(42) Arts.
1409 – 1422: Void Contracts
CODAL:
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.
Art. 1410: The action or defense for the declaration of the inexistence of a contract does
not prescribe.
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.
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.
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.
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.
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.
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.
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.
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
services rendered beyond the time limit.
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.
Art. 1420: In case of a divisible contract, if the illegal terms can be separated from the
legal ones, the latter may be enforced.
Art. 1421: The defense of illegality of contracts is not available to third persons whose
interests are not directly affected.
Art. 1422: A contract which is the direct result of a previous illegal contract, is also
void and inexistent.
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CHARACTERISTICS OF VOID CONTRACT
1. The right to set up the defense of illegality cannot be considered waived and
may be considered on appeal even if not raised in the trial court
2. The action or defense for their declaration as inexistent does not prescribe
3. The defense of illegality of contracts is not available to third persons whose
interests are not directly affected
4. Cannot give rise to a contract; thus “a contract which is the direct result of a
previous illegal contract is also void and inexistent”
5. Generally produces no effect
6. Generally, no action to declare them void is needed, since they are inexistent
from the very beginning
7. They cannot be ratified
 VOIDABLE CONTRACTS VOID CONTRACTS the object can exist, it will be valid. If it is capable of existing because of the requirement
a) May be ratified a) Cannot be ratified that an object/prestation should be legally and physically possible.
b) Produces effects until annulled b) Effects are not produced at all
c) Defect is due to incapacity or c) Defect is that public policy is So when the provision refers to those whose cause or object did not exist at the time of
vitiated consent militated against the transaction, one should distinguish. It’s possible for you to have future things as the
d) Valid until annulled d) Void from the very beginning so object of the contract, unless there is a law mandating that the object be in existence
e) May be cured by prescription generally no action is required at the time of the creation of the contract. Example: Mortgage and future inheritance.
f) Defense may be invoked only to set it aside, unless the
by the parties or their contract has already been TWO KINDS OF VOID CONTRACTS:
successors in interests and performed 1. Contracts that lack an essential element
privies e) Cannot be cured by 2. Contracts that are contrary to law
prescription
f) Defense may be availed of by JSP’S WEIRD ILLUSTRATION
anybody, whether he is a party Nate hired a woman, walking along Burgos St. The contract is provided as follows:
to the contract or not, as long • Nate and Fantasia (the woman), who is of legal age, entered into a contract.
as his interest is directly Fantasia will be rendering services to Nate. The agreement would be that Nate
affected would spank the woman, tie and put a collar on her, and then will be playing
with a lot of beads.
RESCISSIBLE VOID VOIDABLE UNENFORCEABLE • Question: Is the contract valid?
CAUSE Lesion or Lack of Vitiated Contrary to Statute of
economic essential consent/inc Frauds, unauthorized DOCTRINE: Certain objects in certain contexts make them unlawful. In another
prejudice element apacity agent, both parties are context, it will be lawful. In JSP’s weird illustration, Nate hired a prostitute. It is invalid
s; incapacitated as it is prostitution which is against the law. But they bring in the cameraman, the
contrary director and they will have Dean Candelaria to view it, so it’s a movie. Now it’s a valid
to law contract.
PRESCRIP- 4 years None 4 years None
TIVE RATIFICATION OF A VOID CONTRACT
PERIOD There is NO ratification of a void contract. The parties can, however, execute a new
CURE Waiver Execute Ratification Ratification by contract to cure or remedy any defect in the void contract, assuming that the contract
a new accepting agreement, is not contrary to law.
valid express intent and
contract failure to object For instance, if it only lacks a specific object or a determinate cause. You cannot ratify
WHO CAN Any person Any Any person Only the parties; no 3rd a void contract. The parties can, however, execute a new contract to cure or remedy
OBJECT Person party any defect in the void contract.
