CONTRACTS

Definition
Contract is a meeting of minds between two persons whereby one binds himself, with respect to the other,
to give something or to render some service. (1305)
Obligations arising from contracts have the force of law between the contracting parties and should be
complied with in good faith. (1159) Hence, whatever be the agreement between the parties are the law
between the parties provided they are not contrary to law, morals, good customs, public order, or public
policy. (1306)

Kinds of contract
1. Formation or perfection
a. Consensual – perfected by mere consent (1315)
b. Real – perfected by delivery (i.e. depositum, pledge, commodatum) (1316)
c. Formal or solemn (i.e. Interest must be in writing (1956); Contribution of immovable property
must be in a public instrument, donation of personal property where the value exceeds P5,000
must be in writing; Donation of immovable property must be in a public instrument, Sale of land
or interest therein, the authority of the agent must be in writing)
2. Cause or equivalence of value of prestation
a. Onerous – equivalent value of prestation
b. Gratuitous or lucrative – no equivalent prestation
c. Remunerative - the prestation is the benefit or service that had been rendered previously.
3. Importance or dependence of one upon another:
a. Principal – can stand alone
b. Accessory – depend upon the existence of another contract
c. Preparatory – not considered the contract as an end by itself but as a mean for entering in
future transaction or contract.
4. Parties obligated
a. Unilateral – only one party has obligation
b. Bilateral – both party has obligation
5. Name or designation
a. Nominate – has a name given by law
b. Innominate – no name given by law
 Do ut des (I give that you may give) no longer innominate. This is now called Barter
 Do ut facias (I give that you may do)
 Facio ut des (I do that you may give)
 Facio ut facias (I do that you may do)
6. Risk of fulfillment
a. Commutative – real fulfillment, equivalent value are given
b. Aleatory – fulfillment depend upon chance.
7. Time of performance or fulfillment
a. Executed – prestation are already complied with
b. Executory – prestations are to be complied with in the future
8. According to number of person who participated in the drafting of the contract
a. Ordinary –
b. Contract of adhesion – Where the terms and condition of the contract is already drafted by one
party. The other party only signifies his consent by signing the contract.

Stages of contract
1. Preparation (Negotiation, conception or Generacion) – steps taken by the parties leading to the
perfection of the contract.
 2. Perfection (or birth) – Come to a definite agreement or meeting of the mind upon the object and
the cause.
3. Consummation (death or termination) – parties have performed their respective obligation

Characteristics of contract
1. Freedom of contract - contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient (1306)
Limitation:
a. Law
b. Moral
c. Good custom
d. Public order
e. Public policy
2. Mutuality of contract - contract must bind both contracting parties; its validity or compliance cannot
be left to the will of one of them (1308). The principle is based on the essential equality of the
parties.
 The determination of the performance may be left to a third person, whose decision shall
not be binding until it has been made known to both contracting parties. (1309)
 The determination shall not be obligatory if it is evidently inequitable. In such case, the
courts shall decide what is equitable under the circumstances (1310)
3. Relativity of contract - Contracts take effect only between the parties, their assigns and heirs (1311)
Exception:
a. Where the obligations arising from contract are not transmissible by nature (personal
qualification is involved), by stipulation or by provision of law (Agency, partnership,
commodatum).
b. Stipulation in favor of third person (stipulation pour autrui) (1311 par 2)
If a contract should contain some stipulation in favor of a third person, he may demand its
fulfillment provided he communicated his acceptance to the obligor before its revocation. A
mere incidental benefit or interest of a person is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor upon a third person
c. Contract creating real right (1312)
d. Contact entered into to defraud the creditors. (1313)
e. Contract which have been violated thru the inducement of 3rd person (1314)
4. Consensuality of contract - Contracts are perfected by mere consent, and from that moment the
parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith, usage and law.

