Chapter 9: Void /Inexistent Contracts

Question 1

Article 1409

What are the contracts that are inexistent and void from the beginning?

Answer 1

ART. 1409. The following contracts are inexis-tent 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.

Question 2

What are the characteristics of the aforementioned contracts in 1409?

Answer 2

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

Question 3

Meaning of Void Contracts

Answer 3

• Those which, because of certain defects, generally produce no effect at all.
• They are considered as inexistent from its inception or from the very beginning.
• The expression “void contract” is, therefore, a contradiction in terms.
• However, the expression is often loosely used to refer to an agreement tainted with illegality.

Question 4

Meaning of Inexistent Contracts

Answer 4

• Inexistent contracts refer to agreements which lack one or some or all of the elements (i.e., consent, object, and cause) or do not comply with formalities which are essential for the existence of a contract.
• An illegal contract may produce effects under certain circumstances where the parties are not of equal guilt (1 party is more guilty than the other) - Articles 1411-1412

Question 5

Characteristics of a void or inexistent contract

Answer 5

(1) Generally, it produces no force and effect whatsoever;

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

(3) The right to set up the defense of illegality cannot be
waived (Ibid.);

(4) The action or defense for the declaration of its inexistence does not prescribe (Art. 1410.);

(5) The defense of illegality is not available to third persons whose interests are not directly affected (Art. 1421.); and

(6) It cannot give rise to a valid contract. (Art. 1422.)

Question 6

Instances of void or inexistent contracts (7)

Answer 6

Void and inexistent contracts are not enforceable from the very beginning, regardless of the intention of the parties.

(1) Contracts whose cause, object or purpose is contrary to law, etc.

(2) Contracts which are absolutely simulated or fictitious: Articles 1345 and 1346, A contract of sale is void where the price, which appears thereon as paid, has, in fact, never been paid. (Catindig vs. Heirs of.
Catalina Roque, 74 SCRA 83.)

(3) Contracts without cause or object. - The phrase “did not exist at the time of the transaction” does not apply to a future thing which may legally be the object of a contract. - Articles 1347, 1352, and 1353.

(4) Contracts whose object is outside the commerce of men. — Articles 1347 and 1348.

(5) Contracts which contemplate an impossible service. — Articles 1347 and 1348.

(6) Contracts where the intention of the parties relative to the object cannot be ascertained. — Article 1378.

(7) Contracts expressly prohibited or declared void by law.

Question 7

Examples of contracts which are prohibited or declared void by law.

Answer 7

(a) Contracts upon future inheritance except in cases expressly authorized by law. (Art. 1347.)

(b) Sale of property between husband and wife except when there is a separation of property. (Art. 1490.)

(c) Purchase of property by persons who are specially disqualified by law (like 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. (Art. 1491.)

(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.” (Art. 87, Family Code.)

(e) “A testamentary provision in favor of a disquali. fied person, even though made under the guise of an onerous contract, or made through an intermediary, shall be void.” (Art. 1031.)

(f) “Any stipulation that household service is without compensation shall be void.” (Art. 1689.)

(g) Under the Constitution (Sec. 14, Art. VI thereof.), members of Congress are prohibited from being financially interested, directly or indirectly, in any contract with the government or any subdivision or instrumentality thereof. (see Arts. 1782, 1874, 2035, 2088, 2130.)

Question 8

Article 1410

Answer 8

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

Question 9

Action or defense is imprescriptible.

Answer 9

• If a contract is void, a party thereto can always bring a court action to declare it void or inexistent; and
• a party against whom a void contract is sought to be enforced, can always raise the defense of nullity, despite the passage of time.

Since a void contract has no effect at all, it is, therefore, unnecessary to bring an action to declare it void.

However, it is better that a judicial declaration of nullity be secured not only to give peace of mind to the parties but also to avoid the taking of the law into their own hands.

Question 10

Parti Delicto meaning

Answer 10

“in equal fault”

two persons or entities who are equally at fault

Question 11

Article 1411

Answer 11

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)

Question 12

Rules where contract is illegal and the act constitutes a criminal offense.

Answer 12

(1) Where both parties are in pari delicto.

(a) The parties shall have no action against each other;
(b) Both shall be prosecuted; and
(c) The things or the price of the contract, as the effects or instruments of the crime, shall be confiscated in favor of the government.

