CHAPTER 8

UNENFORCEABLE
CONTRACTS
 UNENFORCEABLE
CONTRACTS
An unenforceable contract or transaction is one that is valid
but one the court will not enforce. Unenforceable is usually
used in contradistinction to void (or void ab initio) and
voidable. If the parties perform the agreement, it will be valid,
but the court will not compel them if they do not.
Acontractthat has all the elements of avalid contract, yet
neitherpartycan sue the other to forceperformanceof it. For
example, an unsigned contract is generally unenforceable.
 Since a contract is a legally binding
agreement, in the typical scenario, once
you enter into a contract with another
person or business, you and the other
party are both expected to fulfill the terms
of the contract. But it's possible for an
otherwise valid contract to be found
unenforceable in the eyes of the law, and
this article looks at some common
situations where that might be the case.
 Lack of Capacity

It's expected that both (or all) parties to a contract have the
ability to understand exactly what it is they are agreeing to.
If it appears that one side did not have this reasoning
capacity, the contract may be held unenforceable against
that person. The issue of capacity to contract usually comes
up when one side of the agreement is too young or does not
have the mental wherewithal to completely understand the
agreement and its implications. The general idea here is to
prevent an unscrupulous person from taking advantage of
someone who lacks the ability to make a reasoned decision
 Duress

Duress, or coercion, will invalidate a contract when someone was

threatened into making the agreement. In an often cited case
involving duress, a shipper (Company A) agreed to transport a
certain amount of Company B's materials, which would be used in a
major development project. After Company B's project was underway
and Company A's ship was en route with the materials, Company A
refused to complete the trip unless Company B agreed to pay a
higher price. Company B was forced to pay the jacked-up rate
because there was no other way to get the material, and not
completing the job would lead to unsustainable losses. The court
ultimately found that this agreement to raise the price was not
enforceable, because it came about through duress. Another common
example of duress is blackmail.
 Undue Influence
If Person B forced Person A to enter into an agreement by taking
advantage of a special or particularly persuasive relationship that
Person B had with Person A, the resulting contract might be found
unenforceable on grounds of undue influence. In general, to prove
undue influence, Person A would have to show that Person B used
excessive pressure against Person A during the bargaining
process, and that for whatever reason Person A was overly
susceptible to the pressure tactics -- or that Person B exploited a
confidential relationship to exert pressure on Person A.
 Misrepresentation
If fraud or misrepresentation occurred during the negotiation
process, any resulting contract will probably be held
unenforceable. The idea here is to encourage honest, good
faith bargaining and transactions. Misrepresentations
commonly occur when a party says something false (telling a
potential buyer that a house is termite-free when it is not) or,
in some other way, conceals or misrepresents a state of affairs
(concealing evidence of structural damage in a house's
foundation with paint or a particular placement of furniture).
 Nondisclosure

Nondisclosure is essentially misrepresentation through silence -- when

someone neglects to disclose an important fact about the deal. Courts
look at various issues to decide whether a party had a duty to disclose
the information, but courts will also consider whether the other party
could or should have easily been able to access the same information.
It should be noted that parties have a duty to disclose only material
facts. But if Party A specifically asks Party B about a fact (material or
non-material), then Party B has a duty to disclose the truth.
When contract disputes involve fraudulent dealings like
misrepresentation or nondisclosure, and one side of the agreement
has already suffered financial losses as a result, a lawsuit for breach
of contract might be filed over the matter.
 Unconscionability

Unconscionability means that a term in the contract or something inherent

in or about the agreement was so shockingly unfair that the contract simply
cannot be allowed to stand as is. The idea here again is to ensure fairness,
so a court will consider:
whether one side has grossly unequal bargaining power
whether one side had difficulty understanding the terms of the
agreement (due to language or literacy issues, for example), or
whether the terms themselves were unfair (like sky-high arbitration
costs;
If a court does find a contract unconscionable, it has options other than just
voiding the agreement altogether. It may instead choose to enforce the
conscionable parts of the contract and rewrite the unconscionable term or
clause, for example.
 Public Policy
contracts can be found unenforceable on grounds of public policy not only to protect
one of the parties involved, but also because what the contract represents could pose
harm to society as a whole. For example, a court will never enforce a contract
promoting something already against state or federal law (you can never enforce a
contract for an illegal marijuana sale) or an agreement that offends the "public
sensibilities" (contracts involving some sort of sexual immorality, for example). Other
examples of contracts (or contracts clauses) that are against public policy and
therefore unenforceable include:
an employer forcing an employee to sign a contract that forbids workers from joining
a union
an employer forcing an employee to sign a contract forbidding medical leave
a landlord forcing a tenant to sign a contract forbidding medically necessary
companion animals such as seeing eye dogs, and
contracts for child custody are invalid in California if their terms are not in line with
the child's best interest.
 Mistake