Elements of a Contract
1. Essential elements
a. Common (Consent, Object, Cause)
b. Special
i. Form – formalities in solemn contract, deliver in real contract, registration to bind third
person (Real estate mortgage, chattel mortgage)

Solemn contract
(Consent, Object, Cause + Execution of formalities)
a. Stipulation of interest = writing.
b. Contribution of immovable property in partnership = inventory of such property +
public instrument
c. Donation of personal property where the value exceed P5,000 = in writing
d. Donation as well as acceptance of real property = Public instrument.
e. Will = writing + formalities prescribed by law.
 f. Agent authority in case of sale of immovable property in behalf of the principal =
writing

Real Contract
(Consent, Object, Cause + Delivery)
a. Deposit
b. Pledge
c. Commodatum
ii. Subject matter
Real estate mortgage Real property No delivery
Chattel mortgage Personal property No delivery
Pledge Personal property Delivery
Antichresis Real property Delivery
iii. Consideration or cause – Sale (price); Commodatum (liberality)
2. Natural elements – presumed to exist in certain contracts
a. Warranty against eviction
b. Warranty against hidden defect
3. Accidental elements (by stipulation) – Exist only when they are expressly provided by the parties.
(i.e. Conditions, period, interest, penalty, place of payment)

Art. 1318. There is no contract unless the following requisites concur:

1. Consent of the contracting parties;
2. Object certain which is the subject matter of the contract;
3. Cause of the obligation which is established.

CONSENT (1319)
Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer except from the time it came to his
knowledge. The contract, in such a case, is presumed to have been entered into in the place where the
offer was made.
1. Theory of cognition – The acceptance is considered to effectively bind the offeror only from the
time it came to his knowledge. (Civil code)
2. Theory of manifestation – The contract is perfected at the moment when the acceptance is declared
or made by the offeree. (Code of commerce)

Art. 1320. An acceptance may be express or implied.

Art. 1321. The person making the offer may fix the time, place, and manner of acceptance, all of which
must be complied with. Art. 1322. An offer made through an agent is accepted from the time acceptance is
communicated to him. (n)
Art. 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either
party before acceptance is conveyed.
Art. 1325. Unless it appears otherwise, business advertisements of things for sale are not definite offers,
but mere invitations to make an offer.
Art. 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser is not
bound to accept the highest or lowest bidder, unless the contrary appears.
Art. 1327. The following cannot give consent to a contract:
1. Unemancipated minors;
2. Insane or demented persons, and deaf-mutes who do not know how to write. (1263a)
Art. 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of
drunkenness or during a hypnotic spell are voidable. (n)
OPTION PERIOD (1324)
Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn
at any time before acceptance by communicating such withdrawal, except when the option is founded upon
a consideration, as something paid or promised. (n)

Vices of Consent
1. Error or mistake
 In order that mistake may invalidate consent, it should refer to the substance of the thing
which is the object of the contract, or to those conditions which have principally moved one
or both parties to enter into the contract.
Mistake as to the identity or qualifications of one of the parties will vitiate consent only when
such identity or qualifications have been the principal cause of the contract.
A simple mistake of account shall give rise to its correction. (1331)
 When one of the parties is unable to read, or if the contract is in a language not understood
by him, and mistake or fraud is alleged, the person enforcing the contract must show that
the terms thereof have been fully explained to the former. (1332)
 There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the
object of the contract. (1333)
 Mutual error as to the legal effect of an agreement when the real purpose of the parties is
frustrated, may vitiate consent. (1334)
2. Violence - when in order to wrest consent, serious or irresistible force is employed. (1335)
3. Intimidation - when one of the contracting parties is compelled by a reasonable and well-grounded
fear of an imminent and grave evil upon his person or property, or upon the person or property of
his spouse, descendants or ascendants, to give his consent. (1335)
To determine the degree of intimidation, the age, sex and condition of the person shall be borne in
mind.
A threat to enforce one's claim through competent authority, if the claim is just or legal, does not
vitiate consent.
4. Undue influence - when a person takes improper advantage of his power over the will of another,
depriving the latter of a reasonable freedom of choice. The following circumstances shall be
considered: the confidential, family, spiritual and other relations between the parties, or the fact that
the person alleged to have been unduly influenced was suffering from mental weakness, or was
ignorant or in financial distress. (1337)
5. Fraud - when, through insidious words or machinations of one of the contracting parties, the other
is induced to enter into a contract which, without them, he would not have agreed to.
 Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound
by confidential relations, constitutes fraud. (1339)
 The usual exaggerations in trade, when the other party had an opportunity to know the
facts, are not in themselves fraudulent. (1340)
 A mere expression of an opinion does not signify fraud, unless made by an expert and the
other party has relied on the former's special knowledge. (1341)
 Misrepresentation by a third person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is mutual. (1342)
 Misrepresentation made in good faith is not fraudulent but may constitute error. (1343)
 In order that fraud may make a contract voidable, it should be serious and should not have
been employed by both contracting parties. (1344)
 Incidental fraud only obliges the person employing it to pay damages.
Employed by Employed by 3rd person
one of the
contracting
parties
 Violence Voidable Voidable
Intimidation Voidable Voidable
Fraud without Voidable Valid, unless it results to a
connivance/knowledge by the substantial mistake and the
party benefited by the fraud same is mutual. It can be
annulled on the ground of
mistake.
Fraud with Voidable Voidable, as if exercised by
connivance/knowledge by the the party benefited by the
party benefited by the fraud fraud
Undue influence Voidable Voidable