(2) Where only one party is guilty. — If only one party is guilty or both parties are not equally guilty (in delicto, but not in pari delicto), the rule in paragraph 1 of Article 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.

Question 13

Who will be prosecuted and what will happen to the object in the contract?

§ sold to B contraband articles for P10,000. B paid only P1,000 and S did not deliver all the articles agreed upon.

Answer 13

In this case, neither party has a right of action against each other. The law will leave them where it finds

Both shall be prosecuted and the price and the articles shall be confiscated.

Question 14

Who will be prosecuted and what will happen to the object in the contract?

In the preceding example, if B was in good faith?

Answer 14

He can claim the return of the price of P1,000; or if he has not yet paid s, he shall not be bound to comply with his promise. The law will render relief to the more innocent party.

S shall be prosecuted and the contraband articles sold by him shall be confiscated.

Question 15

Article 1412

Answer 15

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 with his promise. (1306)

Question 16

Rules where contract is illegal,
but the act does not constitute a criminal offense.

Answer 16

(1) Where both parties are in pari delicto. - If the cause of the contract is unlawful or forbidden but there is no criminal offense, the rules are as follows:

(a) Neither party may recover what he has given by virtue of the contract; and

(b) Neither party may demand the performance of the other’s undertaking.

(2) Where only one party is guilty. - If only one party is guilty or both parties are not equally guilty, the following are the rules:

(a) The guilty party loses what he has given by reason of the contract;

(b) The guilty party cannot ask for the fulfillment of the other’s undertaking;

(c) The innocent party may demand the return of what he has given; and

(d) The innocent party cannot be compelled to comply with his promise.

Question 17

Are there exceptions to Articles 1411 and 1412?

Answer 17

Articles 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, some of which are contained in Articles 1413 to 1419.

Question 18

Can there be recovery? Who can ask for fulfillment?

X agreed to live as the common-law wife of Y in consideration of the promise on the part of Y to donate a land to X. Here, the promise of Y has for its consideration an immoral act which does not constitute a crime.

Answer 18

Hence, there can be no recovery by one against the other, and neither party may ask for the fulfillment of the other’s promise. (see Batarra vs. Marcos, 7 Phil.

Question 19

Can there be recovery? Who can ask for fulfillment?

If, in the preceding example, X was only a minor, say, 16 at the time, and Y was a married man of mature years and experience?

Answer 19

The principle of in pari delicto is not applicable. Y cannot recover the land given by him nor demand the performance of X’s undertaking if the latter has not yet complied with her promise.

However, X may recover whatever property she may have given by virtue of the contract without any obligation to comply with her promise.

Question 20

Article 1413

Answer 20

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.

Question 21

Recovery of usurious interest

Answer 21

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. (Art. 1413.)

A stipulation for the payment of usurious interest is void.

The 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.

Question 22

Article 1414

Answer 22

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 subserved, allow the party repudiating the contract to recover the money or property.

Question 23

Recovery where contract entered into for illegal purpose.

What are the requisites for the application of Article 1414?

Answer 23

(1) The contract is for an illegal purpose;

(2) The contract is repudiated before the purpose has been accomplished or before any damage has been caused to a third person; and

(3) The court considers that public interest will be subserved by allowing recovery.

Question 24

Can the contract be repudiated?

In consideration of P10,000 paid by A to B, the latter promised to hide C, who is accused of murder. Before B. could hide C, A changed his mind.

Answer 24

In this case, the court may allow A to recover the P10,000 given to B.

Question 25

Article 1415

Answer 25

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.

Question 26

Recovery by an incapacitated person.

Answer 26

This article is another exception to the in pari delicto rule in Articles 1411-1412. Recovery can be allowed if one of the parties is incapacitated and the interest of justice so demands.
It is not necessary that the illegal purpose has not been accomplished or that no damage has been caused to a third person. (see Art. 1414.)

Question 27

Can the contract be repudiated if A is a minor or an insane person?

In consideration of P10,000 paid by A to B, the latter promised to hide C, who is accused of murder. Before B. could hide C, A changed his mind.

Answer 27

if A is à minor or an insane person, the court may allow A to recover the money paid if the interest of justice so demands.

Question 28

Article 1416

Answer 28

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.

Question 29

Recovery where contract not illegal
per se. What are the considerations for recovery to be permitted?

