VOID OR INEXISTENT CONTRACTS

VOID OR INEXISTENT – of no legal effect

CHARACTERISTICS:
a. It produces no effect whatsoever either against or in favor of anyone

b. There is no action for annulment necessary as such is ipso jure. A judicial declaration to that effect is merely a declaration

c. It cannot be confirmed, ratified or cured

d. If performed, restoration is in order, except if pari delicto will apply

e. The right to set up the defense of nullity cannot be waived

f. Imprescriptible

g. Anyone may invoke the nullity of the contract whenever its juridical effects are asserted against him

KINDS OF VOID CONTRACT:

1) Those lacking in essential elements: no consent, no object, no cause (inexistent ones) – essential formalities are not complied with ( ex: donation propter nuptias – should conform to formalities of a donation to be valid )
(a) Those w/c are absolutely simulated or fictitious – no cause
(b) Those which cause or object did not exist at the time of the transaction – no cause/object
(c) Those whose object is outside the commerce of man – no object
(d) Those w/c contemplate an impossible service – no object
(e) Those w/c intention of parties relative to principal object of the contract cannot be ascertained

2) Prohibited by law
(f) Those expressly prohibited or declared void by law - Contracts w/c violate any legal provision, whether it amounts to a crime or not

3) Illegal/Illicit ones – Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy ; Ex: Contract to sell marijuana

PARI DELICTO DOCTRINE -both parties are guilty, no action against each other; those who come in equity must come with clean hands; applies only to illegal contracts & not to inexistent contracts; does not apply when a superior public policy intervenes

EXCEPTION TO PARI DELICTO RULE

1. If purpose has not yet been accomplished & If damage has not been caused to any 3rd person

Requisites:
a) contract is for an illegal purpose

b) contract must be repudiated by any of the parties before purpose is accomplished or damage is caused to 3rd parties

c) court believes that public interest will be served by allowing recovery (discretionary upon the court ) – based on remorse; illegality is accomplished when parties entered into contract; before it takes effect – party w/c is remorseful prevents it

2. Where laws are issued to protect certain sectors: consumer protection, labor, usury law

a) Consumer protection – if price of commodity is determined by statute, any person paying an amount in excess of the maximum price allowed may recover such excess

b) Labor – if law sets the minimum wage for laborers, any laborer who agreed to receive less may still be entitled to recover the deficiency; if law set max working hours & laborer who undertakes to work longer may demand additional compensation

c) Interest paid in excess of the interest allowed by the usury law may be recovered by debtor with interest from date of payment

3. If one party is incapacitated, courts may allow recovery of money, property delivered by incapacitated person in the interest of justice; pari delicto cannot apply because an incapacitated person does not know what he is entering into; unable to understand the consequences of his own action

4. If agreement is not illegal per se but merely prohibited & prohibition is designated for the protection of the plaintiff – may recover what he has paid or delivered by virtue of public policy

MUTUAL RESTITUTION IN VOID CONTRACTS

General Rule: parties should return to each other what they have given by virtue of the void contract in case where nullity arose from defect in essential elements

1. return object of contract & fruits

2. return price plus interest

Exception: No recovery can be had in cases where nullity of contract arose from illegality of contract where parties are in pari delicto;

except:
a. incapacitated – not obliged to return what he gave but may recover what he has given

b. other party is less guilty or not guilty

X owner of parcel of land, he mortgage it to y. Y did then authorized his niece to occupy the said land. Upon discovery that the land was unregistered, the niece registered it to his own name. wat is the proper remedy of this case