Absolute simulated or fictitious Relatively simulated

contracts
The parties do not intend to be bound at all. The parties conceal their true
(1345) agreement. (1345)
VOID (1346) When it does not prejudice a third
person and is not intended for any
purpose contrary to laws, morals, good
customs, public order, or public policy,
binds the parties to their real agreement.

OBJECT OF CONTRACTS
 All things which are not outside the commerce of men, including future things, may be the object of
a contract. All rights which are not intransmissible may also be the object of contracts.
 No contract may be entered into upon future inheritance except in cases expressly authorized by
law.
 All services which are not contrary to law, morals, good customs, public order or public policy may
likewise be the object of a contract. (1347)
 Impossible things or services cannot be the object of contracts. (1348)
 The object of every contract must be determinate as to its kind. The fact that the quantity is not
determinate shall not be an obstacle to the existence of the contract, provided it is possible to
determine the same, without the need of a new contract between the parties. (1349)

CAUSE OF CONTRACTS
Cause of contract
1. Onerous contracts - the cause is understood to be, for each contracting party, the prestation or
promise of a thing or service by the other;
2. Remuneratory contracts - the service or benefit which is remunerated;
3. Contracts of pure beneficence - the mere liberality of the benefactor. (1350)

Distinction between cause and motive

Cause Motive
Cause are essential element of contracts Not essential element
Illegality of cause would render Illegality of motive will not affect the contract
the contract void
Cause are the primary reason in entering into a This is just incidental
contract
Determined at the tie the contract is entered into Unknown to the parties

The particular motives of the parties in entering into a contract are different from the cause thereof. (1351)
  Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful
if it is contrary to law, morals, good customs, public order or public policy. (1352)
 The statement of a false cause in contracts shall render them void, if it should not be proved that
they were founded upon another cause which is true and lawful. (1353)
 Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless
the debtor proves the contrary. (1354)
 Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract,
unless there has been fraud, mistake or undue influence. (1355)

FORM OF CONTRACTS
 Contracts shall be obligatory, in whatever form they may have been entered into, provided all the
essential requisites for their validity are present. However, when the law requires that a contract be
in some form in order that it may be valid or enforceable, or that a contract be proved in a certain
way, that requirement is absolute and indispensable. In such cases, the right of the parties stated
in the following article cannot be exercised. (1356)
 If the law requires a document or other special form, as in the acts and contracts enumerated in
the following article, the contracting parties may compel each other to observe that form, once the
contract has been perfected. This right may be exercised simultaneously with the action upon the
contract. (1357)
 The following must appear in a public document: (1358)
1. Acts and contracts which have for their object the creation, transmission, modification or
extinguishment of real rights over immovable property; sales of real property or of an interest
therein a governed by articles 1403, No. 2, and 1405;
2. The cession, repudiation or renunciation of hereditary rights or of those of the conjugal
partnership of gains;
3. The power to administer property, or any other power which has for its object an act appearing
or which should appear in a public document, or should prejudice a third person;
4. The cession of actions or rights proceeding from an act appearing in a public document.

