An agreement may be invalid for several reasons: it was not made freely, seriously, certainly and comprehensibly; a party lacked capacity; or its content or purpose conflicts with or circumvents the law or is contrary to good morals. Absolute invalidity operates by law against everyone, while relative invalidity must be invoked by the affected person, for example where a party acted under a mistake. Until then, an act subject to relative invalidity is treated as valid.
What does a valid legal act require?
The law imposes basic requirements on every legal act: it must be made freely and seriously, with certainty and clarity, otherwise it is invalid (Section 37(1) of the Civil Code). An act involving impossible performance is also invalid (Section 37(2)). Lack of capacity likewise causes invalidity: an act by a person lacking legal capacity, or acting under a mental disorder that makes them incapable of that act, is invalid (Section 38).
When does an agreement conflict with the law?
The most common ground is a substantive conflict with the law. A legal act is invalid if its content or purpose conflicts with or circumvents the law or is contrary to good morals (Section 39). This catches both direct breaches and structures that formally evade the law, as well as arrangements grossly contrary to moral principles. These are precisely the risks we identify before signing through a contract review.
Absolute and relative invalidity: what is the difference?
Not all invalidity operates in the same way. Absolute invalidity, for example a conflict with the law under Section 39, operates by law from the outset against everyone, and the court considers it on its own initiative. Relative invalidity applies only if the affected person invokes it; until then, the act is treated as valid (Section 40a). An example is an act made under a mistake concerning a decisive fact that the other party caused or must have known about (Section 49a). A mistake in motive alone does not invalidate an act.
Consequences and remedies
An invalid agreement creates a duty for the parties to return what they received as unjust enrichment. Whether an agreement is invalid and which form of invalidity applies is often disputed. A well-drafted agreement prevents risks through our bespoke commercial agreements service. Where a dispute has already arisen, we represent clients in court proceedings.
This answer provides general information on the law as at 21 July 2026. It does not constitute legal services or replace an assessment of an individual case. The details of your situation may differ. Book a consultation to discuss them.
