c. Unenforceable contracts c.2.

when unenforceable
- those which cannot be enforced in court (unless they are Art. 1403
ratified) because they are entered into without or in excess - three categories of unenforceable contracts:
of authority, or they do not with the statute of frauds, or 1. those entered into in the name of another person by
both of the contracting parties do not possess the required one who has been given no authority or legal
legal capacity representation, or who has acted beyond his powers
- unenforceable contracts cannot serve as basis for a suit - unauthorized contracts are governed by Art. 1317
or action; the courts will refuse to enforce them and and the principles of agency under Art. 1404
dismiss the suit - under the principles of agency, if the agent exceeds
- in a suit founded on an enforceable contract, the the scope of his authority, the agent is personally
defendant can interpose it unenforceability as defense and liable to the party with whom he has contracted
ask for the dismissal of the suit. unless (1) the principal ratifies the contract or (2) the
- the defendant's failure to set up this defense may be other contracting party is aware of the limits of the
deemed a waiver thereof and a ratification of the agent’s power (in which case the contact is void)
contract 2. those that do not comply with the Statute of Frauds
c.1. nature - statutes which require certain classes of contracts
Art. 1317 to be in writing
- no one may contract in the name of another without - does not deprive the parties of the right to
being authorized by the latter, or unless he has by law a contract with respect to the matters therein
right to represent him. involved, but merely regulates the formalities of
- a contract entered into in the name of another by one the contract necessary to render it enforceable
who has no authority or legal representation, or who has - the statute does not apply to actions which are
acted beyond his powers, shall be unenforceable, unless neither for specific performance of the contract nor
it is ratified, expressly or impliedly, by the person on for the violation thereof
whose behalf it has been executed, before it is revoked - the purpose of the statute is to prevent fraud and
by the other contracting party. perjury in the enforcement of obligations depending
- the nullity of such a contract is of a permanent nature for their evidence upon the unassisted memory of
and it will exist as long as it is not duly ratified. The witnesses by requiring certain enumerated contracts
mere lapse of time cannot give efficacy to such and transactions to be evidenced by a writing signed
contract. by the party to be charged.
- the ratification of a contract by the person in whose - a contract falling under the statute of frauds cannot
name it has been entered into without authority, be proved without the writing or a memorandum
validates the act from the moment of its celebration, thereof
and not merely from the time of its ratification - the statute, however, simply provides for the
- the unauthorized contract produces a state of manner in which contracts under it shall be proved.
suspense; its effectivity defends upon its ratification It does not attempt to make such contracts invalid
- the contract may be resolved before ratification, by if not executed in writing, but only makes
means of revocation communicated to the principal or ineffective the action for specific performance.
to the agent 3. those were both parties are incapable of giving
- if the contract is not ratified by the person consent to a contract
represented, the representative becomes liable in - neither party or his representative can enforce the
damages to the other party, if he did not give notice of contract unless it has been ratified. The ratification
the absence or deficiency of his power by one party, however, converts the contract into a
- this liability is based on the fact that having voidable contract.
represented himself as having authority to act for Art. 1405
another, he is responsible for the truth of such - contracts infringing the Statute of Frauds are ratified by
affirmation the failure to object to the presentation of oral evidence
to prove the same, or by the acceptance of benefits
under them
 - the statute of frauds cannot be invoked when the c.5. form
contract has already been partly executed; it applies Art. 1406
only to executory contracts - when a contract in enforceable under the Statute of
c.3. who may bring action Frauds, and a public document is necessary for its
Art. 1408 registration in the Registry of Deeds, the parties may
- unenforceable contracts cannot be assailed by third avail themselves of the right under Art. 1357
persons - Art. 1357. If the law requires a document or other
- the defense of the statute of frauds is personal to the special form, as in the acts and contracts enumerated
party to the agreement. It is like minority, fraud, in the following article, the contracting parties may
mistake, and other similar defenses which may be compel each other to observe that form, once the
asserted or waived by the party affected. contract has been perfected. This right may be
c.4. ratification exercised simultaneously with the action upon the
Art. 1317 contract. (1279a)
- 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.
- the nullity of such a contract is of a permanent nature
and it will exist as long as it is not duly ratified. The
mere lapse of time cannot give efficacy to such
contract.
