Void contracts in Bulgaria: Art. 26 ЗЗД grounds and case law

Art. 26 of the Obligations and Contracts Act (ЗЗД) is the central rule on invalidity and one of the most frequently examined topics in the law of obligations. It brings together almost all the general grounds on which a contract is void (нищожен), yet a systematic and free overview of these grounds in one place is practically non-existent: specialised databases lock the analysis behind a subscription, and academic articles deal only with individual sub-questions.

In this analysis we set out all the grounds of nullity under Art. 26 ЗЗД, distinguish nullity from voidability and rescission, and offer a practical checklist for classifying the defect. The text is aimed both at students preparing for exams and at practising lawyers who want a quick and accurate reference.

The legal framework: Art. 26 ЗЗД and the system of nullity

Nullity is the most serious defect of a transaction. A void contract is inherently incapable of producing the legal effects the parties intended, and this happens by operation of law, from the moment of conclusion (ab initio) and with retroactive effect (ex tunc). The regime of nullity is set by the law, not by the will of the parties, which is why the grounds are listed exhaustively in the provision.

The structure of Art. 26 ЗЗД matters for citing it correctly. Paragraph 1 covers the grounds linked to unlawfulness and morality; paragraph 2 covers the defects of the transaction itself (subject matter, consent, form, cause and sham). Paragraph 3 was repealed (ДВ issue 30 of 1990), and the text on partial nullity is numbered as para. 4 in various editions (amended, ДВ issue 12 of 1993). When citing it is therefore a good idea to give the content as well, not just the number of the paragraph.

Art. 26 contains the general grounds of nullity, but there are also special grounds in other legislation (for example in employment, consumer and commercial law). The relationship between the general and the special ground is an important practical question, to which we return below.

Nullity or voidability: the key distinction

One of the most common mistakes in practice is to confuse nullity with voidability (унищожаемост). Both lead to invalidity, but they differ significantly in their legal regime. Voidability is governed by Art. 27-33 ЗЗД and covers contracts concluded by persons without legal capacity, or under mistake, fraud, duress or because of extreme necessity. Unlike a void contract, a voidable contract has effect until it is annulled by a court.

Grounds of nullity under Art. 26(1) ЗЗД

Paragraph 1 brings together four grounds linked to unlawfulness and to breach of the established legal and moral order. They have different prerequisites and burdens of proof, so it is important to tell them apart.

The distinction between contradicting and circumventing the law is often tested. With contradiction the rule is breached directly, whereas with circumvention a lawful form masks a prohibited purpose. In both cases the consequence is nullity, but the constituent elements and the way they are proved differ.

Grounds of nullity under Art. 26(2) ЗЗД

Paragraph 2 deals with the defects that affect the very structure of the transaction: its subject matter, consent, form, cause and the match between the declared and the real will. The important rebuttable presumption about cause also belongs here.

The presumption about cause deserves particular attention. The law presumes that the transaction has a cause until the contrary is proved. This means that the burden of rebutting the presumption lies with the party who alleges that cause is lacking.

Sham (simulated) contracts also have their own specifics. Simulation may be absolute, when the parties do not want any legal effects at all, or relative, when they conceal another, real transaction. In relative simulation the concealed transaction may be valid if it meets the requirements of the law. Between the parties, the so-called counter-letter (contre-lettre) is usually what proves the simulation.

Partial nullity (Art. 26(4) ЗЗД)

Not every defect affects the whole contract. Partial nullity allows only the invalid clauses to fall away, while the rest of the contract keeps its effect. This is particularly important in consumer and commercial contracts, where individual clauses may be void without making the whole transaction pointless.

Two cases follow from the text of the provision in which partial nullity does not bring down the whole contract: when the void clauses are replaced by operation of law by mandatory rules of the law, and when it can be assumed that the transaction would have been concluded even without the invalid parts. The second case requires an assessment of the hypothetical will of the parties.

Competing grounds and the court’s check of its own motion

When the same transaction can be void on more than one ground, the question arises how those grounds relate to each other. As a rule, where there is a special ground of nullity (in a special law), it excludes the general ground under Art. 26 ЗЗД for the same defect. This has practical importance when formulating claims.

In claim proceedings the grounds of nullity can be joined in different ways: cumulatively, when several defects are alleged at the same time; in the subsidiary form (евентуално), when the second ground is considered only if the first is rejected; and in the alternative (алтернативно). The right joinder affects the subject matter of the case and the force of res judicata.

It is established understanding in case law that the court checks of its own motion for the nullity of a contract when it follows directly from the law or from the evidence gathered in the case, even if the parties have not expressly relied on it. This duty has limits and depends on the type of defect and the material in the case, so its specific application should be assessed according to current practice on the question concerned.

Procedural aspects and legal consequences

Nullity is asserted through a declaratory action for a declaration of nullity. Because nullity operates by law and is not cured by the passage of time, the action to have it declared is not bound by a preclusive time limit. This sets nullity apart from voidability, which is bound by the time limits under Art. 32 ЗЗД.

It is important not to confuse nullity with rescission under Art. 87 ЗЗД, which presupposes a valid contract that is terminated for culpable non-performance, nor with the relative invalidity under Art. 135 ЗЗД (Pauline action), where the transaction is valid but cannot be enforced against the harmed creditor. There is also a link to the rules on limitation, because claims for restitution are subject to the limitation period under Art. 110-120 ЗЗД and to the absolute limitation period under Art. 112 ЗЗД.

A practical checklist for lawyers and students

Art. 26 ЗЗД remains the foundation of the doctrine of invalidity and a constant theme in practice and in exams. Systematic knowledge of the grounds under para. 1 and para. 2, the regime of partial nullity and the distinctions from neighbouring institutions is a prerequisite for correct legal classification.