Resolution of the Constitutional Court of the Russian Federation dated April 10, 2003 No. 5-P.
- Federal Law of December 26, 1995 No. 208-FZ “On Joint-Stock Companies”.
Types of voidable transactions
The Civil Code considers the following types of transactions as voidable:
- transactions of a legal entity that go beyond the limits of its legal capacity (Article 173 of the Civil Code of the Russian Federation);
- transactions made by a person or body with limited powers (Article 174 of the Civil Code of the Russian Federation);
- transactions made by minors aged 14 to 18 years (Article 175 of the Civil Code of the Russian Federation);
- transactions made by citizens whose legal capacity is limited by the court (Article 176 of the Civil Code of the Russian Federation);
- transactions made by citizens who are unable to understand the meaning of their actions or manage them (Article 177 of the Civil Code of the Russian Federation);
- transactions made under the influence of a misconception that is of significant importance (Article 178 of the Civil Code of the Russian Federation);
- transactions made under the influence of deception, violence, threats, malicious agreement between a representative of one party and the other party, or a combination of difficult circumstances (Article 179 of the Civil Code of the Russian Federation).
Voidable transactions include only those that are included in the list of categories provided for by law
Violation of the limits of legal capacity is the conclusion of transactions not provided for by the regulatory documents of the organization. For example, a non-profit organization cannot buy real estate if the possibility of concluding such a transaction is not established by the charter.
A person limited in action may, for example, be a deputy of an authorized person. Thus, in the case of a legal entity, transactions with shares can only be signed by the head or his deputy, if such document flow is provided for in the job description.
Difficulties arise mainly in cases involving voidable transactions that were made under duress. For example, signing a real estate alienation agreement. If a transaction is made under the threat of physical force, it is not only declared invalid and voidable. The contracting parties may be held liable, and the person who breaks the law may face criminal charges.
Examples of voidable transactions
A voidable transaction may include an apartment purchase and sale agreement. However, to be declared invalid, such a transaction must be accompanied by circumstances that are considered illegal. For example, violent acts, deception or deception. A striking example of such transactions are contracts concluded with “black realtors”, the purpose of which is to make money by deceiving the owner. Of course, suing unscrupulous agents is difficult and expensive, but Russian legislation provides for this possibility.
Many contracting parties resort to contestation only when their rights are infringed by the consequences of the transaction
Currently, loan agreements have become the most frequent objects of challenge. The fact is that the market for credit resources is crowded, and each credit organization is trying to impose its services. And in order for the loan amount to grow unnoticed by the client, additional ones are connected to the main product. For example, an additional agreement on life insurance. Clients, fearing a loan refusal, sign clauses written in fine print, and only later notice that their rights have been violated. Almost any loan agreement can be challenged.
Claims for the annulment of a marriage contract become frequent cases of challenge. This document, concluded by the spouses, creates rights and obligations for both parties. Moreover, legal consequences apply even after a divorce, which means you can challenge it at any time. For example, a marriage contract was concluded by an incapacitated person, and the contract itself implies the transfer of real estate after a divorce. Such an agreement can be challenged at any time, including after the transfer of real estate (fulfillment of obligations under the agreement).
Challenging a transaction made to evade liability
Russian legislation establishes that a contestable transaction is recognized as invalid if it violates the rights or interests of the person challenging the transaction, including if it entails unfavorable consequences for him.
Imaginary and feigned transactions are the most common types of transactions made in order to evade responsibility.
In other words, a transaction whose purpose is to evade liability may be voidable if the rights and interests of any persons or the rules of law on concluding transactions are violated. For example, child support matters. Often, unscrupulous alimony providers enter into imaginary and feigned transactions in order to “hide” property.
Another striking example can be transactions made by legal entities that are in the process of liquidation. So, if an LLC has a large debt and does not want to repay it, an imaginary debt transfer agreement is concluded. While the creditor and the new debtor are sorting things out, the LLC withdraws assets and turns the organization into bankruptcy. This way, legal entities avoid liability unless interested parties challenge the transaction.
Who can challenge the deal
A party whose behavior makes clear its will to maintain the validity of the transaction does not have the right to challenge the transaction on grounds that this party knew or should have known about when its will was expressed.
A person who participated in the transaction can challenge a transaction concluded without complying with legal requirements. But sometimes persons whose signatures are not on contracts and agreements also suffer from the consequences of an invalid transaction. Therefore, the Civil Code of the Russian Federation provides a complete list of persons who have the right to challenge transactions:
- persons who are parties to the transaction;
- persons whose interests are violated by the conclusion of a transaction;
- representatives of persons who became parties to the transaction.
A representative is a person who represents the legitimate interests of a person whose rights have been violated. For example, a guardian of an incapacitated citizen who has entered into a legal transaction for the sale of housing.
In other words, any person whose rights are affected can challenge the transaction. For example, in cases where former spouses entered into an agreement on the alienation of any property, and this significantly violates the rights of the other family. If a deal is concluded to avoid alimony liability, then the person who receives alimony is an interested party and also has the right to challenge the deal in court.