All other contracts where the amount involved exceeds five hundred pesos must appear in
writing, even a private one. But sales of goods, chattels or things in action are governed by
articles, 1403, No. 2 and 1405. (1280a)

REFORMATION OF INSTRUMENTS
Art. 1359. When, there having been a meeting of the minds of the parties to a contract, their true intention
is not expressed in the instrument purporting to embody the agreement, by reason of mistake, fraud,
inequitable conduct or accident, one of the parties may ask for the reformation of the instrument to the end
that such true intention may be expressed.
If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties, the
proper remedy is not reformation of the instrument but annulment of the contract.

When reformation is not allowed?

There shall be no reformation in the following cases:
1. Simple donations inter vivos wherein no condition is imposed;
2. Wills;
3. When the real agreement is void. (Art. 1366)

 Reformation can be avail only of the innocent party.

 Reformation may be ordered at the instance of either party or his successors in interest, if the
mistake was mutual; otherwise, upon petition of the injured party, or his heirs and assigns. (1368)
 When reformation proper
 a. Mutual mistake of the parties causes the failure of the instrument to disclose their real
agreement (1361)
b. One party was mistaken and the other acted fraudulently or inequitably in such a way that the
instrument does not show their true intention. (1362)
c. When one party was mistaken and the other knew or believed that the instrument did not state
their real agreement, but concealed that fact from the former. (1363)
d. When through the ignorance, lack of skill, negligence or bad faith on the part of the person
drafting the instrument or of the clerk or typist, the instrument does not express the true
intention of the parties. (1364)
e. If two parties agree upon the mortgage or pledge of real or personal property, but the instrument
states that the property is sold absolutely or with a right of repurchase. (1365)
 When one of the parties has brought an action to enforce the instrument, he cannot subsequently
ask for its reformation. (1367)
 The procedure for the reformation of instrument shall be governed by rules of court. (1369)

INTERPRETATION OF CONTRACTS
 If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties,
the literal meaning of its stipulations shall control. (1370) If the words appear to be contrary to the
evident intention of the parties, the latter shall prevail over the former.
 In order to judge the intention of the contracting parties, their contemporaneous and subsequent
acts shall be principally considered. (1371)
 However general the terms of a contract may be, they shall not be understood to comprehend
things that are distinct and cases that are different from those upon which the parties intended to
agree. (1372)
 If some stipulation of any contract should admit of several meanings, it shall be understood as
bearing that import which is most adequate to render it effectual. (1373)
 The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones
that sense which may result from all of them taken jointly. (1374)
 Words which may have different significations shall be understood in that which is most in keeping
with the nature and object of the contract. (1375)
 The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities of
a contract, and shall fill the omission of stipulations which are ordinarily established. (1376)
 The interpretation of obscure words or stipulations in a contract shall not favor the party who caused
the obscurity. (1377)
 When it is absolutely impossible to settle doubts by the rules established in the preceding articles,
and the doubts refer to incidental circumstances of a gratuitous contract, the least transmission of
rights and interests shall prevail. If the contract is onerous, the doubt shall be settled in favor of the
greatest reciprocity of interests.
 If the doubts are cast upon the principal object of the contract in such a way that it cannot be known
what may have been the intention or will of the parties, the contract shall be null and void. (1378)
 The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be observed
in the construction of contracts. (1379)

