INTRODUCTION TO CHAPTERS 6,7,8,9
which are the object thereof.
KINDS OF DEFECTIVE CONTRACTS
1. Rescissible contracts (Chap 6) - valid because
all the essential requisites of a contract exist but
by reason of economic injury or damage to one
of the parties or to 3rd persons such as creditors,
the contract may be rescinded.
2. Voidable contracts (Chap 7) – defect is caused
by vice of consent; valid until annuled unless
there has been a ratification.
3. Unenforceable contracts (Chap 8) – cannot be
sued upon or enforced unless they are ratified.
Occupies an intermediate ground between
voidable and a void contract.
4. Void or inexistent contracts (Chap 9) –
absolutely null and void which have no effect at
all and cannot be ratified
CHAPTER 6 – RESCISSBLE CONTRACTS
ART. 1380: RESCISSIBLE CONTRACTS
Rescissible contracts – validly agreed upon contracts
because all the essential elements exist, legally effective
 In the cases established by law, the remedy of
rescission is granted in the interest of equity
BINDING FORCE
Valid and enforceable although subject to rescission by
the court when there is economic damage or prejudice to
one of the parties or to a 3rd person.
 No defect at all, but by reason of some external
facts, its enforcement would cause injustice
RESCISSION – remedy granted by law to the
contracting parties and sometimes even to 3rd persons in
order to secure reparation of damages caused them by a
valid contract, by means of restoration of things to their
condition they were in prior to the celebration of said
contract
REQUISITES OF RESCISSION
1. The contract must be validly agreed upon.
2. There must be lesion or pecuniary prejudice to
one of the parties or a 3rd person.
3. The rescission must be based upon a case
especially provided by law.
4. There must be no other legal remedy.
5. The party asking for rescission must be able to
return what he is obliged to restore by reason of
the contract.
6. The object of the contract must not legally be in
the possession of 3rd persons who did not act in
bad faith.
7. The period for filing the action for rescission
must not have prescribed.
ART 1381: CONTRACTS THAT ARE RESCISSIBLE
TYPES OF RESCISSIBLE CONTRACTS
1. Those which are entered into by guardians
whenever the wards whom they represent suffer
lesion by more than ¼ of the value of the things
a. Ward – person under guardianship by
reason of some incapacity
2. Those agreed upon in representation of
absentees, if the latter suffer the lesion stated in
the preceding number.
a. Absentee – person who disappears from
his domicile his whereabouts being
unknown, and without leaving an agent
to administer his property.
General rule: Lesion does not invalidate a contract except
only in cases specified by law.
3. Those undertaken in fraud of creditors when
the latter cannot in any other manner collect the
claims due them.
a. There must be an existing credit prior to
the contract to be rescinded, although it
is not yet due or demandable.
b. There must be fraud on the part of the
debtor which may be presumed or
proved.
c. The creditor cannot recover his credit in
any other manner, it not being required
that the debtor be insolvent.
4. Those which refer to things under litigation if
they have been entered into by the defendant
without the knowledge and approval of the
litigants or of competent judicial authority.
a. Rescissible if A (the original owner)
successfully recover the land from B
(who sold the land to C) by means of
litigation.
b. Unless C is in legal possession of the
land in good faith – A may file a notice
of lis pendens to protect his right
5. All other contracts specially declared by law to
be subject to rescission.
a. Partition (judicial or extrajudicial) – when any one
of the co-heirs received things whose value is less
by at least ¼ that the share to which he is entitled,
considering the value of the thing at the time they
were adjudicated.
b. Non-compliance of the obligations of the
lessor/lessee – aggrieved party may ask for the
recission of the contract and indemnification for
damages, or only the latter, allowing the contract
to remain in force.
c. Vendee – when the lack in the area of the real
estate sold be not less than 1/10 of that stated, or
when the inferior value of the thing sold exceeds
1/10 of the price agreed upon.
ART. 1382: PAYMENTS MADE IN A STATE OF
INSOLVENCY
Debtor is insolvent – if he does not have sufficient
properties to meet his obligations.
 Not necessary of judicial declaration
 Pag nagbayad si debtor but due to insolvency
hindi sufficient to cover the whole value, pwede
magrescind si creditor.
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ART. 1383: RESCISSION IS SUBSIDIARY ART. 1387: PRESUMPTIONS OF FRAUD IN THE
CASE OF ALIENATION BY THE DEBTOR OF HIS
Rescission – NOT a principal remedy PROPERTY
Only subsidiary – can be availed only if the injured party 1. Alienation by gratuitous title – when the donor
proves that he has no other legal means aside from did not reserve sufficient property to pay all
rescinding the contract to obtain redress for the damage debts contracted before the donation.
caused.
a. Fraud is presumed unless proved
 Damage is repaired (as in the case of lesion otherwise.
suffered by the ward or absentee) – rescission
cannot take place. 2. Alienation by onerous title – not presumed.
Creditors must show that the conveyance will
ART. 1384: EXTENT OF RESCISSION prejudice their right.
The rescission shall only be to the extend of the a. Presumption of fraud will arise in the
creditor’s unsatisfied credit. case the sale was made after some
Policy of the law: to preserve or respect the contract, not judgment has been issued against him.
to extinguish it. RULES IN DETERMINING FRAUDULENT
ART. 1385: OBLIGATION TO RETURN THE TRANSFERS OF PROPERTY
OBJECT OF THE CONTRACT 1. The fact that the consideration of the conveyance
Rescinded contract – parties must return to each other is fictitious or inadequate.
(mutual restitution): 2. A transfer made by a debtor after suit has begun
1. Object of the contract with its fruits and while it is pending against him.

