CHAPTER 1

GENERAL PROVISIONS

GENERAL PROVISIONS

Art. 1305. A contract is a meeting of the minds between two persons whereby one binds himself, with
respect to the other to give something or to render some service.
* relate to Art. 1159 of CC

CONTRACT - a juridical convention manifested in legal form, by virtue of which one or more persons bind
themselves in favor of another or others, or reciprocally, to the fulfillment of a prestation to give, to do or not to
do.
* Other Terms:

Perfect promise – distinguished from a contract, in that the latter establishes and determines the obligations
arising therefrom; while the former tends only to assure and pave the way for the celebration of a contract in the
future.

Imperfect Promise – mere unaccepted offer

Pact – a special part of the contract, sometimes incidental and separable for the principal agreement

Stipulation – similar to a pact; when the contract is an instrument, it refers to the essential and dispositive part, as
distinguished from the exposition of the facts and antecedents upon which it is based.

* Number of Parties:
The Code states “two persons”; what is meant actually is “two parties”. For a contract to exist, there must be two
parties. A party can be one or more persons.

* Husband & Wife: Husbands and wives cannot sell to each other as a protection of the conjugal partnership. They
can however enter into a contract of agency.

* Auto-contracts:
It means one person contracts himself. As a general rule, it is accepted in our law. The existence of a contract does
not depend on the number of persons but on the number of parties. There is no general prohibition against auto-
contracts; hence, it should be held valid.

* Contracts of Adhesion:
Contracts prepared by another, containing provisions that he desires, and asks the other party to agree to them if
he wants to enter into a contract.
- Example: transportation tickets. It is valid contract according to Tolentino because the other
party can reject it entirely.

* Characteristics of Contracts:
3 elements:
1. Essential elements – without which there is no contract; they are:
a) consent
b) subject matter; and
c) cause
2. Natural elements – exist as part of the contract even if the parties do not provide for them, because the law, as
suppletory to the contract, creates them
3. Accidental elements – those which are agreed by the parties and which cannot exist without stipulated

* Stages of a Contract:
3 stages:
1. Preparation, Generation or Policitacion – period of negotiation and bargaining, ending at the moment of
agreement of the parties
2. Perfection or Birth of the contract – the moment when the parties come to agree on the terms of the contract
3. Consummation or Death – the fulfillment or performance of the terms agreed upon in any contract

Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to
the will of one of them.

* Principle of Mutuality of Contract:

The binding effect of contract on both parties is based on the principles:
- that obligations arising from contracts have the force of law between the contracting parties
 - that there must be mutuality between the parties based on their essential equality, to which is
repugnant to have one party bound by the contract leaving the other free therefrom.
A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of
one of the contracting parties is void.
* Unilateral Cancellation:
Just as nobody can be forced to enter into a contract, in the same manner once a contract is entered into, no party
can renounce it unilaterally or without the consent of the other.
Nobody is allowed to enter into a contract, and while the contract is in effect, leaves, denounces or disavows the
contract to the prejudice of the other.

* When Stipulated:
However, when the contract so stipulates that one may terminate the contract upon a reasonable period is valid.
Judicial action for the rescission of the contract is no longer necessary when the contract so stipulates that it may
be revoked and cancelled for the violation of any of its terms and conditions.  This right of rescission may be
waived.

Art 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where
the rights and obligations arising from the contracts are not transmissible by their nature, or by
stipulation or by provision of law. The heir is not liable beyond the value of the property he received
from the decedent.
      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.

 1st paragraph of this article embodies the Principle of Relativity of Contract

 Four exceptional instances where a contract may produce effect on third persons (stipulation pour autrui):
Art. 1311, par.2 – 1314

* Parties bound by contract:

Generally, only the parties that agreed on the contracts are bound by the contract. Transmission is possible to the
heirs or assignees if so stipulated and in certain contracts.

* Third persons not bound:

It is a general rule that third parties are not bound by the acts of another.
A contract cannot be binding upon and cannot be enforced against one who is not a party to it, even if he has
knowledge of such contract and has acted with knowledge thereof.

* Enforcement of contract:
Only a party to the contract can maintain an action to enforce the obligations arising under said contract. 

* Contracts bind heirs:

Rights and obligations under a contract are transmissible to heirs. Heirs are not third persons because there is
privity of interest between them and their predecessor.

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. (1261)

SECTION 1

CONSENT

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. (1262a)

 CONSENT (as applied to contracts) : concurrence of the wills of the contracting parties with respect to the
object and the cause which shall constitute the contract
  Requisites:
1. consent must be manifested by the concurrence of the offer and the acceptance (Arts. 1319-
1326);
2. contracting parties must possess the necessary legal capacity (Arts. 1327-1329); and
3. consent must be intelligent, free, spontaneous and real (Arts. 1330-1346)

*Forms: Consent may either be express or implied. There is also a presumptive consent, which is the basis of
quasi-contracts.

