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CHAPTER 9 – Void and Inexistent Contracts (Articles 1409-1422)

CHAPTER 9
VOID AND INEXISTENT
CONTRACT
(Arts. 1409-1422)

STUDY GUIDE : (WEEK 16)

1. DEFINITION : These are the contracts which have absolutely no


force and effect, and are inexistent from the beginning. It is as if they
have never been entered into, and they cannot be validated either by
time or ratification. The maxim is “NO CONTRACT AT ALL”.

2. What are the void contracts under Article 1409?


[ CODE: LAE-OII-Void ]

(a) Those whose cause, object or purpose is contrary to law,


morals, good customs, public order, or public policy;
 Illegal contracts (Review Art. 1306, and See Art. 1416)

 READ THIS CASE IN ITS ORIGINAL TEXT:


Canullas vs. Fortun,
G.R. No. L-57499, June 24, 1984.

(b) Those which are absolutely simulated or fictitious;


(Review Arts. 1345 & 1346)

(c) Those whose cause or object did not exist at the time of the
transaction; (Review Arts. 1347, par. 1, & 1352)

(d) Those whose object is outside the commerce of men;


(Review Arts. 1347, par. 1)

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(e) Those which contemplate an impossible service;


(Review Arts. 1347, par. 3 & 1348)

(f) Those where the intention of the parties relative to the


principal object of the contract cannot be ascertained;
(Review Art. 1378, par. 2)
(g) Those expressly prohibited or declared void by law.

3. Kinds of void contracts :

 INEXISTENT CONTRACTS – Those which lack one or


some or all of the elements, or do not comply with the formalities which
are essential for their validity.
 Example: A donation of a parcel of land in a private instrument is
VOID.

 It bears emphasis that the effects of the in pari delicto doctrine


outlined under Articles 1411 and 1412 apply only to illegal or illicit
contracts, and DO NOT APPLY TO inexistent contracts within legal
contemplation.

 READ THIS CASE IN ITS ORIGINAL TEXT:


Modina vs. Court of Appeals,
G.R. No. 109355, October 29, 1999.

 ILLEGAL or ILLICIT CONTRACTS – Those contrary to


law, morals, good customs, public order and public policy.
 Example: A contract for the sale of 10 kilos of shabu for a
consideration of P1,000.00 per kilo is VOID. Here, all the
essential requisites for the perfection of a contract of sale
is present, but the cause or object of the sale is illegal.

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 An illegal contract can produce effects under certain


circumstances where the parties are not of equal guilt.
(See Arts. 1411-1412.)
4. Characteristics of a void contract :

(a) Generally, it produces no effect at all.


 A void contract, being absolutely and entirely null, has no effect
whatsoever, and cannot therefore be enforced. However, the Supreme
Court has held that even as government contracts for additional
construction work may be void for violation of applicable laws, auditing
rules and for lacking legal requirements, in the interest of substantial
justice, the contractor’s right to be compensated will be upheld, applying
the principle of quantum meruit.

 READ THIS CASE IN ITS ORIGINAL TEXT:


EPG Construction Co. vs. Hon. Vigilar,
G.R. No. 131544, March 16, 2001.

(b) Generally, no action to declare it void is needed.


 If a void contract is void from the very beginning, what is the
use of its being declared inexistent?  There is no use. But for
purposes of convenience, or to avoid taking the law into our own hands,
there is nothing wrong in having a void contract declared really void.
 Illustrative Example: Ferdie sells to Meldy a 100 square-
meter portion of the shore in front of his beach house in Batangas.
Meldy pays P500,000.00 as cause or consideration for the sale. Of
course, this contract is null and void as the object of the sale is outside
the commerce of man. Let us assume, however, that Ferdie refuses to
return to Meldy the P500,000.00 price paid, but avers that there is
nothing wrong with their contract. What will be the remedy of Meldy?
 Meldy should file an action in court to declare the nullity or
inexistence of the contract. This right of Meldy does not prescribe.

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Indeed, the defect in this kind of contract cannot be cured by


prescription or by ratification.