- the ratification of a contract by the person in whose
name it has been entered into without authority,
validates the act from the moment of its celebration,
and not merely from the time of its ratification
- the unauthorized contract produces a state of
suspense; its effectivity defends upon its ratification
- the contract may be resolved before ratification, by
means of revocation communicated to the principal or
to the agent
- if the contract is not ratified by the person
represented, the representative becomes liable in
damages to the other party, if he did not give notice of
the absence or deficiency of his power
- this liability is based on the fact that having
represented himself as having authority to act for
another, he is responsible for the truth of such
affirmation
Art. 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
d. Void/Inexistent Contracts - void and unenforceable contracts:
- a void or inexistent contract is one which. has no force and Void Unenforceable
effect from the very beginning, as if it had never been Similar in that they cannot be the basis of actions to
entered into, and which cannot be validated either by time enforce compliance
or by ratification. Can never be ratified Can be ratified and
- this includes not only those contracts in which one of the and become thereafter enforced
essential requisites is totally wanting, but also those which enforceable
are declared void by positive provision of law or statute. There is no contract at There is a contract,
d.1. nature all which, however, cannot
Art. 1409 be enforced unless
- the following contracts are inexistent and void from the properly ratified
beginning:
1. those whose cause, object, or purpose is contrary to - void and voidable contracts:
law, morals, good customs, public order, or public Void Voidable
policy Implies that there is no Valid until set aside and
2. those which are simulated or fictitious contract but only the its validity may be
3. those whose cause or object did not exist at the time appearance of one, and assailed only in an
of the transaction it produces no effect action for that purpose
4. those whose object is outside the commerce of men even if not set aside by a by a party to the
5. those which contemplate an impossible service direct action contract, and never by a
6. those where the intention of the parties relative to third person
the principal object of the contract cannot be Nullity can be set up The nullity can be set up
ascertained against anyone who only against a party
7. those expressly prohibited or declared void by law asserts a right arising thereto
- these contracts cannot be ratified. Neither can the from it; not only against
right to set up the defense of illegality be waived the first, but against all
- void and rescissible contracts: his successors who are
Void Rescissible not protected by law
The defect is inherent in The defect is in their Not having the May be rendered
the contract itself effects, either to one of requisites of Art. 1318, it perfectly valid by
the parties or to a third is not susceptible of ratification
party ratification
The nullity is a matter of Based on equity and is The action to declare The action for
law and public interest more a matter of the nullity does not annulment prescribes
private interest prescribe
There are no legal If no action is taken to
effects even if no action set it aside, it remains - characteristics of void contracts:
is taken to set it aside valid and produces all its 1. the contract produces no effect whatsoever either
effects against or in favor of anyone
The action to declare The action to rescind 2. no action for annulment is necessary because the
the nullity of void prescribes nullity exists ipso jure; a judgment of nullity would be
contracts never merely declaratory
prescribes 3. it cannot be confirmed or ratified
4. if it has been performed, the restoration of what has
been given is in order
- any person may invoke the inexistence of the contract
whenever juridical effects founded thereon are asserted
against him
 - even when the contract is void or inexistent, an action have all the essential requisites, such as consent,
is necessary to declare its inexistence, when it has object, and cause.
already been fulfilled. Art. 1490
- the ratification, however, may take the form of a new The husband and the wife cannot sell property to each
contract, in which case its validity shall be determined other, except:
only by the circumstances at the time of execution of (1) When a separation of property was agreed upon in
such new contract the marriage settlements; or
- the causes of nullity which have ceased to exist (2) When there has been a judicial separation or
cannot impair the validity of the new contract property under Article 191. (1458a)
Art. 1410 Art. 1491
- the action or defense for the declaration of the The following persons cannot acquire by purchase, even
inexistence of a contract does not prescribe at a public or judicial auction, either in person or through
- the nullity of these contracts is definite and cannot be the mediation of another:
cured either by ratification or by prescription (1) The guardian, the property of the person or persons
- as between the parties to a contract, validity cannot who may be under his guardianship;
be given to it by estoppel if it is prohibited by law or is (2) Agents, the property whose administration or sale
against public policy may have been entrusted to them, unless the consent
- no need of an action to set aside a void or inexistent of the principal has been given;
contract. (3) Executors and administrators, the property of the
- however, an action to declare the non-existence of estate under administration;
the contract can be maintained; and in the same (4) Public officers and employees, the property of the
action, the plaintiff may recover what he has given State or of any subdivision thereof, or of any
by virtue of the contract. government-owned or controlled corporation, or
- the power to ask for the declaration of non- institution, the administration of which has been
existence of the contract cannot be assigned intrusted to them; this provision shall apply to judges
Art. 1420 and government experts who, in any manner
- in case of a divisible contract, if the illegal terms can be whatsoever, take part in the sale;
separated from the legal ones, the latter may be (5) Justices, judges, prosecuting attorneys, clerks of
enforced superior and inferior courts, and other officers and
- general rule: the provisions of this article must be employees connected with the administration of
applied if there are several stipulations in the contract, justice, the property and rights in litigation or levied
some of which are valid and some void. upon an execution before the court within whose
- exceptions: jurisdiction or territory they exercise their respective
1. when the nature of the contract requires functions; this prohibition includes the act of acquiring
indivisibility (contract of compromise) by assignment and shall apply to lawyers, with respect
2. when the intention of the parties is that the to the property and rights which may be the object of
contract be entire any litigation in which they may take part by virtue of
d.2. when void/inexistent their profession.
