Nullity of Construction Contract

In general, a contract is an agreement by two or more parties to give a certain legal effect, including the creation, transfer, modification, or termination of an obligation. Therefore, the term "named contracts" is constantly evolving. A contract that is too important requires to be regulated by the law, including the construction contract, the subject of this Article.

I. Definition of contract nullity:

Contract nullity is a penalty established by law when one of the elements of the contract, such as consent, form in the formal contracts, as well as the subject or reason, falls.  Also, a contract shall be invalid if a validity requirement such as “Competency” of the contractor or integrity of the will. An invalid contract is a contract that does not meet the valid terms and conditions of a valid contract. This means that the contract is valid only if the elements of a contract are met, including consent, subject, cause and form of the contract.

2. Difference between nullity and non-enforceability of contract:

An unenforceable contract is a valid contract between its parties and has all legal effects between them. However, it is not implemented in relation to third parties. A third party, as defined in the provisions of the law, is a foreigner from the contract and not a party thereto.

3. Difference between contract nullity and termination:

Termination is a penalty imposed by the law against the failure of either party to the contract to perform their obligation. The contract is mainly valid and has legal effects between parties thereto. However, if parties fail to perform their contractual obligations, granting the other contracting party the right to terminate the contract, to be finally released from its obligations.

Nullity is divided into two types: Relative nullity and absolute nullity:

Absolute nullity means that any element of contract becomes absolutely null and void, due to the seriousness of the failure. However, in the event of any failure of one of the conditions of validity, the nullity is then relative, because the defect that marred the contract is less serious and the contract is subject to rectification and agreement by the parties thereto.

An absolutely null contract is deemed legally non-existent and null and void. For example, if there is a lack of satisfaction, subject or cause or if the contract does not take the form required by law or agreement. The relatively null contract is valid and has all legal consequences, but it is flawed and could be then invalidated.

Thus, the nullity can be determined whether it is absolute or relative on the other hand, namely the nature of the protected interest. Absolute nullity is determined if the conclusion of the contract involves a breach of a rule aims at protecting a public interest. Relative nullity is determined if the contract involves a breach of a rule aims at protecting a private interest.

4. Reasons for the relative nullity of the construction contract:

 A) Error Concerning The Qualities Of The Contractor:

The error concerning the qualities of the contractor shall not affect the contract unless such quality is the subject of consideration. Accordingly, if the error occurred concerning the same contractor, and such quality represents the only cause or the main reason for the contract, the contract may be invalidated due to the failure of that quality. Here we can say that if the quality of the contractor is not considered in the construction contract, the error in its quality does not affect the contract and, therefore, the contract shall remain valid and enforceable.

This can be achieved where the employer and the contractor agree that it is not permissible for the latter to assign its work to another contractor. This is called the Privative Clause”. Prevention may occur in the construction contract by incorporating a condition therein. Prevention may occur after the conclusion of the contract by a subsequent agreement between the two parties, as stated in Article 666 of the Egyptian Civil Code, which stipulates that:

“A construction contract shall be extinguished by the death of the contractor if its qualifications were taken into consideration when the contract was entered into.  If they were not taken into consideration, the contract is not ipso facto terminated and the employer may not rescind it except in cases governed by Art. 663, unless the contractor's heirs do not offer sufficient guarantees for the satisfactory performance of the work.”

There is an exception, which is the legal evidence established by the law, under which the quality of the contractor is considered in the contract made with those who practice self-employed, such as physicians, engineers, artists and architects. In all other cases, especially in large-scale projects, the first consideration in the contract is related to the contractor’s position in the market, not to the contractor's qualities.

B) Error Concerning Material Submitted For Work Completion:

The contractor's undertaking may be limited to only performing its contractual work. However, the employer shall supply the materials which the contractor will use or be aided by in carrying out its work, as stipulated in Article 647 of the Law that:

“(1) The contractor may only undertake to perform work. However, the employer shall be responsible for supplying the materials which the contractor will use or be aided by in his work.

(2) The contractor may also undertake to supply the materials as well as its work.”

Article 648 of the Law also provides that the materials used shall be of good quality and comply with the agreed specifications, as follows:

If the contractor undertakes to supply all or part of the materials to be used in the work, it shall be responsible for and warrants their good quality to the employer.”

Since the materials used in the work may be provided by the contractor or by the employer, both cases are different. The following may be a result of an error concerning the material to be used in work in each case:

1. Error concerning Materials Supplied by Employer:

The employer may supply the materials to the contractor, including cement to the architect, wood to the carpenter, or plot to the building contractor. It shall supply the materials in compliance with the contract's agreed-upon specifications. If an error occurs in a description that is considered significant in the view of the contracting parties, or that shall be considered as such due to the circumstances of the contract, and what should be made in good faith, such a mistake in those essential qualities in the work material is considered an error. It expresses the employer's nonperformance of the agreed-upon terms and conditions of the contract, which may lead to requesting the termination of the contract by the contractor as the second party to the contract.

2. Error Concerning Materials Supplied By Contractor:

For example, a person may contract with a carpenter to carry out furniture works, provided that the carpenter shall supply the wood, which often happens. A person may contract with a ship maker, provided that the latter shall supply the wood and materials required to make the ship. All of them contract for the work and the material in one package, in which case, the manufacturer or contractor, as the case may be, shall supply the material with the agreed-upon specifications as long as they are essential qualities of sich materials. Otherwise, this will result in the relative nullity of the contract due to an error regarding the material which is attributable due to the contractor. Hence, the employer has the right to request termination of the contract for errors in the materials.

3. Error Concerning Calculation:

The error in calculation or material error does not prejudice the effectiveness of the construction contract. However, such an error shall be corrected, as it may occur in the calculation and be then a material error. It shall be corrected without having an impact on the enforcement of the contract, where the construction contract remains effective despite that error. This includes measurements provided by the contractor, including details of materials, parts of work and prices. The contractor may make an error in calculating some of such items, such as an error in one of the calculation operations. In this case, the construction work is correct, but the error in the calculation must be corrected, and the correct number shall be recorded instead of the number concerning the error.

5. Effect Of Error In The Construction Contract:

Under the general rules, if either party commits an error, the contract is conditional on the permission of the party for whom the suspension was decided. If such permission is made, then the contract is considered effective. It may also revoke if it is not permitted regarding the error. All of this shall be made within three months of their knowledge of this error. In all cases, the error leads to relative nullity, that is, the construction contract is then voidable where the other party is not permitted. Then, that party may demand the termination of the contract.