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KINDS OF DEFECTIVE CONTRACTS
1. RESCISSIBLE CONTRACTS – valid because all the essential
requisites of a contract exist but by reason of ECONOMIC
INJURY or DAMAGE to one of the parties of third person,
such as creditors, the contract may be rescinded.
2. VOIDABLE CONTRACTS – valid until annulled unless ratified.
Defect is vice of consent.
3. UNENFORCEABLE CONTRACTS – contract cannot be sued
upon or enforced unless they are ratified. It is between void
and voidable.
4. VOID or INEXISTENT CONTRACTS – absolutely null and void.
It has no effect and cannot be ratified.
CHAPTER 6 Rescissible Contracts
Article 1380. Contracts validly agreed upon may be rescinded in
the cases established by law.
Rescissible Contracts
They are those validly agreed upon because all the essential
elements exist, and therefore, legally effective, but in cases
established by law, the remedy of RESCISSION is granted in the
INTEREST OF EQUITY.
Valid and enforceable although subject to rescission by the court
when there is ECONOMIC DAMAGE or PREJUDICE to:
1. One of the Parties; or
2. Third Person
RESCISSION - IS A REMEDY GRANTED BY LAW TO THE
CONTRACTING PARTIES AND SOMETIMES TO THIRD PERSONS IN
ORDER TO SECURE REPARATION OF DAMAGES CAUSED THEM BY
A VALID CONTRACT BY MEANS OF RESTORATION OF THINGS TO
THEIR CONDITION IN WHICH THEY WERE PRIOR TO THE
CELEBRATION OF SAID CONTRACT.
REQUISITES OF RESCISSION:
1. THE CONTRACT MUST BE VALIDLY AGREEN UPON.
(Article 1380)
2. THERE MUST BE LESION or PECUNIARY PREJUDICE TO
ONE OF THE PARTIES OR TO A THIRD PERSON. (Article
1380)
3. THE RESCISSION MUST BE BASED UPON A CASE
ESPECIALLY PROVIDED BY LAW. (Articles 1380 to 1382)
4. THERE MUST BE NO OTHER LEGAL REMEDY TO OBTAIN
REPARATION FOR DAMAGES (Article 1383)
5. THE PARTY ASKING FOR RESCISSION MUST BE ABLE TO
RETURN WHAT HE IS OBLIGED TO RESTORE BY REASON
OF THE CONTRACT. (Article 1385 par 1)
6. THE OBJECT OF THE CONTRACT MUST NOT LEGALLY BE
IN THE POSSESSION OF A THIRD PERSON WHO DID NOT
ACT IN BAD FAITH. (Article 1385 par 2)
7. THE PERIOD FOR FILING WTHE ACTION FOR RESCISSION
MUST NOT PRESCRIBED. (Article 1389)
Article 1381. The following contracts are rescissible:
1. 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;
2. Those agreed upon in representation of absentees, if
the latter suffer the lesion stated in the preceding
number;
3. Those undertaken in fraud of creditors when the latter
cannot in any other manner collect the claims due
them;
4. 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;
5. All other contracts specially declared by law to be
subject to rescission. (1291a)
RESCISSIBLE CONTRACTS
1. 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; (EXCEPT ORDERED BY THE COURT – ART 1386)
 G is the guardian of M (a minor). G sells the property
of M worth P 20,000.00 for only P 15,000.00.
 25% only is the reduced amount
 If more than 25%, a party can rescind the sale by
proper action in court upon reaching the age of
majority
2. Those agree upon in representation of absentees, if the
latter suffer the lesion stated in the preceding number;
(EXCEPT ORDERED BY THE COURT – ART 1386)
 An absentee is a person who disappears from his
domicile his whereabouts being unknown and
without leaving an agent to administer his property.
3. Those undertaken in fraud of creditors when the latter
cannot in any other manner collect the claims due them;
a. There must be an existing credit prior to the contract
to be rescinded, although it is not yet due or
demandable;
b. There must be fraud on the part of the debtor which
may be presumed or proved and;
c. The creditor cannot recover his credit in any other
manner, it not being required that the debtor be
insolvent.
4. 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;
5. All other contracts specially declared by law to be subject to
rescission.
 The following are examples:
 Article 1098 – Partition may be rescinded on account
of lesion. o Article 1189 – Obligation may be
rescinded if the thing deteriorated.
 Article 1526 – Right of the unpaid seller to rescind
the sale.
Article 1382. 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.
(1292)
REQUISITES OF PREMATURE PAYMENT UNDER ART. 1182
1. The debtor payor must have been insolvent when payment
was made.
