November 24, 2020

Invalid Transactions in Uzbek Law

1. Legal basis for invalidity of transactions

2. Invalidity of transactions. The types of invalidity of the transaction

3. Grounds for declaring the transaction invalid

3.1. Form

3.2. Non-compliance with legal requirements

3.3.Legal capacity

3.4. Other grounds

4. Consequences of invalidity of transactions

Legal basis for invalidity of transactions

  • The Civil Code of the Republic of Uzbekistan, in particular Chapter 9 (grounds for invalidity-an exhaustive list);
  • Other normative-legal acts;
  • Resolution of the Plenum of the Supreme economic court of Uzbekistan of 28.11.2014 No.269 “On certain issues of application by economic courts of civil legislation on the invalidity of transactions”;
  • Resolution of the Plenum of the Supreme court of Uzbekistan of 24.09.1999 No.16 “On certain issues arising in judicial practice in connection with the application of the Civil code”;
  • Resolution of the Plenum of the Supreme court of Uzbekistan of 22.12.2006 N 17 “On certain issues arising in judicial practice in connection with the application of legislation regulating transactions”;
  • Resolution of the joint Plenum of the Supreme court of Uzbekistan and the Supreme economic court of Uzbekistan of 22.12.2006 No.13/150 “On certain issues of application of civil legislation on ensuring the fulfillment of obligations arising from credit contracts”;
  • Resolution of the Plenum of the Supreme economic court of Uzbekistan of 19.06.2015 No.282 “On certain issues of application by economic courts of civil legislation on the limitation period”;
  • Resolution of the Plenum of the Supreme court of Uzbekistan of 24.09.2004 No.14 “On judicial practice in disputes related to the ownership of a residential building of individual construction”;
  • Resolution of the Plenum of the Supreme economic court of Uzbekistan of 15.06.2007 No.161 “On the decisions of the economic court”;
  • Resolution of the Plenum of the Supreme court of Uzbekistan of 12.12.2008 No.24 “On certain issues arising in judicial practice in connection with the appointment, production of forensic expertise and evaluation of the expert opinion on civil courts”;
  • Resolution of the Plenum of the Supreme economic court of Uzbekistan of 04.03.2002 No.103 “On certain issues of the of application by economic courts of the Law of the Republic of Uzbekistan “on the legal framework for the activities of economic entities”;
  • Resolution of the Plenum of the Supreme economic court of Uzbekistan of 28.02.2003 No.110 “On certain issues of application of the norms of the Civil code of the Republic of Uzbekistan on assignment of the right of claim”.

Invalidity of transactions. The types of invalidity of the transaction.

Often, in practice, the concepts of invalid transaction and rescission of the contract are confused. The differences between these two concepts are given in para. 3 of the Resolution of the Plenum of the Supreme Economic court of 28.11.2014 No.269 “on certain issues of application by economic courts of civil legislation on the invalidity of transactions”:

  1. Legal justification. Invalid it is possible to recognize the transaction under articles 115-126 of the Civil Code of the Republic of Uzbekistan, while the contract is terminated on the basis of articles 382-383 of the Civil Code of the Republic of Uzbekistan.
  2. A transaction is considered invalid because it is illegal, while the contract is terminated due to the occurrence of rescission circumstances (the legality of such an contract is not disputed).
  3. Legal consequences. An invalid transaction does not entail legal consequences, except for those related to its invalidity. An invalid transaction is considered as such from the moment of its completion (i.e. it is considered that such a transaction did not exist initially). A rescission of the contract does not affect the rights and obligations that existed during the term of the contract and affects only the future rights and obligations of the parties.
  4. Time frame. The contract can be terminated at any time during the term of the contract, and the transaction can be declared invalid after its expiration.

You can read more about rescission of the contract here.

Not only the entire transaction can be considered invalid, but also part of it, if it can be assumed that the transaction would have been concluded without the invalid condition. This means that it is impossible to invalidate a part of the transaction if this part is an essential condition of the transaction.

Invalid transactions are of two types:

  1. Contested-the transaction is invalid by virtue of being deemed such by a court.
  2. Void-the transaction is invalid irrespective of being deemed by a court.