2. Price thereof with legal interest 3. A sale upon credit by an insolvent debtor.

PURPOSE OF RESCISSION: to restore the parties to
their original situation.
Presumption: the party who received the object of the
contracts has enjoyed the fruits thereof while the other has
used the money which is the price of the object.
OBLIGATION OF 3RD PERSON TO RESTORE
If the 3rd person has nothing to restore, the article does not
apply.
 Where a contract is rescinded on the ground that
it has been entered into in fraud of creditors, the
plaintiff creditor has no obligation to return
anything since he has received nothing.
WHEN RESCISSION NOT ALLOWED
1. If the party who demands rescission cannot
return what he is obliged to restore under the
contract.
4. The transfer of his property by a debtor,
especially when he is insolvent or greatly
embarrassed financially.
5. The fact that the transfer is made between father
and son, when there are present some or any of
the above circumstances.
6. The failure of the vendee to take exclusive
possession of all the property.
7. It was known to the vendee that the vendor had
no properties other than that sold to him.
ART. 1388: LIABILITY OF PURCHASER IN BAD
FAITH
Purchaser in bad faith – person who acquired the object of
the contract alienated in fraud of creditors, must return the
same if the sale is rescinded and should be impossible for
him to return in, due to any cause, he must indemnify the
former.

2. If the property is legally in the possession of a 3 rd
person who acted in good faith, that is to say, he
acquired the property and registered it under the
Torrens System in the Registry of Property
unaware of the flaw in his title or mode of
acquisition.
a. Remedy: injured party to demand for
damages from the person who caused
the loss
ART. 1386: CONTRACTS APPROVED BY THE
COURT
Rescission cannot take place in the cases referred to No.
1&2 of Art. 1381 (ward or absentees) if the contract has
been approved by the court.
Presumption: the court is acting in the interests of the
ward or absentee when it approves the contract despite the
lesion.
2 or more alienation – 1st acquirer shall be liable first, and
so on, successively.
ART. 1389: PERIOD TO RESCIND – WITHIN 4
YEARS
General rule: action to claim rescission must be
commenced within 4 years from the date the contract was
entered into.
Exceptions:
1. For persons under guardianship, the period shall
begin from the termination of incapacity.
2. For absentees, from the time the domicile is
known.
PERSONS ENTITLED TO BRING ACTION
1. Injured party / defrauded creditor
2. His heirs, assigns, or successors in interest

3. Creditors of the above-entitled subrogation.

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CHAPTER 7: VOIDABLE CONTRACTS a. Incapacitated person – no capacity to
sue.
ART. 1390: VOIDABLE OR ANNULABLE
CONTRACTS DESPITE NO DAMAGE ART. 1392: RATIFICATION

Binding, unless they are annulled by a proper action in RATIFICATION – one voluntarily adopts or approves
court by the injured party. They are susceptible of some defective or unauthorized act or contract which
ratification. without his subsequent approval or consent, would not be
binding on him.
VOIDABLE / ANNULLABLE contracts – possess all
the essential requisites of a valid contract but one of the  Indicated an intention on the part of the ratifier
parties is legally incapable of giving consent, or consent to be bound to the provisions of the contract.
is vitiate by mistake, violence, intimidation, undue
influence or fraud.  Cleanse the contract from ALL its defects from
the movement it was constituted.
 Not void ab initio
 Makes the contract valid and the action to
 Existent, valid and obligatory unless annulled or annul extinguished.
set aside by a proper action in court
Confirmatio Ratification – Acknowledgement
 Once ratified – absolutely valid and can no n – to cure a to cure the – to remedy a
longer be annulled. defect in a defect of lack deficiency of proof
voidable of authority in
 Existence of damage – not essential contract an authorized
contract
2 TYPES OF VOIDABLE CONTRACT (entered into by
1. BY AN INCAPACITATED PERSON – Legal another)
incapacity to give consent, where one of the Under the NCC, all 3 terms are now uniformly called
– RATIFICATION
parties is incapable of giving consent to the
contract; or
ART. 1393: KINDS OF RATIFICATION
2. VITIATED CONSENT – Violation of consent,
1. EXPRESS – manifested in words or in writing
where the vitiation is done by mistake, violence,
intimidation, undue influence, or fraud 2. IMPLIED or tacit – silSence or acquiescence;
by acts showing adoption or approval of the
ANNULMENT – remedy provided by law, for reason of
contract; or by acceptance and retention of
public interest, for the declaration of the inefficacy of a
benefits flowing therefrom.
contract based on a defect or vice in the consent of one
of the contracting parties in order to restore them to their REQUISITES OF RATIFICATION
original position in which they were before the contract
was executed. For implied:

GROUNDS FOR ANNULMENT (DECLARATION OF 1. Knowledge of the reason which renders the
NULLITY) contract voidable