DEFECTIVE CONTRACTS
Rescissible Voidable Unenforceable Void
1. Those which 1. Those where one of 1. Those entered into in 1. Those whose cause,
are entered into by the parties is the name of another object or purpose
guardians whenever incapable of giving person by one who is contrary to
the wards whom they consent to a contract; has been given no law, morals, good
represent suffer lesion 2. Those where the authority or legal customs, public
by more than one- consent is vitiated by representation, or order or public policy;
fourth of the value of mistake, violence,
 the things which are intimidation, undue who has acted 2. Those which are
the object thereof; influence or fraud. beyond his powers; absolutely simulated
2. Those agreed 2. Those covered by or fictitious;
upon in statute of fraud 3. Those whose cause
representation of 3. Those where both or object did not exist
absentees, if the latter parties are incapable at the time of the
suffer the lesion stated of giving consent to a transaction;
in the preceding contract. 4. Those whose object
number; is outside the
3. Those commerce of men;
undertaken in fraud of 5. Those which
creditors when the contemplate an
latter cannot in any impossible service;
other manner collect 6. Those where the
the claims due them; intention of the
4. Those which parties relative to the
refer to things under principal object of the
litigation if they have contract cannot
been entered into by be ascertained;
the defendant without 7. Those expressly
the knowledge and prohibited or
approval of the declared void by law.
litigants or of
competent judicial
authority;
5. All other
contracts specially
declared by law to be
subject to rescission.

I. Rescissible contract – Rescissible contract is valid until rescinded. It is allowed by reason of injury
or damage to one parties or to a third person.
The following contracts are rescissible: (1381)
a. Those which are entered into by guardians whenever the wards whom they represent suffer
lesion by more than one-fourth of the value of the things which are the object thereof;
 Not applicable when approved by court (1386)
 Prescriptive period: Four years from the termination of incapacity
b. Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the
preceding number;
 Not applicable when approved by court (1386)
 Prescriptive period: Four years from the date the domicile of the absentee is known.
c. Those undertaken in fraud of creditors when the latter cannot in any other manner collect the
claims due them;
 The action to claim rescission must be commenced within four years (1389)
 Alienation which are presumed to have been entered into in fraud of creditors
a. Gratuitous title - donor did not reserve sufficient property to pay all debts
contracted before the donation.
b. Onerous title - when made by persons against whom some judgment has been
issued. The decision or attachment need not refer to the property alienated, and
need not have been obtained by the party seeking the rescission.
Note: The design to defraud creditors may be proved in any other manner
recognized by the law of evidence. (1387)
  Whoever acquires in bad faith the things alienated in fraud of creditors,
shall indemnify the latter for damages suffered by them on account of the
alienation, whenever, due to any cause, it should be impossible for him to
return them.
If there are two or more alienations, the first acquirer shall be liable first,
and so on successively. (1388)
d. Those which refer to things under litigation if they have been entered into by the defendant
without the knowledge and approval of the litigants or of competent judicial authority;
 The action to claim rescission must be commenced within four years (1389)
e. All other contracts specially declared by law to be subject to rescission.

Prescriptive period
The action to claim rescission must be commenced within four years (1389)

Limitation on the exercise of rescission

1. Contracts can be rescinded only in cases provided by law
2. Being a subsidiary action, it can be exercised only when there is no other legal means to obtain
reparation for the same. (1383)
3. Can be exercised only to the extent necessary to cover the damages caused. (1384)
4. Rescission creates the obligation to return the things which were the object of the contract, together
with their fruits, and the price with its interest (mutual restitution). Hence, it can be demanded only
if the one claiming rescission can return whatever he may be obliged to restore.
5. It cannot be availed when the things which are the object of the contract are legally in the
possession of third persons who did not act in bad faith. In this case, indemnity for damages may
be demanded from the person causing the loss (1385)
6. The action for rescission has not been prescribed.

II. Voidable Contract – The consent is defective by reason of incapacity of one party or vices of
consent. It is valid until annulled.
The following contracts are voidable or annullable, even though there may have been no damage
to the contracting parties: (1390)
a. Those where one of the parties is incapable of giving consent to a contract.
b. Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court. They are
susceptible of ratification.

Prescriptive period
Grounds Prescriptive period
Intimidation, violence or undue influence 4 years from the time the defect of the
consent ceases
Mistake or fraud 4 years from the time of the discovery* of the
same
Minors or other incapacitated persons 4 years from the time the guardianship
ceases
*Note: If there is registration of the property, count from the date of registration.

