VOID OR INEXISTENT CONTRACTS

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.
Characteristics of a void or inexistent
contract.

(1) Generally, it produces no effect whatsoever, being

void or inexistent from the beginning;
(2) It cannot be cured or validated either by time or
ratification;
(3) The right to set up the defense of illegality,
inexistence, or absolute nullity cannot be waived;
(4) Action or defense for the declaration of its illegality,
inexistence, or absolute nullity does not prescribe.
(5)Defense of illegality, inexistence, or absolute nullity is
not available to third persons whose interests are not
directly affected;

(6) It cannot give rise to a valid contract;

(7)Its invalidity can be questioned by anyone affected by

it. (Nazareno vs. C.A., SCRA 637 [2000])

➢ These characteristics distinguish void contract

from the other defective contracts.
Effects of a void or inexistent contract.

➢ A void contract produces no effect whatsoever either

against or in favor of anyone. It vests no rights and creates
no obligations; hence, it does not create, modify, or
extinguish the juridical relation to which it refers. (Tongoy vs.
C.A., 123 SCRA 99)

➢ Parties have no rights which they can enforce and court

cannot lend itself to its enforcement;

➢ Void or inexistent contract is equivalent to

nothing. Thus, there is nothing to ratify;
➢ If a void contract has already been performed, the
restoration of what has been given is in order.
(Nool vs. C.A., SCRA 149)
 Equity as ground to uphold void contract.

➢ Equity (described as “justice outside legality”) is applied

only in the absence of and never against statutory law or
judicial rules of procedure;
➢ Equitable reasons will not control against any well-settled
rule of law or public policy;
➢ While equity might tilt on the side of one party, it cannot
be enforced so as to overrule positive provisions of law in
favor of another;
➢ Equity cannot give validity to a void contract;
➢ The rule must stand no matter how harsh it may
seem, “dura lex sed lex”. (Arsenal vs. IAC, 143 SCRA 40 [1986])
 Instances of void or inexistent contracts:

(1) Contracts whose cause, object or purpose is

contrary to law, etc. —
➢ The contract of the parties must conform with the law
in force at the time it is executed;

➢ But the right of a party under a contract cannot be affected by a

subsequent law removing or eliminating such right;

➢ Where, at the time the contract was entered into, there was as
yet no law fixing a ceiling on rentals and prohibiting landlord
from demanding an increase thereof, landlord has a right to
demand an increase to the limit authorized by law. (Cabatan vs. C.A.,
95 SCRA 323)
(2) Contracts which are absolutely simulated or
fictitious. —
➢ 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)

➢ The failure of the alleged buyers to take exclusive

possession of the property allegedly sold to them, or in the
alternative, to collect rentals from the possessors is
contrary to the principle of ownership and a clear badge of
simulation that renders the transaction void. (Santiago vs. C.A.,
278 SCRA 98 [1997])
(3) Contracts without cause or object. —
➢ Phrase “did not exist at the time of transaction” does not
apply to a future thing which may legally be the object of a
contract.
➢ A contract without consideration is void.

(4) Contracts whose object is outside the commerce

of men. —

(5)Contracts which contemplate an impossible service. —

➢ Where the sellers can no longer deliver the object of the sale
to the buyers, as the latter themselves have already acquired
title and delivery thereof from the rightful owner;
(6) Contracts where the intention of the parties relative to
the object cannot be ascertained. —

(7) Contracts expressly prohibited or declared

void by law. —

➢ Where the illegality of the contract proceeds from an

express prohibition or declaration by law, and not from
any intrinsic illegality, the contract is not illegal per se.
E(EPG Construction Co. vs. Vigilar, 354 SCRA 566 [2001]
Examples of contracts – prohibited or declared void
by law:
(a) Contracts upon future inheritance except in cases
expressly authorized by law;
(b) Sale of property between husband and wife
except when there is a separation of property;
(c) Purchase of property by persons who are specially
disqualified by law (guardians, agents, executors,
administrators, public officers and employees, judges,
lawyers) because of their position or relation with the
person or property under their care.
 ART. 1410. The action or defense for the
declaration of the inexistence of a contract
does not prescribe.
Action or defense for declaration of
inexistence of a contract.