ACTION TO BRING 2. Such reason must have ceased

1. POSITIVE REDRESS – action must be filed; a. Again, reason for voidable contracts:
otherwise, the contract remains binding 1. incapacity of one party
2. vitiated consent
2. DEFENSE – no affirmative action is needed hence, it follows that
(for 1) the incapacity shall cease
ART. 1391: ANNULMENT SHALL BE BROUGHT (for 2) he now acts on his own free will,
WITHIN 4 YEARS otherwise, still voidable
3. The injured party must have executed an act
4-year period shall begin: which necessarily implies an intention to waive
1. Intimidation, violence, or undue influence – from his right
the time these 3 ceases For express:
a. Before that time, consent is still vitiated, 1. Same with implied except that all is effected
hence, the victim cannot be expected to expressly
bring an action in court.
ART. 1394: RATIFICATION BY GUARDIAN OF
2. Mistake or fraud – from the time it is discovered THE INCAPACITATED
a. Before the time of discovery, the 1. Guardian – since the person entitled to ratify is
innocent party is unaware of the reason still incapacitated, his guardian acts in his behalf
which renders the contract voidable and
cannot also be expected to bring an a. Have the power to contract on his
action in court. ward’s behalf, hence, they may also
ratify contracts entered into by their
3. Contracts entered into by minors / incapacitated wards
persons – from the time the guardianship
ceases. 2. Injured party himself – provided he is already
capacitated