 Thus, although a void contract has no legal effects even if no


action is taken to set it aside, when any of its terms have been performed,
an action to declare its inexistence is necessary to allow restitution of what
has been given under it.

 READ THIS CASE IN ITS ORIGINAL TEXT:


Fuentes vs. Roca,
G.R. No. 178902, April 21, 2010.

(c) The defense of its illegality cannot be waived. (Art. 1409, par.
2)

(d) It cannot be ratified. (Art. 1409, par. 2)


 Unlike an unenforceable contract, a void contract cannot be
ratified by the acceptance of benefits under it (Art. 1405). Also, unlike a
voidable contract, a void contract cannot be ratified by the act of a party or
by his parent or guardian.

(e) The action and/or defense to declare its inexistence does not
prescribe. (Art. 1410)
 If a contract is void, the action or defense to have it declared
void does not prescribe. In other words, there is no prescriptive period for
the filing of an action for the nullity of a contract. Neither is there a
prescriptive period within which a party can set up the defense of nullity of
a contract in an action filed against him for specific performance under a
void contract. To reiterate, mere lapse of time (such as the 4-year
prescriptive period in rescissible and voidable contracts) cannot validate
or give effect to a contract that is void or inexistent.

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(f) The defense of its illegality is NOT available to third persons


whose interests are not directly affected. (Art. 1421)
(g) It cannot give rise to a valid contract. Hence, a contract which
is the direct result of a previous illegal contract is also void and
inexistent. (Art. 1422)
5. Two kinds of illegal contracts :

 Those where there is a criminal offense; and


 Those where there is no criminal offense.

6. Pari delicto defined.  Pari delicto simply means equal fault.


 The term is used with reference to the general rule that illegal
transactions or contracts are not legally enforceable. It is a universal
doctrine which holds that no action arises, in equity or in law, from an
illegal contract. Where the parties are in pari delicto, no suit can be
maintained for specific performance under the contract, or to recover the
property agreed to be sold or delivered, or the money agreed to be paid,
or damages for its violation. No affirmative relief of any kind will be given
to one against the other.

7. Effects of an illegal contract where there is a criminal offense. –

(a) Where both parties are guilty or in pari delicto (Art. 1411, par.
1):

 Since they are in pari delicto, they shall have no action


against each other.
 Both shall be prosecuted.
 The effects or instruments of the crime (things or price of the
contract) shall be confiscated in favour of the government.

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 Illustrative Example: Popong sold to Yoyong 5 kilos of


shabu for P50,000.00. Upon agreement, Popong delivered 2 kilos of
the shabu to Yoyong, and the latter paid P20,000.00 therefor. Assuming
that Popong later refuses to deliver the remaining 3 kilos, OR after
having delivered the deficiency it is Yoyong who refuses to pay the price
or consideration therefor, the following legal effects will ensue, to wit:

 Since they are in pari delicto, Yoyong cannot compel Popong in


a court of law to deliver the remaining 3 kilos of shabu; neither can
Popong compel Yoyong to pay the balance of P30,000.00 if complete
delivery of the shabu had been made.
 Both Popong and Yoyong will be criminally prosecuted for the
sale of prohibited substances under the Dangerous Drugs Act.
 The shabu and the P20,000 already paid to Popong will be
confiscated by the authorities in favor of the government.

 READ THIS CASE IN ITS ORIGINAL TEXT:


Ramirez vs. Ramirez
G.R. No. 165088, March 17, 2006.

(b) Where only one party is guilty and the other is innocent; OR,
where, even if both are guilty, they are not equally guilty, or not in pari
delicto (Art. 1411, par. 2)

 The guilty party will be criminally prosecuted.


 The instrument of the crime (the object of the contract) will
be confiscated.
 The innocent party may claim what he has given ( e.g., the
price paid); or, if he has not yet given anything, he shall
NOT be bound to comply with his promise.

 Illustrative Example: Popong, a government employee,


sold to Yoyong for P3,500.00 an electric fan officially issued to his office.
He made the sale in his personal capacity without the knowledge and

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authority of his office. Yoyong was not aware that what he bought was
government property. Hence, the sale is illegal and constitutes a crime.
In this case, only Popong is the guilty party. The following legal effects
will then ensue, to wit:

 Popong will be criminally prosecuted and the electric fan will be


confiscated in favor of the government.
 Yoyong cannot be compelled by Popong to pay the P3,500.00
purchase price agreed upon. If Yoyong has already made the payment,
he may recover it from Popong.

