Article 1401. The action for annulment of contracts shall CHAPTER 8.

be extinguished when the thing which is the object UNENFORCEABLE CONTRACTS

thereof is lost through the fraud or fault of the person
who has a right to institute the proceedings. Article 1403. The following contracts are unenforceable,
unless they are ratified:
If the right of action is based upon the incapacity of any
one of the contracting parties, the loss of the thing shall (1) Those entered into in the name of another person by
not be an obstacle to the success of the action, unless one who has been given no authority or legal
said loss took place through the fraud or fault of the representation, or who has acted beyond his powers;
plaintiff.
(2) Those that do not comply with the Statute of Frauds
Extinguishment of action for annulment. as set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by
(1) If the person, who has a right to institute an action, unless the same, or some note or
action for annulment (Art. 1397.), will not be able memorandum, thereof, be in writing, and subscribed
to restore the thing which he may be obliged to by the party charged, or by his agent; evidence,
return in case the contract is annulled because therefore, of the agreement cannot be received
such thing is lost through his fraud or fault, his without the writing, or a secondary evidence of its
right to have the contract annulled is contents:
extinguished. If the loss is not due to his fault or
fraud, Article 1402 applies. The action for (a) An agreement that by its terms is not to be performed
annulment shall be extinguished only if the loss within a year from the making thereof;
is through the fault or fraud of the plaintiff.
(b) A special promise to answer for the debt, default, or
(2) Under the second paragraph, the right of action miscarriage of another;
is based upon the incapacity of any one of the
contracting parties. Whether the right of action is (c) An agreement made in consideration of marriage,
based upon incapacity or not, the rule is the other than a mutual promise to marry;
same. It is no longer necessary that the fraud or
fault on the part of the plaintiff (the incapacitated (d) An agreement for the sale of goods, chattels or things
person) resulting in the loss must have occurred in action, at a price not less than five hundred pesos,
“after having acquired capacity” as under the old unless the buyer accept and receive part of such
Code. This qualification has been deleted in the goods and chattels, or the evidences, or some of
present article. The deletion has made the them, of such things in action or pay at the time some
second paragraph redundant. part of the purchase money; but when a sale is made
by auction and entry is made by the auctioneer in his
Example: sales book, at the time of the sale, of the amount and
kind of property sold, terms of sale, price, names of
Sabit Singson coerced Manny Pakyawan to sell to him a the purchasers and person on whose account the
car, Manny Pakyawan can seek the annulment of the sale is made, it is a sufficient memorandum;
sale. However, if Manny Pakyawan lost the car by
intentionally destroying it, he cannot file the annulment (e) An agreement of the leasing for a longer period than
case as such right will be considered extinguished. one year, or for the sale of real property or of an
interest therein;
Article 1402. As long as one of the contracting parties
does not restore what in virtue of the decree of (f) A representation as to the credit of a third person.
annulment he is bound to return, the other cannot be
compelled to comply with what is incumbent upon him. (3) Those where both parties are incapable of giving
consent to a contract.
When a contract is annulled, a reciprocal obligation of
restitution is created. The return by one party of what he This article is divided into two categories namely:
is obliged to restore by the decree of annulment may be
regarded as a condition to the fulfillment by the other of 1. Those that are unauthorized or even if
what is incumbent upon him. authorized but beyond the power or authority
given. (e.g.) The sale of a parcel of land made
In effect, there will be no annulment if the party cannot by special administrator of an estate done in his
restore what he is bound to return. This is true even if personal capacity without the approval of the
the loss is due to a fortuitous event. probate court having custodia legis over the
property. It is not binding upon estate.
However, if the party who lost the thing through a
fortuitous event offers to pay its value with the fruits 2. Those who do not comply with the statute of
received if any (there is no liability to pay interest since frauds.
the loss is without his fault), the other can be required to
make restitution. The term statute of frauds is descriptive of those laws,
statutes or provisions which require certain agreements
Illustration to be in writing before they can be proved and enforced
in a judicial action.
Jay entered into a contract with Zola whereby he obliged
himself to create a wooden statue in the image of Zola’s Article 1404. Unauthorized contracts are governed by
mother. However, it turned out that Zola is only 12 years Article 1317 and the principles of agency in Title X of this
old and as such, he is incapacitated to enter into a Book.
contract. The contract was annulled. Zola was then
obligated to return the statue while Jay has the obligation In relation to Article 1317, no one may contract in the
of returning the money payed by Zola for the statue. name of another without the consent of whose behalf the
Since Jay did not return the money, Zola cannot be agent is representing.
compelled to return the statue, as provided for by Article
1402 of the New Civil Code. Other provisions of law that governs unauthorized
contracts are the following:
 1. Article 1317 which provides – No one may
contract in the name of another without being
authorized by the latter, or unless he has by law
a right to represent him.