STATUS Valid Void Valid until Unenforceable
annulled REFRESHER ON THE VOID CONTRACTS ACCORDING TO LAW:
1. Cause, object or purpose is contrary to law, morals, good customs, public
order or public policy
PRELIMINARY DISCUSSION: 2. Absolutely simulated contracts
3. Cause or object did not exist at the time of transaction
• A void contract is one that is invalid from the beginning
4. Object is outside the commerce of man
• A contract may be void because it is contrary to law – it may be any law
5. Impossible service
• Void contracts are contracts that lack an essential element and those
6. Intention of the parties relative to the principal object of the contract cannot be
contracts that are contrary to law and public morals. There’s also the
ascertained
absolutely simulated contract
7. Expressly prohibited or declared void by law
• GENERAL RULE: Object must exist. If it does not exist, then it cannot be.
PRESCRIPTION
ILLUSTRATION A
The action or defense for the declaration of the inexistence of a contract does not
I’m selling you a house in Marcelo Green Village, and it’s non-existent. Invalid Contract?
prescribe (Art. 1410).
It is valid. The general rule is that the object must exist at the time of the transaction. If
If a contract is null and void, the action to declare it null and void or to declare its non-
existence is imprescriptible. On the other hand, the illegality of the contract can always
be set up as a defense, despite the passage of time.
The defect of inexistence of a contract is permanent and incurable; hence, it cannot be
cured either by ratification or by prescription. There is no need of an action to set aside
a void or inexistent contract; in fact such action cannot logically exist.
PARI DELICTO
A party with unclean hands cannot recover or maintain an action, unless he repudiates
the contract before the purpose could be accomplished.
ILLUSTRATION B
Nate hired a prostitute knowing that it is illegal. He cannot claim the money he paid or
he cannot recover because it is contrary to law; it’s illegal, an unlawful service. Thus,
Nate cannot go to court and claim because he is with unclean hands. He is in bad faith.
He knows from the beginning that it was unlawful but he still proceeded.
The exception here is when a party repudiates the contract before the purpose could
be accomplished.
DOCTRINE: A minor can always recover in a void contract that is illegal.
ILLUSTRATION C (Shabu)
Apa bought shabu from Tim. Apa paid P100,000. Neither of them can recover, so they
get to keep the shabu and the money. Pursuant to the pari delicto doctrine, they cannot
go to court as the court will not aid them, therefore they get to keep the shabu and the
money from the drug trade.
However, both the shabu and the money will be forfeited and confiscated by the
government. This is according to the rules on the proceeds of a crime.
The only instance when a party can maintain an act based on an illegal contract is when
the party is innocent. In this example, Apa can maintain his innocence if he acted in
good faith – if he purchased the shabu thinking it was deodorant.
If it is not illegal per se, it will not constitute a criminal offense. The effect will be the
same, but the objects or the proceeds of the contract will not be confiscated.
WHERE RECOVERY CAN BE HAD EVEN IN THE PRESENCE OF PARI DELICTO
According to Art. 1414, recovery can be done only:
a) If the purpose has not yet been accomplished; or
b) If damage has not been caused any third person
ILLUSTRATION D
For a reward, Sofia promised to kill Zoey for Tonio. Tonio gave the reward. Before Sofia
could kill Zoey, Tonio repudiated the contract.
Is Tonio allowed to do so? Yes, because here, the purpose has not yet been
accomplished and no damage has as yet been caused to a third person.
Can Tonio recover what he has paid? It depends on the discretion of the court.
• If public interest allows the party repudiating the contract to recover the money
or property given.
• If, however, the repudiation took place after the crime has been done, such
repudiation is invalid and both parties will be guilty.
This provision also applies if the parties are not equally guilty, and where public policy
would be advanced by allowing the suit for relief.
RECOVERY OF AN INCAPACITATED PERSON
According to Art. 1415, where on 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.
ILLUSTRATION E
An insane man gave money to another to kill Jamal. The insane man may recover what
he has paid, since the interest of justice so demands.
