On invalidity of transactions in the Republic of Armenia
On invalidity of transactions in the Republic of Armenia
In accordance with Article 303 of the Civil Code of the RA, the transaction is declared invalid and/or void by such virtue as recognized by the court, on the grounds provided by the RA Civil Code, or regardless of such recognition. Transactions invalid by virtue of a court decision are referred as rebuttable transactions, the other transactions that are invalid regardless of the court recognition are classified by the legislator as insignificant transactions. Currently in the courts of the RA, there are numerous cases pending that demand recognition of transactions null and void, therefore one should be familiar with the legal bases of invalidation of transactions, in order to be able to correctly understand the essence of the invalidity of transactions and properly formulate one’s demands in the courts.
The consequences arising when declaring transactions invalid
First of all, please note that in the Republic of Armenia an invalid transaction does not automatically lead to legal consequences, except for those declared by the courts as invalid transactions. The deal is invalid from the date of contract, as such, each party shall reimburse the other side whatever was received from this transaction. If the parties cannot reimburse by way of gains from the transaction, then the reimbursement takes place in the form of cash, unless other additional consequences are provided for by the law of the RA.
Note also, that under the terms of this type of transactions, rebuttable legal consequences may occur in the future, and an unsatisfied party may apply to the court for recognition of the transaction null and void, with the aim of barring such rights and obligations of such a transaction occurring in the future.
The invalidity of the transaction due to non-compliance with Laws and other legal Acts of the Republic of Armenia
In the Republic of Armenia, transactions that are in conflict with the law or other legal acts are invalid, however, in some cases the law provides for these transactions to be declared insignificant. Particularly cases and transactions may be declared insignificant due to failure to comply with the mandatory registration and stamp at the notary office, and failure to comply with the requirements of state registration of the said transaction. Failure to comply with the simple written form of foreign economic transactions, as well as, certain other transactions specified by law, or by agreement of the parties, leads to the transaction being declared invalid.
The transaction may be invalidated if it is concluded with a person not entitled to conclude transactions IE: the person has transferred the ownership of the property while not being the legal and/or sole owner, or the transaction does not comply with the requirements of the essential terms of the contract.
On false and sham transactions
Any deal, contract or transaction is false when concluded without the intention of creating the relevant legal consequences. False transactions are insignificant and are applicable to the consequences of invalidity of transactions as per above. An example of the false transaction is the sale, or donation of property by the owner, in order to avoid its seizure in lieu of debt or forfeiture in favor of the State. In this case, the owner does not wish to transfer actual property into the possession of another person, instead, the owner pursues an illegal goal in order to avoid liability and responsibility.
A sham transaction is a transaction made in order to conceal another transaction. These transactions are also not valid because of their insignificance, but depending on their nature, they are subject to the rules of the previous transaction, which the parties actually had in mind when entering into a sham transaction. For example; another contract covering actual sale of the property in order to obtain preferential sales tax treatment, or actual lease of premises covered by the contract for the surrender of premises for free use, to avoid payment of tax on rental income.
Transactions concluded by mentally or physically impaired persons, persons of visible or invisible disability and minors.
Any deal, contract or transaction concluded with a mentally impaired person is null and void. In order to declare this type of transaction invalid, it is necessary to have a court decision recognizing the person incapacitated due to mental disorder(s). In addition to the return of all obligations resulting from this transaction, the non-impaired party must also compensate the impaired party the real damage, if he/she knew or should have known about the mental incapacity of the counterparty. However, at the request of the trustee of the mentally impaired person and in the interests of the incapacitated person transaction may be declared valid by the court, if the latter considers that the transaction is in the interests of the incapacitated person(s).