(1) Action or defense imprescriptible. —

➢ 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.
➢ The defect being permanent and incurable, the
action or defense does not prescribe.
➢ Mere lapse of time cannot give efficacy to a void
contract.
➢ Void contract cannot be cured by ratification.
(Sumipat vs. Banga, 436 SCRA 521 [2004])
(2) Necessity of judicial declaration. —

➢ Since a void contract has no effect at all, it is, therefore,

unnecessary to bring an action to declare it void. It is well
within the right of a party to unilaterally cancel and treat
as avoided a void contract. (G. Razon, Inc. vs. PPA, 151 SCRA 233
[1988])

➢ But 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.
(3) Rule where contract not void but merely
voidable. —

➢ Voidable contracts can only be annulled by a proper

action in court within four (4) years from the time the
cause of action accrues.

➢ Article 1410 cannot possibly apply to last wills and

testaments – as they are not contracts.
(Gallanosa vs. Arcangel, 83 SCRA 676 [1978])
 ART. 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)
Rule on pari delicto.

➢ Generally, parties to a void agreement cannot expect the aid

of the law; the courts leave them as they are, because they
are deemed in pari delicto, or “in equal fault”;
➢ “In pari delicto” is a universal doctrine which holds that no
action arises, in equity or at law, from an illegal contract;
➢ One who seeks equity and justice must come to
court with clear hands;
➢ But this rule, however, is subject to exceptions – that permit
the return of that which may have been given under a void
contract. (Hulst vs. PR Builders, Inc., 532 SCRA 74)
But the application of the pari delicto principle is not
absolute, as there are exceptions to the application:

➢ One exceptions is where the application of the rule

would violate well established public policy. (Silagan vs.
IAC, 196 SCRA 794 [1991]

➢ Another exception is when the principle is invoked

with respect to inexistent contracts.
(Medina vs. C.A., 317 SCRA 696 [1999])
Rules where contract unlawful or forbidden and
act consitutes a criminal offense.

(1) Where both parties are in pari delicto. —

(a) Parties shall have no action against each other, or as

stated in the legal maxim: In pari delicto melior est
conditio defendentis;

(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.
 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.
(1306)
Rules where contract unlawful or forbidden but
act not a criminal offense.

(1) Where both parties 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.
No relief can be granted to either party; the law
will leave them where they are.

The principle of pari delicto is grounded on two

(2) premises:
➢ First, courts should not lend their good offices to
mediating disputes among wrongdoers; and
➢ Second, denying relief to an admitted wrongdoer is an
effective means of deterring illegality.
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, Y’s promise has for its consideration an

immoral act which does not constitute a crime.
➢ Hence, there can be no recovery by one against the
other, and neither party may ask for the fulfillment of
the other’s promise.
(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.
➢ If, in the preceding example, X is only a minor, say, of 16 at
the time, and Y was a married man of mature years and
experience, 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.
(3) Where both parties are not guilty. —

➢ If both parties have no fault or are not guilty, the

restoration of what was given by each of them to the
other is in order;

➢ Reason – the declaration of nullity of a contract which is

void ab initio operates to restore things to the state and
condition in which they were found before the execution
thereof. (DPB vs. C.A., 249 SCRA 331 [1995]; Art. 1398)
When pari delicto rule not applicable.

(1) Breach of warranty cases. —

➢ Rule – Vendor warrants his title to the thing sold, and that, in
the event of eviction, the vendee shall be entitled to the
return of the value which the thing sold has at the time of
the eviction, be it greater or less than the price of the sale.

(2) Simulated contracts. —

➢ Pari delicto does not apply to simulated or fictitious
contracts, or inexistent contracts which are devoid of
consideration;
➢ It applies only on existing contracts with illegal consideration.
(3) Parties not equally guilty. —

➢ Here, the law allows the more excusable of the

two to sue for relief against the transaction;
➢ Ex. – Conveyance was wrongfully induced by the grantee
through imposition or overreaching, or by false
representations, especially by one in a confidential
relation. (Bough vs. Cantiveros, 40 Phil. 209)

For the pari delicto rule to apply, the fault on both

sides must be, more or less, equivalent.
(4) Against the government. —
➢ Cardinal principle of law: The government is not
estopped by the neglect or omission of its officers.