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 3. Party whose consent is vitiated – mistake,
intimidation, etc.
ART. 1395: RATIFICATION AS A UNILATERAL
ACT
Ratification – unilateral act where a party waives the
defect in his consent
ART. 1396: RETROACTIVITY OF RATIFICATION
RATIFICATION – cleanses all the defects of a contract;
making the contract valid from its inception subject to
the prior rights of 3rd persons.
ART. 1397: PARTY ENTITLED TO ANNUL
REQUISITES TO CONFER NECESSARY CAPACITY
FOR ANNULMENT
1. Plaintiff must have an (material) interest in the
contract
2. Victim and not the party responsible for the
defect is the person who must assert the same
 Creditors of the victim – cannot ask for
annulment for they are not bound by the contract
General rule: Strangers to the contract has no legal
capacity to challenge the validity of such contract.
Exception: they can show detriment in which would
positively result to them from the contract in which they
had no intervention or participation.
 The guilty party including his successor in
interest cannot ask for annulment
ART. 1398: MUTUAL RESTITUTION UPON
ANNULMENT
General rule: parties must restore to each other:
a. The subject matter of the contract with its fruits
b. The price thereof with legal interest
 Doctrine is like in rescission.
In personal obligations – where the service had already
been rendered, the value thereof with the corresponding
interest, is the basis for damages, recoverable from the
party benefited by the service.
 Not necessarily the other contracting party. Can
be a 3rd person to whose favor was the contract
was constituted
ART. 1399: RESTITUTION BY AN
INCAPACITATED PERSON
 An exception to the general rule of mutual
restitution (preceding article)
 Applies only if the defect is INCAPACITY
Incapacitated person – obliged to make restitution only
to the extent that he was benefited by the thing or price
received by him
 If he was not benefited, he is not obliged to
restore what he had received but the other
contracting party is still bound to return what he
had received, whether he was benefited or not.
 Minor – sufficient if he has kept it, then by the
time of his majority, he can restore it to the other
contracting party
 Burden of proving the benefit or profit received
by the incapacitated person is on the person who
has capacity
o No presumption of enrichment
ART. 1400: EFFECT OF LOSS OF THING TO BE
RETURNED
1. If lost without the fault of the person obliged to
make restitution – no more obligation to return
such thing
a. It follows that the other party cannot
be compelled to restore what he is
bound to
2. If lost through his fault – obligation not
extinguished but is converted into an indemnity
for damages consisting of the value of the thing
at the time of the loss with interest from the
same date and the fruits received from the time
the thing was given to him to the time of its loss.
ART. 1401: LOSS THROUGH THE FRAUD OR
FAULT OF THE PERSON WHO HAS A RIGHT TO
INSTITUTE ANNULMENT
1. If the person who has a right to institute
annulment will not be able to restore the thing
which he may be obliged to return because such
thing is lost through his fraud or fault – right to
annul is extinguished
a. If not due to his fraud or fault – Art.
1402 applies
2. If based upon the incapacity of any one of the
contracting parties – rule is the same
ART. 1402: NO ANNULMENT IF A PARTY
CANNOT RESTORE WHAT HE IS BOUND TO
RETURN
Annulled Contract – results to reciprocal obligation of
restitution
 Return of one party – condition to the fulfillment
by the other
 No annulment if one party cannot restore
what he is bound to return
o Even if the loss is due to a fortuitous
event
CHAPTER 8: UNENFORCEABLE CONTRACTS
ART. 1403: UNENFORCEABLE CONTRACTS
UNLESS RATIFIED
Unenforceable contracts – those that CANNOT BE
ENFORCED or GIVEN EFFECT IN A COURT of law
or sued upon by reason of certain defects provided by law
until and unless ratified.
 Valid (among the contracting parties) but
unenforceable in court – once ratified may then
be enforceable
DIFFERENCE WITH VOIDABLE CONTRACT
Voidable – valid until annulled
Unenforceable – can still be voidable
KINDS OF UNENFORCEABLE CONTRACTS
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 1. UNAUTHORIZED CONTRACTS - those
entered into the name of another by one without,
or acting in excess of, authority; preparatory
contract
a. Governed by Art. 1317 and the
principles of agency.
Ex. If somebody sells you a car but he does not own it and
not ratified, what happens to the contract? – it can be
REVOKED
Attorney / attorney-in-fact – special power of attorney –
describes lawyer’s work
2. Those that do not comply with the STATUTE
OF FRAUDS – requires contract to be in
writing; asserts the admissibility of the evidence
Exception: note or memorandum
NOTE: it should contain the names of the parties, terms
and conditions, description of the property, signature of
the parties
An agreement that by its terms is not to be performed
within a year from the making thereof. – hindi mo
ipeperform within a year
GUARANTY – A special promise to answer for the
debt, default, or miscarriage of another.
An agreement made in consideration of marriage,
other than a mutual promise to marry (kahit orally agreed
upon lang, enforceable)
 Not the marriage itself but the settlements and
donations made in consideration of marriage
Marriage settlements (ante-nuptial contracts) –
entered by persons who are about to get married for the
purpose of fixing conditions of their relations with
respect to their present and future property; RETAIN
CERTAIN ASSETS
Donations propter nuptias / donations by reason of
marriage – made before the marriage, in consideration
of the same and in favor of 1 or both future spouses;
An agreement for the sale of goods, chattels, or things in
action, at a price not less than 500 pesos, unless the
buyer accept and receive part of such goods and
chattels, or at the evidences or some of them, of such
things in action, or pay at the time some part of the
purchase money;
but when a sale is made by auction and entry is made by
the auctioneer in his sales book, at the time of the sale,
of the among and kind of property sold, terms of sale,
price, names of the purchasers and persons on whose
account the sale is made, it is sufficient memorandum.
An agreement for the leasing for a longer period than 1
year, or for the sale of real property or of an interest
therein. – less than or equal to 1 yr pwede na oral kahit
pa real or personal property
A representation as to the credit of a 3rd person. – x
wants to borrow 100k from bank abc, nagconsult ng
credit status ni x yung bank kay r. r gave his statement
verbally. Eventually nde nakapagpay si x kay bank, r has
no liability kasi verbal contract lng meron sila ni bank
abt sa credit status ni x.
Best evidence
Parol evidence – next evidence; little bit of proof
History – the English Parliament enacted a statute to
counter the evil practice of giving false testimony in
actions founded on certain kinds of contracts.
 Attempted to deal with the prevalence of
successful perjury by making specified contracts
unenforceable unless evidenced in a prescribed
manner – in general, by a written
memorandum signed by the party against
whom liability under the contract was sought to
be enforced.
Purpose – not only to prevent fraud but also to guard
against the mistakes of honest men by requiring that
certain agreements specified that are susceptible to fraud
must be in writing; otherwise, they are unenforceable by
action in court.
 Unless they be in writing, there may be no
palpable evidence of the intention of the
contracting parties and the court must perforce
rely upon no other evidence that the mere
