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Void or Inexistent Contracts

Article 1409. The Following contracts are inexistent and void from the beginning:
1. Those whose cause, object or purpose is contrary to law, morals, good customs,
public order or policy;
2. Those which are absolutely simulated or fictitious;
3. Those whose cause or object did not exist at the time of transaction;
4. Those which is outside the commerce of men;
5. Those which contemplate an impossible service;
6. Those where the intention of the parties relative to the principal of the contract
cannot be ascertained;
7. Those expressly prohibited or declared void by law;

These contracts cannot be ratified. Neither can the right to set up the defense or illegality be
waived.

As to the definition alone for the void contracts, these are defined as No contract at all, in which it is
easily understood that since the very beginning, no contract has ever existed and that whatever
stipulations may contain thereof, it still ineffective and unenforceable.

Stated by our Supreme Court, thru Justice J. B. L. Reyes, there are two kinds of void contracts --- the
INEXISTENT ones, wherein the agreement between the parties has no contract at all; and ILLEGAL or
ILLICIT ones, which contain immoral conditions or may be involved with such activities that are
considered morally unacceptable.

Here are individual explanations regarding void or inexistent contracts:

1. Those whose cause, object or purpose is contrary to law, morals, good customs, public order
or policy. any contracts that is contrary to law (rules made by the government), morals (relating
to what is right and wrong in human behavior), public order or policy (domain of police or other
policing agencies, courts, prosecution services and prisons) is easily understood to be void since
it is already against to the general policy or which is already established to be right or wrong.
2. Those which are absolutely simulated or fictitious. These kind of contracts are void because
it is made to look genuine, fake, and imaginary or it is just assumed.
3. Those whose cause or object did not exist at the time of transaction. These contracts contain
an object which may be legally accepted but does not exist at the time of the transaction or is
pertaining to a future thing, and this is considered void. This is not exactly correct because there
can be valid contracts where there is a sale of future or after-acquired property. This rule pertains
to objects which COULD not come to existence because the object may be a legal future thing.
4. Those which is outside the commerce of men. according to article 1347, things that are
considered outside the commerce of men are:
a. Personal rights, the status and capacity of persons, honorary titles and distinctions.
b. Public Offices
c. Political rights of individual or right of suffrage
d. Property pertaining to public dominion , such as roads plazas, squares and rivers
e. Sacred or common things, like the air and sea, as long as they have not been appropriated
or has been set apart for a specific purpose.
5. Those which contemplate an impossible service. this is composed of three:
a. Impossibility due to the nature of transaction or of the law.
b. Objectively impossible or where the object of the contract is impossible to do.
c. Subjectively impossible or where the contract contains stipulations by the parties where
the debtor cannot comply.
6. Those where the intention of the parties relative to the principal of the contract cannot be
ascertained. -- if there has been a doubt as to the principal object or when it is unknown and also
as to doubts to the incidental circumstances then it is considered as void because it is assumed
that there could not have been any meeting of the minds.
7. Those expressly prohibited or declared void by law. -- this rule may be situated with the
following:
a. Contracts upon future inheritance except in cases expressly authorized by law. -
There may be a sale of expected things but it should be subject to a condition that the
object will come to its existence, containing potential existence, or expectancy and hope
does exists. Future harvests from a specific field may be sold but as to law, the future
property may not be donated. The future inheritance can be the object of the contract but
the source of the property should not be alive , but if the case is when it is sold without
specification of the properties , it is only a sale of future hereditary rights and it is
permissible by law.
b. Sale of property between husband and wife. The law stated that this kind of sale is
prohibited, but if there is a separation of property, where the couple has a prenuptial
agreement, such sale is allowed by law.
c. Purchase of property by persons who are specially disqualified by law Persons
such as guardians, agents, executors, administrators and such are specially disqualified by
law to purchase property are under their care because of their position or relation with
that person or property.
d. Every donation between the spouses during the marriage shall be void except
moderate gifts which the spouses may give each other on the occasion of any family
rejoicing Donations between husband and wife is prohibited by law. Therefore, any
donations, except those gifts allowed, are automatically void.
e. A testamentary provision in favor of a disqualified person, even though made under
the guise of an onerous contract or made through an intermediary, shall be void.
f. Any stipulation that household service is without compensation shall be void. - Such
service is void because it is contrary to law, particularly in our constitution where no one
shall be held for involuntary servitude.
g. Under the Constitution, members of the Congress are prohibited from being
financially interested , directly or indirectly , in any contract with the government or
any subdivision or instrumentality thereof.

