Authored By: Omneya Ashraf Mohamed Mansour
Faculty of Law, English Department, Alexandria University
1-Case Title and Citation
Full Case Name: Court of Cassation (Civil and Commercial Division), Egypt – Partnership Nullity Case
Official Citation: Egyptian Court of Cassation Reports, Year 38, p. 231 (1987)
2-Court Name & Bench
Court: Court of Cassation (Arab Republic of Egypt)
Division: Civil and Commercial Division
Bench Type: Three-Judge Bench
Presiding Judges: Not specified in official report
3-Date of Judgment
23 March 1987
4-Parties Involved
Appellants (Petitioners):
The appellants were partners in a civil-commercial company who challenged the validity of the company’s formation before the Court of Cassation. They contended that the company contract was null and void ab initio, arguing that the firm had not fulfilled the essential legal requirements for a valid corporate existence under Egyptian law. They sought judicial annulment of the company contract, restitution of the capital they contributed, and recovery of profits or assets distributed during the company’s operation.
Respondents (Defendants):
The respondents were the opposing partners who maintained that the company had been lawfully established and operated, asserting that any procedural or formal defects did not affect its legal existence. They further claimed that the company’s activities had produced valid legal effects and that the appellants were estopped from denying its validity after having benefited from its profits.
5-Facts of the Case
The dispute originated between partners in a civil-commercial company formed to engage in business activities in Cairo. The appellants claimed that the company had never been legally constituted, as it failed to comply with the mandatory formalities prescribed by the Commercial Companies Law and relevant provisions of the Egyptian Civil Code. They argued that no valid partnership could arise because the company had neither been duly registered nor announced in the commercial registry, and its operations were conducted without fulfilling the statutory requirements for legal existence.
The conflict intensified when the respondents — opposing partners — treated the firm as valid and continued its business operations, including asset contributions and profit distribution. The appellants maintained that such acts were legally void and sought a judicial declaration of nullity of the company, together with restitution of their capital contributions and any profits earned during the disputed period.
Earlier proceedings before the South Cairo Court of First Instance (Commercial Division) resulted in a judgment dismissing the appellants’ claims and upholding the existence of the partnership. The appellants then appealed before the Court of Appeal, which affirmed the lower court’s ruling. Subsequently, the matter was brought before the Court of Cassation, challenging the legal reasoning of the prior judgments and asserting the absolute nullity of the company contract under Egyptian law.
6-Issues Raised
The Court of Cassation was called upon to determine the following legal questions:
Whether the company contract was void ab initio for failure to meet the mandatory legal requirements stipulated under the Egyptian Civil Code and Commercial Companies Law.
Whether the nullity of the company contract produces retroactive effects, thereby rendering all transactions and distributions conducted under it legally non-existent.
Whether the parties are entitled to restitution of their capital contributions and profits in accordance with the principles of unjust enrichment under Article 179 of the Egyptian Civil Code.
Whether the lower courts erred in law by upholding the company’s existence and by failing to apply the doctrine of absolute nullity to the partnership agreement.
7-Arguments of the Parties
For the Appellants (Petitioners):
The appellants argued that the company contract was void ab initio, as it failed to comply with the mandatory provisions governing the constitution of partnerships under the Egyptian Civil Code and the Commercial Companies Law (Law No. 26 of 1954).
They contended that the company was neither duly registered nor announced in the Commercial Register, violating Articles 505–507 of the Civil Code, which set the essential elements of a valid partnership.
The appellants further maintained that the existence of a company in law requires both consent and legal formality, and the absence of either renders the contract null.
Relying on Article 142 of the Civil Code, they asserted that a void contract produces no legal effects and is deemed never to have existed. Consequently, the parties must be restored to their original positions through restitution under Article 143.
They also invoked the principle of unjust enrichment (Article 179 Civil Code) to justify recovery of their capital and profits distributed under the invalid company contract.
The appellants argued that the lower courts had erred in law by recognizing a de facto partnership and thereby validating the acts of a company that never had legal existence.
For the Respondents (Defendants):
The respondents countered that the company, though irregular in its formal establishment, had existed and operated in fact, conducting lawful business and generating profits.
They invoked the doctrine of de facto partnerships, arguing that commercial dealings carried out in good faith should not be invalidated retroactively to the detriment of third parties or the partners themselves.
The respondents maintained that the appellants had participated actively in the company’s activities, shared profits, and only later sought nullity when disputes arose , thus acting in bad faith.
They relied on Article 505 of the Civil Code, asserting that partnership obligations may arise even from de facto relationships if mutual contribution and intent to share profits are established.
Finally, they argued that granting restitution under Article 179 would result in unjust enrichment in favor of the appellants, who had already benefited from the company’s lawful transactions.