Closeup of atorn legal contract agreement

Grounds for declaring the transaction invalid[1]

In addition, it should be distinguished between an invalid transaction and an incomplete one. Recognized unconcluded transaction that is not established by the legislation the conditions necessary for its conclusion (the absence of contract on all essential terms specified in the legislation; not received acceptance by the party which sent the offer; not transferred property if, in accordance with the law for the contract is required to transfer, etc.).

  1. Form

(p. 11 resolution of the Plenum of SRU No. 269 dated 28.11.2014: If, in accordance with the requirements of the law or by contract of the parties to the transaction, it is subject to notarization or by virtue of the law is subject to state registration, the court may declare the transaction invalid due to non-compliance with the notarial form or the requirement for state registration.

At the same time, the courts should take into account that in accordance with article 115 of the Civil Code of Uzbekistan (hereinafter “CC UZ”), failure to comply with the form required by law entails the invalidity of the transaction only if such a consequence is explicitly specified in the law):

1.1. Art 112 CC UZ: The failure to comply with the notarial form, and in the cases prescribed by the law, the requirements concerning state registration of a transaction shall entail its invalidity. Such a transaction shall be considered void.

1.2. Article 271 CC UZ: A contract on mortgage, as well as the contracts on the pledge of movable property or rights to property to secure obligations under contract which must be notarial certified shall be subject to notarial certification, except the contracts of mortgage and pledge for the purchase of immovable and vehicles on the primary market.

Failure to comply with the rules contained in parts four, five and six of this article shall entail in the invalidity of the contract of pledge.

1.3. Article 292 CC UZ: A contract of suretyship must be concluded in written form. The failure to comply with the written form shall entail the invalidity of the contract of suretyship.

1.4. Article 361 CC UZ: The preliminary contract shall be concluded in the form established for the principal contract, and if the form of the principal contract has not been established, then in written form. The failure to comply with the rules concerning the form of the principal contract shall entail its being void.

1.5. Article 381 CC UZ: A public sale conducted in violation of the rules established by a law may be deemed by a court to be invalid upon the suit of an interested person.

The deeming of a public sale to be invalid shall entail the invalidity of the conduct concluded with the person who won the public sale.

1.6. Article 480 CC UZ: The contract for the sale of immovable shall be concluded in written form by means of drawing up one document signed by the parties (part four of article 366 of this Code).

Failure to comply with the form of the contract of sale of the immovable shall entail its invalidity.

1.7. Article 490 CC UZ: A contract for the sale of an enterprise shall be concluded in written form by drawing up a single document signed by the parties, with the obligatory attachment thereto of the documents specified in part two of article 491 of this Code, and is subject to notarization and state registration. A contract for the sale of an enterprise concluded on a competitive (tender) basis by a decision of an authorized state body is not subject to notarization, except in the cases provided for in para. 2 of part two of article 110 of this Code.

Failure to comply with the requirements provided for in part one of this article shall entail the invalidity of the contract. Such a contract is considered null and void, its execution is not allowed, and the rules provided for in parts two and three of article 112 of this Code do not apply to it.

1.8. Article 574 CC UZ: A contract of lease of a building or installation shall be concluded in written form by drawing up a single document signed by the parties.

Failure to comply with the form of the contract of lease of a building or structure shall entail in its invalidity.

1.9. Article 580 CC UZ: A contract of lease of an enterprise shall be concluded in written form by drawing up a single document signed by the parties and is subject to state registration.

Failure to comply with the form of the contract of lease of an enterprise shall entail its invalidity.

1.10. Article 745 CC UZ: A credit contract must be concluded in written form.

Failure to comply with the written form shall entail the invalidity of the credit contract. Such a contract is considered null and void.

1.11. Article 761 CC UZ: A contract of bank deposit must be concluded in written form.

The written form of the contract of bank deposit is considered to be fulfilled if the deposit is certified by a savings book, savings (deposit) certificate or other document issued by the Bank to the depositor that meets the requirements provided for such documents by the law, banking rules established in accordance with it, and business practices applied in banking practice.

Failure to comply with the written form of the contract of bank deposit shall entail the invalidity of this contract. Such a contract is void.