Such defense of illegality cannot be waived because as to this contract it is unenforceable and ineffective,
as it is already contrary to legal rules, whatsoever the stipulations may be. They are not subject to
ratification because it is already void and theres no need to approve and sanction for such contracts,
formally. Lastly, there is no action needed to declare if the contract is void and ineffective because with
our own personal judgment and as to our study with the civil code, it can be directly identified as void.

ART. 1410. The action or defense for the declaration of the inexistence of a contract does not
prescribe.

Since a void contract is ineffective, it is unnecessary to bring an action to declare it void. But it
would be better if you can have a judicial declaration of nullity. Wherein, a party of a void contract can
bring a court action to declare such contract as void or inexistent; or a party whom the void contract is
against can also raise the defense of nullity, in spite of the passage of time. This is to give you a peace of
mind and also to avoid taking the law into their own hands.
ART. 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and
the act constitutes a criminal offense, both parties being in pari delicto, they shall have no action
against each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code
relative to the disposal of effects or instruments of a crime shall be applicable to the things or the
price of the contract.

This rule shall be applicable when only one of the parties is guilty; but the innocent one may
claim what he has given, and shall not be bound to comply with his promise.

This article talks about what rules govern when contracts that are illegal and the act constitutes a
criminal offense in situations where both parties are in pari delicto or when only one party is guilty.

If both parties are in pari delicto they are equally guilty of the criminal offense constituted by the illegal
contract and the effect of this are: The parties have no action against each other because both of them are
at fault; Both shall be prosecuted for the illegal act; and The thing or price of the contract shall be
confiscated because it is the effect or instrument of the crime.

If only one party is guilty or if both parties are but is not equally guilty, same rule shall apply to the guilty
or more guilty party. The innocent or less guilty party can claim what he has given and shall not be bound
with his promise.

ART. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a
criminal offense, the following rules shall be observed:

1) When the fault is on the part of both contracting parties, neither may recover what he
has given by virtue of the contract, or demand the performance of the others
undertaking.
2) When only one of the contracting parties is at fault, he cannot recover what he has given
by reason of the contract, or ask for the fulfillment of what has been promised to him.
The other, who is not at fault, may demand the return of what he has given without any
obligation to comply with his promise.

This rule shall be applied when the contract is illegal but the act DOES NOT constitute criminal
offense. (E.g. immoral act)

The effect, if both parties are in pari delicto, will be, neither parties may recover what he has
given by virtue of the contract and neither of them may demand performance of the ones undertaking.

If only one party is guilty or more guilty party, its effect are: the guilty party loses what he has given by
reason of the contract and cannot ask for the fulfillment of the ones undertaking; the innocent party may
demand the return of what he has given and cannot be compelled to comply with his promise.

ART. 1413. Interest paid in excess of the interest allowed by the usury laws may be recovered by the
debtor, with interest thereon from the date of the payment.

This article allows any recovery from the payment of usurious interest, not just the excess of the
interest allowed by law, but the whole interest paid.
ART. 1414. When money is paid or property delivered for an illegal purpose, the contract may be
repudiated by one of the parties before the purpose has been accomplished, or before the damage
has been caused to a third person. In such case, the courts may, if the public interest will thus be
subserved, allow the party repudiating the contract to recover the money or property.

This article talks about the recovery of the contract when entered into for illegal purpose and its
requisites for the application are: The contract is for an illegal purpose; is repudiated before the purpose
has been accomplished or before any damage has been caused to a third person; and the court considers
that public interest will be subserved by allowing recovery.

ART. 1415. Where one of the parties to an illegal contract is incapable of giving consent, the courts
may, if the interest of justice so demands, allow recovery of money or property delivered by the
incapacitated person.

This article is an exception to the in pari delicto rule. If one of the party is an incapacitated,
recovery is allowed, if the interest of justice so demands.

ART. 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition by
the law is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced,
recover what he has paid or delivered.