8. Effects of an illegal contract where there is NO criminal offense. –

(a) Where both parties are guilty (Art. 1412, par. 1) :


 Neither may recover what he has given by virtue of the
contract or demand the performance of the other’s undertaking.
 Illustrative Example: Ron and Yvonne are both of legal
age, and are under no legal impediment to marry each other. They
entered into an agreement whereby Yvonne agreed to live with Ron as
his wife without the benefit of marriage, in exchange for his giving to her
a monthly support of P30,000.00. This contract is illegal for being
contrary to morals, but the illegality does not constitute a crime. Under
the facts, should there be a breach of the contract, and either of the
parties seek relief from a court of law:

 Ron cannot compel Yvonne to live with him if she later changes
her mind after the agreement.
 Yvonne cannot demand that Ron give her the promised
monthly support, if it is Ron who refuses to make good his part of the
bargain.
 If Ron has already given any amount of the monthly support
agreed upon, he will not be able to recover it.

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(b) Where only one party is guilty and the other is innocent, or,
where, even if both are guilty, they are not equally guilty, or not in pari
delicto (Art. 1412, par. 2)

 The guilty party cannot recover what he has given by reason


of the contract, or ask for the fulfilment of what has been promised him.
 The party not at fault may demand the return of what he has
given, without any obligation to comply with his promise.
 Illustrative Example: Watt sold and delivered to Nat for
P8,000.00 a cow which Watt knew was suffering from a contagious
disease. This sale is void (See Art. 1575), but the illegality does not
constitute a crime.

 If Nat has paid the price, she can recover it from Watt. If she
has not paid it yet, then she cannot be compelled to make the payment.
 Watt, the guilty party, cannot recover the cow from Nat if he
already delivered it to Nat. Since it is suffering from a contagious
disease, it will be condemned by the authorities.
 The shabu and the P20,000 already paid to Popong will be
confiscated by the authorities in favor of the government.

9. Exceptions to the “pari-delicto rule”. – Under the “pari-delicto


rule” neither of the guilty parties may recover what each has given
under the contract. The following provisions, however, allow recovery
under certain circumstances :

(a) Under Article 1414, recovery by one of the guilty parties to an


illegal contract is allowed if he repudiates the contract under the following
conditions :

 The illegal purpose has not yet been accomplished;


 No damage has yet been caused to any third person; and

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 The court considers that public interest will be subserved by


allowing recovery.
 Illustrative Example: Zig contracted the services of Hal
for the latter to kill Cheng. Zig gave Hal P500,000.00 for the purpose.
Before Hal could kill Cheng, Zig changed his mind and told Hal not to
pursue killing Cheng.

 Is Zig still allowed to withdraw from his evil plan?


 YES, because the act has not yet been accomplished, and no
damage has yet been caused to a third person.

 May Zig be allowed to recover the P500,000.00 he gave to Hal?


 Zig’s right to recover is discretionary on the part of the court. If the
court finds that public interest will be subserved, then it will allow
recovery.

 Supposing the repudiation of Zig took place after Hal had already
killed Cheng, what will be the effect?
 Any repudiation made by Zig after Hal has already killed Cheng will
serve no purpose. Both parties will be prosecuted as principals of
the crime of murder – Zig, as principal by inducement, and Hal, as
principal by direct participation.

