TITLE II - CHAPTER 9

VOID/INEXISTENT
CONTRACTS
LAW ON OBLIGATION AND CONTRACTS
INTRODUCTION

VOID AND
INEXISTENTCONTRACTS
• T H ES E CONTRACT S G ENERALLY PRODUCE
N O EFFECT AT ALL BECAU S E OF CERTAIN
CERTAIN
• T H EY DO N OT E X IST F R OM T H E VERY
BEG INNING.
INTRODUCTION

DIFFERENCE BETWEEN VOID AND INEXISTENT

CONTRACTS
VOID IN EX ISTEN
• A l l requi si tes of a c ontract • An agreement wherei n one or
T
are present, b ut the c ause some or al l the el ements of a
and obj ec t are c ontrary to contract i s l acki ng, or do not
l aw, moral s, g ood c ustoms, compl y wi th formal i ti es whi c h
publ i c p ol i c y, or p ubl i c order. are essenti al f or the
• Such contrac ts are typi c al l y exi stenc e of a c ontrac t.
deemed voi d f or reasons suc h
as i l l egal i ty, i m p ossi bi l i ty, or
l ack of c ap ac i ty of one of the
parti es.
INTRODUCTION

CHARACTERISTICS OF A VOID
CONTRACT
1 . Genera lly, i t p rodu ces no force a nd eff ect
w h a tsoever ;
2. It c anno t be r atifi ed(Article1409&Artic le1410)
3. T he right to set up the defense of illegality c annot be
waived(Ar tic le140 9)
4. T he ac tio n o r defense for the dec laration of its
inexistenc e do es no t presc ribe(Artic le1410)
5. The defense o f i l legal ity is not avail abl e t o t hi rd
persons who se i nt erests are not di rectl y aff ect ed
(Arti cl e1421)
INTRODUCTION

DISTINGUISHMENT OF DEFECTIVE CONTRACT

VOIDA BLE VOID

C ause of Defec tiveness
• Consent i s d ef ec ti ve. • The contract has mi ssi ng
Remed y: A nnul ment essenti al el ement/s. The
essenti al el ements are
contrary to l aw, moral s, good
customs, publ i c order,or
• C an be rati fi ed • publ i c pol i c y.
Cannot be rati fi ed
Eff ect
• Val i d, Bi nd i ng , E nf orceabl e • Not Val i d, Not Bi ndi ng, Not
Enforceabl e
ART. 1409

VOID OR INEXISTENT
FROM THE BEGINNING

(1) Tho se w h o se c a u s e , o bje c t o r p u rpo se is c o n tra ry to la w ,

mo ra ls, go o d c u sto ms, pu blic o rde r o r p u blic po lic y ;
(2) Tho se w h ic h a re a bs o lu te ly s imu la te d o r fi c titio u s;
(3) Tho se w h o se c a u s e o r o bje c t did n o t ex ist a t th e time o f th e
tran sa c tio n ;
(4) Tho se w h o se o bje c t is o u ts id e th e c o mme rc e o f me n ;
(5) Tho se w h ic h c o n te mpla te a n impo s sible s e rv ic e ;
(6) Tho se w h e re th e in te n tio n o f th e pa rtie s re la tiv e to th e
princ ipa l o bje c t o f th e c o n tra c t c a n n o t b e a sc e rta in e d ;
(7) Tho se ex pre ss ly pro h ib ite d o r d e c la re d v o id by la w.
ART. 1410

ACTION OR DEFENSE IS
IMPRESCRIPTABLE

The acti o n or def en s e for th e

d ec l a r ati o n of th e i n ex i s ten ce of a
c o n t r a ct d oes n ot p rescrib e.
ART. 1410

ACTION OR DEFENSE IS
IMPRESCRIPTABLE
• A party t o a vo i d contract can al ways bri ng an act i o n
i n court t o decl are nul li ty or i nexi stence. In t he same
way, a part y agai nst whom a voi d cont ract i s bei ng
enforced can al so always cl aim the defense o f nul l i t y
si nce t he defect is permanent and incura ble ,
thus the act i o n or defense does not prescri be
despit e t he passage of ti me.
• The defect i n t he contract cannot be cured by
ratifi ca tion .
ART. 1410

ACTION OR DEFENSE IS
IMPRESCRIPTABLE
• Avoi d co nt ract has no eff ect at all , i t i s, t herefo re
i t i s unnecessary to bri ng an acti on to decl are i t
void. Ho wever, it is better that a judicia l
declara tion of nullity be secured no t o nl y t o gi ve
peace o f mi nd t o the parties but also t o avoi d t he
taki ng o f l aw i nt o their own hands.
ART. 1410

ACTION OR DEFENSE IS
IMPRESCRIPTABLE
Example : Alas ka s ells Bearbrand the Pags anjan
Falls an d Bearbrand gives Alaska the money.

