Contract Laws

2 RA. 386
Basic Principles in Contract Law

▪ Autonomy Art. 1306

▪ ARTICLE 1306. The contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy. (1255a)

Basic Principles in Contract Law

▪ Consensuality. Art 1315

▪ ARTICLE 1315. Contracts are perfected by mere consent, and from that moment
the parties are bound not only to the fulfillment of
▪ what has been expressly stipulated
▪ but also to all the consequences which,
▪ according to their nature, may be in keeping with good faith, usage and law.
(1258)
▪ Except Solemn / Real contract (deposit, pledge, commodatum

Example of contract that must be in writing to be binding

▪ Donation of real estate Art. 749 (public Instrument)

▪ Donation of movable exceeding P5,000.00 Art. 748
▪ Stipulation to pay interest Art. 1956
▪ Agency to sell land (Art. 1874)
▪ Contribution of real prop in partnership (Art. 1773)
▪ Stipulation limiting carrier liability Art. 1744
▪ Contract of Anticheresis Art. 2134.
Example of real contract
Contract that must be in writing to be enforceable

▪ ART. 1403 par 2 (Statute of Fraud)

▪ An agreement that by its terms is not to be performed within a year from the
making thereof;
▪ 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;
▪ An agreement for the leasing for a longer period than one year, or-
▪ For the sale of real property or of an interest therein.
▪ A representation as to the credit of a third person.
▪ An agreement for the sale of goods, chattels or things in action, at a price not less
than five hundred pesos,
▪ Except when buyer accept and receive part of such goods and chattels, or
the evidences, or some of them, of such things in action,
▪ or pay at the time some part of the purchase money;

How should it be written ?

And what is the consequence ?

ART. 1403 Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases an agreement hereafter
▪ made shall be unenforceable by action,
▪ unless the same, or some note or memorandum, thereof, be in writing,
▪ and subscribed by the party charged, or by his agent; except in auction sale
▪ entry is made by the auctioneer in his sales book, at the time of the sale, of the
amount and kind of property sold, terms of sale, price, names of the purchasers
and person on whose account the sale is made, it is a sufficient memorandum
▪ evidence, therefore, of the agreement cannot be received without the writing,
or a secondary evidence of its contents:

▪ ARTICLE 1405. Contracts infringing the Statute of Frauds, (referred to in No. 2 of

article 1403) , are ratified by
▪ the failure to object to the presentation of oral evidence to prove the
same, or
▪ by the acceptance of benefits under them.

Basic Principles in Contract Law

Mutuality
▪ ARTICLE 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them. (1256a)
▪ Taylor vs Uy Tieng Piao and Tan Liuan 43Phil 873
Basic Principles in Contract Law
▪ Obligatoriness and Performance in Good Faith (Art 1159,1315)

▪ ARTICLE 1159. Obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith.
▪ ARTICLE 1315. Contracts are perfected by mere consent, and from that moment
the parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature, may
be in keeping with good faith, usage and law. (1258)

Basic Principles in Contract Law

▪ Relativity Art. 1311
▪ ARTICLE 1311. Contracts take effect only between the parties, their assigns and
heirs, except in case where the rights and obligations arising from the contract
are not transmissible by their nature, or by stipulation or by provision of law. The
heir is not liable beyond the value of the property he received from the decedent.
▪ Exception Stipulation “pour Autrui”
▪ Uy Tam vs Leonard 30Phil 471
Contracts
Elements of Contract
Elements of Contract
▪ ART. 1318

▪ A) Consent
▪ B) Subject Matter
▪ C) consideration

Plus (depending whether it is Consensual, Solemn , Real )

▪ Formality prescribed by law , Delivery of the Thing

Consent
 Requisites of contract
Consent (Agreement)
When can we say that there is an agreement between the parties?

It is manifested by concurrence
of OFFER and ACCEPTANCE
as to subject matter and cause

Effect – in consensual contract – Perfection of Contract

(ARTICLE 1315. Contracts are perfected by mere consent- as a general Rule .

Valid offer
▪ an “valid” OFFER – an expression of willingness to contract on certain terms,
made with the intention that it shall become binding as soon as it is accepted by
the person to whom it is address .

▪ Therefore – it must be Definite, intentional, complete and directed to a

particular person. (exception auction and promises of reward)1

1exist only if the contract can come into existence by the mere acceptance by the
offeree, without any further act on the part of the offeror.