Answer 29

Article 1416 is another exception to the rule that where both parties are in pari delicto, they will be left where they are without relief. Recovery is permitted, provided:

(1) The agreement is not illegal per se but is merely prohibited;

(2) The prohibition is designed for the protection of the plaintiff; and

(3) Public policy would be enhanced by allowing the plaintiff to recover what he has paid or delivered.

Question 30

Prohibited Sale of Land (1416)

Answer 30

(1) A land sold in violation of the constitutional prohibition against the transfer of lands to aliens may be recovered.

The public policy to conserve lands for the Filipinos would be defeated and its continued violation sanctioned if instead of setting the contract aside and ordering the restoration of the property, the general rule on pari delicto would be applied.

And the parties will not be permitted to resort to another transaction for the purpose of disguising the transfer in violation of the Constitution.

Accordingly, a contract whereby an alien is given not only a lease but also an option to buy a parcel of land by virtue of which the Filipino owner cannot sell or otherwise dispose of his property, this to last for 50 years, is a virtual transfer of ownership and circumvents the constitutional ban against alien landholding. (Philippine Banking Corporation vs. Lui She)

A sale of land to a dummy in violation of the Constitution is void for being contrary to public policy. (People vs. Avengoza, 119 SCRA1.)

(2) The principle of in pari delicto is not applicable to a homestead which has been illegally sold within the prohibited period of five (5) years in violation of the homestead law.

The policy of the law is to give land to a family for home and cultivation; consequently, the law allows the homesteader to reacquire the land even if it has been sold.

It is not within the competence of any citizen to barter away what public policy

Question 31

Article 1417

Answer 31

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.

Question 32

Recovery of amount paid in excess of ceiling price.

Answer 32

A statute fixing the maximum price of any article or commodity is usually known as the ceiling law. It can also be determined by authority of law, as by Executive Order of the President. Its purpose is to curb the evils of profiteering or black marketing.

Question 33

Suppose by Executive Order of the President the price per kilo of rice of a particular brand and quality has been fixed at P30.00.

If a person pays P35.00 for it, what is within their rights?

Answer 33

They can recover the excess of P5.00.

Question 34

Article 1418

Answer 34

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.

Question 35

Recovery of additional compensation for service rendered beyond time limit.

Answer 35

Presidential Decree No. 442 (as amended.), otherwise known as the Labor Code, sets forth that the normal hours of work of any employee shall not exceed eight hours a day.

The law applies to employees in all establishments and undertakings, whether for profit or not, but not to:
(1) government employees;
(2) managerial employees;
(3) field personnel;
(4) members of the family of the employers who are dependent upon him for support;
(5) domestic helpers;
(6) persons in the personal service of another; and
(7) workers who are paid by results.

Question 36

Article 1419

Answer 36

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.

Question 37

Recovery of amount of wage less than minimum fixed.

Answer 37

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.

Question 38

Article 1420

Answer 38

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

Question 39

Effect of illegality where contract indivisible/divisible.

Answer 39

(1) When the consideration is entire and single, the contract is indivisible so that if part of such consideration is illegal, the whole contract is void and unenforceable.

(2) Where the contract is divisible or severable, that is, the consideration is made up of several parts, and the illegal ones can be separated from the legal portions, the latter may be enforced. This rule, however, is subject to the contrary intention of the parties.

Question 40

Is the contract divisible and can the illegal terms be separated from the legal ones?

S sold to B his car and shabu, a prohibited drug, for P200,000.

Answer 40

The contract is wholly void and unenforceable because there is only one consideration for both the car and the shabu.

Question 41

Is the contract divisible and can the illegal terms be separated from the legal ones?

S sold to B his car for P150,000 and shabu P50,000.

Answer 41

The contract, being, divisible, is valid as to the sale of the car.

Question 42

Is the contract divisible and can the illegal terms be separated from the legal ones?

D executed a promissory note in favor of C for money won by C in two (2) games played on two (2) occasions, monte, a prohibited game, and burro which is not prohibited.

Answer 42

The burden of proof is upon C to show what part of the amount is legal, ie., won at the game of burro, otherwise, the entire note cannot be enforced.

Question 43

Divisible contract distinguished from divisible obligation.

Answer 43

It must be noted that Article 1420 speaks of a divisible contract and not of a divisible obligation.

The test of the former is the divisibility of its cause while the latter, its susceptibility of partial fulfillment.