recollection or memory of witnesses, which is
many times faulty and unreliable.
“Writing” – does not require for a formal written
document.
 Slip of paper, a letter, a note or memorandum by
means of a pen, a pencil, or any mechanical
device as long it is intelligible and records the
intent of the parties
Application – fundamental principles:
 Not applicable in actions which are neither for
damages because of a violation of a contract, nor
the specific performance thereof.
o Purchaser of a parcel of land may
prove the oral contract of sale in a
subsequent action for ejectment against
a 3rd person who is in possession of the
property.
 Applicable only to completely executory
contracts (where NO PERFORMANCE HAS
AS YET BEEN MADE BY BOTH PARTIES)
and not to contracts totally executed
(consummated) or partly executory (contract is
partially performed)
o Partial performance – furnished
reliable evidence of the intention of
the parties or the existence of the
contract
 Not applicable where the CONTRACT IS
ADMITTED, by the failure to deny specifically
its existence, no further evidence is required.
 Applicable only to the agreements enumerated
 Not applicable where a writing does not express
the true agreement of the parties
 Does not declare voidance of contract but merely
unenforceable
 May be waived
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  Personal to the parties – cannot be invoked by
strangers to the contract
3. Those where both parties are INCAPABLE OF
GIVING CONSENT to a contract.
a. If only 1 is incapable – voidable
b. BOTH – unenforceable because no one
has the capacity to sue or demand in
court
Ex. If 2 incapacitated reached the majority age, they can
consider rethinking the sale happened because they have
the 4 year prescription.
ART. 1404: LAWS GOVERNING UNAUTHORIZED
CONTRACTS
Art. 1317 - No one may contract in the name of another
without being authorized by the latter, or unless he has by
law a right to represent him.
A contract entered into in the name of another by one
who has no authority or legal representation, or who
has acted beyond his powers, shall be unenforceable,
unless it is ratified, expressly or impliedly, by the person
on whose behalf it has been executed, before it is revoked
by the other contracting party.
Principles of Agency - an agreement made by an agent is
binding on the principal so long as the agreement was
within the authority granted to the agent
Express authority – authority to take any actions requested
by the principal and to take any actions inherently
necessary to accomplish those requests
Implied authority – failure by the principal to object to an
agent’s prior actions may create implied authority to
repeat those actions in the future
ART. 1405: MODES OF RATIFICATION UNDER
THE STATUTE OF FRAUDS
 Same to (c) in the applicability of SOF
(1) By failure to object to the presentation of oral
evidence to prove the contract - failure to so
object amounts to a waiver and makes the
contract as binding as if it has been reduced to
writing. The requirement of a written form is for
evidential purposes only.
(2) By acceptance of benefits under the contract –
no longer executory and therefore, the Statute
does not apply. This rule is based upon the
familiar principle that one who has enjoyed the
benefits of a transaction should not be allowed
to repudiate its burdens.
ART. 1406: 1357 GIVES RIGHT TO THE PARTIES
IN CASES STATED BY LAW
1357: Law requiring certain form of contract
(1) A party to an oral sale of a real property cannot
compel the other to put the contract in a public
document for purposes of registration because it
is unenforceable, unless ratified.
(2) The right of 1 party to have the other execute a
public document is not available in a donation of
realty when it is in a private document because
the donation is void.
a. Donations should initially be executed
in a public document
ART. 1407: UNENFORCEABLE – VOIDABLE /
UNENFORCEABLE – VALID
2 INCAPACITATED
If the parent/guardian of 1 of the incapacitated ratifies
the contract – voidable
Ratification is made by parents/guardians of both or the
formerly incapacitated minors – valid
ART. 1408: STRANGERS TO THE CONTRACT
The benefit of the Statute can only be claimed or waived
by one who is a party or privy to the oral contract, not
by a stranger.
 A personal defense
CHAPTER 9 – VOID OR INEXISTENT
CONTRACTS
ART. 1409: INEXISTENT AND VOID FROM THE
BEGINNING
Those who cause, object or purpose is contrary to law,
morals, good customs, public order or public policy.
Those which are absolutely simulated or fictitious.
Those whose cause or object did not exist at the time of
the transaction. – does not apply to a future thing which
may be legally be the object of a contract
Those whose object is outside the commerce of men.
Those which contemplates an impossible service.
Those where the intention of the parties relative to the
principal object of the contract cannot be ascertained.
Those expressly prohibited or declared void by law.
 Contracts upon future inheritance except in cases expressly
authorized by law.
 Sale of property between husband and wife except when
there is a separation of property.
 Purchase of property by persons who are specially qualified
by law (guardians, agents, executors, administrators, public
officers, and employees, judges, lawyers, etc.) because of
their position or relation with the person or property under
their care.
 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.
 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.
 Any stipulation that household service is without
compensation shall be void.
 Under the Constitution (Sec. 14, Art. VI), 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.
These laws cannot be ratified. Neither can the right to set
up the defense of illegality be waived.
2ND TYPE OF VIOD CONTRACTS
 1st type refers to the absence of any of the 3
essential elements of a contract
DEFINITION OF VOID OR INEXISTENT
CONTRACT
VOID interchangeable with INEXISTENT – contracts
which have no force and effect from the beginning
 Cannot be ratified or validated by the lapse of
time
o What does not exist cannot be ratified
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Void contracts which may give rise to certain legal effects:
 Contracts of marriage tainted with psychological
incapacity
 Subsequent marriage
o Void, nonetheless, the children
conceived/born thereto prior to nullification
are legitimate children.
STRICT DEFINITION
VOID contracts – tainted with illegality or immorality
 Produce no effect at all
 “void contract” – contradicting in terms
 Agreement tainted with illegality
INEXISTENT contracts – lacks one or some or all of
the essential elements of a contract: consent, object,
cause
 May produce effects under certain circumstances
where the parties are not of equal guilt
 Ex. Donation of real property not done in public
instrument
CHARACTERISTICS OF A VOID OR INEXISTENT
CONTRACT
 No force and effect whatsoever
 Cannot be ratified
 The right to set up the defense of illegality
cannot be waived
 The action or defense for the declaration of its
existence does not prescribe
 The defense of illegality is not available to 3 rd
persons whose interests are not directly affected
 No action is needed to set them aside because
their nullity exists ipso jure. However, if there
has been performance already, the intervention of
the court is necessary to declare its nullity and
decree the restitution of what has been given by
virtue thereto.
o No one should take the law into his
hands. The judgement of nullity is
merely declaratory.
o If the void contract is still completely
executory, no action is needed to declare
its nullity. Anybody who tries to enforce
