Apoyar el “FONDO PyME” y los “PROGRAMAS” a que se refiere el numeral V del apartado de antecedentes de este Convenio de Coordinación y que son operados por la “SECRETARIA”, y

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 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.

Definitions

 Void contracts – because of certain defects, produce no effect at all, inexistent from the very beginning

 Inexistent contracts – refer to agreements which lack one or more of the elements (object, cause, consent) or do not comply with requirements for the existence of contract

 Illegal contract – may produce effects under certain circumstances where the parties are not of equal guilt Characteristics of Void or Inexistent Contracts

1. generally produces no effect whatsoever 2. cannot be ratified

3. set up the defense of illegality cannot be waived

4. action or defense for the declaration of its inexistence does not prescribe

5. defense of illegality is not available to third persons whose interests are not directly affected 6. it cannot give rise to a valid contract

Instances of Void or Inexistent Contracts

1. contracts whose cause, object or purpose is contrary to law 2. contracts which are absolutely simulated or fictitious 3. contracts without cause or object

4. contracts whose object is outside the commerce of men 5. contracts which contemplate an impossible service

6. contracts where the intention of the parties relative to the object cannot be determined 7. contracts expressly prohibited by the law

a. upon future inheritance unless allowed by law

b. sale of property between spouses unless there is separation of property

c. purchase of property by persons disqualified by law because of their relation with the person under their care (guardian-ward, lawyer-judge, mayor-city)

d. donation between spouses during marriage shall be void except gifts which spouses may give to each other on some occasion. e. A testamentary provision in favor of disqualified person even if under the guise of onerous contract or made through an intermediary f. Household service without compensation is void

g. Members of congress are prohibited from being financially interested in any contract with the government

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

*a person can always raise the defense of nullity even with passage of time

*generally do not need court to say it is void but it is better to do that than to take the law into their own hands

Article 1411. When the nullity proceeds from the illegality of the cause of 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. (1305)

Rules where contract is illegal and the act constitutes a criminal offense

1. where both parties are in pari delicto – both are guilty because cause or object constitutes a criminal offense a. parties shall have no action against each other

b. both shall be prosecuted

c. thing or price of the contract shall be confiscated in favor of the government

2. where only one party is guilty – both parties are not equally guilty (in delicto) – rule applies only to more guilty party and innocent party may claim what he has given and not be bound to comply with his promise

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

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 with his promise. (1306)

Rules where Contract is Illegal but the act does not constitute a criminal offense

1. where both parties are in pari delicto – is cuase is unlawful but does not mean criminal offense a. neither party may recover what he has given

b. neither party may demand the performance of the other *ex. common law wife – immoral but not illegal

2. when only one party is guilty

a. guilty party loses what he has given by reason of contract b. guilty party cannot ask for fulfillment of the other

c. innocent party may demand the return of what he has given d. innocent party cannot be compelled to comply with 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 payment.

*payment of usurious interest can be recovered. Not only those that exceeded the legal interest but the whole interest plus interest from date of payment.

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 the 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 for recovery where contract entered into for illegal purpose 1. contract is for an illegal purpose

2. contract is rejected before the purpose has been accomplished or before any damage has been caused to a third person 3. court considers that public interest will be subserved by allowing recovery

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.

*exception to the in pari delicto

*recovery can be allowed if one of the parties is incapacitated and the interest of justice demands it.

*not necessary that illegal purpose has not been accomplished or that no damage has been caused to a 3rd person

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, public policy is thereby enhanced, recover what he has paid or delivered.

*exception to the in pari delicto

Recovery where contract is not illegal per se

1. the agreement is not illegal per se but merely prohibited 2. prohibition is designed for the protection of plaintiff

NOTE: PROPERTY OF BMS. UNOFFICIAL OBLICON REVIEWER.

THIS SPECIAL PRIVILEGE IS STRICTLY FOR BMS MEMBERS ONLY!!!

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.

ceiling law – statute fixing max price of any article or commodity to curb blackmarketing

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 the service rendered beyond the time limit.

*Labor Code says normal working hours of any employee shall not exceed 8 hours a day. Exceptions to this Law

1. gov’t employees 2. managerial employees 3. field personnel

4. members of family of employers who are dependent on him for support 5. domestic helpers

6. persons in the personal service of another 7. workers who are 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 by which a laborer accepts a lower wage, he shall be entitled to recover the deficiency.

*when an employee receives less than the minimum wage, he can recover deficiency with legal interest and the employer is criminally liable.

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

Effect of Illegality where Contract is Indivisible/ Divisible

1. when consideration is entire and single, the contract is indivisible so that if part of consideration is illegal, the whole contract is void

2. when contract is divisible, consideration is made up of several parts, illegal ones can be separated from the legal portions, the legal ones may be enforced.

Divisible Contract VS. Divisible Obligation Divisibility of cause (refers to cause)

Susceptible to partial fulfillment (refers to object)

Article 1421. The defense of illegality of contracts is not available to third persons whose interests are not directly affected.

*in voidable and unenforceable contracts, 3rd person has no right to annul or assail contracts. However, if void and illegal contract, 3rd person can set up nullity as defense as long as his interest is directly affected by the contract.

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

*an illegal contract is void and inexistent and cannot give rise to a valid contract