1.12. Article 774 CC UZ: The Bank account contract must be concluded in written form.

Failure to comply with the written form of the Bank account contract entails in the invalidity of this contract. Such a contract is considered null and void.

1.13. Article 863 CC UZ: A comprehensive business license contract must be concluded in written form and must be registered by the body that registered the legal entity or individual entrepreneur acting as a licensor under the contract. Failure to comply with this rule shall invalidate the contract.

1.14. Article 927 CC UZ: A insurance contract must be concluded in written form. (special requirements under part 3 of this article)

Failure to comply with this requirement entails the invalidity of the insurance contract.

1.15. Article 1088 CC UZ: A contract on the transfer of the right to a patent (assignment of a patent) must be concluded in written form and must be registered with the intellectual property Agency of the Republic of Uzbekistan. Failure to comply with the written form or registration requirement will entail the invalidity of the contract.

1.16. Article 1089 CC UZ: A license contract and the sublicense contract are concluded in written form and are subject to registration with the intellectual property Agency of the Republic of Uzbekistan. Failure to comply with the written form or registration requirement will entail in the invalidity of the contract.

1.17. Article 1106 CC UZ: A contract for the transfer of trademark rights or for granting a license must be concluded in written form and registered with the intellectual property Agency of the Republic of Uzbekistan.

Failure to comply with the written form and registration requirements shall entail the invalidity of the contract.

1.18. Article 1130 CC UZ: A will made in an improper form is invalid. The invalidity of a will is also based on the rules of this Code on the invalidity of transactions.

A will may be declared invalid due to a violation of the procedure for drawing up, signing and certifying a will established by this Code, at the request of a person for whom the recognition of the will as invalid has property consequences.

The invalidity of certain orders contained in the will does not affect the validity of the rest of the will.

  1. Non-compliance with legal requirements

(Para. 12 of the Resolution of the Plenum of the Supreme court of Uzbekistan No. 269 of 28.11.2014: the transaction is void due to non-compliance of its content with the requirements of legal acts, if one or more of its terms contradict these requirements.

The recognition of a transaction made with a purpose knowingly contrary to the basics of law and morality, is void because of its insignificance, courts should ascertain whether the transaction violates the requirements of legal norms, ensuring the rule of law, that is aimed at protecting the constitutional order, rights and freedoms of man and citizen, defence, security and economic system of the state (illegal export of weapons, tax evasion, etc.) or contradicts the foundations of public morality, that is, it grossly violates the prevailing ideas of good and evil, good and bad, vice and virtue, etc.):

2.1. Article 23 CC UZ: Full or partial refusal of a citizen’s legal capacity or legal capacity and other transactions aimed at restricting legal capacity or legal capacity are null and void, except in cases where such transactions are permitted by law.

2.2. Article 277 CC UZ: An contract restricting the pledger’s right to bequeath the pledged property is null and void.

2.3. Article 281 CC UZ: The debtor or the pledger, who is a third party, has the right at any time before the sale of the pledged item to stop foreclosing on it and its implementation, having fulfilled the obligation secured by the pledge or that part of it, the performance of which is overdue. An contract limiting this right is void.

2.4. Article 289 CC UZ: The terms of the pawnshop pledge contract that restrict the rights of the pledger in comparison with the rights granted to him by this Code and other laws are null and void.

2.5. Article 392 CC UZ: A condition of the contract of purchase and sale on the risk of accidental destruction or accidental damage of the goods passes to the buyer upon delivery of the goods to the first carrier, if requested by the buyer may be declared invalid if, at the time of conclusion of the contract the seller knew or should have known that the goods are lost or damaged and did not disclose this to the buyer.

2.6. Article 395 CC UZ: The contract of the parties to release the seller from liability or to limit it in the event of third parties claiming the purchased goods from the buyer is invalid.

2.7. Article 502 CC UZ: A contract providing for the transfer of a gift to the donee after the death of the donor is void. This type of gift is subject to the rules of this Code on inheritance.

2.8. Article 916 CC UZ: Insurance of illegal interests is not allowed.

Insurance of losses from participation in games, lotteries and bets is not allowed.

Insurance of expenses that a person may be forced to pay in order to release hostages is not allowed.

Terms of insurance contracts that contradict parts one, two and three of this article are void.