(5) Prohibited conveyances under the law. —

➢ An alienation or sale of a homestead executed within the 5-

year prohibitory period provided under the Public Land Act is
void;
➢ Contract being void, must be given no effect at all and the
parties must be placed in status quo which was the condition
prevailing before the execution of the contract. (Torres vs. Ventura,
187 SCRA 196)
(6) Constitutional prohibition against alien
landholding. —

➢ Supreme Court has ruled that where a Filipino citizen sells

land to an alien who later sells the land to a Filipino, the
invalidity of the first transfer is corrected by the
subsequent sale, to a citizen.

➢ Where the alien who buys the land subsequently acquires

Philippine citizenship, the sale was validated since the
purpose of the ban to limit ownership to Filipinos (Sec. 7, Art.
XII, Constitution) has been achieved. (Republic vs. Register of Deeds, 558
SCRA 450 [2008])
 ART. 1413. 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.
Recovery of 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. (Art. 1413)
➢ A stipulation for payment of usurious interest is void. The
person paying the usurious interest can recover not only the
interest in excess of that allowed by the usury laws, but the
whole interest paid.
➢ Note: Central Bank Circular No. 905 (Dec. 10, 1982) issued by
the Monetary Board – the rate of interest and other charges
on a loan of money, goods or credit shall no longer be
subject to any ceiling prescribed by the Usury Law.
Recovery of principal of usurious loan.

➢ In a usurious loan transaction, the borrower is not relieved of

the obligation to pay the principal of the loan on the
assumption that a usurious contract (while void as to interest)
is valid as to the principal.
(Lopez vs. El Hogar Filipino, 47 Phil. 249)

➢ But the Court of Appeals held that: a usurious loan is wholly

null and void not only as to the principal but also as to the
usurious interest – for being inconsistent with Articles 1352 and
1409 of the Civil Code (that a contract whose cause is contrary
to law or public policy is null and void and without effect);
➢ Thus, creditor is not allowed to recover the principal of the
loan. (Sebastian vs. Bautista, [CA] 59 O.G. No. 15, 314)
 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, allow the party
repudiating the contract to recover the money
or property.
Recovery where contract for an illegal
purpose.

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
accomplished or before any damage has been caused to a
third person; and
(3) Court considers that public interest will be subserved by
allowing recovery.

Reasons for the rule allowing recovery when agreement is still

merely executory:
(a) Encouragement of abandoning illegal agreements;
(b) Prevention of the violation of the law.
In consideration of P10,000 paid by X to Y, the
latter (Y) promised to hide Z, who is accused of
murder. Before Y could hide Z, X changed his mind.

Here, the court may allow X to recover the P10,000

given to Y.
 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
delivered by the incapacitated person.
Recovery by an incapacitated person.

➢ 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. (Art. 1414)

➢ In the preceding example, if X is a minor or an insane person,

the court may allow X to recover the money paid if the interest
of justice so demands.
➢ Under the doctrine of pari delicto, the parties have no
action against each other when they are both at fault. (Art.
1412[1])

➢ The rule has been interpreted as applicable only where the

fault on both sides is, more or less, equivalent.

➢ It does not apply where one party is literate or intelligent

and the other one is not. (Mangayao vs. Lasud, 11 SCRA 158 [1964])
 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
delivered.
Recovery where contract not illegal per se.

Recovery is permitted provided:

(1) The agreement is not illegal per se but is

merely prohibited;

(2) The prohibition is designed for protection of

the plaintiff; and

(3) Public policy would be enhanced by allowing the

plaintiff to recover what he has paid or delivered.
Prohibited sale of land.

(1) A land sold in violation of the constitutional prohibition

against the transfer of lands to aliens may be recovered.

➢ Public policy to conserve lands for the Filipinos would be

defeated if, instead of setting the contract aside and
ordering the restoration of the property, the general rule
on pari delicto would be applied.
➢ Parties will not be permitted to resort to another
transaction for the purpose of disguising the transfer in
violation of Constitution.
➢ Thus, 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 her 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, 21 SCRA 52
[1967])
 Contract illegal per se vs. Contract
against public policy.