Is th is contract considered null and void?

Wh at should Bearbrand do? Should

Bearbrand fi le an action in court?
ART. 1411
RULES WHERE CONTRACT IS ILLEGAL AND THE ACT CONSTITUTES A CRIMINAL
OFFENSE

Wh en th e n u ll ity proceeds f rom th e illegali ty o f th e c au s e

or object o f th e c o n tract, and th e act con s ti tu tes c ri m in a l
off en se, b o th p arti es bein g in pari delicto, th e y s h all h a v e
n o actio n ag ai n s t each oth er, an d b o th s h al l b e
prosecu te d . M o reo v er, th e prov ision s of th e Pen al Co d e
relativ e to th e d i s posal of eff ects or in s tru m e n ts o f a
crim e sh al l b e ap p l icable to th e th in gs o r th e p ric e o f th e
con tract.

T h is ru le s h al l b e applicable wh en on ly on e o f th e p arti es
is guilty ; b u t th e i nn o cen t on e m ay claim w h at h e h as
ART. 1411
RULES WHERE CONTRACT IS ILLEGAL AND THE ACT CONSTITUTES A CRIMINAL
OFFENSE

Pa r i Delic to
• Equ a lly a t fa u lt or guilty.

1 . Wher e b oth p a r ties a re in p a ri d elicto

• The pa r ties sh a ll ha ve n o a ction a ga inst ea ch other.

• Both sh a ll b e p rosecuted.
• The th in gs or the price of th e contra ct, a s the
eff ects or in s trumen ts of th e crime, sh a ll be
confi s c a ted in fa vor of th e govern ment (pa r 1 , Art.
ART. 1411
RULES WHERE CONTRACT IS ILLEGAL AND THE ACT CONSTITUTES A CRIMINAL
OFFENSE

E x a mp le : S s old to B con tra ba nd a rticles for P1 0 ,0 0 0 .

B pa id on ly P1 , 0 00 a nd S did n ot deliver a ll th e
a r ticles a g reed u pon .

In this c a s e , d o b oth p a rties ha v e a r ig ht of

a c tion a g a ins t ea c h other?

In ter ms of the p r ice a nd instr uments in the

c r ime (c ontr a b a nd a r ticles ), w ha t ha p p ened to
them a fte r ?
ART. 1411
RULES WHERE CONTRACT IS ILLEGAL AND THE ACT CONSTITUTES A CRIMINAL
OFFENSE

2 . Only one p a r ty is g uilty

• If onl y on e p a rty is gu ilty or both pa rties a re n ot
equa ll y g u i lty, th e a foremen tioned ru le is on ly
a pplica b le to th e pa rty th a t is gu ilty or more guilty.
• Thegu ilty or more guilty pa rty sh a ll ha ve no a ction
a ga ins t th e in n ocen t or less guilty pa rty.
• The in n oc en t or less guilty pa rty ma y recover w ha t
h e h a s given du e to th e contra ct a n d is n ot boun d
to compl y w ith h is promise.
ART. 1411
RULES WHERE CONTRACT IS ILLEGAL AND THE ACT CONSTITUTES A CRIMINAL
OFFENSE

E x a mp le : Vi n c e bou gh t a pa cka ge from Alla n for

P3 0 ,0 0 0 th in kin g th a t it w a s a ga me console. Th e
p a c ka ge w a s in a c tu a lity, 2 kgs of sha bu .

In this c a s e , d o b oth p a rties ha v e a r ig ht of

a c tion a g a ins t ea c h other?
ART. 1412

RULES WHERE CONTRACT IS ILLEGAL BUT THE ACT DOES NOT CONSTITUTE
ACRIMINALOFFENSE
If the act in which the unlawful or forbidden cause consists
does not constitute a criminal off ense, the following rules
shall be observed:

(1) W he n t h e f a ult is o n t he pa rt o f bo t h c o nt racting part ie s,

ne it he r ma y re c o v e r wh a t he ha s giv e n by v irt ue o f t he
co ntract , or de ma nd t he pe rf o rma n c e of t he o t he rs
unde rtakin g;
(2) W he n o nly o ne o f t he c o nt ra c t ing pa rt ie s is at f ault , he
canno t re c o v e r wh a t h e ha s giv e n by re a so n o f the co ntract ,
o r ask f o r t he f u lfi llme n t o f wh a t h a s be e n pro mise d him. The
o the r, who is no t a t f a ult , ma y de ma nd t he re t urn o f what he
ART. 1412