The former, therefore, refers to the cause, while the latter, to the prestation or object.

Question 44

Is the contract and obligation divisible or indivisible?

S paid P1,000 as annual subscription to a weekly magazine to be delivered every week.

Answer 44

The contract of subscription is indivisible but the obligation of the publisher is divisible.

Question 45

S paid P1,000 as annual subscription to a weekly magazine to be delivered every week.

If the agreement is that the publisher will deliver the magazine every week and S will pay P20.00 upon each delivery

Answer 45

The contract is divisible. The obligations of the parties are likewise divisible.

Question 46

Article 1421

Answer 46

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

Question 47

Persons entitled to raise defense of illegality or nullity.

Answer 47

In voidable (Art. 1397.) and unenforceable contracts (Art.
1408.), third persons are not allowed to bring an action to annul or to assail, as the case may be, said contracts. If the contract is illegal or void, however, even a third person may avail of the defense of illegality or set up its nullity as long as his interest is directly affected by the contract.

Question 48

1421
H, husband, sold his parcel of land to W, his wife.

Answer 48

Under the law, husband and wife cannot sell property to each other (Art.
1490.) and such sale is, therefore, illegal and void. (Art. 1409(7].)
The purpose of the prohibition is to protect third persons who, relying upon supposed property of either spouse, enter into a contract with either of them only to find out that the property relied upon was transferred to the other spouse.

Question 49

H, husband, sold his parcel of land to W, his wife. Under Article 1421, if T, a third person, became a creditor of H before the transaction, can he question the sale?

Answer 49

Yes, T 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. (see Cook vs. McMicking, 27 Phil. 10.

Question 50

Article 1422

Answer 50

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

Question 51

Void contract cannot be novated.

Answer 51

This provision is based on the requisites of a valid novation. (see comments and examples under Art. 1298.) An illegal contract is void and inexistent and cannot, therefore, give rise to a valid contract.

For example, a contract of repurchase is dependent on the validity of the contract of sale. If the latter is itself void because the seller is not the owner, the former is also void because it presupposes a valid contract of sale between the same parties.

Question 52

Define the following:

1. void contract.
2. inexistent contract.
3. indivisible contract.

Answer 52

1. void contract - no effect at all
2. inexistent contract - has missing elements of a contract
3. indivisible contract - only has 1 consideration

Question 53

1. What are the characteristics of a void or inexistent contract?
2. Give the rules where the contract is unlawful and the act constitutes a crime, and both parties are equally guilty.
3. Give the rules where the contract is unlawful but the act does not constitute a criminal offense, and only one party is guilty or both parties are not equally guilty.

Answer 53

1. (1) Generally, it produces no force and effect whatsoever;, (2) It cannot be ratified (par. 2, Art. 1409.);, (3) The right to set up the defense of illegality cannot be
   waived (Ibid.); (4) The action or defense for the declaration of its inexistence does not prescribe (Art. 1410.); (5) The defense of illegality is not available to third persons whose interests are not directly affected (Art. 1421.); and (6) It cannot give rise to a valid contract. (Art. 1422.)
2. Art. 1411 in pari delicto -> no action against each other, both are prosecuted, both objects are confiscated
3. Art. 1412 guilty: lose what they gave and cant ask for fulfillment. not guilty: cant be required to give or to perform, can demand what was given

Question 54

Explain or state briefly the rule or reason for your answer.

1. S (seller) and B (buyer) entered an absolutely simulated contract of sale of a parcel of land. S brought action in court to recover the land only after 20 years. Is it correct for the court to dismiss the action because of the long lapse of time?

Answer 54

No
Void contracts are imprescriptible

Art. 1410

Question 55

Explain or state briefly the rule or reason for your answer.

2. In consideration of P10,000 given by X to Y, the latter agreed to burn the house of Z. Later, X told Y to forget the agreement and to return the money. Y refused. Is X entitled to recover from Y?

Answer 55

Yes because it was repudiated before the purpose was accomplished

Art. 1414

Question 56

Explain or state briefly the rule or reason for your answer.

3. W (woman) agreed to stay in the house of M (man) as the latter’s live-in partner for one year in consideration of the latter’s promise to pay her P100,000 after said period. W complied with her part of the agreement but M reneged on his promise. Is W entitled to recover from

Answer 56

In pari delicto

Art. 1412 (1)