2.9. Article 938 CC UZ: If the insurance amount specified in the property or business risk insurance contract exceeds the insurance value, the contract is void in the part of the insurance amount that exceeds the insurance value.

2.10. Article 943 CC UZ: The insurance contract is void in cases where:

– at the time of conclusion of the contract, the object of insurance did not exist;

-under the contract of property insurance, property obtained by criminal means was insured, which was the subject of a crime or was subject to confiscation;

– illegal interest is insured under the contract;

-as an insured event, the insurance contract provides for an event that is devoid of signs of probability and randomness of its occurrence.

The insurance contract is void also in other cases stipulated by this Code and other laws.

2.11. Article 957 CC UZ: If the contract of property insurance provides otherwise, the insurer who has paid insurance compensation, passes within the paid sum the right of claim which the insurant (beneficiary) has against the person responsible for losses compensated as the result of insurance. However, the condition of the contract that excludes the transfer to the insurer of the right of claim against the person who intentionally caused losses is null and void.

2.12. Article 966 CC UZ: Each partner, regardless of whether he is authorized to conduct the common affairs of the partners, has the right to get acquainted with all the documentation on the conduct of affairs. The waiver or restriction of this right, including by agreement of the partners, is null and void.

2.13. Article 967 CC UZ: An agreement that completely exempts any of the partners from covering the common expenses or losses is null and void.

2.14. Article 968 CC UZ: The profit received by the partners as a result of their joint activities is distributed in proportion to the value of the partners’ contributions to the common cause, unless otherwise provided by the simple partnership contract or other contract of the partners. The contract to exclude any of the partners from participating in the profit is null and void.

2.15. Article 972 CC UZ: An agreement to restrict the right to withdraw from an open-ended simple partnership contract is null and void.

2.16. Article 1035 CC UZ: The transfer of property rights under the contract or their transfer by universal succession does not entail the transfer or restriction of the right of authorship and other inalienable and non-transferable exclusive rights. The terms of the contract on the transfer or limitation of such rights are void.

2.17. Article 1037 CC UZ: A contract obliging the author to grant any person exclusive rights to use any results of intellectual activity that this author will create in the future is null and void.

The terms of the contract on the creation and use of the results of intellectual activity that restrict the author to create in the future the results of intellectual activity of a certain kind or in a certain area are null and void.

2.18. Article 1051 CC UZ: The author’s contract with anyone and the author’s statement of refusal to exercise personal non-property rights are null and void.

2.19. Article 1068 CC UZ: Condition of the copyright contract that restricts the author to create works on this topic or in this area in the future is null and void.

Terms of the copyright contract that contradict the requirements of this Code or other laws are invalid.

2.20. Para. 17 Of the resolution of the Plenum of the Supreme Court of Uzbekistan No. 16 of 24.09.1999: In accordance with part 4 of article 272 CC UZ the mortgage of a building or structure is permitted only with the simultaneous mortgage by the same contract of the land on which the building or structure, or part of this plot functionally ensuring the pledged object or the right belonging to the pledgor of lease of this plot or corresponding part. In this case, the person acting as the mortgagor of the building or structure must be the owner or lessee of the relevant land plot.

If such person under the contract of mortgage pledges only the building or structure and the land plot or the right of lease is not a collateral, such contract shall be deemed null and void transaction (article 116 CC UZ).

In other cases, when the mortgagor of a building or structure is not the owner or lessee of the land plot, the mortgage contract can not be considered inconsistent with the law on the basis of part 4 of article 272 CC UZ. Rights of mortgagor, and upon foreclosure on the building or structure and the buyer’s right to the land plot shall be determined on the basis of article 22 of the Land code of the Republic of Uzbekistan, according to which the transition – ownership, right of economic management or operational management rights on the company, the building, structure or other property, together with these objects moves and the right of possession and permanent use of a land plot occupied by such objects and their use.

2.21. Article 280 CC UZ: The claim of the pledgee at the expense of the pledged immovable property without recourse to court is allowed if provided for in the pledge contract or on the basis of a notarially certified contract of the pledgee with the pledgor concluded after the grounds for foreclosure on the collateral. Such an contract may be declared invalid by a court at the request of a person whose rights are violated by such an contract.