2. The debt was not yet due and demandable.
3. That the insolvency need not be judicially declared.
Article 1383. The action for rescission is subsidiary; it cannot be
instituted except when the party suffering damage has no other
legal means to obtain reparation for the same. (1294)

SUBSIDIARY REMEDY: “The complainant needs to prove that he
has no other remedy except rescission.”
Article 1384. Rescission shall be only to the extent necessary to
cover the damages caused. (n)
RESCISSION SHALL BE ONLY TO THE EXTENT NECESSARY TO
COVER THE DAMAGES CAUSED.
 G the guardian of M a minor was authorized by court to sell
two parcels of land valued at P 200,000.00 each.
 G sold the two land at P 200,000.00
 Lesion is more than 25%
 The entire contract need not be rescinded, but only on to
once parcel of land to cover the damaged caused by G.
 But if G is willing to pay the P 200,000.00, no rescission.
Article 1385. Rescission creates the obligation to return the
things which were the object of the contract, together with their
fruits, and the price with its interest; consequently, it can be
carried out only when he who demands rescission can return
whatever he may be obliged to restore.
Neither shall rescission take place when the things which are the
object of the contract are legally in the possession of third
persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the
person causing the loss. (1295)
RESCISSION CREATES MUTUAL RESTITUTION.
 When the court declares a contract rescinded, the parties
must return to each other
(1) OBJECT OF THE CONTRACT WITH THE FRUITS
(2) THE PRICE THEREOF WITH LEGAL INTEREST.
 If nothing can be returned, rescission cannot be allowed but
other remedies may be availed.
Article 1386. Rescission referred to in Nos. 1 and 2 of article
1381 shall not take place with respect to contracts approved by
the courts. (1296a)
Article 1387. 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
sufficient 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)
REQUISITES FOR RESCISSION ON CONTRACTS TO DEFRAUD
CREDITORS
1. There exists a credit.
2. There is alienation subsequent to such credit.
3. The party alienating must be in good faith.
4. The creditor cannot collect his credit in any other manner.
PRESUMPTIONS OF FRAUD IN RESCISSIBLE CONTRACTS
1. GRATUITOUS ALIENATION – When debtor did not reserve
sufficient property to pay all his debts contracted before
donation.
2. ONEROUS ALIENATION – when debtor still sold the property
in spite of the following:
a. Judgement against him was rendered
b. A writ of attachment has been issued to him.
Article 1388. Whoever acquires in bad faith the things alienated
in fraud of creditors, shall indemnify the latter for damages
suffered by them on account of the alienation, whenever, due to
any cause, it should be impossible for him to return them.
If there are two or more alienations, the first acquirer shall be
liable first, and so on successively. (1298a)
LIABILITY OF PURCHASER IN BAD FAITH.
 The purchaser in bad faith, who acquired the object of the
contract alienated in fraud of creditors, must return the
same if the sale is rescinded.
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 If it is impossible for him to return it due to ANY CAUSE, the
must indemnify the former.
 If there are 2 or more alienations, the first acquirer shall be
liable first and so on and so fort.
Article 1389. The action to claim rescission must be commenced
within four years.
For persons under guardianship and for absentees, the period of
four years shall not begin until the termination of the former's
incapacity, or until the domicile of the latter is known. (1299)
PERIOD FOR FILING ACTION FOR RESCISSION
As a general rule, the action to claim rescission must be
commenced within FOUR (4) YEARS from the date the contract
was entered into Except:
1. The person under GUARDIANSHIP – begin from
termination of incapacity.
2. For ABSENTEES – from the time domicile is known.
PERSONS ENTITLED TO BRING ACTION
1. The injured party or the defrauded creditors;
2. The heirs, assigns, or successors in interest; or
3. The creditors of the above entitled to subrogation.
CHAPTER 7 Voidable Contracts
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)
VOIDABLE CONTRACTS
 Contracts which possess all the essential requisites (can be
binding) of a valid contract but one of the parties is
INCAPABLE OF GIVING CONSENT or CONSENT IS VITIATED BY
MISTAKE, VIOLENCE, INTIMIDATION, UNDUE INFLUENCE or
FRAUD.
 They are valid and binding unless ANNULLED by a proper
action in court by the INJURED PARTY.