This article is another exception to the in pari delicto rule. They may recover what they has paid
or delivered, if: the agreement is not illegal per se but is merely prohibited; the prohibition is designed to
protect the plaintiff; and public policy would be enhanced by allowing recovery to the plaintiff of what he
has paid or delivered.

ART. 1417. When the price of any article or commodity is determined by statute, or by authority of
law, any person paying any amount in excess of the maximum price allowed may recover such
excess.

Any person is entitled for the recovery of the excess amount in payment of goods with a fix
maximum price that is determined by the authority of law (e.g. Executive order of the President)

ART. 1418. When the law fixes, or authorizes the fixing of the maximum number of hours of labor,
and a contract is entered into whereby a laborer undertakes to work longer than the maximum thus
fixed, he may demand additional compensation for service rendered beyond the time limit.

Any person undertakes overtime or exceeds eight hours a day (provided by the Presidential
Decree No. 442, otherwise known as Labor Code) shall receive compensation for the service rendered.
However, this law does not apply to government employees, managerial employees, field personnel,
members of the family who are dependent to the employers, domestic helpers, persons in the personal
service of another, and workers who are paid by results
ART. 1419. When the law sets, or authorizes the setting of a minimum wage for laborers, and a
contract is agreed upon by which a laborer accepts a lower wage, he shall be entitled to recover the
deficiency.

The employee may recover the deficiency of compensation with legal interest, if he receives less
than of the minimum wage rate and the employer shall be criminally liable.

ART 1420. In case of a divisible contract, if the illegal terms can be separated from the legal ones,
the latter may be enforced.

If a contract is indivisible and other parts or terms of the contracts are illegal, then the whole
contract is still considered as void. If it is divisible and it contains terms which are partly legal and party
illegal, then they can enforce the contract limited up to the legal terms. It should be noted that if the
person who wants to enforce the contract should prove how much of the part of the contract is legal so he
or she could possibly enforce it. If he or she fails to do so then the contract is considered to be void as a
whole.

ART. 1421.The defense of illegality of contracts is not available to third persons whose interests are
not directly affected.

In connection with an illegal contract, any defense regarding the illegality of the contract may
only be set by those persons whose interests are affected. As to the rule of annulment of contracts, the
victim or injured party in a voidable contract can ask for annulment. The people obliged by the terms of
the contract are the ones who can avail of the defenses either principally or subsidiarily.

Article 1422.A contract which is the direct result of a previous illegal contract is also void and
inexistent.

A contract is considered to be void if it is directly resulting from a previous void contract because
as understood from the previous contract, we already know that it is ineffective and unenforceable, and
then we should assume that there is no existing contract anymore and therefore no actions should prevail
further.

Questions:

General Provisions (1305-1317)

1. Mary borrowed P10,000.00 from Jane. On maturity date, Mary could not pay her obligation to
Jane. Mary and Jane then agreed that for the meantime that Mary is not able to pay his debt. Mary
will work as the secretary of Jane without pay. After 3 months without pay, Mary suddenly left
the office of Jane. Jane filed an action in court against Mary stating that Mary had not yet paid her
debt. Hence, Mary should continue working without pay in the office of Jane because it was what
they agreed upon.
Is Mary bound by the agreement? Can Mary demand payment equivalent to 3 months salary for
her services from Jane? Why?

2. S sold his parcel of land to B. It was agreed that A a real estate appraiser would be the one to
determine the reasonable price of the land. A then appraises the land, fixed the price at
P5,000,000.00 and informs S about it. Can S compel B to pay the P5M purchase price? Explain.

3. On Jan. 25, 2016, S promised to sell his car to B for P2,000,000.00. It was agreed by the parties
that delivery of the car and payment of the purchase price was to be made on Jan. 31, 2016. On
Jan. 31, 2016, S refused to deliver the car stating that he changed his mind about selling his car.
Was there here a perfected contract of sale between S and B? Why?

Articles 1318-1346

1. B offers to construct the house of C for a price of P1,500.000.00 giving the latter 5 days to
decide. Before the lapse of 5 days, C has already accepted the offer. After the acceptance, is
withdrawal possible? If no, why? If yes, elaborate.

2. X signs a document because every time he refuses, he is slapped many times which causes blood
to flow from his mouth. Is it enforceable? Why?

