Italian Law Quickguides: Void Contracts

If you have already signed or are about to enter into an Italian law governed contract and want to determine whether or not it may be declared void, this Quickguide will provide an overview on:

When is an Italian law contract void?

Pursuant to Italian law (Article 1418 of the Italian Civil Code), a contract may be declared null and void if either one of the following circumstances occurs:

The contract violates the law

The law imposes certain limits to the otherwise broad party autonomy to protect the public interest or for public policy reasons. Italian law regards these types of provisions as being “mandatory provisions” (in Italian: norme imperative).

According to Article 1418 (1) of the Italian Civil Code the contract which violates a mandatory provision is void unless the law provides otherwise.

This means that if the contracting parties enter into an agreement in violation of a mandatory provision, the contract will be declared void even if not explicitly provided in the law.

Example

The law requires investment firms to be authorized by the national competent authority to conduct business in Italy and requires such authorization to protect the public interest. If the firm enters into a swap agreement, the agreement will be declared null and void even though the law does not explicitly declare it as invalid.

If, on the other hand, the law imposes a different penalty (e.g., administrative fine) the contract will be valid and enforceable.

Example

The Italian anti-money laundering law prohibits cash payments above a certain threshold. If a payment which exceeds the threshold is made in cash to fulfil a contractual obligation, the law (explicitly) imposes an administrative fine to the contracting parties. Even though they have breached a mandatory provision, the contract is still valid and enforceable.

The contract is lacking one of its essential elements or they are considered illicit

A contract is valid and enforceable only if it contains all of its essential elements (i.e., agreement of all involved parties, purpose, scope and form if this is required by law). According to Article 1418 (2) of the Italian Civil Code, a contract will be declared void if one of these essential elements is missing.

Example

Under Italian law the terms of a lease agreement should be put in writing. If the contracting parties opt instead for a verbal contract, the agreement is void because it does not have all of the essential elements the law requires for that specific contract.

Additionally, the contract will also be declared void if its purpose is illicit, or its scope is impossible, illicit, undetermined or objectively unidentifiable.

The contract is explicitly deemed void by law

This represents a sort of “catch all provision” dealing with all those instances where a specific provision or the law explicitly states that a certain type of contract is void.

What happens to the contract if it’s declared void?

If a contract is declared null and void, the contracting parties are not bound to perform any of the obligations arising from the agreement as it has no effect between them. Moreover, if a party has already fulfilled its obligation the unjust enrichment rules apply, and any benefit received in accordance with the void contract must be reversed.

Any interested party can bring an action before a court to declare a contract void (Article 1421 of the Italian Civil Code).

For example, a creditor of either one of the contracting parties that might see its position worsened by the invalid contract can bring an action to declare the contract void. It is important to underline that such an action is not subject to a limitation period and can be brought forward at any time.

Can a void Italian law contract still be enforced?

According to Article 1423 of the Italian Civil Code it’s not possible to validate a void contract unless otherwise provided by the law, but it is possible to convert the void contract into a different and valid contract. Indeed, pursuant to Article 1424 of the Italian Civil Code, an Italian void contract can produce the effects of a different contract if:

it possesses all its essential elements, and

considering the purpose of the agreement, both parties would have agreed upon such different type of contract if they were aware of the invalidity of the original contract.

Additionally, the contract can still be enforced if the invalidity concerns only certain contractual clauses, and these can be automatically replaced by mandatory provisions (Article 1419 (2) of the Italian Civil Code).

Example

Under Italian law, a lease agreement for residential propriety shall endure for a period of not less than 4 years. If the contracting parties agree for a 3-year period lease agreement, the duration clause is void, but is automatically converted into a 4-year lease agreement by a mandatory provision.

If a void contractual clause cannot be replaced by a mandatory provision and it appears that both parties would not have concluded the contract without that specific clause, the entire contract will be declared void (Article 1419 (1) of the Italian Civil Code).