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 ANNULMENT:  one voluntarily adopts or approves some defective or c. ACCEPTANCE and RETENTION OF BENEFITS
o Remedy provided by law for reason of public unauthorized act or contract which, without his subsequent flowing therefrom.
interest for the declaration of the inefficacy of a approval or consent, would not be binding on him.
contract based on a defect or vice of consent of  Intention of the ratifier to be bound by the provisions of the REQUISITES OF RATIFICATION
one of the contracting parties in order to restore contract. 1. There must be knowledge of the reason which renders the
them to their original position in which they were  It cleanses contract of all its defects (ARTICLE 1396) contract as voidable;
before the contracts was executed. 2. Such reason must have ceased; and
 Voidable Contracts can be RATIFIED. KINDS OF RATIFICATION 3. The injured party must have executed an act which
 Once Ratified, the voidable contract will become valid. 1. EXPRESS necessarily implies an intention to waive his right.
 Economic Damage is not essential. a. When ratification is manifested in words or in
writing Article 1394. Ratification may be effected by the guardian of the
ANNULMENT RESCISSION 2. IMPLIED incapacitated person. (n)
BASIS OF ACTION: INCAPACITY BASIS OF ACTION: LESSION a. It may take diverse form Article 1395. Ratification does not require the conformity of the
TO CONSENT or VITIATED or DAMAGE b. Silence or acquiescence contracting party who has no right to bring the action for
CONSENT c. Act showing adoption or approval of the annulment. (1312)
DEFECT IS INTRINSIC: Meeting MAY BE INTRINSIC or contract
of the Minds EXTRINSIC d. Acceptance and retention of benefits CONFORMITY OF THE GUILTY PARTY IN RATIFICATION
IT IS A SANCTION IT IS A REMEDY e. Applicable when the reason ceases  RATIFICATION IS A UNILATERAL ACT BY WHICH A PARTY
WAIVES THE DEFECT IN HIS CONSENT.
PUBLIC INTEREST GOVERNS PRIVATE INTEREST ONLY
RATIFICATION MAY BE EFFECTED BY THE GUARDIAN or THE  CONSENT OF THE GUILTY PARTY IS NOT REQUIRED.
PRINCIPAL ACTION SUBSIDIARY A CTION
INCAPACITATED PERSON (ART 1394)
PLAINTIFF MUST BE PRINCIPAL PLAINTIFF MAY BE PARTY or
1. Who may ratify a contract entered into by Article 1396. Ratification cleanses the contract from all its
3rd PERSON
incapacitated person defects from the moment it was constituted. (1313)
a. The Guardian
ANNULMENT vs RESCISSION b. The Incapacitated provided he is already ANNULMENT Articles 1397 to 1402
Capacitated Article 1397. The action for the annulment of contracts may be
Article 1391. The action for annulment shall be brought within 2. IN CASE OF FIMVU instituted by all who are thereby obliged principally or
four years. This period shall begin: a. Party whose consent is vitiated subsidiarily. However, persons who are capable cannot allege the
In cases of intimidation, violence or undue influence, from the incapacity of those with whom they contracted; nor can those
time the defect of the consent ceases. Article 1393. Ratification may be effected expressly or tacitly. It is who exerted intimidation, violence, or undue influence, or
In case of mistake or fraud, from the time of the discovery of the understood that there is a tacit ratification if, with knowledge of employed fraud, or caused mistake base their action upon these
same. the reason which renders the contract voidable and such reason flaws of the contract. (1302a)
And when the action refers to contracts entered into by minors having ceased, the person who has a right to invoke it should
or other incapacitated persons, from the time the guardianship execute an act which necessarily implies an intention to waive PARTY ENTITLED TO BRING ACTION TO ANNUL
ceases. (1301a) his right. (1311a)  The plaintiff with interest to the contract
 The victim and not the responsible person
RATIFICATION Articles 1392 to 1396 KINDS OF RATIFICATION
1. EXPRESS – when the ratification is manifested in words DUTY OF MUTUAL RESTITUTION IN ANNULMENT (ARTICLE
Article 1392. Ratification extinguishes the action to annul a or in writing. 1398)
voidable contract. (1309a) 2. IMPLIED or TACT – it may take diverse forms such as by:  Restore the subject matter of contract plus fruits
a. SILENCE or ACQUIESCENCE;  Price with legal interest
RATIFICATION b. Acts showing ADOPTION or APPROVAL; or  IN PERSONAL OBLIGATION - - the value of service plus
interest is the damages

RESTITUTION OF THE INCAPACITATED PERSON
 Only to the extent he was benefited (none if was not
benefited)
THING LOST AFTER ANNULMENT
 The value of the thing lost plus interest
 No annulment if due to fault of person instituting the
annulment
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. (1303a)
Article 1399. When the defect of the contract consists in the
incapacity of one of the parties, the incapacitated person is not
obliged to make any restitution except insofar as he has been
benefited by the thing or price received by him. (1304)
RESTITUTION BY AN INCAPACITATED PERSON
 EXCEPTION TO THE RULE ON RESTITUTION ON ANNULMENT
 INCAPACITATED PERSON IS OBLIGED TO MAKE RESTITUTION
ONLY TO THE EXTENT THAT HE WAS BENEFITED TO THE
CONTRACT.