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. (1259a)”

2. Articles 1868 – 1932 in the law of agency under

title 10 of the code.

Note: Unauthorized contracts are susceptible to

ratification.

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.

Unenforceable contracts (paragraph 2, Article 1403:

Statute of Frauds) may be ratified in two ways:

1. Failure to object to the presentation of oral

evidence. This is tantamount to a waiver.
Contracts that are infringed in the Statute of
Frauds are ratified by the failure to object to the
presentation of parol evidence and are
enforceable.

2. Acceptance of Benefits under these contacts is

equivalent to waiver or estoppel; only applies to
executor contracts. If the oral contract was
reduced into writing by the party charged, this
exercise is called recognition. It is the express
ratification of the contract.

If the party in whose favor the statute may be invoked,

cross examined the witness who is testifying on the oral
contract, the former is deemed to have waived the right
to object to the admission of the testimonial evidence.

The party should promptly object to the presentation of

the witness once it becomes apparent that no evidence
in writing could be presented to prove the contract. The
objection must be invoked during the “offer of the
testimony” of the witness or a motion to dismiss may be
filed before answer to the complaint is filed.

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.

The party concerned may compel the other party to

effect the rendition of the agreement in the form of a
public document, to have it notarized.

When a party brings an action on a contract, he may

simultaneously ask the court to compel the other party to
make the writing or the memorandum in a public
instrument.
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.

When unenforceable contract becomes voidable or valid

- Where both parties to a contract are incapable of

giving consent,
o the contract is unenforceable.
o HOWEVER, if the parent OR guardian
of either party, OR if one party after
attaining/regaining capacity, ratifies the
contract, it becomes VOIDABLE.
- If the ratification is made by the parents or
guardians of both contracting parties, or by both
contracting parties after attaining/regaining
capacity,
o the contract is VALIDATED,
o and its validity retroacts to the time it
was entered into.

Example:

- Emilia is a minor child of Arturo and Teresita.

- Arturo died.
- Teresita, as the natural guardian of Emilia,
entered into a deed of extrajudicial partition and
sale, conveying the inheritance of Emilia.
- Emilia was NOT a party to the contract, never
ratified the deed, and, in fact, questioned its
validity.
- The contract is unenforceable, NOT voidable.

Article 1408. Unenforceable contracts cannot be

assailed by third persons.

Right of third persons to assail an unenforceable

contract.

Strangers to a voidable contract cannot bring an action

to annul the same (see Art. 1397.); neither can they
assail a contract because of its unenforceability. The
benefit of the Statute can only be claimed or waived by
one who is a party or privy to the oral contract, not by a
stranger. (Ayson vs. Court of Appeals, 97 Phil. 965
[1953].) An action for rescission may be brought by a
third person.