RULE: 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. (Art. 1416)
ILLEGAL PER SE CONTRACTS
• Those forbidden because of public interest
MERELY PROHIBITED CONTRACTS
• Those forbidden because of private interests
Recovery is permitted in merely prohibited contracts, provided that:
a. The contract is not illegal per se
b. The prohibition is designed for the protection of the plaintiff
c. Public policy would be enhanced by allowing the recovery
ILLUSTRATION F
Simmons donated to Embiid everything that Simmons possessed and owned, leaving
nothing for himself. This is prohibited but not illegal per se.
Since public policy is hereby enhanced, Simmons will be allowed to recover, at least
that necessary for his own support and the support of his own relatives.
DIFFERENT ILLUSTRATIONS ON THE DIFFERENT KINDS OF CONTRACTS
(REFRESHER)
SCENARIO 1: Absolutely Simulated Contracts v. Rescission (Prescription)
Steph, in 2005, extended a loan to Klay. Klay is supposed to pay sometime in 2011. In
2010, Klay sold his only property to Draymond. Draymond paid only 10% of the fair
market value based on the document – Deed of Absolute Sale, which was also
registered.
On due date, Klay defaulted; his assets are zero. Therefore, Steph could not recover
from Klay. What can Steph do that will allow him to recover?
Steph can pursue the theory of absolutely simulated contract. Rescission is an
unavailable remedy in this example because the action has already prescribed.
SCENARIO 2: Absolutely Simulated Contracts v. Rescission (Prescription)
Ross extended to Joey a loan on Day 1. On Day 2, Joey should pay principal and
interest. Joey defaulted. Joey offered a settlement wherein he told Ross through Skype
that he will just convey to him a house and lot equivalent to the value of the principal
and interest. Ross agreed. When Joey returned, Ross demanded the conveyance of
property. Joey refused. Can Joey refuse?
The contract is unenforceable because of the Statute of Frauds – real property has to
be in writing. The contract agreed upon through Skype was dacion en pago. Therefore,
it is considered a sale of real property, and should comply with the Statute of Frauds.
SCENARIO 3: Lack of Due Diligence in Contracts Does not render Contract
Voidable
The Golden State Warriors (corporation) owns a manufacturing plant. GSW receives
an offer from the Boston Celtics. They are in the same basketball business – selling the
same product.
GSW made an offer because it wants to consolidate the market: “I’m interested in
acquiring your plant for a reasonable amount”. Boston says, “You can have my plant.
My plant produces ‘X volume’ of the product in a given period”. That was the
representation made by the Boston Celtics. They entered into a sale. The Boston
Celtics sold the plant. GSW paid the price. Upon taking over the plant, GSW discovered
that the plant could not produce this volume. So GSW sued the Celtics for annulment
of the contract. Can GSW annul the contract?
In this case, GSW cannot annul the contract because of vitiated consent, because
both the Warriors and the Celtics are in the same line of business or industry;
hence, GSW should have exercised due diligence in ascertaining the production
capacity of the plant.
NOTE: The answer will be different if the Celtics made this representation in the
contract: “The plant will produce X amount in this period”.
There is a difference because it will be tantamount to causal fraud, otherwise it will be
incidental fraud or fraud in performance. The better alternative other than annulment
would be substantial breach because breach is an essential consideration. Since there
is substantial breach, the remedy is resolution.
This is better because the period is longer (10 years). It is 10 years because you can
assume that there is a written contract so the period is 10 years from the time the right
of action accrues. In this example, the right of action accrued from the time the
representation turned out to be false.
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42(1) Menchavez v. Teves
FACTS:
Jose Menchavez, et al. executed a Contract of Lease, where they were the lessors;
and Florenito Teves, Jr. as lessee.
TERMS OF THE CONTRACT:
• Lease term: 5 years
• Lessee agrees to pay the lessors at the residence of Juan Menchavez
• The parcel of land is fit and good for the intended use as a fishpond
• Lessors assure to maintain the lessee in the peaceful and adequate
enjoyment of the lease for the entire duration of the contract
• Lessee can enjoy the intended use of the premises as fishpond for the entire
duration of the contract
• The premises is free from all liens and encumbrances
Cebu RTC Sheriffs Gimenez and Cabigon demolished the fishpond dikes constructed
by Teves and delivered possession of the subject property to other parties.