8-Judgment / Final Decision
The Court of Cassation allowed the appeal and set aside the judgments of the lower courts, declaring that the company contract was null and void ab initio for failure to meet the statutory conditions of validity required under Egyptian law.
The Court held that the absence of registration and public announcement mandatory under the Commercial Companies Law renders the partnership legally non-existent. Consequently, all acts, transactions, and distributions carried out under the void company contract were deemed without
legal effect, it further ruled that the doctrine of de facto partnership invoked by the respondents could not override the mandatory legal formalities prescribed for company formation. The Court emphasized that such an irregular arrangement cannot acquire legal recognition, even if the parties acted in good faith.
Accordingly, the Court ordered the restoration of the parties to their pre-contractual positions, applying the principles of restitution and unjust enrichment under Articles 142, 143, and 179 of the Egyptian Civil Code. Each party was directed to return the capital and assets received under the void contract.
The Court also reiterated that no legal rights or obligations can arise from a contract declared void, and any benefits derived from it must be returned to prevent unjust enrichment.
Thus, the appeal was allowed, the lower judgments were reversed, and the company was judicially declared non-existent in law.
9-Legal Reasoning / Ratio Decidendi
The Court of Cassation based its reasoning on the general principles governing contractual nullity under the Egyptian Civil Code, emphasizing that a contract declared void produces no legal effect and is considered never to have existed (ex tunc effect).
The Court referred to Articles 142 and 143 of the Civil Code, which provide that when a contract is void, each party must return what they have received, thereby restoring both to their original positions. The Court highlighted that this rule applies to all civil and commercial agreements, including partnership contracts, unless a specific statute provides otherwise.
It further clarified that the doctrine of de facto partnerships cannot override mandatory statutory requirements designed to ensure legality, transparency, and protection of third parties.
The absence of registration and public declaration, as required by the Commercial Companies Law (Law No. 26 of 1954), invalidated the company’s legal personality. Therefore, no partnership could be recognized in law, as its existence would contradict public order and mandatory legal formality.
The Court emphasized that recognition of a partnership lacking essential legal conditions would undermine the principle of legality and the public nature of company registration, which are central to Egypt’s commercial system.
Additionally, the Court invoked Article 179 of the Civil Code, applying the doctrine of unjust enrichment to prevent either party from benefiting from an unlawful or non-existent legal relationship, In reaffirming these doctrines, the Court relied upon earlier Cassation precedents that had consistently treated company contracts as civil agreements subject to the general rules of nullity and restitution, It noted that the principle of retroactive nullity ensures that invalid acts cannot produce legal rights or obligations, maintaining the coherence and integrity of contractual justice.
Key Legal Doctrines Applied:
Retroactive effect of nullity (Articles 142–143, Civil Code) – a void contract is deemed never to have existed.
Restitution and unjust enrichment (Article 179, Civil Code) – parties must return benefits gained under a void agreement.
Mandatory nature of company registration – absence of formal registration invalidates company existence.
Public order principle, courts must deny legal recognition to contracts violating essential legal requirements.
Significant Precedents Cited:
Court of Cassation, Civil Division, Judgment of 14 April 1975 – affirmed that nullity erases all effects of a contract retroactively.
Court of Cassation, Commercial Division, Judgment of 12 December 1982 – held that lack of statutory formalities invalidates a company’s legal personality.
Court of Cassation, Judgment of 23 March 1987 (present case) – reaffirmed both doctrines as binding precedent.
10-Conclusions / Observations
The judgment delivered by the Egyptian Court of Cassation on 23 March 1987 stands as a cornerstone precedent in clarifying the doctrine of contractual nullity and its retroactive effects within Egyptian civil and commercial law.
By reaffirming that a company contract lacking essential legal formalities is void ab initio, the Court strengthened the principle that legality and registration are indispensable to the existence of any corporate entity. This decision not only ensures coherence within the civil law framework but also protects public order and the rights of third parties dealing with such entities.
The Court’s reasoning further reinforces the unity of civil and commercial jurisprudence, confirming that partnership contracts are governed by the same foundational rules of consent, legality, and formality that apply to all contracts under the Egyptian Civil Code.
From a doctrinal perspective, the judgment promotes legal certainty by preventing the recognition of entities that fail to comply with statutory obligations, while at the same time upholding the equitable principle of restitution and prevention of unjust enrichment.
Comparatively, the case aligns with continental civil law traditions, particularly those of France, where nullity produces retroactive consequences that restore the parties to their pre-contractual positions. It also stands as a valuable reference point for jurists and scholars analyzing the interrelation between contract law and company law in civil law jurisdictions.
In conclusion, this ruling continues to serve as a guiding precedent for courts and legal practitioners, affirming that no rights or obligations may arise from an unlawful or non-existent legal relationship, and that compliance with legal form and public order is a non-negotiable condition of validity in the Egyptian legal system.