2.22. Para.18 resolution of the Plenum of Supreme Court of Uzbekistan No. 16 dated 24.09.1999: In dispute resolution it is necessary to consider that in case of default by the debtor of the obligation secured by pledge, the pledgee has the right mainly before other creditors to obtain satisfaction from the value of mortgaged property (articles 264, 280 CC UZ).

The current legislation does not provide for the possibility of transferring the property that is the subject of pledge to the property of the pledgee. All contracts that provide for such a transfer are void, except for those that can be qualified as a compensation or novation of a secured obligation (articles 342, 347 of the civil code).

2.23. Para. 12 of the Resolution of the Plenum of Supreme Court of Uzbekistan No. 17 of 22.12.2006: if the validity of a transaction is disputed due to doubts about the authenticity of the signature of the person who made it, or the authenticity of the signature of one of the participants in a bilateral transaction (contract), the transaction is considered invalid in accordance with article 116 CC UZ.

2.24. Para. 20 of the Resolution of the Plenum of Supreme Court of Uzbekistan No. 17 dated 22.12.2006: to Pay attention of courts that the grounds for recognition of the contract of purchase and sale concluded by entails of the public auction null and void, is the recognition of the illegal trading because of its violation of rules of conduct. In this case, the court declares the transaction invalid on the basis of article 116 CC UZ.

2.25. Para. 6 Of the resolution of the Plenum of Supreme Court of Uzbekistan No. 282 of 19.06.2015: According to part one of article 152 CC UZ, the statute of limitations and the procedure for calculating them cannot be changed by contract of the parties. If, during the consideration of the case, changes in the limitation period and the procedure for calculating them are established by contract of the persons participating in the case, such an contract is considered null and void in accordance with article 116 CC UZ and is not taken into account by the court. This is indicated in the reasoning part of the judicial act.

2.26. Article 122 CC UZ: A transaction concluded under the influence of an error of significant significance may be declared invalid by the court at the claim of the party acting under the influence of the error.

2.27. Article 123 CC UZ: The transaction concluded under influence of fraud, violence, threats, malicious contract representative of one party with the other party and the transaction that citizen was forced to make owing to confluence of difficult circumstances on the extremely unprofitable conditions for themselves, than other party has used (the enslaving transaction), can be declared invalid on suit of the victim.

2.28. Article 124 CC UZ: A transaction concluded only for form, without the intention to create legal consequences, is void (an fictitious transaction).

A sham transaction is a transaction which is concluded for the purpose of concealing another transaction. To the transaction which the parties actually had in view, taking into account the essence of the transaction, shall apply the rules relevant thereto.

When concluding a fictitious transaction, the purpose of the parties is not to establish any legal relations. Such a transaction is usually made in order to achieve legal consequences for each party or one of them (for example, the alleged alienation of property by the debtor in order to avoid its seizure).

When concluding a sham transaction, the purpose of the parties is to conceal another transaction. In this regard, the recognition of an invalid fake transaction does not entail the consequences provided for in part two of article 114 of the civil code. In this case, the rules that apply to the transaction that the parties actually had in mind apply.

When considering a claim for invalidation of a transaction due to its sham nature, it is necessary to find out which transaction is actually concealed by the contested transaction.

From the meaning of article 124 CC UZ, a fictitious transaction is void, while a sham transaction is contested.

2.29. Article 141 CC UZ: The person who issued the power of attorney can cancel the power of attorney at any time, and the person to whom the power of attorney was issued can refuse it. The contract to waive this right is invalid.

2.30. Article 332 CC UZ: The contract on the limitation of liability of the debtor under the adhesion contract or other contract in which the creditor is a citizen acting as a consumer, is void if the amount of liability for the obligations or for that violation is defined by law and if the contract shall be concluded before the occurrence of the circumstances entailing liability for nonperformance or improper performance of an obligation.

2.31. Article 333 CC UZ: A contract concluded in advance to eliminate or limit liability for intentional violation of an obligation is invalid from the moment of its conclusion.

2.32. Article 358 CC UZ: Terms of a public contract that do not meet the requirements set out in parts two and five of this article are invalid.

