MODULE I-WEEK 4

Title II. - CONTRACTS

CHAPTER 9- VOID AND INEXISTENT CONTRACTS
Article 1409-1422

Mindanao State University-Iligan Institute

of Technology
Class: HTM108

Topic: Law on Obligations and Contracts

Title II. - CONTRACTS

CHAPTER 1 GENERAL PROVISIONS Article 1305-1317
CHAPTER 2 ESSENTIAL REQUISITES OF CONTRACTS Articles 1318
SECTION 1. Consent Article 1319-1346
SECTION 2. Object of Contracts Article 1347-1349
SECTION 3. Cause of Contracts Article 1350-1355
CHAPTER 3 FORM OF CONTRACTS Article 1356-1358
CHAPTER 4 REFORMATION OF INSTRUMENTS Article 1359-1369
CHAPTER 5 INTERPRETATION OF CONTRACTS Article 1370-1379
CHAPTER 6 RESCISSIBLE CONTRACTS Article 1380-1389
CHAPTER 7 VOIDABLE CONTRACTS Article 1390-1402
CHAPTER 8 UNENFORCEABLE CONTRACTS Article 1403-1408
CHAPTER 9 VOID AND INEXISTENT CONTRACTS Article 1409-1422
II. Learning Objectives
At the end of the Chapter, the student should be able to:

1. Master the basic principles of Contract of law;

2. Understand the requisites of a perfected contract;
3. Understand the different types and classes of contracts under the New Civil Code.

CHAPTER 9
VOID AND INEXISTENT CONTRACTS
1. It cannot be ratified. (Art 1409)
2. The right to set up the defense of illegality cannot be waived.
3. The action or defense for the declaration of its inexistence does not prescribe. (art. 1410)
4. The defense of illegality is not available to third persons whose interests are not directly affected; and
5. It cannot give rise to a valid contract. (Art. 1422)

Art. 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 public
policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object 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 object 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 of illegality be waived.
TWO KINDS OF VOID CONTRACTS

1. The INEXISTENT ones like those where essential formalities are not complied with.
2. The ILLEGAL or ILLICIT ones, like a donation because of immoral condition, such as illicit sexual
intercourse. Here, in some way, the donation produces some effect in that he who gave the donation cannot
get back what he has given.

Some Characteristics of a Void Contract

1. The right to set up the defense of illegality cannot be waived and may be considered on appeal even if not
raised in the trial court.
2. The action or defense for their declaration as inexistent does not prescribe.
3. The defense of illegality of contracts is not available to third persons whose interests are not directly
affected.
4. It cannot give rise to a contract; thus a contract which is the direct result of a previous illegal contract is also
void and inexistent;
5. It generally, produces no effect;
6. Generally, no action to declare them void is needed, since they are inexistent from the very beginning;
7. They cannot be ratified;

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

NOTE: While it is true that technically, the action to annul a void or inexistent contract does not prescribe; it may
nonetheless, be barred by laches.
Example: If a void contract is void from the very beginning, what is the use of its being declared inexistent?
Strictly speaking, there is no use. BUT for purposes of convenience, or to avoid taking the law into our own
hands, there is nothing wring in having a void contract declared really void.

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. (1305)

Pari Delicto- means both parties are equally at fault or are equally guilty. The principle of pari delicto, means that
when the defect of avoid contracts consists in the illegality of the cause or object of the contract and both parties are
at fault or in a pari delicto, the law refuse them every remedy, or the parties have no action against each other.
Illegal contract with Criminal Offense
1. When both parties are in pari delicto – Rules
a. the parties shall have no action against each other;
b. both shall be prosecuted; and
C. the things of the price of the contract, shall be confiscated in favor of the government.
2. Where only one party is guilty.
The innocent one or less guilty may claim what he has given and shall not be bound to comply 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 other's 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 him. The other, who is not at fault, may
demand the return of what he has given without any obligation to comply his promise. (1306)

TWO KINDS OF ILLEGAL CONTRACT

a. Those where there is a criminal offense;
b. Those where there is no criminal offense.

ILLEGAL AND CRIMINAL CONTRACTS

Those contracts where there is a criminal offense may be of two kinds:
a. Those were both parties are guilty (in pari delicto)
b. Those were only one party is guilty and the other is innocent.

A. EFFECTS Where BOTH parties are GUILTY:

1. Since they are in pari delicto, they shall have no action against each other;
2. Both shall prosecuted;
3. The effects or the instruments of the crime shall be confiscated in favor of the government

B. EFFECTS Where ONLY ONE is GUILTY (or where, even if both are guilty, they are not equally guilty,
therefore not “in pari delicto”)
1. The guilty party will be prosecuted;
2. The instrument of the crime will be confiscated;
3. The innocent arty may claim what he has given (like the price he had paid for) or he has not yet given
anything, he shall not be bound to comply with his promise.