3. Suppose A and B entered into a contract whereby A borrowed P10,000.00 amount of money from
B promising to pay 10 days after. But A got an accident 5 days before the due date and caused her
to forget everything (brain/head injury). What would be the effect of the accident to the contract?
Why?

Articles 1347-1358

1. Suppose A sold to B a parcel of land amounting to P300,000.00. The said land (private property)
unknown to A, shall be taken for public use (road). Is the sale valid? Why?

2. Suppose A agreed to sell his secondhand car to B in the amount of P500,000.00, but the assessed
value of the said car is P800,000.00. May the contract be annulled? Why?

3. S sells his Iphone 5s to L for P50,000.00. For S, the cause or consideration is the P50,000.00. If
the motive of S in selling his Iphone is to defraud C, what would be the action of C? Explain.

Reformation of Instruments (Art. 1359-1379)

1. B sold his house to Y. It was agreed that the sale will include all the improvements. However, the
contract as signed by one party, states that the house being sold is excluding the improvements
thereon. In this case, will reformation be the remedy? Or annulment? Explain.

2. Gail entered into a contract with Jojie whereby Gail sold her car to the latter with a plate number
of ABC 1357. By mistake, the contract written and signed by both parties states that the car sold
have the plate number ABC 1857. May be the instrument be reformed? Explain.

3. M, 15 years old, sold his only bike to N, 25 years old. The sale agreement was without the
knowledge of O, the guardian of M. N filed an annulment case today. Will the annulment
prosper? Explain.
Rescissible Contracts (Art. 1380-1389)

1. S sold his farm buildings to B. The building had no direct utilities connections, S therefore
promised on the agreement to provide new directly metered electricity and water supplies at his
own expense within 6 months. The six-month deadline passed, S did not respond to Bs request to
complete work. Can be rescind the contract? If not, why?

2. G, the guardian of M, who is a minor sold 2 parcel of land inherited by M for the amount of
P260,000.00 to B where the true value of the 2 parcel of land is P350,000.00. During the sale, F
sold one of the parcel of land to B without the knowledge of the latter to a third person in bad
faith. Can the contract be rescinded? If yes, what are the remedies of the sale?

3. H, in fraud of E, sold his specific boat to A, who is in bad faith. A in turn sold it to R, then R to T.
R and T are also in bad faith. Later, the contract was rescinded but the boat sunk. Who is liable
for damages? Why?

Voidable Contracts (Art. 1390-1402)

1. D sold a piece of land to his nephew C, a minor. One month later D died, Ds heirs then brought
an action to annul the sale on the ground that C was a minor and therefore without legal capacity
to contract. Is the contract voidable? Why?

2. B forced S to sell to him a specific diamond ring for P1,000,000.00. S filed an action for
annulment of the contract of sale and the same was annulled on July 17, 2016. Meantime, on July
13, 2016, the diamond ring got lost due to the fault of B. What is the liability of B? Qualify your
answer.

3. P and N, both of age, entered into a contract of sale, regarding a building worth P5,000,000. N
intimidated P, rendering the contract voidable. Of the P5,000,000.00 received by P, the
P1,500,000.00 was deposited at PNB, while the P3,500,000.00 was taken unlawfully by W. How
much is P obliged to return to N if the contract is annulled?

Unenforceable Contracts (Art. 1403-1408)

1. JB entered into a contract with JC, where the former orally agreed to sell his watch for
P5,000.00 to the latter who made a P2,000.00 partial payment. Subsequently, JB claim that there
was no sale happened. Can JC enforce the sale of the watch? Explain.

2. Nikko wants to pursue a loan from Nikka. On the other hand, Nikki represents to Nikka that
Nikko is financially sound and is considered a good payer. Nikkis representation, Nikka make
the loan available to Nikko, who is actually insolvent, without the knowledge of Nikka. Is the
contract enforceable? Explain.

3. On July 7, 2016, X, an engineer, called Y who is a foreman to work on his new project for
P100,000.00 which will start on July 27, 2016. Y agreed to Xs offer. Thus, X initially paid Y an
amount of P5,000.00. On July 17, X called the latter for the start of work, but he refused the
agreement and told X it was not enforceable, not being in writing, can X enforce the contract
against Y? Why?