Any third parties can challenge the transaction if there are legal grounds for doing so
How to challenge a transaction
In order to challenge the transaction, you need to file a claim in court. Territorial jurisdiction is determined by the place of residence or registration of the defendant(s). When the plaintiff and defendant are individuals, the claim is filed in the district (city) court, and if at least one of the parties is a legal entity, then it is necessary to apply to the arbitration court.
If the transaction is invalid, each party is obliged to return to the other everything received under the transaction, and if it is impossible to return what was received in kind (including when the received is expressed in the use of property, work performed or service provided), reimburse its value, if there are other consequences of the invalidity of the transaction not provided for by law.
Article 166 of the Civil Code of the Russian Federation
That is, the court cancels the transaction from the moment of conclusion, and with it the rights and obligations generated by this transaction. But if compliance with the obligations stipulated by the transaction does not violate anyone’s rights, then the court may leave the already fulfilled obligations unchanged. Otherwise, the point of canceling a deal is to return both parties to their original state.
To do this, you need to draw up a claim in a form that meets the requirements of the law. The claim must contain the following information:
- Name of the judicial authority.
- Addresses and details of the parties.
- Subject of the claim (circumstances of the case).
- Direct requirements.
- Justification of requirements by legal norms.
- Signature and date.
The following documents must be attached to the application:
- A copy of the applicant's passport.
- Documents for the defendant (passport, certificate, charter, etc.).
- Evidence of the existence of grounds for invalidation.
- Power of attorney if there is representation.
- A document confirming the applicant's authority (guardianship, appointment order, etc.).
- Receipt for payment of state duty.
- A document confirming the violation of the plaintiff's interests.
If it is not possible to submit documents for the defendant, the court has the right to request them. To do this, you can write a corresponding petition or include such a request directly in the statement of claim.
The more detailed the circumstances of the case are described, the easier it is to cancel the illegal transaction.
In accordance with Russian legislation, the statute of limitations for challenging transactions is 1 year.
How to prove the contestability of a transaction
A transaction that violates the requirements of a law or other legal act is, as a general rule, voidable.
P.1. Article 168 of the Civil Code of the Russian Federation
To challenge a transaction, you must prove that it was concluded in violation of legal requirements. For example, if a contract for the sale of real estate was concluded by a person under 14 years of age, it is sufficient to attach a document confirming the age of the minor participant.
It is worth noting that the contestability of a transaction concluded for the purpose of understating the tax base does not need to be proven.
Video: requirements for a voidable transaction
Responsibility of the parties for conducting voidable transactions
The main result of challenging a transaction is the cancellation of the consequences of the transaction, which is not only a responsibility, but also a right of the affected persons. Each party to the transaction will have to return to the other party everything that was received as a result of the conclusion (money, goods, services, etc.).
If, since the conclusion of the transaction, one of the parties has missed the benefit (income) that could have been derived, the court may award compensation for lost profits. In addition, interest may be established for the use of other people's funds or property.
If a foreign currency is involved in the transaction, the court has the right to award compensation in accordance with the exchange rate established by the Central Bank of Russia. If the subject of the dispute is related to tax obligations, then the court may impose fines for late tax payments and other sanctions. For example, if an individual entrepreneur has entered into a voidable transaction in order to conceal a taxable object, then in accordance with the Tax Code of the Russian Federation, a fine of up to 20% of the value of the unpaid tax is imposed.
Arbitrage practice
Challenging transactions in court is a popular procedure
The Arbitration Court of the Sverdlovsk Region received a statement of claim from Sberbank PJSC. The application contained a demand to collect debt of more than 200 thousand rubles under the loan agreement. The court considered the claim simultaneously with the counterclaim from Shmelev. The counterclaim contained a description of the circumstances related to deposit insurance. When applying for a loan, the borrower was asked to insure the deposit, which was registered with Shmelev. The amount of the insurance commission was 30 thousand rubles. Shmelev included the following demands in his counterclaim:
- To collect from the PJSC compensation for the use of other people's funds in the amount of 10 thousand rubles and a penalty for 3 years in the amount of 10 thousand rubles.
- To recover from the PJSC compensation for moral damage in the amount of 30 thousand rubles.
- Seize 30 thousand rubles from illegal use.
- Recognize the additional insurance agreement as a voidable transaction and cancel its consequences.
The court partially satisfied the demands of Shmelev and PJSC. The fact is that the insurance commission was included in the total amount of the loan, and interest and penalties were charged on it. After full settlement of the debt balance, the borrower paid the bank an amount of less than 30 thousand rubles.
A voidable transaction is one of the types of transactions declared invalid by the court. To challenge, a statement of claim is filed, which can be drawn up by any person whose rights or interests have been violated. It is possible to prove the contestability of a transaction only if there are legal grounds for declaring it invalid. The result of the process is the cancellation of the results of the transaction and compensation for losses during its conclusion to the injured person.