(b) Under Article 1415, the courts may allow recovery of money or
property delivered by the incapacitated person, where one of the parties to
an illegal contract is incapable of giving consent.
 Under this article, it is not required that the illegal purpose must
not have been accomplished, or that no damage has been caused to a
third person before recovery may be allowed the incapacitated person.
 Illustrative Example: Fifteen year-old Fritz gave thirty
year-old Bing P5,000.00 for ten bales of marijuana leaves. Fritz here
may be allowed to recover the P5,000.00 given by him to Bing if the
court finds that the interest of justice so demands.
(c) Under Article 1416, recovery is likewise permitted if :

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 The agreement is not illegal per se (forbidden because of public


interest), but is merely prohibited ( forbidden because of private
interests);
 The prohibition is designed for the protection of the plaintiff; and
 Public policy would be enhanced by allowing the plaintiff to recover
what he has paid or delivered.
 Illustrative Example No. 1: Juan, a Filipino national, sold
and delivered to Nakamura, a Japanese national, a 2,000 square-meter land
for P20 million. This sale is violative of the Constitution which prohibits
aliens from acquiring private or public agricultural lands, including residential
lands. Hence, although both parties are at fault, Juan will be allowed to
recover the land from Nakamura under Article 1416. Public policy will be
enhanced if the court will set aside the contract of sale, and restore
ownership of the land to its Filipino owner, for whose benefit the
constitutional prohibition has been ordained.

 Illustrative Example No. 2: Crispin donated to Lourdes


everything that he possessed and owned, leaving nothing for himself. This
is prohibited but not illegal per se. Public policy will be enhanced if Crispin is
allowed to recover, at least that necessary for his own support and the
support of his relatives.

(d) Other illegal contracts where recovery is allowed even if the


contracting parties are in pari delicto:

 Art. 1417 – Effect when payment is made above the ceiling price
fixed by law for an article or commodity.

 If the law has set a minimum price for an article or commodity,


any person paying any amount in excess of such price may recover the
excess. This is true even if both parties are in pari delicto as the law has
for its object the curbing of the evils of profiteering.

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 Illustrative Example: Morito buys from the Paltex station 30


liters of unleaded gasoline. The price per liter as regulated by the Energy
Regulatory Board is P41.00 per liter. If the price paid by Morito to the Paltex
station is P1,350.00 (at P45.00 per liter), he can recover the excess of
P120.00 because the amount in excess of that allowed by law is
recoverable.

 Art. 1418 – Sanctioning recovery of additional compensation for


services rendered beyond time limit prescribed by law.

 Maximum number of hours of work.  The normal hours of


work of any employee shall not exceed (8) hours a day.
(Art. 83, Labor Code)

 Overtime pay.  When an employee performs work beyond


eight hours a day, he is entitled to an additional compensation equivalent
to his regular wage plus at least twenty-five percent (25%) thereof. Work
performed beyond eight hours on a holiday or rest day shall be paid
additional compensation equivalent to the rate of the first eight hours on a
holiday or rest day plus at least thirty (30%) thereof.
(Art. 87, Labor Code.)
 Illustrative Example: If a worker agreed to work for ten (10)
hours without additional compensation for the two (2) excess hours worked,
he shall thereafter be entitled to recover additional compensation for such
excess two (2) hours. This is true even if the worker and the employer are in
pari delicto, i.e., they entered into the agreement of their own free will,
knowing fully well the rates to which they are entitled to or obliged to give
under the circumstances.

 Art. 1419 – Sanctioning recovery of amount of wage less than the


minimum fixed.

The voluntary acceptance by a laborer of a wage lower than


the minimum wage, despite knowledge of what he is entitled to under

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labor laws, does not constitute a valid waiver of his right to recover the
deficiency. This is true even if the laborer is in pari delicto with the
employer.
 Illustrative Example: Assume that the law has fixed the
minimum wage at P450.00 per day for an eight-hour work in the NCR, and a
laborer agreed to work for a P250.00 per day wage for lack of other
available employment. Despite willingly binding himself to such a rate under
the employment contract signed with his employer, he shall be entitled to
recover the deficiency of P100.00.

10. Article 1420 – Effect when a contract contains


both legal and illegal terms

 If the contract is indivisible, the whole contract is void, even


if only some parts or terms are illegal
 Illustrative Example 1: Santiago sold to Roswinda an
unlicensed revolver and a toy air gun for P20,000.00. The sale here is
indivisible since there is only one consideration for both items. Hence, the
whole contract is void because that part that is legal (the sale of the toy air
gun), cannot be separated from that which is illegal (the sale of the
unlicensed revolver).