 IF HE WAS NOT BENEFITED, HE IS NOT OBLIGED TO RETURN
WHAT HE RECEIVED.
Article 1400. Whenever the person obliged by the decree of
annulment to return the thing can not do so because it has been
lost through his fault, he shall return the fruits received and the
value of the thing at the time of the loss, with interest from the
same date. (1307a)
EFFECTS OF LOSS OF THE THING TO BE RETURNED
(1) WITHOUT THE FAULT OF THE PERSON OBLIGED TO
MAKE RESTITUTION - NO RESTITUTION
(2) WITH THE FAULT OF THE PERSON OBLIGED TO MAKE A
RESTITUTION - Not Extinguished, but is converted into
an indemnity for damages consisting of the value of the
thing at the time of the lost with interest from the same
date and the fruits received from the time the thing was
given to him to time to the time of the loss.
Article 1401. 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.
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)
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. (1308)
CHAPTER 8
UNENFORCEABLE CONTRACTS
Article 1403. The following contracts are unenforceable, unless
they are ratified:
(1) 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;
(2) 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; evidence, therefore, of the
agreement cannot be received without the writing, or a
secondary evidence of its contents:
a. An agreement that by its terms is not to be
performed within a year from the making
thereof;
b. A special promise to answer for the debt,
default, or miscarriage of another;
c. An agreement made in consideration of
marriage, other than a mutual promise to
marry;
d. An agreement for the sale of goods, chattels or
things in action, at a price not less than five
hundred pesos, unless the buyer accept and
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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; but when a sale is made by
auction and 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;
e. An agreement for the leasing for a longer
period than one year, or for the sale of real
property or of an interest therein;
f. A representation as to the credit of a third
person.
(3) Those where both parties are incapable of giving
consent to a contract.
Article 1404. Unauthorized contracts are governed by article
1317 and the principles of agency in Title X of this Book.
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 benefit under them.
Article 1406. When a contract is enforceable under the Statute
of Frauds, and a public document is necessary for its registration
in the Registry of Deeds, the parties may avail themselves of the
right under Article 1357.
UNENFORCEABLE CONTRACTS
 CONTRACTS THAT CANNOT BE ENFORCED OR GIVEN EFFECT
IN COURT or LAW or SUED UPON BY REASON OF CERTAIN
DEFECTS PROVIDED UNDER BY LAW UNTIL and UNLESS THEY
ARE RATIFIED ACCORDING TO LAW.
 CONTRACTS THAT ARE VALID BUT CANNOT BE ENFORCED IN
COURT UNLESS THEY ARE CURED or RATIFIED.
 ONE RATIFIED, THEY CAN BE ENFORCED.
STATUTE OF FRAUD
 Most contracts need not be in writing to be enforceable.
 Exception is Statue of Fraud
 The SOF requires that CERTAIN contracts be in writing in
order to be enforceable.

 The requirement of SOF may be waived by acceptance of
benefits or by failure to object to the presentation of oral
evidence.
BASIC PRINCIPLES OF THE STATUTE OF FRAUD
1. The SOF applies only to EXECUTORY CONTRACTS and
not to Partially or Completely Executed Contracts.
2. The SOF cannot apply if the action is neither for
damages for breach of agreement nor for specific
performance of the same.
3. SOF is Personal Defense; Contract infringing it cannot
be assailed by 3rd person.
4. Contracts infringing the SOF are not void but merely
unenforceable.
Article 1407. In a contract where both parties are incapable of
giving consent, express or implied ratification by the parent, or
guardian, as the case may be, of one of the contracting parties
shall give the contract the same effect as if only one of them
were incapacitated.
If ratification is made by the parents or guardians, as the case
may be, of both contracting parties, the contract shall be
validated from the inception.
Article 1408. Unenforceable contracts cannot be assailed by
third persons.
Those where both parties are incapable of giving consent to a
contract.
 UNENFORCEABLE – when both parties are incapable of
giving consent.
 VOIDABLE – if one party (himself or guardian) ratifies.