NOTE: Even if a contract involves a crime, still if a cause of action can be established without referring to the
illegal act or motive, relief can be granted by the courts.
ILLEGAL BUT NOT CRIMINAL CONTRACTS
Those contracts which are unlawful or forbidden but where there is no criminal offense may be of two kinds:
a. Those where both are guilty
b. Those where only one party is guilty or at fault.

A. EFFECT if BOTH parties are GUILTY:

Neither may recover what he has given by virtue of the contract nor demand the performance of the other’s
undertaking. The law will leave them as they are in pari delicto.

B. EFFECTS if only ONE party is GUILTY:

1. The guilty party cannot recover what he has given by reason of the contract, or ask the fulfilment of
what has been promised to him.
2. The party not at fault may demand the return of what he has given, without any obligation to comply
with his promise.

PARI DELICTO DOCTRINE

 If the two parties to a contract are in pari delicto, the doctrine applies even to the spouse of one of them, who
although not a signatory to the contract, has sufficiently manifested by affirmative act her unequivocal
concurrence to the contract in controversy.
 The doctrine does not apply to fictitious or absolutely simulated contracts since these contracts are inexistent.
 This principle does not apply with respect to inexistent and void contracts. In pari delicto, it denies all recovery
 to the guilty parties inter se. It applies to cases where the nullity arises from the illegality of the consideration
or the purpose of the contract. The doctrine does not apply where a superior public policy intervenes.

RULES AS TO GAMBLING
 No action can be maintained by the winner for the collection of what he has won in a game of chance. But any
loser in a game of chance may recover his loss from the winner, with legal interest from the time he paid the
amount lost, and subsidiarily from the operator or manager of the gambling house.
 If there was cheating or deceit committed by the winner, he and subsidiarily the operator or manager of the
gambling house shall pay by way of exemplary damages, not less than the equivalent of the sums lost, in
addition to the latter amount.
 If both winner and the loser have perpetrated fraud, no action for recovery can be brought by either.
 If the loser refuses or neglects to bring an action to recover what has been lost, his or her creditors,
 spouse, descendants or other persons entitled to be supported by the loser may institute the action

Gambling VERSUS Betting

 While generally, gambling on the results of a game of chance is prohibited, betting which concerns itself with
the games of skill, like chess, is ordinarily allowed.
 Thus the law says: “the loser in any game which is not one of chance, when there is no local ordinance which
prohibits betting therein, is under obligation to pay his loss, unless the amount thereof is excessive under the
circumstances.”

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.

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 any damage has been caused to a
third person. In such case, the courts may, if the public interest will thus be sub-served, allow the party
repudiating the contract to recover the money or property.

This is one case where recovery can be had even if the parties be in pari delicto. Note, however, that recovery can be
has only:
a. If the purpose has not yet been accomplished;
b. Or if damage has not been caused to any third person.

NOTE: The Article also applies if the parties are not equally guilty, and where public policy would be advanced by
allowing the suit for relief.

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 allows recovery of money or property delivered by the incapacitated person.

Example: An insane man gave money to another to kill XAVIER. May the insane man recover what he has
paid? Yes, since the interest of justice demands.

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

ILLEGAL PER SE CONTRACTS are those forbidden because of public interest.

MERELY PROHIBITED CONTRACTS are those forbidden because of private interests. Here recovery is permitted
provided that:
a. The contract is not illegal per se;
 b. The prohibition is designed for the protection of the plaintiff;
c. And public policy would be enhanced by allowing the recovery.

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.

PURPOSE OF THE ARTICLE: To curb the evils of profiteering.

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.

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.

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

ILLEGAL TERMS OF A CONTRACT

RULE 1: If the contract is INDIVISIBLE, the whole contract is void, even if only some terms are illegal.

RULE 2: If the contract is DIVISIBLE, the legal terms may be enforced is same can be separated from the illegal
terms.
He who wants to enforce a contract must show how much of the cause is legal; otherwise, if partly legal and partly
illegal, it will result in the contract being considered wholly void.

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

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

1. Cabulay, D. and Carpio, C. (2014). Philippine Tourism Laws, (2nd Ed.). Philippines. Rex Bookstore, Inc.
2. Javier, Nancy Joan M., (2012).Tourism Laws, 3rd ed.Philippines. Central Bookstore
3. Soriano, Fidelito R.(2011).Obligations and Contracts.GIC Enterprises
4. www.lawphil.net
5. www.supremecourt.gov.ph