3. Legal capacity

3.1. Article 117 CC UZ: A transaction concluded by a minor under the age of fourteen, except for the transactions provided for in part two of article 29 of this Code, is void.

3.2. Article 118 CC UZ: A transaction concluded by a minor between the ages of fourteen and eighteen without the consent of his parents, adoptive parents or trustee in cases where such consent is required in accordance with article 27 of this Code may be declared invalid by a court at the request of the parents, adoptive parents or trustee. If such a transaction is declared invalid, the rules provided for in part two of article 117 of this Code shall apply.

3.3. Article 119 CC UZ: A transaction concluded by a citizen recognized as incapacitated due to a mental disorder (mental illness or dementia) is void. The rules provided for in part two of article 117 of this Code shall apply to such a transaction.

3.4. Article 120 CC UZ: A transaction concluded without the consent of the trustee by a citizen who is restricted in legal capacity due to the abuse of alcoholic beverages or narcotic drugs may be declared invalid by a court. If such a transaction is declared invalid, the rules provided for in part two of article 117 of this Code shall apply.

3.5. Article 121 CC UZ: A transaction concluded by a citizen, although legally capable, but at the time of its conclusion in a state where he was not able to understand the meaning of his actions or direct them, may be declared invalid by the court at the claim of this citizen or other persons whose rights or interests protected by law are violated as a result of its conclusion.

A transaction concluded by a citizen who is subsequently recognized as legally incapable may be declared invalid by a court at the request of his trustee, if it is proved that at the time of the transaction, the citizen was not able to understand the meaning of his actions or direct them.

3.6. Article 125 CC UZ: A transaction concluded by a legal entity in contradiction to the stated goals or do not have a license to engage in the respective activity may be declared invalid on the claim of its founder (participant) or authorized state body.

In this article, there are two grounds for the invalidity of transactions:

  • the transaction is in conflict with the objectives of activities of a legal entity established by its founding documents, and
  • making a transaction by a legal entity that does not have a license for the relevant type of activity.

3.7. Article 126 CC UZ: If the authority of a person to make a transaction is limited by the contract or the authority of a body of a legal entity – its constitutional documents in comparison with how they are defined in the trust deed, the law or may be considered obvious from the situation in which the transaction occurs, and if the transaction is a person or body went beyond these limits, the transaction may be declared invalid on the claim of the person in whose interests subject to restrictions only in cases when it is proved that other party in the transaction knew or knowingly should have been aware of such restrictions.

A transaction may be declared invalid under article 126 of the civil code only if it is established that the other party to the transaction knew or should have known about these restrictions.

In accordance with article 126 CC UZ, a mandatory condition for recognizing a transaction concluded with excess of authority as invalid is a statement of a claim for the invalidity of the transaction only by a person in whose interests restrictions of authority are established.

3.8. A transaction concluded by one of the participants in joint ownership related to the disposal of common property may be declared invalid at the request of the other participants on the grounds that the participant who made the transaction does not have the necessary powers only if it is proved that the other party in the transaction knew or should have known about it.

4. Other grounds

4.1. Article 139 CC UZ: A power of attorney that does not specify the date of its issue is invalid.

4.2. Article 259 CC UZ: The invalidity of the contract on securing the performance of an obligation does not entail the invalidity of this obligation (the main obligation).

The invalidity of the main obligation entails the invalidity of the obligation that secures it.

Consequences of invalidity of transactions

When applying the consequences of invalidity of a transaction, the parties must be brought to the position in which they were before the transaction was made. At invalidity of the transaction each of the parties is obliged to return another all received under the transaction, and in case of impossibility to return received in nature (including when the received is expressed in using the property, the executed work or the given service) to compensate its cost in money if other consequences of invalidity of a transaction not required by law. The courts take appropriate measures to respond to the guilty persons, as established by law.

The consequences of invalid transactions cannot be applied to non-concluded transactions. In this case, the rules on unfounded enrichment apply.

It should also be remembered that the consequences of a contested transaction can only be applied if there is a court decision declaring this transaction invalid. Moreover, the court cannot invalidate the contested transaction on its own initiative.

[1] Only the grounds prescribed by the Civil Code of the Republic of Uzbekistan