RULES WHERE CONTRACT IS ILLEGAL BUT THE ACT DOES NOT CONSTITUTE
ACRIMINALOFFENSE
1. Both parties are in pari delicto
• Nei ther part y may recover what they have gi ven due
to the co nt ract .
• Nei ther part y may compel the ful fi l l ment o f t he
other’s undert aking.
ART. 1412

RULES WHERE CONTRACT IS ILLEGAL BUT THE ACT DOES NOT CONSTITUTE
ACRIMINALOFFENSE
2. Only one party is guilty
• The gui l t y part y cannot recover what he has gi ven
due to t he co nt ract.
• The gui l t y part y may not ask for the i nno cent part y
to ful fi l l hi s undertaki ng.
• The i nno cent party may demand the ret urn o f what
he has gi ven due to the contract.
• The i nno cent party has no obl i gati on t o co mpl y wi t h
hi s promi se.
ART. 1413

RECOVERY OF USURIOUS INTEREST

Int erest pai d i n excess of the interest al l owed by t he

usury laws may be recovered by the debt or, wi t h
i nt erest t hereo n from the date of the payment .

The person who pai d usuri ous i nterest “may reco ver t he
whol e int erest , co mmi ssi ons, premiums, penal t i es and
surcharges pai d or del ivered” if the actio n t o recover i s
brought wi t hi n t wo years after such payment o r
del ivery.
ART. 1414

W hen money is pa id or proper t y delivered for a n illega l pur pos e, the

c ontr a c t ma y be re pudia t ed by one of the pa rt ies before the purpose
ha s been a c c om pli s h ed, or before a ny da ma ge ha s been c a us ed t o a
t hird pers on. I n s uc h c a se, the c ourt s ma y , if the public int erest will
t hus be s ubs er v ed, a l low the pa r t y repudia ting t he c ontr a c t to rec ov er
t he money or proper t y.

REC OVERY WHERE C ONTRAC T ENTERED INTO FOR ILLEG AL

PURPOSE
( Re quisites to appl y th e Ar ti cl e 1 4 1 4 ) :
1. T he con tr a ct i s f o r an i l l e gal pur po se
2. T he co ntr act is re pudi ate d be f o re the pu r po se has be e n
acco m plish e d o r be f o re an y dam age has be e n cause d to a th i rd
pe r son
3 . T he cour t co nsi de r s th at publ i c i n te re st w i l l be subse r ve d by
ART. 1415

W h e re o n e o f t h e p a r t i e s t o a n i l l e gal c o n t rac t i s
i n c apa bl e o f gi v i n g c o n se n t , t h e c o u r t s ma y , i f t h e
i n t ere st o f j u st i c e so d e m a n d s, a l l o w re c o v e ry o f mo n e y
o r pro pe rt y de l i v e re d b y t h e i n c a p a c i t a t e d pe rso n .

RECOVERY BY AN INCAPACITATED Exa mp le,

PERSON
I f X is an in sane person, the
Reco very can be allo wed if co u rt may allow X to
one of th e parties is reco ver th e money paid if
in capacitated an d th e th e in teres t of justice so
in teres t of ju stice so deman ds .
deman ds .
ART. 1416

RECOVERY WHERE CONTRACT NOT ILLEGAL PER SE; PROHIBITED SALE OF LAND

When the agreement is not illegal per se (by itself) 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.

Recovery i s permi tted provi ded:

1. The agreement i s not i l legal per se but is merel y
p rohi bi ted;
2. The prohibition i s desig ned for the p rotecti on of the
p lainti ff ;
3. Pub l ic policy would be enhanced b y al lowi ng the p l aintiff
ART. 1416

E XAMPLE : A w i ll d o nate ev ery th in g in h er p o s s es s i o n an d

properties to C, l eav in g n oth in g f or h erself.