it may be resisted by the other party by
putting up the defense of nullity of the
contract.
 Parties to a void agreement cannot expect the aid
of the law – the courts leave them as they are
because they are deemed in equal fault.
 They cannot give rise directly to another
contract.
ART. 1410: DEFENSE FOR THE DECLARATION
OF THE INEXISTENCE OF A CONTRACT DOES
NOT PRESCRIBE
A party can always bring a court action to declare a
contract void or inexistent; a party whom a void
contract is sought to be enforce, can always raise the
defense of nullity, despite the passage of time.
 Vests no rights and creates no obligations
Void contract = no effect at all
 Unnecessary to bring an action to declare it void.
o Void remains void even if no court has
declared its inexistence or illegality
 However, it is better that a judicial declaration of
nullity be secured not only to give peace of
mind to the parties but also avoid taking of
the law intro their own hands.
o For certain contracts where the nullity
is not apparent – there is a
presumption of regularity of contracts
 Hence it is better part of prudence that the
interested party should go to court first to avoid
inconvenience or to avoid taking the law into his
hands when the other party refuses to restore
what he had received out of the contract
ART. 1411: RULES WHERE CONTRACT IS
ILLEGAL AND THE ACT CONSTITUTES A
CRIMINAL OFFENSE
Must be shown that the nullity of the contract proceeds
from an illegal cause:
Where both parties are in pari delicto and whose object
constitutes a criminal offense:
 No action against each other (In pari delicto
melior est conditio defendentis)
 Both shall be prosecuted
 Things or price of the contract, as the effects or
instruments of the crime, shall be confiscated in
favor of the government
Rule: parties to an illegal contract, if equally guilty will
not be aided by the law but will both be left where it finds
them (parties are estopped)
General rule: neither can seek relief from the courts, and
each must bear the consequences of his acts.
Exceptions:
 Where the application of the rule would violate
well established public policy
 When the principle is invoked with respect to
inexistent contracts
Where only one party is guilty or not equally guilty (in
delicto, but not in pari delicto):
 Rule in par. 1 of Art. 1411 applies only to the
guilty party or the more guilty party. The
innocent one or the less guilty may claim what
he has given and shall not be bound to comply
with his promise.
ART. 1412: RULES WHERE CONTRACT IS
ILLEGAL BUT THE ACT DOES NOT
CONSTITUTE A CRIMINAL OFFENSE
Where both parties are in pari delicto, the cause of the
contract is unlawful or forbidden, but no criminal
offense:
 Neither party may recover what he has given
by virtue of the contract
 Neither party may demand the performance of
the other’s undertaking
Where only one party is guilty or both parties are not
equally guilty:
 Guilty party loses what he has given by reason
of the contract
 The innocent party may demand the return of
what he has given
 Guilty party cannot ask for the fulfilment of
the other’s undertaking
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  The innocent party cannot be compelled to
comply with his promise
Where both parties are not guilty:
 The declaration of nullity of a contract void ab
initio operates to restore things to the state and
condition in which they were found before the
execution thereof
Art. 1411 and 1412 embody the general principle that
when both parties are in pari delicto, the law refuses
them every remedy and leaves them where they are.
However, there are exceptions to this rule – Art. 1413 to
1419.
ART. 1413: RECOVERY OF THE USURIOUS
INTEREST
Any rate of interest in excess of the maximum allowed
under the Usury Law is usurious and if paid, may be
recovered together with interest thereon from the date
of payment in a proper action for the same.
 Stipulation for the payment of usurious interest is
void
 Person paying the usurious interest can recover
in a civil action not only the interest in excess
of that allowed by law, but the whole interest
paid
ART. 1414: RECOVERY WHERE CONTRACT
ENTERED INTO FOR ILLEGAL PURPOSE
Contract may be repudiated by one of the parties before
the purpose has been accomplished, or before any damage
has been caused to a 3rd person (3rd requisite)
Ex. A paid 10,000 to B with consideration that B will hide
C who is accused of murder. Before B could hide C, A
changed his mind.
REQUISITES FOR THE APPLICATION OF THIS
ARTICLE:
 The contract is for an illegal purpose
 The contract is repudiated before the purpose
has been accomplished or before any damage
has been caused to a 3rd person
 The court considers that public interest will be
subserved(promoted) by allowing recovery
ART. 1415: RECOVERY BY AN INCAPACITATED
PERSON
 Another exception to Art. 1411-1412
Recovery can be allowed if one of parties is
incapacitated and the interest of justice so demands.
 Not necessary that the illegal purpose has not
been accomplished or that no damage has
been caused to a 3rd person (Art. 1414)
ART. 1416: RECOVERY WHERE CONTRACT IS
NOT ILLEGAL PER SE
 Another exception to Art. 1411-1412
Recovery is permitted, provided:
 Agreement is not illegal per so but is merely
prohibited
 Prohibition is designed for the protection of the
plaintiff to recover what he has paid or
delivered
 Public policy would be enhanced by allowing the
plaintiff to recover what he has paid or delivered
PROHIBITED SALE OF LAND
 Land sold in violation of the constitutional
prohibition against the transfer of lands to
aliens may be recovered – by means of
restoration
o Same with an option to buy a parcel
of land to an alien
 Homestead illegally sold within the prohibited
period of 5 years in violation of the homestead
law. (NHA / gov’t housing projects)
ART. 1417: RECOVERY OF AMOUNT PAID IN
EXCESS OF CEILING PRICE
Ceiling law – statute fixing the maximum price of any
article or commodity
 Can also be determined by authority of law –
Executive Order of the President
 Purpose: curb the evils of profiteering or black
marketing
ART. 1418: RECOVERY OF ADDITIONAL
COMPENSATION FOR SERVICE RENDERED
BEYOND TIME LIMIT
Labor Code [Presidential Decree No. 442 (as amended)]
– sets forth the normal hours of work of any employee
shall not exceed eight hours a day.
Applicable to employees in all establishments and
undertakings, whether for profit or not, but not to (they
exceed the 8hrs max):
 Government employees, managerial employees,
field personnel, members of the family of the
employers who are dependent upon him for
support, domestic helpers, persons in the
personal service of another, workers who are
paid by results
ART. 1419: RECOVERY OF AMOUNT OF WAGE
LESS THAN MINIMUM FIXED
Art. 128 of the Labor Code: If an employee receives less
than the minimum wage rate, he can still recover the
deficiency with legal interest, and the employer shall
be criminally liable.
ART. 1420: EFFECT OF ILLEGALITY WHERE
CONTRACT IS INDIVISIBLE/DIVISIBLE
 Indivisible – consideration is entire and single; if
illegal, the whole contract is void and
unenforceable
 Divisible / severable – consideration is made up
of several parts and the illegal ones can be
separated from the legal portions, the legal
portions may be enforced
o Subject to the contrary intention of the
parties
o Some circumstances are subject to
proofs of the legality of the invoked part
DIVISIBLE CONTRACT DISTINGUISHED FROM
DIVISIBLE OBLIGATION
Divisible contract – divisibility of its cause
Divisible obligation – susceptibility of partial
fulfillment; prestation or object
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ART. 1421: PERSONS ENTITLED TO RAISE
DEFENSE OF ILLEGALITY OR NULLITY