Example:

Manny Pakyawan owns a parcel of land, which is under

the possession of and being used by Sunny Angora as
grazing land for native ducks for his balot business..
Under a verbal contract, Manny Pakyawan sold the land
to real estate developer Mekeni Villar. In an action for
ejectment by Mekeni Villar against Sunny Angora, the
person in possession, the latter cannot set up the
defense of the Statute of Frauds because he is a third
party to the contract.
 CHAPTER 9.
VOID AND INEXISTENT CONTRACTS
Examples
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
(1) Those whose cause, object or purpose is contrary to order or public policy;
law, morals, good customs, public order or public
policy; - Contrary to Law
An agreement whereby Anna is to render
(2) Those which are absolutely simulated or fictitious; service as a servant to Ben without
compensation as long as Anna has not paid his
(3) Those whose cause or object did not exist at the time debt is reprehensible and censurable.
of the transaction;
- Contrary to Morals
(4) Those whose object is outside the commerce of men; A contract, whereby Anna promised to live as
the common-law wife of Ben without the benefit
(5) Those which contemplate an impossible service; of marriage in consideration of P50,000.00, is
immoral and, therefore, void.
(6) Those where the intention of the parties relative to
the principal object of the contract cannot be - Contrary to Good Customs
ascertained; Anna entered into a contract whereby Anna
binds herself to slap his father. This contract is
(7) Those expressly prohibited or declared void by law. void because it is against the good custom of
showing respect to our parents.
These contracts cannot be ratified. Neither can the right
to set up the defense of illegality be waived. - Contrary to Public Order
A stipulation in a contract of lease whereby the
Inexistent contracts refer to agreements which lack one landlord can use force to eject the tenant in case
or some or all of the elements (i.e., consent, object, and of failure of the latter to pay the rent agreed
cause) or do not comply with the formalities which are upon is void as being against public order.
essential for the existence of a contract.
- Contrary to Public Policy
Characteristics of A Void Contracts A condition in a contract of sale states: “In case
of sale, the buyer shall not sell to others the land
They are as follows: sold but only to the seller, or to his heirs or
(1) Generally, it produces no effect whatsoever, successors for the same price of P5,600.00
being void or inexistent from the beginning; when the latter shall be able to pay it.’’
(2) It cannot be cured or validated either by time or
ratification; The condition is contrary to public policy,
(3) The right to set up the defense of illegality, because it virtually amounts to a perpetual
inexistence, or absolute nullity cannot be restriction on the right of ownership, specifically
waived; the owner’s right to freely dispose of his
(4) The action or defense for the declaration of its property. Such a prohibition indefinite and
illegality, inexistence, or absolute nullity does not unlimited as to time, so much so that it shall
prescribe; continue to be applicable even beyond the
(5) The defense of illegality, inexistence, or absolute lifetime of the original parties to the contract is a
nullity is not available to third persons whose nullity.
interests are not directly affected;
(6) It cannot give rise to a valid contract; and (2) Those which are absolutely simulated or
(7) Its invalidity can be questioned by anyone fictitious;
affected by it.
Anna is indebted to Ben. Upon learning that Ben
Void And Voidable Contracts Distinguished is going to enforce her credit, Anna pretended to
sell her land to Felimon, his father-in-law. Anna
did not receive a single centavo for the deed of
sale she executed and she continued in
possession of the land as the contract was
merely simulated or fictitious.

There is no contract of sale in this case as the

parties do not intend to be bound at all. The sale
is but a sham.

(3) Those whose cause or object did not exist at the

time of the transaction;

Sandra sells to Ben a parcel of land. In the deed

of sale, P100,000.00 is stated as the price of the
land. If this statement is false, then there is no
contract of sale.

