Rogationist College – Silang

College Department

Saint Anthony’s Boys Village, Inc.

Km. 52 Aguinaldo Highway

Lalaan II, Silang, Cavite

UNENFORCEABLE, VOID OR INEXISTENT CONTRACTS

AND NATURAL OBLIGATION

Prepared by:

Avenida, Barron Ghil

Batara, Mery Jhoy
Broncano, Jayson
Capito, Kristel
Neon, Ladylyn

Bachelor of Science in Accountancy

Law on Obligations and Contracts

Sir. Romar Fajardo

Article 1403. The following contracts are unenforceable, unless they are ratified:

(1) Those entered into in the name of another person by one who has been given
no authority or legal representation, or who has acted beyond his powers;

(2) Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum,
thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the writing, or a
secondary evidence of its contents:

(a) An agreement that by its terms is not to be performed within a year from the
making thereof;

(b) A special promise to answer for the debt, default, or miscarriage of another;

(c) An agreement made in consideration of marriage, other than a mutual promise

to marry;

(d) An agreement for the sale of goods, chattels or things in action, at a price not
less than five hundred pesos, unless the buyer accept and receive part of such
goods and chattels, or the evidences, or some of them, of such things in action or
pay at the time some part of the purchase money; but when a sale is made by
auction and entry is made by the auctioneer in his sales book, at the time of the
sale, of the amount and kind of property sold, terms of sale, price, names of the
purchasers and person on whose account the sale is made, it is a sufficient
memorandum;

(e) An agreement of the leasing for a longer period than one year, or for the sale
of real property or of an interest therein;

(f) A representation as to the credit of a third person.

(3) Those where both parties are incapable of giving consent to a contract.

What makes a contract unenforceable?

1. Unauthorized Contracts - contract entered into name of other without authority

or acted beyond the given authority
2. Transactions under Statue of Frauds - contracts that should be written but
entered into orally

State of Frauds - requires contract to be in writing to guard against mistake;

applicable only to executory contracts

3. Both parties are incapacitated - both are incapable of giving a valid consent

UNAUTHORIZED CONTRAcTS

Examples:

A, representing himself as agent of P, sold P’s car to B. P didn't authorize A to do

anything to his car.

- This is unenforceable because there is consent or authority given to A to sell P's

property.

A sold P’s car to B.

- This valid and enforceable because according to the rule under the Contract of
Sale (requisite: not necessarily you own what you sell)
- However, this is void if during the delivery of the car the ownership remains with
P.

A, agent of P, sold P’s car to B in installments. A is only allowed to sell P’s car in cash.

- This is unenforceable because even though A is given the consent to sell the car
he acted beyond the authority given to him.
EXEMPTION: When the Principal ratifies the contract

TRANSACTIONS UNDER STATUTE OF FRAUDS

- All transactions below must be in written document to be enforceable.

1. Contracts not to be performed within a year

● Example: A and Y verbally agreed to formed a partnership after 13 months.

2. A special promise to answer for debt, default, or miscarriage of another

● Example: A is indebted to C. B orally guaranteed A’s debt.

3. Agreement in consideration of marriage other than mutual promise to marry

● Example: A orally obliged himself to give C a piece of land; if C marries his

daughter, B.

4. Sale of personal property at price of P500 or more

● Example: A and B orally entered in a contract of sale. A sold his notebook worth
P600 to B.

5. Lease of real property in more than 1 year

● If less than a year, valid even orally but if more than 1 year, it must be in written
document

6. Sale of real property or of interest therein

● Sale of any real property regardless of the price must be in a written contract

7. A representation as to the credit of a third person

● Example: A (insolvent) is in need of cash. A asked B for help. B represented A

orally as having good credit to C who extends loan to A because of B’s
representation.
EXEMPTION: When the Contact is partially executed

BOTH PARTIES ARE INCAPACITATED

Example: A, minor, sold his motor to B, minor.

- This is unenforceable because both parties are minor and they cannot give a
valid consent in a contract.