• Teves filed a complaint for damages against Menchavez, et al.
• Teves alleged that the lessors had violated their contract of lease, specifically
the peaceful and adequate enjoyment of the property for the entire duration of
the contract
• Teves also alleged that the lessors had withheld from him the findings of the
RTC in one case involving the same property, wherein the Menchavez
spouses were ordered to remove the dikes illegally constructed and to pay
damages and attorney’s fees.
Petitioners filed a Third Party Complaint against Benny and Elizabeth Allego, Albino
Laput, Adrinico Che and Charlemagne Arendain Jr., as agents of Eufracia Colongan
and Paulino Pamplona.
• The third-party defendants maintained that the Complaint filed against them
was unfounded. As agents of their elderly parents, they could not be sued in
their personal capacity. Thus, they asserted their own counterclaims.
RTC dismissed the complaint by Teves against the lessors, as well as the third party
complaint against the third party defendants.
The CA disagreed with the RTC’s finding that petitioners and respondent were in pari
delicto.
 • While there was negligence on the part of Teves for failing to verify the
ownership of the subject property, there was no evidence that he had
knowledge of Menchavez’s lack of ownership.
ISSUE: Were the parties in pari delicto? YES
It is the State, not the petitioners Menchavez, that owned the fishpond. The 1987
Constitution specifically declares that all lands of the public domain, waters, fisheries
and other natural resources belong to the State.
• Included here are fishponds, which may not be alienated but only leased.
• Possession thereof, no matter how long, cannot ripen into ownership
Being merely applicants for the leased of the fishponds, Menchavez et al. had no
transferable right over them. And even if the State were to grant their application, the
law expressly disallowed sublease of the fishponds to respondent.
• A contract is void when the cause, object or purpose is contrary to law, public
order or public policy.
• A void contract is equivalent to nothing; it produces no civil effect. It does not
create, modify or extinguish a juridical relation. 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”.
There are exceptions that permit the return of that which may have been given under a
void contract.
• 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.
Indeed, the evidence presented by Teves demonstrates the contradictory claims of
petitioners regarding their alleged ownership of the fishpond.
• On the one hand, they claimed ownership and on the other hand, they assured
him that heir fishpond lease application would be approved.
• This circumstance should have been sufficient to palce him on notice. It should
have compelled him to determine their right over the fishpond, including their
right to lease it.
The Contract itself stated that the area was still covered by a fishpond application.
Nonetheless, although petitioners declared in the Contract that they co-owned the
property, their erroneous declaration should not be used against them.
• A cursory examination of the Contract suggests that it was drafted to favor the
lessee. It can readily be presumed that it was he or his counsel who prepared
it — a matter supported by petitioners' evidence.
• The ambiguity should therefore be resolved against him, being the one who
primarily caused it.
The CA erred in finding that petitioners had failed to prove actual knowledge of
respondent of the ownership status of the property that had been leased to him.
• On the contrary, as the party alleging the fact, it was he who had the burden
of proving — through a preponderance of evidence — that they misled him
regarding the ownership of the fishpond.
• His evidence fails to support this contention. Instead, it reveals his fault in
entering into a void Contract.
• As both parties are equally at fault, neither may recover against the other.
--

Unquestionably, the petitioners leased out a property that did not belong to them, one
they had no authority to sublease.

Teves claims that petitioners misled him into executing the Contract. He insists that he
relied on their assertions regarding their ownership of the property.
• His own evidence, however, rebuts his contention that he did not know that
they lacked ownership. At the very least, he had notice of their doubtful
ownership of the fishpond.
• Teves himself admitted that he was aware that the petitioners’ lease
application for the fishpond had not yet been approved. Thus, he knowingly
entered into the Contract with the risk that the application might be
disapproved.
• The existence of a fishpond lease application necessarily contradicts a claim
of ownership. That Teves did not know of petitioners’ lack of ownership is false