Sometimes a contract is unenforceable not because of

purposeful bad faith by one party, but due to a mistake on
the part of one party (called a "unilateral mistake") or
both parties (called a "mutual mistake"). In either case,
the mistake must have been about something important
related to the contract, and it must have had a material
(significant) effect on the exchange or bargaining process.
 Impossibility

In some cases, a contract is deemed unenforceable because it would be

impossible or impracticable to carry out its terms -- too difficult or too
expensive, for example. To claim impossibility, you would need to show
that:
you can't complete performance under the contract because of some
unexpected event that's not your fault
the contract didn't make the risk of the unexpected event something
you needed to shoulder, and
performing the contract will be much more difficult or expensive now.
For example, if Company A contracts to sell 20 barrels of its flour to
Company B and a natural disaster wipes out Company A's entire stock of
flour before the sale can be completed, Company A might be able to have
the contract ruled unenforceable on grounds of impossibility.
 Article 1403

The following contracts are unenforceable, unless they

are ratified:
(Ang mga sumusunod na kontrata ay hindi naipapatupad,
maliban na lang kung ito ay napagtibay: )
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;
(Ung mga naipasok sa pangalan ng ibang tao sa pamamagitan
ng isang tao na walang karapatan o legal representation, o
yung gumaganap na lampas sa kanyang kapangyarihan;)
 2.)These 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.
(Ung mga hindi sumusunod sa statute of frauds. Sa mga sumusunod
na kaso, na ang kasunduan na ginawa ay hindi dapat ipatupad sa
pamamagitan ng pag gawa, maliban kung magkatulad, o mayroong
note o memorandum, na nakasulat, at naka subscribed sa partido, o
sa kanyang agent; ang ebidensya, samakatuwid, na
napagkasunduan ay hindi dapat matanggap ng walang
nakasulat/nakasaad, o ng ikalawang ebidensya ng nilalaman nito.)
 An agreement that by its terms is not to be
performed within a year from the making thereof;
(Ang kasunduan na ayon sa termino ay hindi dapat gawin
sa loob ng taon simula sa paggawa nito)
A special promise to answer for the debt, default, or
miscarriage of another;
(Ang special na pangako na sagot sa pagkakatutang,
pagkukulang, o maling pagdadala ng iba;)
An agreement made in consideration of marriage,
other than mutual promise to marry;
(Ang kasunduan na ginawa sa konsiderasyon ng kasal, na
iba sa parehong pangako ng pagpapakasal)
 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
receive part of such goods and chattels, or the evidence, or some of
them of such things in action, or pay at the time some part of the
purchase money; but when the 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;
(Ang kasunduan sa pagbebenta ng kalakal, at ng mga bagay, sa presyong hindi
bababa ng limang daang piso, maliban kung ang bumibili ay nakatanggap at
tinanggap ang bahagi ng kalakal at mga bagay, o ang ebidensya, o anu man sa
kanila tulad ng bagay sa aksyon, o nagbayad sa oras ng ibang bahagi ng bayad;
ngunit kapag ang pagbebenta ay ginawa sa pagbebenta sa mataas na halaga at
ginawa ng auctioneer sa kanyang binebentang libro, sa oras ng pagbebenta, ng
halaga at uri ng ari-arian na binenta, termino ng pagbebenta, presyo, pangalan ng
bumili at ng tao kung saan nabilang ang pagbebenta, iyon ay sapat na bilang
isang memorandum;)
 An agreement for the leasing for a longer period
than one year, or for the sale of real property or of
an interest therein;
(Ang kasunduan sa pagpapaupa sa mahabang panahon higit
pa sa isang taon, o sa pagbebenta ng real property o ng
interest na nakapaloob ditto; )
A presentation as to the credit of a third person.
(Ang pagprepresent ukol sa utang ng third person.)
3.)Those where both parties are incapable of giving
consent to a contract.
(Ung parehong partido na walang kakayahan na magbigay
ng pahintulot sa kontrata.)
Case illustration
Bumanlag vs. Alzate

Facts: On the first case which entitled Bumanlag, et. al. v. Bumanlag,
et. al. the petitioner sued herein the private respondents for partition
of the lots inherited by both parties from their deceased father,
respondents however moved to dismiss on the ground that some
years before a final and executory judgment (based on a compromise
agreement) involving the same parties, same subject matter, and
same causes of action had already been rendered by a court of
competent jurisdiction and that therefore the doctrine of res judicata
clearly bars the present case; petitioners contend that said judgment
is void because the compromise agreement had been signed in their
behalf by their lawyer who had not been authorized by them to enter
into such agreement, consequently there can be no res judicata.
Issue:Whether or not the lawyer who signed a
compromised agreement in behalf of his client without the
consent of the latter is void?