(4) Those whose object is outside the commerce of

men;

If the object is outside the commerce of man,

such as sidewalks or public plazas or public
bridges, they cannot be the object of contracts of
alienation (but may be the object, for example, of
a contract for repair).
 (5) Those which contemplate an impossible service;
Article 1411. When the nullity proceeds from the
If a blind man enters into a contract which illegality of the cause or object of the contract, and the
requires the use of his eyesight, the contract is act constitutes a criminal offense, both parties being in
void although in this particular case, we have pari delicto, they shall have no action against each other,
only a relative impossibility. This is because and both shall be prosecuted. Moreover, the provisions
here, the relative impossibility is not merely of the Penal Code relative to the disposal of effects or
temporary. instruments of a crime shall be applicable to the things or
the price of the contract.
(6) Those where the intention of the parties relative
to the principal object of the contract cannot be This rule shall be applicable when only one of the parties
ascertained; is guilty; but the innocent one may claim what he has
given, and shall not be bound to comply with his
Anna sold his land to Ben. Anna has many promise.
lands. It cannot be determined which land was
intended by the parties to be the subject of the In Pari Delicto-in equal fault; a universal doctrine which
sale. holds that no action arises, in equity or at law, from an
illegal contract.
Therefore, the contract shall be null and void
and it is as if the parties have not entered into The rule that parties to an illegal contract will not be
any contract at all. aided by law.

(7) Those expressly prohibited or declared void by This rule adopts the principle of “One who seeks equity
law. and justice must come to court with clean hands”.

Contracts upon future inheritance except in Example:

cases expressly authorized by law.
If the two parties complain to a judge of the non-
Article 1410. The action or defense for the declaration of performance of a contract by the other, the judge could
the inexistence of a contract does not prescribe. refuse to provide remedy to either of them because of in
pari delicto: a finding that they were equally at fault in
If a contract is null and void, the action to declare it causing the contract’s breach. This rule adopts the
existence does not prescribe. The action can be filed principle of “One who seeks equity and justice must
anytime. The mere laps of time does not validate a void come to court with clean hands”.
contract unlike voidable contracts if not assailed within
the specific period provided by law shall remain valid. Article 1412. If the act in which the unlawful or forbidden
cause consists does not constitute a criminal offense,
A valid contract remains void even if no court has the following rules shall be observed:
declared its in-existence or illegality. However, there are
certain contracts the nullity of which is not apparent on (1) When the fault is on the part of both contracting
their faces. (e.g.) Declaration for Nullity of marriage. It parties, neither may recover what he has given by
must be declared by the court as null and void otherwise virtue of the contract, or demand the performance
if you contract a subsequent marriage you will be liable of the other’s undertaking;
for bigamy.
(2) When only one of the contracting parties is at
Illustration: fault, he cannot recover what he has given by
reason of the contract, or ask for the fulfillment of
In his complaint against B to annul a deed of sale, S what has been promised him. The other, who is
alleged that he was surprised to find that the deed was a not at fault, may demand the return of what he has
sale for the document had been represented by B to be given without any obligation to comply his
for a different purpose. The action of S based upon the promise.
grounds that there is fraud in securing his signature in
said deed. There was no consideration given at the of Rules were contracts is illegal but the act does not
the transaction. constitute a criminal offense.

B raised the defense of prescription, contending that (1) When the parties are both in pari delicto and the
since the action was based of fraud it should have been cause of contract is unlawful or forbidden but no
brought within four years from the time the discovery of criminal offense.
the document.
Example;
Has S action prescribed?
X agreed to live as the common law wife of Y in
Supreme Court held no. His action is to declare void and consideration of the promise on the part of Y to donate a
in-existent the deed of sale, which action is land to X. In this case, the promise of Y has for its
imperceptible. (Encarnacion vs. Galvan) consideration an immoral act which does not constitute a
crime. Hence, there can be no recovery by one against
the other or they cannot ask the fulfillment of others
promise.

(2) When only one party is guilty,

Rules;

(1) The guilty party loses what he has given by

reason of the contract;
 (2) The guilty party cannot ask for the fulfillment of This article is another exception to the in pari delicto rule
the other’s undertaking; in Articles 1411-1412. Recovery can be allowed if one of
(3) The innocent party cannot be compelled to the parties is incapacitated and the interest of justice so
comply with his promise. demands. It is not necessary that the illegal purpose has
(4) The innocent party cannot be compelled to not been accomplished or that no damage has been
comply with his promise. caused to a third person. (see Art. 1414.)