EXEMPTION: If both parents/guardians of the parties will grant the consent and ratifies
the contract

Article 1404. Unauthorized contracts are governed by Article 1317 and the
principles of agency in Title X of this Book.

- Unauthorized Contracts are governed by Article 1317.

- Person entering into a contract in the name of another must have an
authority
- He must act within his power or the power given to him

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 can have legal effect once ratified. The ratification of
contacts infringing Statute of Frauds may be effected in two ways:

a. Failure to object to the presentation of oral evidence

b. Acceptance of benefits
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.

- Enforceable under Statutes of Frauds – the right of one party to compel other
party to execute the needed instrument applies.

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.
- Contracts where both parties are incapable of giving consent
- 1 incapable - VOIDABLE
- 2 incapable - UNENFORCEABLE
- Ratification – cleanses the contract from all of its defects from the time of it is
constituted

Article 1408. Unenforceable contracts cannot be assailed by third persons.

- Strangers cannot questioned the unenforceable contracts

● cannot attack by those who are not party to contract

Void or inexistent contracts

Article 1409.The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good
customs, public order or public policy;

Contrary to Law

- An agreement whereby Anna is to render service as a servant to Ben without

compensation as long as Anna has not paid his debt is reprehensible and
censurable.

Contrary to Morals

- A contract, whereby Anna promised to live as the common-law wife of Ben

without the benefit of marriage in consideration of P50,000.00, is immoral and,
therefore, void.

Contrary to Good Customs

- Anna entered into a contract whereby Anna binds herself to slap his father. This
contract is void because it is against the good custom of showing respect to our
parents.

Contrary to Public Order

- A stipulation in a contract of lease whereby the landlord can use force to eject the
tenant in case of failure of the latter to pay the rent agreed upon is void as being
against public order.

Contrary to Public Policy

- The condition is contrary to public policy, because it virtually amounts to a

perpetual restriction on the right of ownership, specifically the owner’s right to
freely dispose of his property. Such a prohibition is indefinite and unlimited as to
time, so much so that it shall continue to be applicable even beyond the lifetime
of the original parties to the contract is a nullity.

(2) Those which are absolutely simulated or fictitious;

 - Anna is indebted to Ben. Upon learning that Ben is going to enforce her credit,
Anna pretends 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;

- If a blind man enters into a contract which requires the use of his eyesight, the
contract is void although in this particular case, we have only a relative
impossibility. This is because here, the relative impossibility is not merely
temporary.

(6) Those where the intention of the parties relative to the principal object of the
contract cannot be ascertained;

- Anna sold his land to Ben. Anna has many lands. It cannot be determined which
land was intended by the parties to be the subject of the sale.

Therefore, the contract shall be null and void and it is as if the parties have not entered
into any contract at all.

(7) Those expressly prohibited or declared void by law.

 - Contracts upon future inheritance except in cases expressly authorized by law.

These contracts cannot be ratified. Neither can the right to set up the defense of
illegality be waived.

Examples of Void Contracts

Inexistent contracts - formalities required by law are not meant / no effect at all

Illegal contracts - parties are not equal guilt.

Article 1410 The action or defense for the declaration of the inexistence of
contract does not prescribe.

● A party to a void contract can always bring an action in court to declare it

nullity or inexistence
● In the same way, a party against whom a void contract is being enforced can
also always claim the defense of nullity since the defect is permanent and
incurable, thus the action or defense does not prescribe despite the passage of
time.
● The defect in the contract cannot be cured by ratification.

Article 1411. When the nullity proceeds from the illegality of the cause or object
of the contract, and the act constitutes a criminal offense, both parties being in
pari delicto, they shall have no action against each other, and both shall be
prosecuted. Moreover, the provisions of the Penal Code relative to the disposal of
effects or instruments of a crime shall be applicable to the things or the price of
the contract.
This rule shall be applicable when only one of the parties is guilty. but the
innocent one may claim what he has given, and shall not be bound to comply
with his promise.