Ruling:No, the compromise is not void but only

unenforceable and may therefore be ratified by the client
expressly or impliedly which stated on Art. 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.
 Statute of Frauds
is descriptive of those laws, statutes, or provisions which
require certain agreements to be in writing before they
can be proved and enforced in a judicial action.
The basic purpose of the statute is to prevent fraud and
not to encourage its commission.

what are the contracts or agreements

covered by the Statute of Frauds?
1. An agreement that by its terms is not to be performed
within a year from the making thereof;
EXAMPLE:
On January 1,2011, C and D orally entered into a contract
for the construction of C's building which shall begin on
February 1,2011. Neither one may enforce the contract
against the other on February 1,2011 as it was not in
writing and subscribed by either o both parties.
 2. A special promise to answer for the debt, default or
miscarriage of another

EXAMPLE: D Borrowed C 10,000 Php with G as the

Guarantor. The guaranty was made orally. If D cannot pay, C
cannot enforce the guaranty against G.
 3. An agreement made in consideration of marriage, other
than a mutual promise to marry;
Example 1: F, the father of G, orally agreed to give a house
and lot to G, the groom, and B, his Bride, in consideration of
their marriage. The agreement is unforceable against F
since it is not in writing.
Example 2: M and W mutually agreed to marry each other
within 6 months, the agreement was oral. At the end of 6
months, M refused to marry W. If preparations have been
made for the wedding, M can enforce the contract for the
purpose of claiming damages although the mutual promise
was not in writing, but not for the specific promise to marry.
 4. An agreement for the sale of goods, chattels or things in action, at a price not
lower that 500 pesos, unless the buyer accepts and receives 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 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.
EXAMPLE: S orally sold his radio for 1,000 to B. The parties agreed that the
radio would be delivered and the price paid the following day. Here, neither party
may enforce the contract since it was not in writing. However, if the price of the
radio is 500.00 or less, the sale is enforceable although it is wholly executory.
Rule in sale by auction
If the auctioneer makes an entry in his sales book, at the time of 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,
(Art.1403), i.e., the requisite that the contract must be in writing is complied
requisite that the contract must be in writing is complied with; hence, the sale is
enforceable although not subscribed by the party sought to be held liable.
 5. An agreement for the leasing for a longer period than
one year, or for the sale of real property or of an interest
therein;
EXAMPLE: S orally sold his land or his right of usufruct in
said land to B. The agreement is also unenforceable, unless
it has been partially executed.
 6. A representation to the credit of a third person
EXAMPLE: D wants to buy construction materials on credit
from C. T orally tells C that D has a good credit standing
and pays his loans promptly. C thus sells on credit to D. If
the representation is false, C cannot prove such
misrepresentation against T to recover damages because it
is unenforceable not being in writing.
 Article 1404
Unauthorized contracts are governed by Article 1317 and the
principles of agency in Title X of this Book.
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)
 What are Unauthorized
Contracts?
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;
Those that do not comply with theStatute of Frauds
Those where both parties are incapable of giving consent
to a contract.
 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.
(Ang mga kontratang lumalabag sa batas ng Statute of Frauds
na tinutukoy sa No. 2 ng artikulo 1403, ay pinagtibay ng
kabiguan ng pagtutol sa presentasyon ng pananalitang
ebidensiya upang patunayan ang pandaraya, o dahil sa
pagtanggap ng mga kapakinabangan sa ilalim nito.)
Discussion:
Unenforceable contracts (paragraph 2, Article 1403: Statute of Frauds) may be
ratified in two ways:
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
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.
( Kung ang kasunduan ay kinakailangang ipatupad sa ilalim ng
kautusang nauukol sa pandaraya, at kinakailangan iparehistro ang
dokumento, kailangang samantalahin ng bawat partido ang
karapatang ito. Ang mga ito ay kinakailanagn din upang
mapaproteksyunan ang kasunduan at ang mga obligasyon ng bawat
panig. )
 Right of a party where contract enforceable
for the application of this provision, there must be a valid
agreement and the agreement must not infringe the statutes of
fraud.
1.) accordingly, a party to an oral sale of real property cannot
compel the other to put the contract in a public document for
purposes of regjstration because it is unenforceable unless, of
course, it has been ratified.
2.) similarly, the right of one party to have the other execute a
public document is not available in a donation of realty when it
is in a private instrument because the donation is void.
 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 ,ay be, of both contracting parties, the
contract shall be validated from the inception. (n)
Discussion:
The contract is unenforceable when both parties to purported
contract are not incapacitated to give consent and cannot be
enforced in court. It may be ratified if:
(1)If ratification is only of one side of the contracting parties. That
is, by the parent or guardian, the contract is transformed into a
voidable contract on the part of the party who did not ratify, meaning,
it is now valid and binding unless annulled by the court.
(2)If ratification is made by both sides by the parents or guardians,
the contract is validated from its inception. The validation is
retroactive.
If the parties ground for incapacity like minority attained majority
age, or if the capacity is due to insanity and regained their insanity,
they can ratify their previous acts. There is no need for the law to
include this expressly because it is deemed understood.
ILLUSTRATION:

When Pia heard from a relative that her grandfather will give her a
special gems this December through a friend, since she was
incapable to receive it because inability to detect colors well, her
guardian will be the one to approval whether or not the item was
same as the description that her grandfather.
In cases where minors agreed into contracts without the knowledge
of their parents or guardians, the contract can be transformed into
voidable contracts. It both parties are incapacitated to give consent,
contract maybe unenforceable but can be ratified.
 Article 1408
Unenforceable contracts cannot be assailed by third
persons.
(Ang pagkawalang epekto ng kontrata ay hindi maaaring batikusin
ng ibang tao na hindi kasama sa kontrata.)
Strangers Cannot Assail Unenforceable Contracts
Just as strangers cannot attack the validity of voidable contracts,
so also they cannot attack a contract because of its
unenforceability. Indeed, the Statute of Frauds cannot be set up
as a defense by strangers to the transaction.
 right of third person to assail an unenforceable contract

strangers to a voidable contract cannot bring action to

annul the same; neither can they assail or question 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. it is a
personal defense.
CHAPTER 9
VOID AND INEXISTENT
CONTRACTS

 VOID AND EXISTENT
CONTRACT
A void contract, also known as avoid agreement, is not actually a
contract. A void contract cannot be enforced by law. Void contracts
are different from voidable contracts, which are contracts may be
(but not necessarily will be) nullified.
An agreement to carry out an illegal act is an example of a void
contract or void agreement.
INEXISTENT CONTRACTS refer to agreements which lack one or
some or all of the elements (consent, object and cause) or do not
comply with the formalities which are essential for the existence of a
contract.
 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;
(Mga kontrata na ang dahilan, layunin, at intensyon ay
labag sa batas, moral, mabuting pamantayan, pampublikong
utos o pampublikong patakaran; )
2.) Those which are absolutely simulated or fictitious;
(Mga kontrata na walang dudang kunwarian or gawa-gawa
lamang; )
3.) Those whose cause or object did not exist at the
time of the transaction;
( Mga kontrata na may dahilan at layunin na hindi umiiral sa
panahon ng transaksiyon; )
4.) Those whose object is outside the commerce of men;
( Mga kontrata na ang layunin ay labas sa komersyo ng
sangkatauhan; )
5.) Those which contemplate an impossible service;
( Mga kontrata na nagmumungkahi ng imposibleng Gawain; )
6.) Those where the intention of the parties relative
to the principal object of the contract cannot be
ascertained;
( Mga kontrata na kung saan ang intensiyon ng bawat
partido tungkol sa pangunahing layunin nito ay hindi
matiyak;)
7.) Those expressly prohibited or declared void by law.
( Mga kontrata na hayagang ipinagbabawal o dineklarang
walang bisa ng batas. )

These contracts cannot be ratified. Neither can the right

to set up the defense or illegality be waived. (n)
EXAMPLE:
a contract between drug dealers and buyers is a void
contract simply because the terms of the contract are
illegal. In such a case, neither party can go to court to
enforce the contract, although some drug users
mistakenly believe the opposite, and therefore take their
disputes to court.
Charcteristics of a void or inexistent
contract
generally, it produces no force and effect whatsoever,
it cannot be ratified
the right to set up the defense of illegality cannot be waived;
the action or defense for the declaration of its inexistence
does not prescribe.
the defense of illegaluty is not available to third persons
whos interest are not directly affected.
it cannot give rise to a valid contract
Distinctions between Void and
Rescissible Contracts
 Basis Void Contract Rescissible Contract

The defect is in its effects,

The defect is inherent in which is either against
1. Nature of defect
the contract itself. once of the parties or a
third person.
It is based on equity and
Nullity is a matter of law
2. Interest served is more a matter of
and public interest.
private interest.