Example:

In the preceding example, X was only a minor(16years

old) at the time of the contract and Y was a married man
of mature years and experience, the principle of in pari Example:
delicto is not applicable. Y cannot recover the land given
by him nor demand the performance of X’s undertaking if Tony Stork, an insane but crazy rich person, paid
the latter has not yet complied with her promise. Thanos $1 million dollars to hide Peter Porker, who is
However, X may recover whatever property she may currently accused of murder. Under Art. 1415, the court
have given by virtue of the contract without any may allow Tony Stork to recover the money paid by him
obligation to comply with her promise. if the interest of justice so demands.

Article 1413. Interest paid in excess of the interest Article 1416. When the agreement is not illegal per se
allowed by the usury laws may be recovered by the but is merely prohibited, and the prohibition by the law is
debtor, with interest thereon from the date of the designed for the protection of the plaintiff, he may, if
payment. public policy is thereby enhanced, recover what he has
paid or delivered.
Usury is the illegal act of charging for a loan a higher
rate of interest than that which is allowed by law. Article 1416 is another exception to the rule that where
Recovery of usurious interest Any rate of interest in both parties are in pari delicto, they will be left where
excess of the maximum allowed under the Usury Law is they are without relief.
usurious and if paid, may be recovered together with
interest thereon from the date of payment in a proper Recovery is permitted provided:
action for the same. (Art. 1413.)
(1) The agreement is not illegal per se but is merely
A stipulation for the payment of usurious interest is void. prohibited;
The person paying the usurious interest can recover in (2) The prohibition is designed for the protection of
an independent civil action not only the interest in excess the plaintiff; and
of that allowed by the usury laws, but the whole interest (3) Public policy would be enhanced by allowing the
paid. plaintiff to recover what he has paid or delivered.

Article 1414. When money is paid or property delivered Example

for an illegal purpose, the contract may be repudiated by
one of the parties before the purpose has been Black Widow donated to Hawkeye everything that she
accomplished, or before any damage has been caused (Black Widow) possessed and owned, leaving nothing
to a third person. In such case, the courts may, if the for herself. This is prohibited but not illegal per se. Since
public interest will thus be subserved, allow the party public policy is hereby enhanced, Black Widow will be
repudiating the contract to recover the money or allowed to recover, at least that necessary for her own
property. support and the support of her relatives.

Recovery where contract for an illegal purpose Article 1417. When the price of any article or commodity
is determined by statute, or by authority of law, any
- The law allows recovery by one of the parties person paying any amount in excess of the maximum
even though both of them have acted contrary to price allowed may recover such excess.
laws.
This article refers to the ceiling price. If a ceiling price for
Requisites: a certain commodity has been determined by statute by
law or competent authority who pays any amount more
- A contract that is for an illegal purpose than what has been determined may recover such
- The contract is repudiated before the purpose excess
has been accomplished OR before any damage
has caused to a third person This is usually applies to basic needs and during an
- The court considers that public interest will be emergency or crisis. Prices of can goods, noodles etc.
subserved by allowing recovery
Illustration:
Example:
A regulation was promulgates by the government fixing
- Zain is accused of murder. the maximum price of a particular brand of rice at 700.00
- Xander paid ₱10,000 to Yazmin to hide Zain. pesos per cavan. Algy a buyer paid 1000 pesos per
- Before Yazmin could hide Zain, Xander changed cavan whether or not he knew the regulation he is
his mind. allowed to recover the excess of 300.00 which he paid
- The court may allow Xander to recover the for the price of each cavan.
₱10,000 given to Yazmin.
Article 1418. When the law fixes, or authorizes the fixing
Article 1415. Where one of the parties to an illegal of the maximum number of hours of labor, and a contract
contract is incapable of giving consent, the courts may, if is entered into whereby a laborer undertakes to work
the interest of justice so demands allow recovery of longer than the maximum thus fixed, he may demand
money or property delivered by the incapacitated person. additional compensation for service rendered beyond the
time limit.
Recovery by an incapacitated person.
Basis of Minimum Wage Rates
The basis of the minimum wage rates is not more than
eight hours daily labor in the case of employees working
in non-agricultural enterprises, and not more than the
customary hours of work in the case of agricultural
workers. (Article 1, Section 3, Code of Rules and
Regulations to Implement the Minimum Wage Law, as
Amended.