2. Caguioa page 493

Not an offer
▪ Advertisement of things for sale
▪ ARTICLE 1325. Unless it appears otherwise, business advertisements of things
for sale are not definite offers, but mere invitations to make an offer. (n)
▪ Invitation to bid
▪ ARTICLE 1326. Advertisements for bidders are simply invitations to make
proposals, and the advertiser is not bound to accept the highest or lowest bidder,
unless the contrary appears. (n)

▪ Auction
▪ ARTICLE 1476. In the case of a sale by auction:
▪ (1)Where goods are put up for sale by auction in lots, each lot is the subject of a
separate contract of sale.
▪ (2)A sale by auction is perfected when the auctioneer announces its perfection by
 the fall of the hammer, or in other customary manner. Until such announcement is
made, any bidder may retract his bid; and the auctioneer may withdraw the goods
from the sale unless the auction has been announced to be without reserve.
▪ (3)A right to bid may be reserved expressly by or on behalf of the seller, unless
otherwise provided by law or by stipulation.

▪ Goods Displayed in a store (fisher v Bell )

Acceptance
▪ Is defined as the offeree’s expression of
assent to the exact terms of the offer (mirror- image rule)

▪ Requirement for acceptance –it must be absolute if not then it is

▪ A qualified acceptance or is a counter offer
Manner of acceptance / form
▪ Time, place and manner of acceptance may be fixed by the offeror of which must
be complied by the offeree.
▪ acceptance may be express or implied

When is an acceptance effective

▪ ARTICLE 1319. xxx Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract. The
offer must be certain and the acceptance absolute. A qualified acceptance
constitutes a counter-offer.

▪ Acceptance made by letter or telegram does not bind the offerer except from
the time it came to his knowledge. The contract, in such a case, is presumed to
have been entered into in the place where the offer was made.

▪ Can acceptance be withdrawn ?

Time to accept

▪ Option contract
▪ Option agreement
▪ Right of first refusal

Consent
Qualification and Vices
Who may give consent ?
▪ Must be given by capacitated person of sound mind (not prohibited by law )
▪ 1. Capacitated person ( of legal age- 18 years old above ) not suffering from civil
interdiction
▪ 2. Sound Mind (not insane, demented)
▪ 3. not prohibited to enter a particular transaction
▪ ARTICLE 1327. The following cannot give consent to a contract:
▪ (1) Unemancipated minors;
▪ (2) Insane or demented persons, and deaf-mutes who do not know how to write.
Prohibited – void example
▪ ARTICLE 1491. The following persons cannot acquire by purchase, even at a
public or judicial auction, either in person or through the mediation of another:
▪ (1) The guardian, the property of the person or persons who may be under his
guardianship;
▪ (2) Agents, the property whose administration or sale may have been intrusted to
them, unless the consent of the principal has been given;
▪ (3) Executors and administrators, the property of the estate underadministration;
▪ (4) Public officers and employees, the property of the State or of any
subdivision thereof, or of any government-owned or controlled corporation, or
institution, the administration of which has been intrusted to them; this provision
shall apply to judges and government experts who, in any manner whatsoever,
take part in the sale;
▪ (5) Justices, judges, prosecuting attorneys, clerks of superior and inferior
courts, and other officers and employees connected with the administration of
justice, the property and rights in litigation or levied upon an execution before
the court within whose jurisdiction or territory they exercise their respective
functions; this prohibition includes the act of acquiring by assignment and shall
apply to lawyers, with respect to the property and rights which may be the object
of any litigation in which they may take part by virtue of their profession;
▪ (6) Any others specially disqualified by law. (1459a)

Prohibited – void - example

▪ The spouses cannot sell to each other except when they have complete
separation of property art 87 FC
How should consent be given ?