 Ratification extinguishes the action to annul avoidable contract. (1392)

 Express ratification – Done in writing or orally
 Tacit ratification - with knowledge of the reason which renders the contract voidable and such
reason having ceased, the person who has a right to invoke it should execute an act which
necessarily implies an intention to waive his right. (1393)
  Ratification may be effected by the guardian of the incapacitated person. (1394)
 Ratification does not require the conformity of the contracting party who has no right to bring the
action for annulment. (1395)
 Ratification cleanses the contract from all its defects from the moment it was constituted. (1396).
 The action for the annulment of contracts may be instituted by all who are thereby obliged
principally or subsidiarily. However, persons who are capable cannot allege the incapacity of
those with whom they contracted; nor can those who exerted intimidation, violence, or undue
influence, or employed fraud, or caused mistake base their action upon these flaws of the
contract. (1397)
 An obligation having been annulled, the contracting parties shall restore to each other the things
which have been the subject matter of the contract, with their fruits, and the price with its interest,
except in cases provided by law. In obligations to render service, the value thereof shall be the
basis for damages. (1398)
 When the defect of the contract consists in the incapacity of one of the parties, the incapacitated
person is not obliged to make any restitution except insofar as he has been benefited by the
thing or price received by him. (1399)
 Whenever the person obliged by the decree of annulment to return the thing can not do so
because it has been lost through his fault, he shall return the fruits received and the value of the
thing at the time of the loss, with interest from the same date. (1400)
 The action for annulment of contracts shall be extinguished when the thing which is the object
thereof is lost through the fraud or fault of the person who has a right to institute the proceedings.
If the right of action is based upon the incapacity of any one of the contracting parties, the loss
of the thing shall not be an obstacle to the success of the action, unless said loss took place
through the fraud or fault of the plaintiff (1401)
As long as one of the contracting parties does not restore what in virtue of the decree of
annulment he is bound to return, the other cannot be compelled to comply with what is
incumbent upon him. (1402)

III. Unenforceable contract – Contract that cannot be enforce unless ratified.

The following contracts are unenforceable, unless they are ratified: (1403)
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 (personal property), 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.
  Statutes of fraud is no longer applicable when:
a. There is total or partial performance (Partially or totally executed)
b. Failure to object to the presentation of oral evidence to prove the contract.
 Cannot be assailed by third person (1408)
 Effect of ratification by parents or guardian (1407)
a. Only one party – Voidable contract
b. Both parties - valid

IV. Void contract – contract that never exist in the eyes of law. It has no effect at all and cannot be
ratified.
The following contracts are inexistent and void from the beginning: (1409)
1. Those whose cause, object or purpose is contrary to law, morals, good customs, public order or
public policy;
2. Those which are absolutely simulated or fictitious;
3. Those whose cause or object did not exist at the time of the transaction;
4. Those whose object is outside the commerce of men;
5. Those which contemplate an impossible service;
6. Those where the intention of the parties relative to the principal object of the contract cannot be
ascertained;
7. Those expressly prohibited or declared void by law. These contracts cannot be ratified. Neither
can the right to set up the defense of illegality be waived.

Rules in determining contracts void

1. Absence of any of essential requites of contract (Consent, Object or Cause)
2. Contract that are prohibited by law. (i.e Sale between husband and wife, donation between
husband and wife)

 The action or defense for the declaration of the inexistence of a contract does not prescribe. (1410)
 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. (1413)
 Where one of the parties to an illegal contract is incapable of giving consent, the courts may, if the
interest of justice so demands allows recovery of money or property delivered by the incapacitated
person. (1415)
 When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is
designated for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover
what he has paid or delivered. (1416)
 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.
(1417)
 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. (1418)
 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.
(1419)
 In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter
may be enforced. (1420)
 The defense of illegality of contract is not available to third persons whose interests are not directly
affected. (1421)
 A contract which is the direct result of a previous illegal contract is also void and inexistent. (1422)

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