➢ An act or contract that is illegal per se is one that, by universally

recognized standards, is inherently or by its very nature bad,
improper, immoral or contrary to good conscience.
➢ What is contrary to public policy, whether expressed in a
Constitution or in any statute or official declaration of the duly
constituted authorities, or evinced from the situation or
circumstances of the time concerned, is something dictated by the
conditions obtaining within each country or nation.
➢ What is illegal per se cannot be necessarily equated
with what is contrary to public policy in all instances.
(Guiang vs. Kintanar, 106 SCRA 47)
 ART. 1417. 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.
Recovery of amount paid in excess of ceiling
price.

➢ 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 (Executive Order of the President).

➢ Purpose is to curb the evils of profiteering

or blackmarketing.
 ART. 1418. 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.
Recovery of additional compensation for
service rendered beyond time limit.

➢ Presidential Decree No. 442, as amended, Labor

Code;

➢ Sets forth that the normal hours of work of any

employee shall not exceed eight (8) hours a day;

➢ Recovery of additional compensation for

service rendered beyond time limit.
“Additional compensation” 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 employer who
are dependent upon him for support;
➢ (5) domestic helpers;
➢ (6) persons in the personal service of another;
➢ (7) workers who are paid by results. (Arts. 82, 83, Labor
Code)
 ART. 1419. 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.
Recovery of amount of wage less than
minimum fixed.

➢ If an employee or worker 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. In case of a divisible contract, if
the illegal terms can be separated from the
legal ones, the latter may be enforced.
(1) S sold to B his car and shabu, a prohibited
drug, for P200,000.

➢ The contract is wholly void and unenforceable because

there is only one consideration for both the car and the
shabu.

➢ But if the price of the car is P150,000 and that for the
drug is P50,000, the contract, being divisible, is valid as
to the sale of the car.
(2) D borrowed P10,000 from C with stipulation of
usurious interest.

➢ The prestation of D to pay the principal debt

(P10,000) – cause of the contract, is not illegal.
➢ The illegality lies only as to the prestation to pay the
stipulated interest. Hence, being separable, the latter only
should be deemed wholly void, since it is the only one that is
illegal;
➢ The loan becomes one without a stipulation as to payment
of interest. The borrower is still liable to pay the principal
debt, otherwise he would unjustly enrich himself at the
expense of the principal.
Divisible contract vs. Divisible obligation.

➢ Article 1420 speaks of a divisible contract and not of a

divisible obligation (Arts. 1225, 1183);

➢ The test of the divisible contract is the divisibility of its

cause; while in divisible obligation is its susceptibility of
partial fulfillment;

➢ Divisible contract, therefore, refers to the cause; while

divisible obligation to the prestation or object.
➢ S paid P1,000 as annual subscription to a weekly
magazine to be delivered every week. The
contract is indivisible but the obligation of the
publisher is divisible.

➢ If the agreement is that the publisher will deliver

the magazine every week and S will pay P25.00
upon such delivery, the contract is divisible. The
obligations of the parties are likewise divisible.
 ART. 1421. The defense of illegality of
contracts is not available to third persons
whose interests are not directly affected.
Persons entitled to raise defense of
illegality or nullity.

➢ 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.

➢ Illegal or void contracts – 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.
H, husband, sold her parcel of land to W, his wife.
➢ Under the law, husband and wife cannot sell property to
each other. Hence, such sale is illegal and void.
➢ Purpose of prohibition is to protect third persons;

➢ Under Article 1421, if C (third person) became a creditor of

H before the transaction, he (C) can question the sale for
the reason that his right or interest is directly affected;
➢ But if C became a creditor after the transfer, the defense of
illegality is not available to him.
 ART. 1422. A contract which is the
direct result of a previous illegal contract,
is also void and inexistent.
Void contract cannot be novated.

➢ Art. 1422 is based on the requisites of a valid

novation;
➢ An illegal contract is void and inexistent and,
thus, cannot give rise to a valid contract.
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;
➢ One can repurchase only what he has previously sold. (Nool
vs. Court of Appeals, 276 SCRA 149 [1997].)