Art. 1345 (6) Any others specially disqualified by law. (1459a)
- simulation may be absolute or relative Art. 1378
Art. 1346 When it is absolutely impossible to settle doubts by the
- an absolutely simulated or fictitious contract is void rules established in the preceding articles, and the
- based on the want of true consent because there is doubts refer to incidental circumstances of a gratuitous
no intent to be bound contract, the least transmission of rights and interests
- a relative simulation, when it does not prejudice a third shall prevail. If the contract is onerous, the doubt shall
person and is not intended for any purpose contrary to be settled in favor of the greatest reciprocity of interests.
law, morals, good customs, public order, or public policy If the doubts are cast upon the principal object of the
binds the parties to their real agreement contract in such a way that it cannot be known what may
- if the concealed act is lawful, it is absolutely have been the intention or will of the parties, the
enforceable. However, such concealed contract must contract shall be null and void. (1289)
 Art. 1409 - however, Art. 1957 provides that contracts and
The following contracts are inexistent and void from the stipulations, under any cloak or device whatever,
beginning: intended to circumvent the laws against usury shall
(1) Those whose cause, object or purpose is contrary be void. The borrower may recover in accordance
to law, morals, good customs, public order or public with the laws on usury.
policy; - this has the effect of incorporating into the Civil
(2) Those which are absolutely simulated or fictitious; Code the provisions of Sec. 6 of the Usury Law
(3) Those whose cause or object did not exist at the - but Art. 1961 provides that Usurious contracts shall
time of the transaction; be governed by the Usury Law and other special
(4) Those whose object is outside the commerce of laws, so far as they are not inconsistent with the
men; Code.
(5) Those which contemplate an impossible service; - it seems that Art. 1961 should prevail over the
(6) Those where the intention of the parties relative to Usury Law; and yet, Art. 1957, which is only four
the principal object of the contract cannot be articles away from it, allows recovery under the
ascertained; Usury Law.
(7) Those expressly prohibited or declared void by law. - and Art. 1175 provides that usurious transactions
These contracts cannot be ratified. Neither can the right shall be governed by special laws
to set up the defense of illegality be waived. - only legislative clarification can cure the defect. In
Art. 1422 the meantime, the Usury Law should prevail
A contract which is the direct result of a previous illegal (according to Tolentino) for the following reasons:
contract, is also void and inexistent. 1. because of the irreconcilable conflict between
Art. 1782 the present article, in relation to Art. 1961 and
Persons who are prohibited from giving each other any 1957 and 1175, the intention of the Civil Code
donation or advantage cannot enter into universal cannot be determined. Where the intention
partnership. (1677) cannot be ascertained, it is the same as if there is
Art. 87, FC no rule in the Civil Code on the recovery of usurious
- Every donation or grant of gratuitous advantage, direct interest paid. This leaves the Usury Law as the only
or indirect, between the spouses during the marriage law that can be applied
shall be void, except moderate gifts which the spouses 2. as between the rule in the Usury Law and that
may give each other on the occasion of any family contained in the present article, public policy
rejoicing. The prohibition shall also apply to persons favors the former. The policy of the law is to
living together as husband and wife without a valid discourage usury; and to encourage debtors to
marriage. (133a) expose usurious transactions so that the modern
d.3. remedies Shylocks can be brought to the bar of justice.