*Manifestation: Consent is manifested by the concurrence of offer and acceptance with respect to the object and
the cause of the contract. Once there is such a manifestation, the period or stage of negotiation is terminated. If
consensual, the contract is perfected.

*A unilateral proposition must be definite (distinguished from mere communications), complete (stating the
essential and non-essential conditions desired by the offeror), and intentional (serious) when accepted by another
party for such proposition to form a valid contract. However, a unilateral promise is not recognized by our Code as
having obligatory force. To be so, there must be an acceptance that shall convert it into a contract.

*Mental reservation—when a party makes a declaration but secretly does not desire the effects of such declaration.
The mental reservation of the offeror, unknown to the other, cannot affect the validity of the offer.

DEFECTIVE CONTRACTS:

RESCISSIBLE VOIDABLE UNENFORCEABLE VOID & INEXISTENT

Valid and enforceable Valid and enforceable until Validable transaction; Does not and cannot
until rescinded; annulled; Cannot be enforce unless produce legal effect
there is a sort of extrinsic The defect is more or less ratified
defect consisting of intrinsic
economic damage or
lesion
Causes: Causes: (Art. 1390) Causes: (Art. 1403) Causes:
injury or damage to one - legal incapacity of one - contract is entered into in (void) illicit, prohibited or
of the parties or to third party; or excess or without authority declared by law as void
persons - vitiation of consent - non-compliance with (inexistent) lacks one or
[GAFLAI – Arts. 1381 – Stature of Frauds all of the requisites of a
1382] Legal incapacity of both contract
[CS-DOICE – Art. 1409]
Cured by prescription Cured by prescription Not cured by prescription Not cured by prescription
Need not be ratified Can be ratified Can be ratified Cannot be ratified
Can be assailed by the Can be assailed by a Can be assailed by a Can be assailed by a
injured or damaged party contracting party (Art. contracting party (Art. contracting party or a
or injured or damaged 1397) 1408) third person whose
third person interest is affected (Art.
1421)
Assailed directly only Assailed directly or Assailed directly or Assailed directly or
collaterally collaterally collaterally
Outline of provisions: Outline of provisions: Outline of provisions: 1409: types of void or
1380: Nature of 1390: voidable contracts 1403: types of inexistent contracts
rescissible contract may be annullable even if unenforceable contracts 1410: imprescriptibility
1381-1382: types of there is no damage to 1405: ratification of 1411: contracts that are
rescissible contract parties; contracts infringing statute both illegal and criminal –
1383: subsidiary types of voidable of frauds both parties have no
character contracts; 1407: express or implied action against each other
1384: extent of rescission binding character unless ratification by the parent or and shall be prosecuted
1385: mutual restitution; annulled; guardian of one (when 1412: contracts that are
no rescission when the susceptibility to both are incapacitated) – illegal but do not
thing is legally possessed ratification same effect as if only one constitute criminal offense
by a third person 1391: prescriptive period is incapacitated; 1413-1419: exceptions to
1386: no rescission in 1392-1397: ratification Ratification by parent or in pari delicto rule
case of 1381 (1) and (2) 1398-1402: Mutual guardian of both – contract
when the contract is restitution is validated from inception
approved by court 1398: mutual restitution 1408: cannot be assailed
1387: preseumption 1399: exception to by third persons.
(existence of fraud); mutual restitution –
alienation by gratuitous defect is the incapacity
 title; alienation by of one
onerous title 1400: loss of the thing
1388: acquisition in bad through fault/fraud of
faith (of things alienated party obliged to return
in fraud of creditors) the thing but has no
1389: prescriptive period right to institute
proceeding, he shall
return the fruits and the
value of the thing
1401: loss of the thing
through fault/fraud of
the person who may
institute the proceeding
(action for annulment is
extinguished)
1402: one does not
restore – the other
cannot be compelled to
comply

RESCISSIBLE CONTRACTS

Art. 1380. Contracts validly agreed upon may be rescinded in the cases established by law. (1290)

Art. 1381. The following contracts are rescissible:

(1) 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;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the
preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the
claims due them;
(4) 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;
(5) All other contracts specially declared by law to be subject to rescission. (1291a)

Art. 1382. Payments made in a state of insolvency for obligations to whose fulfillment the debtor could
not be compelled at the time they were effected, are also rescissible. (1292)

Art. 1383. The action for rescission is subsidiary; it cannot be instituted except when the party
suffering damage has no other legal means to obtain reparation for the same. (1294)

Art. 1384. Rescission shall be only to the extent necessary to cover the damages caused. (n)

Art. 1385. 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; consequently, it can be carried out only when
he who demands rescission can return whatever he may be obliged to restore.
Neither shall rescission take place 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. (1295)