A person may be declared by a court to be of limited legal capacity, due to alcohol and drugs addictions, or gambling hobbies, if it puts the family in a difficult position. In contrast to the above, the transaction with a person who has limited legal capacity recognized by a court decision, is voidable at the suit of a trustee. It may also be invalidated subject to the same rules that apply after the recognition of the transaction null and void for incapacitated person(s). In this case, a very important condition is the existence of the consent of a guardian of the person of restricted capability, in order to enter into the transaction, as well as, the absence of such an agreement with the trustee of the person of limited legal capacity serving as the basis for recognition of the transaction(s) invalid.
Transactions concluded by persons under 14 (fourteen) years of age (minors) are insignificant. Incapacitated person and young persons by legislation are equated in their status. With regard to the latter, they are subject to the same rules that are used in the nullity of transactions concluded by mentally or physically incompetent persons.
With regard to transactions concluded by persons aged between 14 (fourteen) and 18 (eighteen) years of age (teenagers), the rules laid down in respect of transactions entered into by persons of limited competence apply. If the transaction is concluded without the consent of parents, adoptive parents or guardians, the parent, adoptive parent or guardian may claim to have the transaction invalidated. It is important to bear in mind that the rules of rebuttable transactions do not apply to persons who have attained the age of 16 (sixteen) years and/or when a court decision recognized this person completely capable (emancipation).
The invalidity of the transaction concluded by a citizen, not able to understand the significance of his/her actions and/or control them
Any deal, contract or transaction concluded with a capable person, at a time when the person concluding the transaction is in such a state where the person is unable to understand the significance of his/her actions and/or control them, may be declared invalid based on the claims of those, whose rights and legally protected interests have been violated as a result of the conclusion of this transaction.
This may later be declared invalid at the suit of his guardian, if it is proven that at the time of the transaction the citizen was not able to understand the significance of his/her actions and/or control them.
Transactions concluded under the influence of delusions, which have actual and essential meaning in law
Transactions concluded under the influence of delusions, which are essential in nature are rebuttable transactions and may be invalidated in court. However, not every misconception and/or delusion is sufficient for recognition of the transaction invalid. It is essential that there exists misleading items at the time of the transaction, or misleading features of the transaction, which significantly reduces the possibility of using it for its intended purpose, to declare the transaction invalid.
Misunderstanding about the motives and the reasons why the transaction was concluded are not significant. In addition, the party at whose request the transaction is invalidated has the right to demand compensation from the other party of the real damage if he/she proves that the delusion arose through the fault of the other party. If it is not proved, the party at whose request the transaction is invalidated is obliged to compensate the other party the real damage, even if confusion has arisen due to circumstances beyond the control of the deluded party.
Transactions concluded under the influence of fraud, violence, threats, malicious agreement representative of one party with another party, or a serious (life-threatening) set of circumstances
Transactions concluded under the influence of fraud, violence, threats, malicious agreement representative of one party, or transaction entered into as a result of a serious set of circumstances that the person was forced to sign in the extremely unfavorable conditions may be invalidated.
Proving the above facts carried out by the plaintiff sometimes is very difficult to prove. In most cases it requires a court verdict, which established the fact of fraud or threats.
Transactions beyond the capacity of a legal entity
Any deal, contract or transaction concluded by a legal entity in contradiction with the objectives of the activities, certain restrictions in its articles of association, or a legal person who does not have permission (license) to engage in the relevant activities, may be deemed by a court to be invalid upon the claim of a legal entity, its founders (participants), or state body exercising control or supervision over the activities of the legal entity, if it is proven that the other party knew, or should have known of its illegality.
Challenging the transactions and invalidating or removing the consequences of the invalidity of the transaction in the courts of the Republic of Armenia is rather difficult. This requires a lot of in-depth knowledge in the field of law. To independently represent interests in court for recognition of the transaction invalid is not easy, and sometimes the process is very complicated, therefore handling it on one’s own, in practice it very difficult.
Please get in touch at first instance with ‘Vardan Khechyan LLC’ when facing such complicated matters. We have extensive experience in dealing with such cases and will take the necessary time to analyze the information thoroughly before commencing.