1.Intelligently –

▪ not drunk, not in the state insanity or hypnotized

▪ Not Illiterate and deaf mute

 ▪ No mistake or no fraud is committed

2. Freely / voluntarily
no intimidation, violence, undue influence

Contracts entered into during a lucid interval are valid. Contracts agreed to in a state
of drunkenness or during a hypnotic spell are voidable. (n) ARTICLE 1328.
When one of the parties is unable to read, or if the contract is in a language not
understood by him, and mistake or fraud is alleged, the person enforcing the
contract must show that the terms thereof have been fully explained to the former. (n)
ARTICLE 1332

See also art 1491

Vices of Consent
Vices of Consent
▪ ARTICLE 1390. The following contracts are voidable or annullable, even though
there may have been no damage to the contracting parties:
▪ (1) Those where one of the parties is incapable of giving consent to a contract;
▪ (2) Those where the consent is vitiated by
▪ mistake,
▪ violence,
▪ intimidation,
▪ undue influence or
▪ fraud.
These contracts are binding, unless they are annulled by a proper action in court..
They are susceptible of ratification. (n)

When is there mistake

1. must refer to the object of the contract or condition that moves the parties to enter
into contract .
▪ example . Mistake as to identity, mistake as to amount
2. It must be excusable and not one that could be avoided
3. Mistake of fact and not of law
Vices of Consent
Violence / intimidation
When is there violence / intimidation
▪ There is violence (physical )
 ▪ when in order to wrest consent, serious or irresistible force is employed.
▪ There is intimidation (Psychological)
▪ when one of the contracting parties is compelled by a reasonable and well-
grounded fear of an imminent and grave evil upon his person or
property, or upon the person or property of his spouse, descendants or
ascendants, to give his consent.
▪ To determine the degree of intimidation, the age, sex and condition of the person
shall be borne in mind. ARTICLE 1335.

Vices of Consent
Undue Influence
When is there undue influence ?
▪ ARTICLE 1337. There is undue influence when a person takes improper
advantage of his power over the will of another, depriving the latter of a
reasonable freedom of choice.
▪ ( Psychological. Will is weaken due to relationship, mental condition, financial
condition)
▪ The following circumstances shall be considered: the confidential, family, spiritual
and other relations between the parties, or the fact that the person alleged to
have been unduly influenced was suffering from mental weakness, or was
ignorant or in financial distress. (n)

Vices of Consent
Fraud in Contracting
Fraud in Contracting
Vices of Consent
Kinds of fraud
Fraud In Contracting
▪ a) Dolo causante (causal fraud) - voidable contract
b) Dolo incidente ( incidental fraud )- valid
Example – the case of the Dog breeder

▪ Fraud in performance
▪ - damages (Art. 1170)
Fraud in Contracting
(dolo causante )

▪ MISREPRESENTATION
▪ There is FRAUD when, through insidious words or machinations of one of the
 contracting parties, the other is induced to enter into a contract which, without
them, he would not have agreed to. ARTICLE 1338.
▪ A mere expression of an opinion does not signify fraud, unless made by an
expert and the other party has relied on the former's special knowledge. (n)
ARTICLE 1341

▪ CONCEALMENT
▪ Failure to disclose facts, when there is a duty to reveal them, as when the parties
are bound by confidential relations, constitutes fraud. ARTICLE 1339

fraud in contracting
(dolo incidente )
▪ Example
▪ ARTICLE 1340. The

▪ usual exaggerations in trade,

▪ when the other party had an opportunity to know the facts, are not in themselves
fraudulent. (n)

Can there be fraud in exaggeration in trade ?

Fraud in Performance
▪ Those who in the
▪ performance of their obligations are guilty of fraud,
▪ negligence, or delay, and those who in any manner contravene the tenor
thereof,

▪ are liable for damages. ARTICLE 1170.

Object
Requisites of Contract
Object of contract

▪ The Thing , the service , the right

▪ A car , the act of singing, the leasehold right

Requisites of a valid object
▪ It must be lawful: not contrary to law , morals , good custom, public order or
public policy .Art 1347

▪ Actual or possible – include future things

▪ but not future inheritance except partition inter-vivos or future
things can not subject of donation (art751)

▪ Transmissible ( within commerce of men )

▪ Example of outside of commerce of men – public plaza and side walks? ,
political right , parental right

▪ Determinate or determinable without the necessity of a new contract .Art.

1349

Cause
Requisites of Contracts
Requisites of Cause
(causa)
▪ The impelling reason for the parties to assume an obligation under the
contract (Manresa )
▪ 1. It must be present
▪ 2. Cause must be true not FALSE. ART 1353
▪ 3. IT MUST BE LAWFUL

▪ OTHERISE , THE CONTRACT IS VOID .

