Void Or Inexistent Contracts Flashcards
Meaning of void contracts
Are those which, because of certain defects, generally produce no effect at all.
What are the rules where contract is illegal and the act constitutes a criminal offense?
1) where both parties are in pari delicto, the parties shall have no action against each other, both shall be prosecuted and the things or the price of the contract, as the effects or instruments of the crime shall be confiscated in favor of the government pursuant to the Revised Penal Code.
2) where only one party is guilty or both parties are not equally guilty, the innocent one may claim what he has given and shall not be bound to comply with his promise.
What are the rules where the contract is illegal but the act does not constitute a criminal offense?
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 with his promise.
What are the exceptions to the rule when parties are in pari delicto? Or when is recovery permitted even if the parties are in pari delicto?
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 subserved, al- low the party repudiating the contract to recover the money or property.
ART. 1415. Where one of the parties to an illegal contract is incapable of giving consent, the courts may, if the interest of justice so demands, allow recovery of money or property deliv- ered by the incapacitated person.
ART. 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delito
breach of warranty
simulated contracts
parties are not equally guilty
against the government
Effect of illegality where contract indivisible/divisible.
(1) Where the consideration is entire and single, the contract is indivisible (or entire) 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, without doing violence to the intention of the parties, the latter may be enforced. This rule, however, is subject to the contrary intention of the parties.
Facts: S sold to B a parcel of land belonging to S and Y, in co-ownership, and the improvements thereon belonging to Z. Y and Z were not parties to the sale. Both S and B acted in bad faith. B would not have entered into the transaction except to acquire all the properties purchased by him.
Two actions were commenced, the first was by Z for annulment of the sale, and the second by Y for rescission.
Issue: Is the sale entirely null and void, or with respect only to the shares, rights and interests of Y and Z?
Held: The sale is entirely void as it purports to cede properties of which the vendor is not the only owner and the prestation involved is indivisible, and, therefore, incapable of partial annulment. Although the bad faith of one party neutralizes that of the other and hence, as between themselves, their rights would be as if both of them had acted in good faith at the time of the transaction, this legal fiction of B’s good faith ceased when the complaint against him was filed. Hence, B should be held liable for the rents thereafter on the property.
Persons entitled to raise defense of illegality or nullity.
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 illegality as long as his interest is directly affected by the contract.
what are the characteristics of void or inexistent contracts?
- generally, it produces no legal effect being void or inexistent from the beginning
- I cannot be cured or validated either by time or ratification
- The right to set up the defense of illegality, inexistence or absolute nullity cannot be waived
- the action or defense for the declaration of illegality, inexistence or absolute nullity does not prescribe
- the defense of illegality, inexistence or absolute nullity is not available to third persons whose interest are not directly affected
- it cannot give rise to a valid contract
When does an action or defense for declaration of an inexistent contract prescribe?
ART. 1410. The action or defense for the declaration of the inexistence of a contract does not prescribe.
When is recovery allowed where contract is for an illegal purpose?
“Article 1414 is one instance (the other is Art. 1416.) when the law allows recovery by one of the parties even though both of them have acted contrary to law.” (Report of the Code Commission, p. 27.)
The following are the requisites for the application of this article:
(1) The contract is for an illegal purpose;
(2) The contract is repudiated before the purpose has been accom-
plished 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.
what contracts are void?
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.
