When entering into an Italian law contract parties must ensure that any of the essential elements of the agreement are not affected by any form of invalidity that could otherwise lead to a voidable contract.
This Quickguide aims to help you understand:
Under what circumstances is an Italian law contract voidable?
An Italian law contract is voidable under two circumstances:
Lack of legal capacity or mental incapacity
According to Article 1425 (1) of the Italian Civil Code a contract is voidable if one of the contracting parties lacks legal capacity to enter into binding transactions. Legal capacity under Italian law is a person’s ability to autonomously make legally binding decisions. A person lacks legal capacity if:
has not yet reach the age of 18, or
has lost legal capacity by a court decision due to an illness of body or mind
In addition, Article 1425 (2) specifies that a contract is voidable if the person entering into the agreement is temporary or permanently mentally incapable of making a wilful decision due to an illness or intoxication. The person demanding to set aside the contract must prove that the mental incapacity was present at the moment in which the contract was concluded. This may be proved by demonstrating to have suffered serious harm from the contract (for example, when the economic terms of the agreement unfairly favour its counterparty).
Invalid consent due to error, violence or fraud
According to Article 1427 of the Italian Civil Code, a contract can be voided by the contracting party whose consent was either:
given in error;
An Italian law contract can be invalidated due to an error only if this is recognisable by the other party and it concerns for example the nature or the purpose of the contract, or it relates to the identity of the counterparty.
What happens if an Italian law contract is voided?
Voidable contracts under Italian law are regarded as provisionally binding agreements which are affected by a less severe form of invalidity in comparison to void contracts. The contract could be set aside only if the harmed party takes legal action, and the contract is voided by the court. The interested party must specifically request for the contract to be voided as it cannot be decided upon autonomously by the judge.
Legal action should be taken within a given period of time as it is subject to a limitation period of 5 years, but shorter limitations periods may apply to certain types of agreements.
Once the contract has been set aside, it is as if there it was never concluded, and all benefits must be returned. Third party rights arising from the voided contract are protected only if acquired in good faith except when the harmed party lacked legal capacity. If the harmed party lacked legal capacity, third party rights are not protected even if the third party was in good faith.
What are the possible remedies?
An Italian law voidable contract can be validated exclusively by the harmed contracting party that has the right to request its invalidation. This can be only made if the reason that led to a voidable contract is no longer present, and the harmed party was aware of the invalidity of the contract.
The validation of a voidable contract can either be implicit or explicit.
The validation is regarded as implicit if the party entitled to set aside the voidable contract, although aware of the invalidity, deliberately performs the obligations arising from the contract.
The explicit validation must clearly reference the voidable contract, the reasons that led to its invalidity and a statement confirming the intention to validate the voidable contract.