Cause

Concept of cause
▪ ARTICLE 1350.
▪ In onerous contracts the cause is understood to be, for each contracting party,
the
▪ prestation or promise of a thing or service by the other;

▪ in remuneratory ones,
▪ the service or benefit which is remunerated; and

▪ in contracts of pure beneficence,

▪ the mere liberality of the benefactor.
In onerous contract , will insufficiency of cause invalidate a contract ?
▪ ARTICLE 1355. Except in cases specified by law,
▪ lesion or inadequacy of cause
▪ shall not invalidate a contract, unless
▪ there has been fraud, mistake or undue influence. (n)

▪ Distinguish failure of consideration from absence of consideration as to nature

and effect?

QUESTION
▪ IN A CONTRACT OF SALE OF A CAR , IDENTIFY THE OBJECT AND THE CAUSA .
INVALIDATIONS OF CONTRACT AND REFORMATION

▪ void
▪ voidable
▪ Unenforceable
▪ Rescissible
▪ Reformation

Voidable Contracts
Consequence of Vices of Consent
voidable or annullable contract
▪ The following contracts are voidable or annullable, even though there may
have been no damage to the contracting parties:
▪ (1) Those where one of the parties is
incapable of giving consent to a contract;
▪ (2) Those where the consent is vitiated by
mistake, violence, intimidation, undue influence or fraud.
▪ These contracts are binding, unless they are annulled by a proper action in court.
They are susceptible of ratification. (n)
ARTICLE 1390.

Who and when annulment of contract may be filed ?

▪ By the injured Party principally or subsidiarily obliged ARTICLE 1397
▪ within FOUR YEARS from . . .
▪ ARTICLE 1391.The action for annulment shall be brought within four years. This
period shall begin:
▪ In cases of intimidation, violence or undue influence, from the time the defect of
the consent ceases.
▪ In case of mistake or fraud, from the time of the discovery of the same.
▪ And when the action refers to contracts entered into by minors or other
incapacitated persons, from the time the guardianship ceases
Lost of Right to Annul
How may an injured party loose his right to annul a voidable contract ?
▪ ARTICLE 1392.
1.Ratification - extinguishes the action to annul a voidable contract.
▪ ARTICLE 1401.
2.Plaintiff loosing the thing received through negligence or fraud except by
minors
▪ ARTICLE 1391
3.Prescription of Action .

what is the effect of ratification?

▪ ARTICLE 1396.

▪ Ratification

▪ cleanses the contract from all its defects

▪ from the moment it was constituted

Who may ratify an annullable contract ?

▪ the guardian or

▪ the injured person

▪ ARTICLE 1394. Ratification may be effected by the guardian of the incapacitated

person. (n)
▪ ARTICLE 1393. Ratification may be effected expressly or tacitly. It is understood
that there is a tacit ratification if, with knowledge of the reason which renders the
contract voidable and such reason having ceased, the person who has a right to
invoke it should execute an act which necessarily implies an intention to
 waive his right.
Lost of the Thing
▪ The action for annulment of contracts shall be extinguished when the thing which
is the object thereof is lost through the fraud or fault of the person who has a
right to institute the proceedings.
▪ Art. 1401 par 2. . If the right of action is based upon the incapacity of any one of
the contracting parties, the loss of the thing shall not be an obstacle to the
success of the action, unless said loss took place through the fraud or fault of the
plaintiff. (1314a)

why is loosing the thing an obstacle to file action of annulment ?

▪ Since the court declared that the contract is VOID / non existent .Then the parties
are to be
▪ restored to their original status prior to the inception of the contract
▪ as if no contract is made .
▪ Thus, the court will order mutual restitution.
▪ Mutual restitution becomes impossible without the thing.

▪ BUT is the loss of the thing a total obstacle ?

▪
Once the contract is annulled , what is the duty of the plaintiff and respondent ?
ARTICLE 1398. An obligation having been annulled, the contracting parties shall
restore to each other the things which have been the subject matter of the contract,
with their fruits, and the price with its interest, except in cases provided by law. In
obligations to render service, the value thereof shall be the basis for damages.
ARTICLE 1402. As long as one of the contracting parties
does not restore what in virtue of the decree of annulment he is bound to return,
the other cannot be compelled to comply with what is incumbent upon him.
Effect of loosing the thing received by plaintiff
▪ Before filing of case
▪ action is barred if lost through fault of plaintiff art. 1402

▪ After the case was filed :

▪ if lost by fault or negligence of plaintiff – pay value of the thing + fruits + interest
from time of loss
▪ By fortuitous event pay only for fruits received . Not the value of the thing . Puno
citing Manresa

Unenforceable Contracts
 Unenforceable Contracts

Concept.