There are no legal effects Contract remains valid if

3. Consequences when
even if no action is filed to no action is filed. It
no action is filed
set it aside. produces legal effects.

Action to declare its Action to rescind contract

4. Prescription nullity does not prescribe prescribes within four (4)
(Art. 1410) years (Art. 1389).
Distinctions between Void and
Voidable Contracts
 Basis Void Contract Voidable Contract
Consent is vitiated or
Absence of essential
1. Cause of defect there is incapacity to give
element/s of a contract.
consent.
It has no effect even if not
It is a valid contract until
2. Effect set aside, because it is
it is set aside.
non-existent.
3. Ratification It cannot be ratified. It can be ratified.
Its nullity can be set up
against any person
Its nullity can be set up
4. Against whom nullity asserting right arising
only against a party
can be set up from it, and his successors
thereto.
in interest not protected
by law.
Action to declare nullity of Action to annul contract
5. Prescription contract does not prescribes within four (4)
prescribe (Art. 1410). years (Art. 1391).
 Distinctions between Void
and Unenforceable Contracts
 Basis Void Contract Unenforceable Contract

There is a contract but

1. Status There is no contract at all
which cannot be enforced.

It is not subject to
2. Ratification It is subject to ratification.
ratification.

It can be assailed by third

3. Attack by third It cannot be assailed by
persons whose interests
persons third persons.
are directly affected.

Causes of nullity are those Causes of unenforceability

4. Causes enumerated in Article are enumerated in Article
1409. 1403 (par.2)
 Article 1410
The action or defense for the declaration of the
inexistence of a contract does not prescribe.
(Ang aksyon o depensa sa deklarasyon ng pagiging walang
bisa ng isang kontrata ay hindi nagtatapos at pwedeng
idulog sa korte sa anumang oras.)
Discussion:

The action for the declaration of inexistence or the defense on

such is imprescriptible. The mere lapse of time does not validate a
void contract, unlike in voidable contracts, which, if not assailed
within the specific period provided by law, shall remain valid.
It is not necessary to go to the court to declare the nullity of a
void contract if both parties agree that it is void and henceforth,
on their own volition, change it. However, to avoid instances
where one party refuses to restore what he has received out of a
void contract, it is better to go to the court first to avoid
inconvenience or to avoid taking the law into his own hands.
Taking the law into ones hands may lead to coercion which is a
criminal offense.
Laches:
Laches has been defined as the failure or neglect, for an
unreasonable length of time, to do that which by exercising due
diligence could or should have been done earlier; it is
negligence or omission to assert a right within a reasonable
time, warranting a presumption that the party entitled to assert
it either has abandoned it or declined to assert it (Lim Tay vs CA
293 SCRA 634).
The right to have a contract declared voidab initiomay be
barred by laches although not barred by prescription.
It is an application of equity, based upon the grounds of public
policy which require for the peace of society, discouraging stale
claims. It is however exercised on the discretion of the court, its
application controlled by equitable considerations.
 Article 1411
When the nullity proceeds from the illegality of the cause or
object of the contract, and the set 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.
( Kapag ang pagpapawalang bisa ay mag tungo sa ilegalidad ng sanhi
o bagay sa kontrata, at ang pagtatakda ay bumuo ng criminal offense,
ang parehong partido ang may pagkakamali, sila ay walang aksyon
laban sa isat isa, at pareho silang uusigin. Moreover, ang probisyon ng
Revised Penal Code katulad sa pagaalis ng epekto o instrumento sa
krimen ay dapat angkop sa bagay o sa halaga ng kontrata.
Ang patakaran na ito dapat angkop kapag ang isang partido ay
nagkasala; ngunit ang kainosentehan ng isa ay maaring kunin ang
kanyang binigay, at hindi dapat nakatali para maisakatuparan ang
kanyang pangako.)
If the contract is still on its executory stage, they cannot compel one
another to fulfill their respective promises; and
If the contract was already executed, they cannot get back what they
had already paid or delivered to one another. The law will leave
them where they are.
 rules where contract is illegal and
the act constitutes a criminal offense
1.) where both parties are in pari delicto-- the following are the
effects of a contract whose cause or object contitutes a criminal
offense and both parties are in pari delicto, that is, equally
guilty:
a.) the parties shall have no action against each other;
b.) both shall be prosecuted; and
c.) those things or the price of the contract, as the effects
or instruments of the crime, shall be confiscated in favor of the
government.
 CASE. DIONE
FAUSTA BATARRA,Plaintiff-Appellee,
vs.
FRANCISCO MARCOS,Defendant-Appellant.