GENERAL RULE IN PARI DELICTO

If both parties are equally guilty or in pari delicto.

REASON: One who seeks equity and justice must come to court with clear hands.

TWO KINDS OF ILLEGAL CONTRACTS

1. With a criminal offense;

2. Without a criminal offense.

TWO KINDS OF ILLEGAL AND CRIMINAL CONTRACTS

1. Both parties are guilty (in pari delicto) - no parties can demand and claim.
2. Only one is guilty and the other is innocent:

Guilty party – cannot ask to fulfill.

Innocent – can demand what he has given.

3. The things or the price of the contract, as the effects or instruments of the crime,
shall be confiscated in favor of the government

Article 1412. If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be observed:

(1) When the fault is on the part of both contracting parties, neither may recover
what he has given by virtue of the contract, or demand the performance of the
other’s undertaking;
 ● None of the both parties can recover whatever object is stated in the
contract.
● None of the both parties can demand for fulfillment

(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.

● Guilty party – cannot ask and demand

● Innocent party - may demand and return what he has given, cannot be
compelled (force) to comply his promise.

Article 1413 Interest paid in excess of the interest allowed by the usury laws may
be recovered by the debtor, with interest thereon from the date of the payment.

A stipulation for the payment of usurious interest is void.

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.

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.

Requisites :

● Illegal purpose
● Repudiated before accomplished, or before any damage
 ● Court considers that public interest will be subserved by allowing recovery.

Examples:

Case 1. Obb will pay Lee to kill Con. Obb paid Lee in advance and suddenly
withdraw.

Question and Answer: Can Obb withdraw? Yes, no damages happen to the third
party

Case 2. If Lee already killed Con, then suddenly withdraw. Lee and Obb are BOTH
prosecuted by the law.

Pari delicto= both parties are in equal fault

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”

● If an incapacitated party to give consent (minor or insane), entered 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 and will be a case-to-case basis
where no criteria is provided by the law.

Example: Ganda a minor, paid Pogi 10 000 to kill Panget, if not yet accomplished
Ganda may still recover what she paid to Pogi, but if accomplished, Ganda will be
exempted from criminal liability and Pogi will be prosecuted.
Article 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 the public policy is thereby enhanced, recover what he has paid or
delivered”

(Highlighted are the requisites)

● Both parties are in pari delicto

● Recovery will be permitted given that the requisites are provided

Example; Pogi donated all his property to Ganda, the act is not illegal but is merely
prohibited, Pogi may be allowed to recover some of his property necessary for his
own support

Article 1417 “When the price of any article or commodity is determined by statute
or by authority of law, any person paying any amount in excess of the maximum
price allowed may recover such excess”

● Statute- also known as ceiling law

Example: 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.

Article1418 “When the law fixes, or authorizes the fixing of the maximum number
of hours of labor, and 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”
 ● Labor code- sets forth that the normal hours of work of any employees shall not
exceed eight hours a day.
● Excluded- government employees, managerial employees, field personnel,
member of the family of the employer that is dependent upon him for support,
domestic helpers, personal service of another, workers paid by results

Article 1419 “When the law sets, or authorizes the setting of a minimum wage for
laborers, and a contract is agreed upon which a laborer accepts a lower wage he
shall be entitled to recover the deficiency”

● Right to recover the deficiency with legal interest, employer shall be criminally
liable

Example: Pogi should not signed any document from an employer stating the salary
amount lower than the prescribed amount by law, if he signed, the balance of the
said amount may be recovered within the next pay days.

Article 1420 “In case of a divisible contract, if the illegal terms can be separated
from the legal ones, the latter may be enforced”

● If the consideration is entire and single then the contract is indivisible, therefore
if part of such consideration is illegal the contract is unenforceable and void
● If the consideration is made up of several parts, and the illegal can be
separated by legal ones, then the latter may be enforced

Example: Pogi sold his car and shabu to ganda for 200,000

● the contract is voided and unenforceable because there is only one consideration
for both shabu and car

: Pogi sold his car for 150,000 and shabu for 50,000 to ganda
 ● The contract is divisible, therefore the sale of car is valid

Article 1421 The defense of illegallity of contracts is not available to third

person's whose interests are not directly affected.