▪ Contracts that by reason of statutory defects do not confer any action to enforce
the same until and unless they are ratified in the manner prescribed by law .

classes:

▪ Contracts under the Statute of Fraud.

▪ Contracts in excess of authority.

▪ Contracts where both parties are incapacitated.

Unenforceable Contract

C. Characteristics:
a. The defect is not curable by lapse of time.
b. Such contracts give rise to a defense against their enforcement, but not to an
action to set aside the contract ("a shield but not a sword").
c. The defect may not be invoked by strangers to the contract (Art. 1408).

Unenforceable Contract
Contracts in Excess of Authority.

▪ a. Those entered into in the name of another person by one who has been given
no authority or legal representation, or who has acted beyond his powers (Art.
1403, No. 1).

ratification ; express or implied.

▪ 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
(Art. 1413, par. '.2).
Unenforceable Contract
CONTRACT where Both are incapacitated
▪ Those where both parties are incapable or giving consent to a contract (Art. 1403,
No. 3).

If ratified by one / if both

▪ The effect is to render the contract voidable at the option of the non-ratifying
party
▪ If both , the contract becomes valid and enforeable
Rescissible Contract
Rescissible Contract
Concept of Rescission
▪ Is a process designed to render inefficacious a contract , validly entered into and
normally binding, by reason of external condition causing an economic prejudice
to the party or his creditors (scaevola)
Requisites
▪ 1. Valid contract
▪ 2. Pecuniary damage to someone (party or stranger)
Causes of Rescission
▪ On account of lesion proper :
▪ A)Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one-fourth of the value of the things which
are the object thereof; Art 1381
▪ B) Those agreed upon in representation of absentees, if the latter suffer the lesion
stated in the preceding number; Art.1381
▪ C) A partition, judicial or extra-judicial, may also be rescinded on account of
lesion, when any one of the co-heirs received things whose value is less, by at
least one-fourth, than the share to which he is entitled, considering the value of
the things at the time they were adjudicated. Art.1098

Causes of Rescission
On account of Bad Faith :
1. Those undertaken in fraud of creditors when the latter cannot in any other manner
collect the claims due them;
2. 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;
3. Payments made in a state of insolvency for obligations to whose fulfillment the
debtor could not be compelled at the time they were effected, are also rescissible.
ARTICLE 1382.

Presumption of fraud
▪ All contracts by virtue of which the debtor alienates property by gratuitous title
are presumed to have been entered into in fraud of creditors, when the donor did
not reserve suficient property to pay all debts contracted before the donation.
▪ Alienations by onerous title are also presumed fraudulent when made by persons
against whom some judgment has been rendered in any instance or some writ of
attachment has been issued. The decision or attachment need not refer to the
property alienated, and need not have been obtained by the party seeking the
rescission.
▪ In addition to these presumptions, the design to defraud creditors may be proved
in any other manner recognized by the law of evidence. (1297a)Art. 1387

Requisites for filing action for rescission

▪ A) No other remedy is available
▪ B) Plaintiff is able to return what he received under the rescissible contract
(except for fraud of creditor)
▪ C) The thing, object is not in the possession of a person in good faith.
▪ D) Filed within four years from celebration of contract (except person under
guardianship or absentees )
Reformation
Of Contract
Reformation
Reformation
▪ is that remedy in equity by means 0f which a written instrument is made or
construed so as to express or conform to the real intention of the parties when
some error or mistake has been committed (53 C.J. 906).
▪ what is reformed is the written instrument, - not the contract.

Rationale
▪ The rationale of the doctrine is that it would be unjust and inequitable to allow the
enforcement of a written instrument which does not reflect or disclose t'he real
meeting of the minds of the parties (Report Code Comm.) .
Requisites
▪ A. Meeting of minds to a contract
▪ B. 'Ihe true intention is not expressed in the instrument by reason of-
1. Mistake -which may either be
▪ ii. Mutual (Art. 1361), or
▪ ii.Unilateral (Arts. 1362, 1363).
2. Fraud--which may be perpetrated either
▪ i.Actively (Art. 1362), or
 ▪ ii.Passively (concealment) (Art. 1363).
▪ 3.Inequitable conduct-(Art. 1362).
▪ 4.Accident-(Art. 1359).
▪ 1) Failure of the instrument. to express the true intention of
the parties due to ignorance, lack of skill, negligence or bad faith of the
person drafting the instrument or of the clerk or typist (Art. 1364) is really a
case of "accident." No fraud exists in the sense that neither of the parties
took part therein.
▪ 5. Relative simulation (art. 1365)

Who may file the action ?