FACTS:The defendant induced the plaintiff to submit herself to sexual relation with him
on account of such promise of marriage.
The defendant did not fulfill his promise.
ISSUES:Can the plaintiff recover damages for breach of promise of marriage by
defendant?
HELD:No.
It was in any event an immoral act and the fault lay with both parties. By the provisions of
article 1306 of the same code there can, is such a case, be no recovery by one against the
other.
The judgment of the court below is reversed and the defendant is acquitted of the
complaint, with the costs of the first instance. No costs will be allowed to either party in
this court.
 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 others 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)
 Kapag ang mga nagawang labag sa batas o mga bawal na
sanhi na kabilang dito ay hindi naging kriminal na kasalanan,
ang mga sumusunod na hakbang ay dapat gawin.
(1)Kapag ang pagkakamali ay sa partido ng parehong kampo na
nakipagkasundo, alinman ay maaaring bumawi ng kanilang
ibinigay na nakapaloob sa kontrata, o anumang kagustuhan nila
na gawin ng kabilang partido
(2)Kapag ang isa sa nakipagkasundong partido ay nagkasala,
hindi nila maaaring bawiin ang anumang naibigay na nila sa
kadahilanang ito ang nasa kontrata, humingi ng anumang
makapupuno sa anumang pangako. Ang kabilang partido na
hindi nakagawa ng mali, ang pwedeng humiling na ibalik ang
mga naibigay nya nang wala nang dapat pang gampanang
pangako.
Discussion:
The rules to follow in this article are:
If both parties are in pari delicto,
they cannot recover what they had given under the contract;
they cannot demand the performance of the undertaking or promise of the
other party.
If only one of the contracting parties is at fault
The one at fault cannot recover what he has given under the contract;
He cannot demand the fulfillment of the promise of the other;
The one who is not at fault, may demand the return of what he has given
without the obligation to comply with his promise or undertaking to the other.
The principle of in pari delicto is not absolute. The law will not aid either party
to an illegal contract but will leave them where they are. The supposition is
that both parties are more equal in their faults.
ILLUSTRATION:

A wife who was not comfortable with living with his

legitimate husband agreed to separate their conjugal
property. The husband live in another place. One of her
friends induce her to transfer her properties to him so
that her husband will not able to sell her part. Then her
friend file a case to recover all the properties in that
situation the wife countered. The wife can recover all her
property because it was only in delicto, her friend was the
one who acted fraudulently.
 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.
(Ang interest na binayaran na kung saan humigit pa sa
interest na pinahihintulutan ng usury laws ay maaring
maibalik sa nangutang, kasama ang interest simula sa araw
na kung saan binayaran nya ito.)
Recovery of usurious interest
Any rate of interest in excess of the maximum allowed under the Usury Law
is usurious (see comments under Art. 1175.) 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 the payment of usurious interest
is void. The person paying the usurious interest can recover in an
independent civil action not only the interest in excess of that allowed by
the usury laws, but the whole interest paid. (Angel Jose Merchandising vs.
Chelda Enterprises and D. Syjueco, 23 SCRA 119 [1968]; see Arts. 1175,
1957;Sec. 6, Usury Law.) Note: By virtue of Central Bank Circular No. 905
(Dec. 10, 1982)issued by the Monetary Board under the authority granted
to it by the Usury Law (Secs. 1-a, 4-a, and 4-b thereof.), the rate of interest
and other charges on a loan or forebearance of money, goods or credit shall
no longer be subject to any ceiling prescribed by the Usury Law.
 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.
(Kung sakalit ang pera na ibinayad ay galing sa hindi legal na layunin, and
kasunduan ay maaring maipawalang bisa bago pa man matupad ang kanilang
layunin o bago maganap ang anumang kapinsalaan.)
The courts may, for the public interest may allow the party to recover the
money or property.
Illustration:
Pedro agreed to invest his one million amount of money in
the business of his friend of buy and sell. Later Pedro
discovered that it was a swindling syndicate. He therefor
wasnts to get his money from his friend. Pedro can sue his
friend to return his money back to him.
 Article 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.
( Kapag ang isang partido sa isang illegal na kontrata ay walang
kakayanan na magbigay ng pagpayag, ang hukuman ay maaring,
sa interes ng batas na humiling, ay papayagan ang pag bawi ng
pera o pag aari na dinala ng may kapansanang tao. )
Discussion:
The party who entered into an illegal contract is not capacitated to
give his consent (minor or insane), he may be allowed to recover the
money or property delivered, however may only be allowed only in
the interest of justice so demands. The matter being left in the
discretion of the court, in a case to case basis, there being no criteria
provided by the law.
The contract is unenforceable when both parties to purported
contract are not incapacitated to give consent and cannot be
enforced in court. It may be ratified if:
(1)If ratification is only of one side of the contracting parties. That
is, by the parent or guardian, the contract is transformed into a
voidable contract on the part of the party wo did not ratify, meaning,
it is now valid and binding unless annulled by the court.
 (2)If ratification is made by both sides by the parents or
guardians, the contract is validated from its inception. The
validation is retroactive.
If the parties ground for incapacity like minority attained majority
age, or if the capacity is due to insanity and regained their
insanity, they can ratify their previous acts. There is no need for
the law to include this expressly because it is deemed understood.
This is an Article about illegal contracts where the party is
incapacitated to give consent.
If an incapacitated party to give consent (minor or insane),
entered into an illegal contract, he may be allowed to recover the
money or property he had delivered by reason thereof.
The recovery will be allowed ONLY if the interest of justice so
demands. This matter is left with the discretion of the courts a
 Article 1416
When the agreement is not illegal per se but it 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.
(Kung ang nagpagsang-ayunan ay hindi labag sa batas pero ito
ay pinagbabawal, at ang pagbabawal ay ayon sa batas ay
ginawa para proteksyon ang nagdemanda, sya ay, kung
pambubliko na polisiya ay maaaring magdagdag, maibalik sa
kanya kung ano ang binayaran nya or dinala.)
Ras vs. Sua
Facts: Ras required a land from the National Abaca and
Other Fibers Corporation (NAFCO) under R.A. No. 477. This
law prohibits the alienation or incumbering of the land
within 10 years from the issuance of the corresponding
certificate of title. Ras leased the land to the Sua spouses.
As the lessee failed to pay the rentals, Ras sued them for
the rescission of the contract of lease. The Suas, among
other defenses, countered that Ras has no right to sue
because he violated R.A No. 477.
Issue: May Ras be allowed to recover the land considering
that he is in pari delicto with the lessees?
Held: Ras may still sue for the recovery of the land. The
aim of the government in distributing disposable the
landless citizens to own land which they can still and
considering that the reversion of these lands to the
government is penal in character, reversion cannot be
construed or implied from the provision prohibiting certain
acts. There is no provision in R.A. No. 477 providing that
the grantee automatically loses his rights over the land if he
violated the law as that the land reverts to the State. In this
case, the interest of the individual outweighs the interest of
the public.
 Article 1417
When the price of any article or commodity is
determined by statute, or by authority or law, any
person paying any amount in excess of the maximum
price allowed may recover such excess.
( Kapag ang presyo ng isang artikulo o kalakal ay
napagdesisyunan sa pamamagitan ng batas, ng awtoridad, o
ng batas, sinumang makapagbabayad ng higit pa sa
presyong pinahitulutan ay maaaring mabawi ang kalabisan
sa kanyang kabayaran.)
Discussion:
article 1417applies to articles or commodities over which
there is a law or regulation issued by competent authority
fixing their maximum price. This law aims to prevent
profiteering which is inimical to the interest of the people,
therefore, any excess payment made must be recoverable.
Commodity like gold was determined by law to be
P4,000.00 per grams. If for some reasons that other
people sold an item made up of gold more than the
maximum price of it. They can be criminally liable and the
purchaser can claim the excess amount that he paid.
Illustration:
A regulation was promulgated by the government fixing
the maximum price of a particular brand of meat at
P120.00 per kilo. If the buyer paid P250.00 per kilo,
whether or not he knew the regulation, must be allowed to
recover the P130.00 excess from his payment.
 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.
(Kapag ang batas ay inaayos o binibigyang autoridad ang pagsaayos ng
pinakamataas na oras ng trabaho, at may kontratang pinasukan ang
trabahador na nagsasaad ng mas mahaba pang oras ng trabaho kumpara
sa pinakamataas na sinabi ng batas, ang trabahador ay maaring mag-
demanda ng karagdagang bayad sa serbisyong inilaan sa sumobrang oras.)
Discussion:

Employees are entitled for an additional compensation for

services rendered beyond the 8-hour labor work under the
Eight-Hour Labor Law.
Social legislations and labor laws will govern the rights
and obligations of employees and laborers.
Case Illustration:
Saladas vs Franklin Baker Company 108 Phil. 364
(1960)
Ponente: J. Concepcion
Facts: Saladas was an employee of Franklin Baker Company from
1949 to 1952, when he was dismissed. He filed with the Wage
Administration Service of the Department of Labor a claim for
overtime services by a letter to the Company. Having been ignored,
he instituted a civil case for the recovery of the sum of money. The
case was dismissed. A year later, he again instituted an action for
recovery which was again dismissed. Hence, this present petition.
Issue: Whether or not petitioner is entitled to the overtime
compensation.
Held: Yes. Under the Commonwealth Act No. 444 or
otherwise known as the Eight Hour Labor Law, employees
are entitled to additional compensation for services
rendered beyond the eight-hour 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.
( Kapag ang batas ay nagtalaga, o pinahintulutan ang pagtatakda ng
minimum wage para sa mga trabahador, at ang kontrata ay
napagkasunduan na kung saan ang trabahador ay tumanggap ng
maliit na sahod, ang trabahador ay may karapatan na maibalik sa
kanya ang kulang. )
If the laborer has agreed to receive a wage lower than the minimum
wage fixed by law he is not barred from recovering the deficiency.
Such contract or agreement is void under the minimum wage law.
Illustration:
A the owner of a candy factory in Manila executed a
contract with B as a laborer. When the pay day comes
B reacted for the sum of money that he received
because the amount that he received is only P380.00/day
instead of P481.00, therefore B can recover for the
deficiency that he received from A which stated on this
art. that 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.
( Sa mga kaso na maaaring hatiin ang kontrata, kung ang
illegal na mga bahagi nito ay maaaring ihiwalay sa mga
legal na bahagi, ito ay ipatutupad. )
Discussion:

The article applies only if there are stipulations, terms or

conditions in the contract. If some of the stipulations are
illegal and others re valid, the valid stipulations shall be
effective and enforceable.
Two situations where the rule of divisibility is not applied.
When the contract by its nature requires indivisibility;
When the parties intended the contract to entire or
indivisible.
Illustration:
A borrower, as a security for payment, executed a car
mortgage using a fake title. The mortgage is void but the
loan remains valid.
 Article 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.
( Ang idepensa ang pagiging ilegal ng kontrata ay hindi maaari sa
ikatlong partido na hindi direktang naapektuhan. )
In voidable and unenforceable contracts,third persons are not
allowed to bring an action to annul or to assail,as the case may
be, said contracts.Ifthecontractis illegal or void, however,even
a thirdperson mayavail of the defense of illegality or set up its
illegality as long as hisinterest is directly affected by the
contract.
EXAMPLE:

H, husband, sold her parcel of land to W, his wife. Under the

law,husband and wife cannot sell property to each other and
such sale is, therefore, illegal and void. The purpose of the
prohibition is to protect third persons who, relying upon
supposed property of either spouse, enter into a contract with
either of them only to find out that the property relied upon
was transferred to the other spouse. Under Article 1421, if C,
a third person, became a creditor of H before the transaction,
he can question the sale for the reason that his right or
interest is directly affected. However, if he became a creditor
after the transfer, the defense of illegality is not available to
him.
 Article 1422
A contract which is the direct result of a previous
illegal contract, is also void and inexistent.
( Ang kasunduan na ang layon ay illegal ay walang bisa at
walang kabuluhan. )
Void contract cannot be novated.
This provision is based on the requisites of a valid
novation. An illegal contract is void and inexistent and
cannot, therefore, give rise to a valid contract
Illustration:

Ong agreed to venture into the business that Pin was

telling him about. The business concerns with the sale and
delivery of prohibited drugs. The contract made by these
two people is not valid and whatever happened cannot be
considered legal. The contract is void and null and they
are answerable for a crime.