Defense of illegality - A claim can be defeated if it involves the claimant's own illegal
conduct.

● In voidable and unenforceable contracts third person's are not allowed to bring
an action to annul or to assail, as case may be , said contracts.

● If the contract is illegal or void , however a third person may avail of the defense
of Illegallity or set up it's nullity as long as his interest is directly affected by the
contract.

EXAMPLE:H sold partly of land to W his wife, under the law , married couple cannot sell
property to each other and the purpose of this is to protect third person relying upon
supposed property of either spouse.
● If T became a creditor of H before the transaction:
Before transfer: T can question the sale if his right or interest to the land is directly
affected.
After transfer: T cannot raise defense of illegallity.

Article 1422 A contract which is the direct result of a previous illegal contract, is
also void and inexistent.

Void contract cannot be novated

(Novated: replaced with new contract.)

EXAMPLE:
H made up a contract to W selling a parcel of land, which was the truth is an illegally
acquired Title of a Land, then later on W sold the Title to T, later on T learned that the
title for the parcel of land he bought was illegally acquired.Since H also illegally acquired
land, it is void because H is not the owner the current contract is also void because it
requires a valid contract of sale between same parties.

Article 1423 Obligations are civil or natural. Civil obligations give a right of action
to compel their performance. Natural obligations, not being based on positive law
but on equity and natural law, do not grant a right of action to enforce their
performance, but after voluntary fulfillment by the obligor, they authorize the
retention of what has been delivered or rendered by reason thereof. Some natural
obligations are set forth in the following articles.

Civil Obligations
● Arise from law ,contracts , quasi-contract, delicts, quasi-delicts.
● Give a right of action in courts of justice to compel their performance or
fulfillment.
Natural Obligations
● Based not on positive law but on equity and natural law.
● Do not grant such a right of action to enforce their performance.

EXAMPLE:
● Giving of material and financial assistance to children upon their marriage.

Article 1424 When a right to sue upon a civil obligation has lapsed by extinctive
prescription, the obligor who voluntarily performs the contract cannot recover
what he has delivered or the value of the service he has rendered.
● By prescription
● One acquires ownership and other real rights through the lapse of time in
the manner and under conditions laid down by law.In the same way ,
rights and actions are lost by prescription (extinctive).
EXAMPLE:
D owes C the sum of 10,000 under a written contract. After 10 years ,the debt of D on
prescription for failure of C to file the necessary action for the recovery of the same.
D knowingly of the prescription, voluntarily pays C, he cannot recover anymore what he
has paid. He has the moral duty to pay his debt.

Article 1425 When without the knowledge or against the will of the debtor, a third
person pays a debt which the obligor is not legally bound to pay because the
action thereon has prescribed, but the debtor later voluntarily reimburses the
third person, the obligor cannot recover what he has paid.

Reimbursement of third person for debt that has prescribed.

If a third person pays the prescribed debt of the debtor without his knowledge or against
his will, the latter is not legally bound to pay him. But the debtor cannot recover what he
has paid, in case he voluntarily reimburses the third person.
EXAMPLE:
In the above example, if T pays C after the debt has prescribed without the knowledge
or consent of D, but D nevertheless reimburses T, D cannot recover what he has paid.

Article 1426 When a minor between eighteen and twenty-one years of age who
has entered into a contract without the consent of the parent or guardian, after
the annulment of the contract voluntarily returns the whole thing or price
received, notwithstanding the fact the she has not been benefited thereby, there
is no right to demand the thing or price thus returned.