Who may file the action for reformation .
The injured party-namely:
1, The person mistaken . If mistake is mutual either of them;
2. The person defrauded
3. The victim of the inequity ;
 The victim of the accident
 The person whose rights are prejudice by
relative simulation ( should the apparent contract be given effect ).

Question
▪ What is the difference between Fraud in contracting , Fraud in Performance ,
Fraud in Reformation ?
Voidable
Contract
Annulment of Contract
Grounds for annulment

▪ a. Incapacity of one party.

▪ b. Violence, intimidation; undue influence, mistake,
▪ or-fraud vitiating consent. ··

Who can ask for annulment :

▪ a. The party (principal or subsidiary) whose con¬sent was vitiated may sue to
annul; but not the other (Art. 1397).

Prescription of Action to Annul

▪ D. Duration of the Action to Annul (Art. 1391).
▪ a. Duress (intimidation, violence or undue influence) 4 years from cessation
thereof.
▪ b. Fraud or False Cause ( also Error) : 4 years from discovery thereof (Villanueva
vs. Villa¬nueva, G. R. L-4594, March 26, 1952).
▪ c. Minors etc.: up to 4 years from majority or re¬moval of the disability. (Ullman
vs. Hernaez, 30 Phil. 69).

Extinction of Action
▪ By prescription of action
▪ By confirmation (or ratification) (v. post, p. 247).
▪ By loss of the thing received by the plaintiff through his fraud or negligence

Effect of Anullment
▪ a. If the contract is NOT yet performed:
▪ The parties are released from their obligations.

▪ b. If the contract is ALREADY performed: There must be mutual restitution (Art.

1398).
▪ OF THE THING with the fruits; and
▪ OF THE PRICE with interests.

▪ BUT If the action is based on incapacity, the party not sui juris can be required to
restore only to the extent of his ENRICHMENT (benefit) (Art. 1399).
Effect of loss of the Thing
Loss before the action is filed
▪ If through Fault of the plaintiff action is barred
Loss after the decree of annulment
▪ Loss due to fault of one of the party - restore the VALUE of the thing plus fruits
▪ Foretuitus event : only the Fruits recievbed need be restored . Not the Value
(Manresa )
Void Contracts
Kinds of Void Contract
▪ 1. Those lacking of ESSENTIAL REQUISITE
▪ 2. Contracts that are ILLEGAL
▪ 3. Contracts that are PROHIBITED
▪ 4.Contracts declared VOID by LAW
Those lacking of ESSENTIAL REQUISITE
▪ 1) Contracts that LACK of CONSENT
▪ a) absolutely simulated contract
▪ 2) Contracts that LACK OBJECT / CAUSA
▪ a) Did not exist at the time of transaction
▪ b) Object OUTSIDE the COMMERCE of Men
▪ c) those that contemplate an IMPOSSIBLE SERVICE

Characteristic of Inexistent and Void Contract

▪ 1) Can not be ratified. Art.1409
▪ 2) Action or defense to declare the inexistence is imprescriptible. (Art 1410)
▪ 3) The right to set up the defense of illegality can not be waived (Art. 1400).
▪ 4) The defense of illegality can be invoked by any one directly affected ( Art.
1421) and the illegality extends to all contract directly resulting from the illegal
source.
Art. 1422)
Regulation of Illegal Contract
Illegal contract
▪ Entirely Illegal
▪ Partly legal / Partly illegal
Entirely Illegal
▪ A) Where both parities are equally guilty :
no action against each other
▪ ( in pari delicto non oritur action) Ex. Contract with illegal
consideration
▪ B) One is innocent / and the other guilty :
▪ Innocent
▪ can recover what was given
▪ Can not be compelled to comply
▪ Can not enforce the agreement
▪ Guilty party
▪ can not recover what he has given

▪ If illegality constitute a crime : guilty will be prosecuted