Is A allowed to recover what How much property and

she donated? possession was allowed to
Y ES, according to the 3rd part recover?
of Ast. 1416, pu blic policy She is allowed to recover at
w ou ld be en h an ced by allowin g least th e necessary to
th e plain tiff to recover what h e su pport her own an d th e
h as paid or delivered. So she is su pport of her own relatives.
al low ed to recover wh at sh e
d on ated.
ART. 1417

RECOVERY OF THE AMOUNT PAID IN EXCESS OF CEILING

PRICE
W h en t h e p r i c e o f a n y a rt i c l e or c om m od i t y i s d et erm i n ed b y
s t a t u t e, or b y a u t h o r i t y of l a w , a n y p ers on p a y i n g a n y a m ou n t
i n exc es s o f t h e m a x i m u m p ri c e a l l ow ed m a y rec ov er s u c h
exces s .
Recovery of the Amount Paid i n Excess of Ceiling Price
A statute fi xing the maximum price of any article or commodity is
usually known as the ceiling law. I t can also be determined by
authority of law, as by Executive Order of the President. Its purpose
is to curb the evils of profi teering or black marketing

C e i l i n g L a w d e fi n e d C e i l i n g L a w o r P r i c e C e i l i n g
i s a g o v e rn m e n t- i m p o s e d l i m i t o n th e m a x i m u m p r i ce th a t ca n b e
c h a rg e d fo r a p a r ti cu l a r g o o d o r s e r v i ce .
ART. 1417

Example : Athena is at the market, buying goods. When she

bought a kilo of pork from Jade, she paid P130.00, and
supposedly, by Executive Order of the President, the price per
kilo of pork is P125.92.

Can Athena recover the excess amount she paid?

Answer: Yes, Athena can recover the excess amount of P4.08

because, according to Art. 1417, paying any amount in excess of
the maximum price allowed may recover such excess.
 ART. 1418

RECOVERY OF ADDITIONAL COMPENSATION FOR SERVICE RENDERED BEYOND TIME LIMIT

When the la w fi xes , or a uthorizes the fi xing of the

m a ximum hours of la b or, a nd a c ontra c t is entered into
whereb y a la b orer und erta kes to work long er tha n the
m a ximum thus fi xed , he ma y d em a nd a dd itiona l
c ompens a tion for s ervic e rend ered b eyond the time limit.
Recovery of Additional Compensation f or Service
Rendered Beyond Time Limit
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
ART. 1418

T h e law appl i e s to e m pl o ye e s i n al l e stabl i sh m e n ts an d

u nder takin gs, bu t n o t to :
1 . G ove r n m e n t Em p loy e e s
2 . M a n a ge r ia l E m p loye e s
3 . Fie ld P e r son n e l
4 . M e m be r s of th e fa m ily of th e e m ploy e e s w h o are
d e p e n de n t u pon h im for su p p or t
5 . Dom e stic H e lp e r s
6 . P e r sons in th e p e r son a l se r vic e of a n oth e r
7 . Wor ke r s w h o a r e p a id b y r e su lts

Example : Mikey spent over 2 hours overtime from his usual work shift as
a government employee.
Can Mikey demand compensation for the additional service he
rendered?
Article 1419
When the la w set s, or a ut horizes t he set t ing of a m inim um wa g e for la b orers, a nd a
cont ra ct is a g reed up on b y w hich a la b orer a c c ep t s a low er wa g e, he sha ll b e
ent it led to rec ov er t he d efi c iency.If a n emp loy ee receiv es less tha n minimum wa g e
ra t e, he ca n st ill rec ov er t he d efi cienc y w it h leg a l int erest a nd the emp loy er sha ll
b e c rimina lly lia b le.
Exa m ple : And y , a c off ee shop ow ner, ent ered int o a c ontra ct wit h Lim a s t he
la t t er b eing t he la b orer. It w a s st a t ed in t he cont ra c t t ha t Lim would only b e
rec eiv ing P350.00 a d a y , w hic h is b elow t he m inimum w a g e ra te in Ma nila . Lim
a g reed to this st ip ula t ion. Is L im st ill ent it led t o rec ov er the d efi ciency d esp ite
a g reeing to the t erm ?
A nswer: Yes. If a la b orer ha s a g reed t o rec eiv e a w a g e lower tha n the minimum
wa g e fi xed b y la w , he is not b a rred from rec ov ering t he d efi ciency. S uch contra ct
or a g reement is v oid und er t he Minim um Wa g e L a w w hich p rovid es tha t no worker
or org a niza t ion of w orkers ma y v olunt a rily or ot herwise, ind iv id ua lly or
collectiv ely , w a iv e a ny rig ht s est a b lished und er t his Act , a nd no a g reement or
cont ra ct, ora l or w r it t en, t o a cc ep t a low er w a g e or less tha n a ny other b enefi t
req uired und er t his Ac t sha ll b e v a lid . (R.A. N o. 602)
Article 1419