Example:Si ganda ay nagbenta ng motor sa halagang 70,000 kay pogi without securing
the consent of her parents, nawala ni ganda ang 20,000 sa kanyang bulsa, sa
mantalang ang 50,000 ay dinoposit sa banko. If the contract is annulled, Ganda is
obliged to return only 50,000, however, Si Ganda ay mayroon natural obligation to
return 70,000 , Si Ganda ay nag voluntarily na ibalik ang kabuuang halaga, And there
is no right to demand the same.
Article 1427 When a minor between eighteen and twenty-one years of age, who
has entered into a contract without the consent of the parent or guardian,
voluntarily pays a sum of money or delivers a fungible thing in fulfillment of the
obligation, there shall be no right to recover the same from the obligee who has
spent or consumed it in good faith.
If the minor under 18 entered into a contract without parental or guardian’s
consent the contract is obviously voidable and if the contract is annulled, the
court may order the restoration of what had been paid or delivered by the minor.

Example: A 19 years old girl named Ganda entered into a contract with Pogi for the
construction of a small café shop in Laguna, then after the construction is already
finished she paid Pogi the total amount of 100,000.00 without the consent of her parents
or her guardian therefore she can no longer recover the amount of the money that she
paid even without the consent of her guardian because according to Art. 1427 “When a
minor between eighteen and twenty-one years of age, who has entered into a contract
without the consent of the parent or guardian, voluntarily pays a sum of money or
delivers a fungible thing in fulfillment of the obligation, there shall be no right to recover
the same from the obligee who has spent or consumed it in good faith.”

Article 1428 When, after an action to enforce a civil obligation has failed, the
defendant voluntarily performs the obligation, he cannot demand the return of
what he has delivered or the payment of the value of the service he has rendered.

Discussion:
The above provision is called "voluntary performance despite failed action." This is a
natural obligation triggered by the dismissal of the action or unfavorable judgment and
the subsequent performance by the defendant of the obligation attempted to be
enforced through the failed court action. Again, the consequence is that the defendant
who pays or performs cannot recover.
"Failed" is a general term which is not even used in the rules on civil procedure.
Therefore, it covers a
dismissal on technical grounds or a judgment on the merits.

Example:
Ganda has failed to pay her obligation.
Ganda is sued by Chika, the creditor.
Ganda won the case.
Notwithstanding this, Kaguya voluntarily performs her obligation.
Ganda CANNOT demand the return of what she has delivered or the payment of the
value of the service she has rendered.

Article 1429 When a testate or intestate heir voluntarily pays a debt of the
decedent exceeding the value of the property which he received by will or by the
law from the estate of the deceased, the payment is valid and cannot be
rescinded by the payer.

Discussion:The reason for this is that the heir has a moral duty to fulfill to clear the
name or credit of the decedent to whom he is related either by blood or by other filial
relationship.

Example: Si Ganda at Pogi ay pinamanahan ng namatay nilang tatay na tig 20M at ang
kanilang tatay ay may iniwan na utang na mas malake kaysa sa nakuha nila mula sa
will, ang utang na naiwan ay 30M na kailangan bayaran , si Pogi ay nag voluntarily to
pay the 30M, under art. 1429 the payment is valid and cannot be rescinded by pogi.

Article 1430 When a will is declared void because it has not been executed in
accordance with the formalities required by law, but one of the intestate heirs,
after the settlement of the debts of the deceased, pays a legacy in compliance
with a clause in the defective will, the payment is effective and irrevocable.

Legacy – a gift of personal property or money to a beneficiary (legatee) of a will. While

technically, legacy does not include real property (which is a“devise”), legacy usually
refers to any gift from the estate of one who has died. It is synonymous with the word
“bequest''.
Example: Ganda will is declared void by reason of it being executed contrary to the
formalities of law, and in this will is a clause that a legacy has to be delivered to Pogi.

Panget, the intestate heir, has already settled the debts of the deceased and paid Pogi
the legacy according to the clause in the will (declared void).

Panget’s payment to Pogi is effective and irrevocable even if the will was declared void.