 VALID – if both parties or guardian ratifies it.
Illustrations: from HECTOR DE LEON
1. S sells his parcel of land to B. The contract is oral. C
binds himself in writing for the performance by B of his
obligation to pay the purchase price. In an action by S
to recover the purchase price, C cannot assail the
contract between S and B for being unenforceable
under the SOF. C is a stranger.
2. Under a verbal contract, S sells a parcel of land to B.
In an action for ejectment by B against C, the person in
possession, the latter cannot set up the defense of the
SOF.
CHAPTER 9
Void and Inexistent Contracts
Article 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.
VOID CONTRACTS
 CONTRACTS, WHICH BECAUSE OF CERTAIN DEFECTS
GENERALLY PRODUCED NO EFFECT AT ALL.
 INEXISTENT FROM THE VERY BEGINNING.
 “Void CONTRACT” – the term seems to be contradictory.
INEXISTENT CONTRACTS
 Agreements which lack some or all the essential
elements or
 Do not comply with the formalities which are essential
for the existence of the contract.
CHARACTERISTIC OF A VOID OR INEXISTENT CONTRACTS
1. Generally, produces no force and effect whatsoever;
2. It cannot be ratified; (Art. 1409 par 2)
3. The right to set up the defense of illegality cannot be
waived.
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 interest is not directly affected. (Article
1421); and
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6. It cannot give rise to a valid contract, (Art. 1422)
Article 1410. The action or defense for the declaration of the
inexistence of a contract does not prescribe.
Article 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)
RULES WHERE CONTRACT IS ILLEGAL and THE ACT CONSTITUTE
CRIMINAL OFFENSE
1. WHEN BOTH PARTIES ARE IN PARI DELICTO:
a. The parties shall have no action against each
other;
b. Both party shall be prosecuted; and
c. The things or the price of the contract as the
instruments or effects of the crime shall be
confiscated in favor of the government.
2. WHEN ONLY ONE PARTY IS AT FAULT:
a. The one who should suffer should be the guilty
or more guilty party.
b. Sanctioned is based on the previous
paragraph.
c. The innocent or less guilty party will not be
required to comply with his obligation.
Article 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 his promise. (1306)
RULES WHERE CONTRACT IS ILLEGAL AND THE ACT DOES NOT
CONSTITUTE CRIMINAL OFFENSE
1. WHEN BOTH PARTIES ARE IN PARI DELICTO
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. WHEN ONLY ONE PARTY IS AT FAULT:
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.
Article 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.
Article 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.
APPLICABILITY OF THE 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. The court considers that public interest will be SUBSERVED
by allowing recovery.
Illustration:
“For P 1,000.00 paid by A to B, B promised to hide C who is a
murder suspect. Before B could hide C, A changed his mind. In
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the court, the court allow A to recover the P 1,000.00 he paid to  “S sold to B his CAR for P 100,000.00 and an Endangered
B to hide C.” Specie for P 50,000.00.
o Only the sale of endangered specie is void.
Article 1415. Where one of the parties to an illegal contract is
incapable of giving consent, the courts may, if the interest of Article 1421. The defense of illegality of contract is not available
justice so demands allow recovery of money or property to third persons whose interests are not directly affected.
delivered by the incapacitated person.
Article 1416. When the agreement is not illegal per se but is THIRD PERSON
merely prohibited, and the prohibition by the law is designed for  VOIDABLE, UNENFORCEABLE, and RESCISSIBLE - - 3rd
the protection of the plaintiff, he may, if public policy is thereby persons are not allowed to bring an action to annul or assail
enhanced, recover what he has paid or delivered. as the case may be.
 VOID - - third person with interest can assail the illegality
RECOVERY WHEN CONTRACT NOT ILLEGAL PER SE thus nullifying the contract.
Exception to PARI DELICTO RULE. Recovery is permitted despite
of the fact that both parties are at fault: Article 1422. A contract which is the direct result of a previous
1. The agreement is not illegal per se but prohibited; illegal contract, is also void and inexistent.
2. The prohibition is for the protection of the Plaintiff; and
3. Public Policy will be enhanced by allowing the plaintiff
to recover what he has paid or delivered.
Example: “Prohibition on the sale of land to aliens.”
Article 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.
Article 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.
Article 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.
Article 1420. In case of a divisible contract, if the illegal terms
can be separated from the legal ones, the latter may be
enforced.
Illustration:
 “S sold to B his CAR and SHABU for P 100,000.00.
o Whole contract void as the legal and illegal
objects cannot be separated”