Art. 1413 Allowing the debtor to recover the full amount of
- interest paid in excess of the interest allowed by the usurious interest paid, and not only the excess over
usury laws may be recovered by the debtor, with interest what the law permits, will discourage usury. And
thereon from the date of the payment. limiting the action to two years after payment of
- Sec. 6 of the Usury Law: the whole usurious interest usurious interest, will encourage debtors to expose
paid within the last two years preceding the action can as soon as possible the usurious transaction in
be recovered order that they may still recover what they had
- Art. 1413: allows recovery only of the excess over the paid as interest.
interest allowed by the Usury Law, and not the entire Art. 1414
interest paid, but interest on such excess from the time - when money is paid or property delivered for an illegal
payment is allowed. Furthermore, the recovery is not purpose, the contract may be repudiated by one of the
limited to interest paid within the last two years; parties before the purpose has been accomplished, or
hence, the excess in all payments made may be before any damage has been caused to a third person. In
recovered such case, the courts may, if the public interest will thus
- Art. 1413 repeals by implication Sec. 6 of the Usury be subserved, allow the party repudiating the contract to
Law. recover the money or property.
 - where the parties to an illegal contract are not equally an offense, or whether the cause is only rendered illegal,
guilty, and where public policy is considered as or to contracts which are null and void ab initio.
advance by allowing the more excusable of the two to - they presuppose the existence of a cause, although
sue for relief against the transaction, relief is given to such cause may be vitiated and may render the
him contract void.
Art. 1415 - where the parties to an illegal contract are not equally
- where one of the parties to an illegal contract is guilty, and where public policy is considered as advanced
incapable of giving consent, the courts may, if the by allowing the more excusable of the two to sue for
interest of justice so demands allow recovery of money relief against the transaction, relief is given to him.
or property delivered by the incapacitated person. - Art. 1411 and 1412 are not applicable to a usurious
Art. 1416 contract and will not justify the recovery by the debtor
- when the agreement is not illegal per se but is merely of the amounts he has already paid on account of the
prohibited, and the prohibition by the law is designated principal borrowed by him
for the protection of the plaintiff, he may, if public policy - the Usury Law limits his right to a recovery of usurious
is thereby enhanced, recover what he has paid or interest paid during the two years preceding the
delivered. making of the claim
- an act or contract that is illegal per se is one that by - but where the only consideration for a deed of sale is
universally recognized standards inherently or by its accumulated interest, the entire consideration is illicit,
very nature bad, improper, immoral, or contrary to the contract is null and void, and the borrower may
good conscience. recover the property conveyed, together with its fruits
d.4. who may bring action/defense Art. 1421
Art. 1411 - the defense of illegality of contracts is not available to
- when the nullity proceeds from the illegality of the third persons whose interests are not directly affected.
cause or object of the contract, and the act constitutes a d.5. contracts imbued with public interest
criminal offense, both parties being in pari delicto, they Art. 1417
shall have no action against each other, and both shall be - when the price of any article or commodity is
prosecuted. Moreover, the provisions of the Penal Code determined by statute, or by authority of law, any person
relative to the disposal of effects or instruments of a paying any amount in excess of the maximum price
crime shall be applicable to the things or the price of the allowed may recover such excess.
contract. Art. 1418
- this rule shall be applicable when only one of the parties - when the law fixes, or authorizes the fixing of the
is guilty; but the innocent one may claim what he has maximum number of hours of labor, and a contract is
given and shall not be bound to comply with his promise. entered into whereby a laborer undertakes to work
Art. 1412 longer than the maximum thus fixed, he may demand
- if the act in which the unlawful or forbidden cause additional compensation for service rendered beyond
consists does not constitute a criminal offense, the the time limit.
following rules shall be observed: Art. 1419
(1) When the fault is on the part of both contracting - when the law sets, or authorizes the setting of a
parties, neither may recover what he has given by minimum wage for laborers, and a contract is agreed
virtue of the contract, or demand the performance of upon by which a laborer accepts a lower wage, he shall
the other's undertaking; be entitled to recover the deficiency.
(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.
- Art. 1411 and 1412 are not applicable to fictitious or
simulated contracts because they refer to contracts with
an illegal cause or subject matter, whether it constitutes