 If the contract is divisible, the legal terms may be enforced if


they can be separated from the illegal terms.
 Illustrative Example 2: In the example above, if the
agreement is that Santiago is selling the revolver to Roswinda for
P12,000.00, and the air gun for P8,000.00, the contract becomes divisible,
and the obligations of the parties likewise become divisible. Hence, that part
of the contract which is legal is capable of separation from those parts which
are illegal. In this case, only the sale of the air gun is valid and may be
enforced. The sale of the unlicensed revolver, which is illegal, cannot and
will not be enforced.

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11. Article 1421 – Who may avail themselves of


the defense of illegality of the contract?

 GENERAL RULE: Only the parties to the void contract may


avail themselves of the defense of its illegality.

 EXCEPTION: Third persons may set up the defense of


illegality as long as their interest is directly affected by the
void contract.
 Illustrative Example: Homer and Wilma are husband and
wife, whose property relationship is governed by the conjugal partnership of
gains. Homer sold his paraphernal lot to Wilma. Here, the sale is illegal and
void because the husband and wife are prohibited from selling property to
each other. If Carmen, a creditor of Homer became his creditor after the
void contract of sale was perfected, she cannot question the sale. However,
if Carmen was already a creditor of Homer before the sale was perfected,
and she cannot collect her claim from Homer because he has no other
properties, then Carmen can question the sale made by Homer to Wilma as
Carmen’s interest is already directly affected.

12. Article 1422 – Effect where contract is the


direct result of an illegal contract

 An illegal contract is void and inexistent; hence, it cannot give


rise to a valid contract. Therefore, a contract that is the direct result of a
previous illegal contract is also void and inexistent. A void and inexistent
contract cannot be novated. (Art. 1298)
 Illustrative Example: Nicanor and Margarita agreed that she would
give Nicanor P500,000.00 if he would burn the house of Pacita. After
burning the house of Pacita, Nicanor and Margarita agreed that instead of
Margarita giving Nicanor P500,000.00, Margarita will instead give to Nicanor
her lot. Since the first contract for the burning of Pacita’s house is an illegal
contract, the second contract which is the direct result of the previous illegal
contract is also void and inexistent.

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APPLICATION/PROBLEMS :

1. Jackie sold to Ryan a smuggled BMW car for P4.5M. Ryan made
an initial payment of P2M. After the car was delivered to Ryan, and
despite repeated demands from Jackie, Ryan failed to pay the balance of
the purchase price in the amount of P2.5M. Jackie then filed an action in
court for the collection of the remaining balance. Will Jackie’s action for
collection prosper?  Art. 1411

2. Jess, who was married to Tess, donated to Melissa a parcel of


land which was his paraphernal property. The donation was made on
October 2, 2009 on Melissa’s 17th birthday, and subject to the condition
that Melissa would become his mistress. Melissa agreed and in fact
became the mistress of Jess for a period of more than five years, until
before the death of Jess on November 8, 2015. The following year, Tess
also died. After the death of their parents, the children filed an action to
recover the land from Melissa alleging that the donation is void and
inexistent because the cause of the contract is illegal and immoral. Can
the children recover the property from Melissa?  Art. 1412

3. Angela promised to give Manny P300,000.00 if he will kill Barry.


Angela gave Manny the P300,000.00 in advance. However, before
Manny could kill Barry, Angela changed her mind and informed Manny
that she was withdrawing from the plan. As a result, Angela demanded
from Manny the return of the P300,000.00. Can Angela recover what she
has paid to Manny?  Art. 1414

4. Assume in the immediately preceeding number that Angela is only


17 years old, and Manny already killed Barry before Angela changed her

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mind and informed Manny that she was withdrawing from the plan. Will
your answer to No. 3 be the same?

*** END ***

FOOD FOR THOUGHT

“All roads that lead to SUCCESS have to pass through


HARD WORK BOULEVARD at some point.”
Eric Thomas

“Satisfaction lies in the effort, not in the attainment.


Full effort is full victory.”
Mohandas Gandhi

“The difference between the impossible and the possible


lies in a person’s determination.”
Tommy Lasorda

“Nobody ever drowned in his own sweat.”


Albert Einstein

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