Voidable and unenforceable contracts – 3rd persons are

not allowed to bring an action of annulment or to assail
said contracts

Illegal or void contracts – 3rd persons may avail of the

defense of illegality or set up its nullity as long as his
interest is directly affected by the contract

Ex. Husband sold his parcel of land to his Wife. Under the
law, spouses cannot sell property to each other – illegal
and void

 If T, a 3rd person, became a creditor of H before

the transaction (of the spouses), he can question
the sale for the reason that his right or interest is
directly affected.
 However, if he became a creditor after the
transfer, the defense of illegality is not available
to him.

ART. 1422: VOID CONTRACTS CANNOT BE

NOVATED

 Based on the requisites of a valid novation – a

valid contract must exist first

Illegal contracts are void and inexistent and cannot,

therefore, give rise to a valid contract

9
 TITLE IV – ESTOPPEL
Generally based upon equitable considerations – rests
upon the inequity of allowing the party estopped from
asserting a contrary position.
Principle: When a man has entered into a solemn
engagement by deed, he shall not be permitted to deny
any matter which he has asserted therein, for a deed is
a solemn act to any part of which the law gives effect as
the deliberate admission of the maker; to him it stands for
truth, and in every situation in which he may placed with
respect to it, it is true to him.
 To prevent circuity of actions, and to compel
party to fulfill their contracts.
ART. 1431: ESTOPPEL CONCLUDES THE PERSON
MAKING IT
PINEDA
ESTOPPEL (American Jurisprudence) – a bar which
precludes a person from denying or asserting anything
contrary to that which has been established as the
truth either by acts of judicial or legislative officers, or
by his own deed or representations either express or
implied.
 Incorporated for the 1st time in the NEW CIVIL
CODE
APPLICABILITY OF ESTOPPEL
Applies only to questions of fact and not of law
Ex. Public policy considerations behind forum shopping
are superior to that of a party’s claim of estoppel.
ORIGIN OF THE DOCTRINE
Origin in equity and based on moral rights and
natural justice – its applicability depends to a very large
extent upon the special circumstances of a case
 Cannot be invoked to perpetuate an injustice –
it’s a shield against injustice
BASIS & PURPOSE
Basis: public policy, fair dealing, good faith and justice;
equitable principles and the equities of the case
Purpose: to forbid one to speak against his own act,
representations, or commitments to the injury of one who
reasonably relied thereon; to aid the law in the
administration of justice where without its aid injustice
might result.
ESSENTIAL ELEMENTS
 Conduct of a party amounting to false
representation or concealment of material
facts or at least calculated to convey the
impression that the facts are otherwise than, and
inconsistent with, those which the party
subsequently attempts to assert
 intent, or at least expectation, that this conduct
shall be acted upon by, or at least influence, the
other party
 knowledge, actual or constructive, of the real
facts
RELIANCE
This doctrine cannot be invoked by anyone against the
person who made the subject admission or
representation, unless, the former has been misled.
 Complaining party has relied in good faith on the
admission or representation made causing him to
act in a certain way.
 Immaterial whether he was prejudiced or not
 Suffices, if he was misled because of his reliance
on the representation of the other party
NATURE OF THE ADMISSION OR
REPRESENTATION
Must be plain and clear
Estoppel in Pais: must be based upon express
statements or upon positive acts or conduct intended to
influence
Promissory Estoppel
 A promise reasonably expected to induce action
or forbearance
 Promise did fact induce such action or
forbearance
 The party suffered detriment as a result
BASIC PRINCIPLE IN ESTOPPEL
Rules of Court Sec 2: Conclusive presumptions:
Whether a party has, by his own declaration, act or
omission, intentionally and deliberately led another to
believe a particular thing true, and to act upon such
belief, he cannot, in any litigation arising out of such
declaration, act or omission, be permitted to falsify it.
The tenant is not permitted to deny the title of his landlord
at the time of the commencement of the relation of
landlord and tenant between them.
 Estoppel prevents a party from going back upon
his own acts and representations to the prejudice
of the other party who relied upon them.
Estoppel by Laches – failure or neglect, for an
unreasonable length of time, to do that which by
exercising due diligence could or should have been done
earlier; stale demands
Laches should be clearly present – lack of jurisdiction
must have been raised so belatedly as to warrant the
presumption that the party entitled to assert it had
abandoned or declined to assert it
General rule: lack of jurisdiction may be raised at any
stage of the proceeding, even in appeal.
Exception: when the issue of jurisdiction is being raised
by a party for the first time on appeal whose purpose is to
annul everything done in a trial in which he had actively
participated.
MISAPPLICATION OF ESTOPPEL
- Becomes a most effective weapon to accomplish
injustice because it shuts a man’s mouth from
speaking the truth and debars the truth in a
particular case
ILLUSTRATIVE CASES WHERE ESTOPPEL IS
APPLICABLE
A. Submission to the Jurisdiction of Court
B. Estoppel in Contracts
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 C. Conduct and Positive Act
D. Silence or Inaction
E. Laches
INAPPLICABILITY OF ESTOPPEL
Against the Government – not estopped by the errors or
mistakes of its agents
 Special agent – rule is different
Exception: Gov’t must not be allowed to deal
dishonorably or capriciously with its citizens, and must
not play an ignoble part or do a shabby thing; and subject
to limitations.
 may be invoked against public authorities as well
as against private individuals
Against a Municipality or City
Estoppel cannot validate unlawful acts
Estoppel cannot be predicated on ignorance of the law
ESTOPPEL AND WAIVER
Both are frequently used as convertible.
Doctrine of Waiver – based upon estoppel
 especially true where the waiver relied upon is
constructive or implied from the conduct of a
party, when it is said that the elements of
estoppel are attendant
ART. 1432: ADOPTATION OF THE PRINCIPLES
OF ESTOPPEL
RATIONALE BEHIND THE INCORPORATION – to
enrich Philippine law and afford solutions to many
questions which are not now foreseen in our legislation
GEN PRINCIPLES ARE SUPPLETORY – shall only
apply suppletorily; in case of conflict with the codes,
estoppel shall not apply
ART. 1433: ESTOPPEL MAY BE IN PAIS OR BY
DEED
ESTOPPEL BY DEED – classified into estoppel by deed
proper and estoppel by record
 Technical in nature – may conclude a party
without reference to the moral equities of his
conduct
Estoppel by Deed Proper – in writing, signed by a party,
which bars him from denying the truth of any material
facts asserted in it
Estoppel by Record – the truth set forth in a record,
whether judicial or legislative; cannot be denied
 Estoppel by Court Record – parties are precluded
from raising questions about res judicata
decisions (direct estoppel by judgment); and
matter that have not been adjudged but could
have been placed in issue and decided in the
previous case because of their relation to the
issues therein (collateral estoppel by judgment)
ESTOPPEL IN PAIS – equitable estoppel arising from
conduct or misrepresentation and includes all forms of
estoppel not arising from a record, deed, or written
instrument
 Estoppel by Representations or Concealment
 By Conduct or Acceptance of Benefits
 Silence
 Omission
 Laches and similar conduct or representations
which are not done in writing, deed, or record
Purpose: to serve the objectives of justice; founded in
morality and fair dealing
REQUISITES OF ESTOPPEL IN PAIS
 There must be conduct, act, language, or silence
amounting to a representation or concealment
of material facts
 These facts must be known to the party
estopped at the time of his said conduct, or, at
least, the circumstances must be such that
knowledge of them is necessarily imputed to him
 The truth concerning these facts must be
unknown to the other party claiming the
benefit of the estoppel at the time when it was
acted upon him
 The conduct must be done with the intention,
or, at least, with the expectation that it will be
so acted upon
 He must in fact act upon it in such manner as to
change his position for the worse
Elements of Estoppel by Conduct
 Representation or concealment of material facts
 Representation must have been made with
knowledge of the facts
 The party whom it was made must have been
ignorant of the truth of the matter
 Made with the intention that the other party
would act upon it
EQUITABLE ESTOPPEL – when one of the 2 innocent
persons, each guiltless of any intentional or moral wrong,
must suffer a loss, it must be borne out of the one whose
erroneous conduct, either by omission or commission,
was the cause of injury
Requisites of Equitable Estoppel
To the party estopped
 Conduct which amounts to a false representation
or concealment of material facts
 A least expectation, that such conduct shall be
acted upon by the other party
 Knowledge, actual or constructive, of the real
facts
Party invoking estoppel
 Lack of knowledge
 Reliance in good faith
 Action or inaction based thereon of such
character as to change his position or status to his
injury, detriment or prejudice
ART. 1434: SELLING OF PROPERTY WITHOUT A
TITLE, BUT FOLLOWED BY SUBSEQUENT
ACQUISITION
A person who sells or alienates a property over which
he did not have any title, cannot be allowed to deny the
validity of the sale of alienation after he had acquired
a title thereto. His subsequent acquisition validates the
conveyance previously made.
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ART. 1435: SALE OR ALIENATION IN BEHALF OF
ANOTHER