Article 1421. The defense of illegality of contract is not

Example: available to third persons whose interests are not directly
affected.
Dina works in Toshiba Company in Canlubang, Laguna.
She works from Monday to Saturday from 8am to 5pm Persons entitled to raise defense of illegality
as the maximum working hours. However, s she works
from Monday, Wednesday, and Friday from 8am to 7pm - Third persons are NOT allowed to bring an
exceeding two hours beyond the maximum working action to annul OR assail a voidable and
hours. unenforceable contracts.
o HOWEVER, if the contract is illegal OR
Article 1419. When the law sets, or authorizes the void, even a third person may avail of
setting of a minimum wage for laborers, and a contract is the defense of illegality or set up its
agreed upon by which a laborer accepts a lower wage, illegality
he shall be entitled to recover the deficiency. o as long as his interest is directly affected
by the contract.
If the laborer has agreed to receive a wage lower than
the minimum wage fixed by law he is not barred from Example:
recovering the deficiency. Such contract or agreement is
void under the minimum wage law. - Harold sold his parcel of land to his wife,
Margarita.
Example - Under the law, husband and wife CANNOT sell
property to each other.
“A” the owner of a candy factory in Manila executed a o Such sale is illegal and void.
contract with “B” as a laborer. When the pay day comes - If Charlie, a third person, became a creditor of
“B” reacted for the sum of money that he received Harold before the transaction, he can question
because the amount that he received is only the sale for the reason that his right OR interest
P380.00/day instead of P481.00, therefore “B” can is directly affected.
recover for the deficiency that he received from “A” o HOWEVER, if he became a creditor
which stated on this art. that “When the law sets, or after the transfer, the defense of
authorizes the setting of a minimum wage for laborers, illegality is NOT available to him.
and a contract is agreed upon by which a laborer
accepts a lower wage, he shall be entitled to recover the
Article 1422. A contract which is the direct result of a
deficiency.”
previous illegal contract, is also void and inexistent.
Article 1420. In case of a divisible contract, if the illegal
Void contract cannot be novated.
terms can be separated from the legal ones, the latter
may be enforced.
This provision is based on the requisites of a valid
novation. An illegal contract is void and inexistent and
- This article applies if there are several cannot, therefore, give rise to a valid contract.
stipulations in a contract and is not applicable by
if it is in the nature of the contract, the terms Example:
thereof are indivisible.
- Effect of illegality where contract is indivisible or - Optimus sells a yellow Chevrolet Camaro to
divisible: Megatron.
o When the consideration is entire and - The two parties also signed a repurchase
single, the contract is indivisible so that contract wherein Optimus has the right to buy
if the part of such consideration is illegal, back the car within two years.
the whole contract is void and - It turned out that the Yellow Chevrolet Camaro
unenforceable. was rightfully owned by Bumblebee, and not by
o Where the contract is divisible or Optimus.
severable, that is, the consideration is - Under Art. 1422, the contract of repurchase is
made up of several parts, and the illegal dependent on the validity of the contract of sale.
ones can be separated from the legal - Since the contract of sale is void because
portions, the latter may be enforced. Optimus, the seller, is not the owner, the
- This rule, however, is subject to the contrary subsequent contract of repurchase is also void
intention of the parties. because it presupposes a valid contract of sale
between the same parties.
- One can repurchase only what he has previously
sold.