RECOVERY OF AMOUNT OF WAGE LESS THAN THE MINIMUM FIXED

W h en the la w sets, or a uth oriz es the settin g of a mi n i mu m

wa ge for l a borers, a nd a contra ct is a greed u pon by wh i c h a
l a borer a cc ep ts a l ower wa ge, he sha ll be en ti tl ed to recover
th e defi ci en cy.If a n employee receives less th a n mi n i mu m
wa ge ra te, h e ca n still recover the defi ci en cy wi th l ega l
i n terest a n d th e employer sha ll be crimina lly l i a bl e.
Example: Andy, a coff ee shop owner, entered into a contract with Lim as the
latter being the laborer. It was stated in the contract that Lim would only be
receiving P350.00 a day, which is below the minimum wage rate in Manila.
Lim agreed to this stipulation. Is Lim still entitled to recover the defi ciency
despite agreeing to the term?
Article 1420
IN C AS E OF A DIV IS IBLE CONT RACT, IF THE ILLEGAL TERMS CAN BE
S E PARAT E D FROM T H E LEGAL ONES, THE LAT T ER MAY BE ENFORCED

Di visible con tract distin gu ish ed fr om d i vi si b l e

obligation .
T h e test of th e f ormer is the divisibility of i ts ca u se wh i l e
th e la tter , i ts su sceptibility of pa rtia l f u l fi l men t. T h e
f ormer, th eref ore, refers to the ca u se, whil e th e l a tter, to
th e presta tion or ob ject.
Article 1420
IN C AS E OF A DIV IS IBLE CONT RACT, IF THE ILLEGAL TERMS CAN BE
S E PARAT E D FROM T H E LEGAL ONES, THE LAT T ER MAY BE ENFORCED

I ndiv isib le C on tr a c ts Divisib le C on tr a c ts

Whe re the c o ntra c t is is Whe re the co n si de r a ti o n
e ntire a nd si ng l e , the div isible ( o r se v e r a bl e ) tha t
c o ntra c t i s i nd iv isi b le (o r is, the co nsi de r a ti o n i s m a de
e ntire ) so tha t if p a rt o f up o f se v e ral pa rts , a n d the
suc h c o nsid e ra tio n is ille g al, ille gal o ne s ca n be se pa r a te d
the who l e c o ntra c t is v o id fro m the l e ga l po r ti o n s,
a nd une nfo rc e a b l e . w itho ut do ing v i o l e n ce to th e
inte ntio n o f the pa rti e s, the
la tte r m a y be e n fo rce d. Th i s
rul e , ho w e v e r , i s subj e ct to
the co ntrary i nte nti o n o f th e
partie s.
Article 1421
P ERS ON EN T IT LED T O RAIS E DEFENS E OF ILLEGALITY OR NULLITY

The defense of illegality of c ontrac t is no t available to third

persons whose interests are no t dire c tly aff e c ted

If th e c o ntra c t is ille ga l o r v o id, a th ird pe rs o n ma y a v a il o f th e

de fe nse o f ille ga lity o r se t u p its ille ga lity a s lo n g a s h is
inte re st is dire c tly a ff e c te d by th e c o n tra c t.

E xa m ple Mic key , t he husb a nd , sold his p a rcel of la nd t o his wife, Minnie. Und er
the la w, husb a nd a nd w ife c a nnot sell p rop ert y t o ea c h other. S uch sa le is
illeg a l a nd v oid . If G oofy , a t hird p erson, b ec a m e a b uy er (cred itor) of Mickey
b efore t he tra nsa ct ion b et w een t he sp ouses, he ca n q uestion the sa le for the
rea son t ha t his rig ht or int erest is d irec t ly a ff ect ed . H ow ev er, if he b eca me a
b uy er (cred it or) a ft er t he t r a nsfer, t he d efense of illeg a lity is not a v a ila b le t o
Article 1422
VOID C ONTRACT C ANNOT BE NOVATED

A c o n tr ac t wh i c h is the direct result of a prev ious

i l l egal c o n tr ac t, is also v oid and inex istent.

R e q ui si te s of a Va l i d N ov a ti on :
1 . A p re v i o u s v a l i d c o n tr a c t ;
2 . T h e a g re e m e n t o f a l l th e p a r t i e s t o t h e n e w
c o n tra c t ;
3 . Th e ex t i n g u i s h m e n t o f th e o l d c o n tr a c t ; a n d
4. Va lid i ty o f t h e n e w o n e
Article 1422

Example: Anit a s e lls a Ye llo w Che vro le t Cama ro t o Max .

The tw o p art ie s als o s ig ne d a re p urchas e co nt ract
w herein Ani t a ha s t he rig ht t o b uy b ack t he ca r w it hin
tw o years . It t urne d o ut t hat t he Ye llo w Che vro le t Ca maro
w as right fully o w ne d b y Wynn and no t b y Ani t a.
THANK
YOU!