Seller acting as representative of the owner of the

property sold – has the power to sell or alienate

 3rd person purchased the property or contracted

with the representative
 Law estops the representative from claiming later
that he is the real owner, and that the sale or
alienation is void

ART. 1436: ESTOPPEL AGAINST LESEE

Tenant is not permitted to deny the title of his landlord at

the time of the commencement of their relation as
landlord and tenant. – conclusive presumption

ART. 1437: ESTOPPEL AGAINST AN OWNER OF

AN IMMOVABLE PROPERTY OR INTEREST
THEREIN

If an owner of an immovable property or interest therein

misled a 3rd person into believe that another person is the
real owner, and as a result the 3 rd person contracted with
the apparent owner – the former cannot assert his
ownership or interest in his property

ART. 1438: PLEDGE OF PERSONAL PROPERTY

BY SOMEONE ALLOWED TO ASSUME
APPARANET OWNERSHIP

 Applies only to personal property

No agency created – assumer is not authorized to pledge

the property

While the purpose of allowing the assumption of

ownership is to transfer ownership (like sale), the
authority to sell, assuming there is one, excludes the
power to mortgage.

 If the property was mortgaged and the real owner

received the proceeds arising from the mortgage,
it is but just that the real owner be estopped from
questioning the validity of the mortgage.

ART. 1439: ESTOPPEL IS ONLY AVAILABLE AS

BETWEEN THE PAERTIES AND THEIR
SUCCESSORS IN INTEREST

Effective only between parties, or in their absence,

between their successors-in-interest.

3rd parties not privies are not bound by estoppel

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