Art. 1386. Rescission referred to in Nos. 1 and 2 of Article 1381 shall not take place with respect to
contracts approved by the courts. (1296a)

Art. 1387. All contracts by virtue of which the debtor alienates property by gratuitous title are
presumed to have been entered into in fraud of creditors, when the donor did not reserve sufficient
property to pay all debts contracted before the donation.
Alienations by onerous title are also presumed fraudulent 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.
In addition to these presumptions, the design to defraud creditors may be proved in any other manner
recognized by the law of evidence. (1297a)

Art. 1388. 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.
(1298a)

Art. 1389. The action to claim rescission must be commenced within four years.
For persons under guardianship and for absentees, the period of four years shall not begin until the
termination of the former's incapacity, or until the domicile of the latter is known. (1299)
Voidable Contracts

Voidable Contracts
* Contracts that are voidable or annullable:
1. When either party is incapable of giving consent to a contract
2. When consent is vitiated by mistake, violence, intimidation, undue influence, fraud

*Binding, unless annulled by a proper court action

*Ratifiable (Art. 1390)

*Prescription for action of annulment: 4 years to begin:

when vice is due to intimidation, violence or undue influence – from the time defect of consent ceases
mistake or fraud – from the time of discovery
entered into by minors or those incapable of giving consent – the moment guardianship ceases (Art. 1391)

*Ratification
extinguishes action for annulment (Art. 1392)
may be express or tacit (Art. 1393)

tacit ratification – the execution of an act which necessarily implies an intention to waive his right by the party,
who, knowing of the reason which renders the contract voidable, has a right to invoke annulment.
-may be effected by the guardian of the incapacitated person (Art. 1394)
- does not require the conformity of the person who does not have a right to bring an action for
annulment (Art. 1395)
-cleanses the contract from all its defects from the moment it was constituted (Art. 1396)

*Annulment
- Who may institute (Art. 1397)
- By all who are obliged principally or subsidiarily
Exceptions:
*Persons capable cannot allege the incapacity of those with whom they contracted
*Persons who exerted violence, undue influence, who employed fraud or caused mistake – action for
annulment cannot be based on these flaws

*Gives rise to the responsibility of restoring to each other things subject matter of the contract, with fruits, price
with its interest, except in cases provided by law (Art. 1398)
Service – value thereof will serve as the basis for damages

*Incapacitated persons not obliged to make restitutions except insofar as he has been benefited by the thing or
price received by him (Art. 1399)
*If objects cannot be returned because these were lost through his fault, he shall return the fruits received and the
value of the thing at the time of the loss, with interests from the same date (Art. 1400)
*As long as one of the contracting parties does not restore what in virtue of the annulment decree he is bound to
return, the other cannot be compelled to comply with what is incumbent upon him. (Art. 1402)

*Extinguishment of action (Art. 1401)

 if object is lost through the fault or fraud of person who has the right to institute the proceedings
 if action based on incapacity of any one of contracting parties, loss of thing shall not be an
obstacle to the success of action, unless loss or fraud took place through the plaintiff’s fault

UNENFORCEABLE CONTRACTS

Art. 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.

*Unenforceable contracts cannot be enforced unless it is first ratified in the manner provided by law. An
unenforceable contract does not produce any effect unless it is ratified. Unenforceable contracts cannot be sued
upon unless ratified (Paras, 2003).

*There are 3 kinds of unenforceable contracts:

   a) unauthorized contracts;
   b) those that fail to comply with the Statute of Frauds;
c) those where both parties are incapable of giving consent to a contract.

UNAUTHORIZED CONTRACTS
When a person enters into a contract for and in the name of the another, without authority to do so, the contract
does not bind the latter, unless he ratifies the same. The agent, who has entered into the contract in the name of
the purported principal, but without authority from him, is liable to third persons upon the contract; it must have
been the intention of the parties to bind someone, and, as the principal was not bound, the agent should be. Ex:
Without my authority, my brother sold my car, in my name to X. The contract is unauthorized and cannot affect me
unless I ratify the same expressly or implicitly, as by accepting the proceeds of the sale. (Paras)
Mere lapse of time, no matter how long, is not the ratification required by law of an unenforceable contract (Tipton
v. Velasco, 6 Phil 67, as cited in Paras).

STATUTE OF FRAUDS
Meaning: descriptive of statutes which require certain classes of contracts to be in writing.
Purpose: to prevent fraud and perjury in the enforcement of obligations depending for their evidence upon the
unassisted memory of witnesses by requiring certain enumerated contracts and transactions to be evidenced by a
writing signed by the party to be charged.
Application: This statute does not deprive the parties the right to contract with respect to matters therein involved,
but merely regulates the formalities of the contract necessary to render it unenforceable. The statute of frauds,
however, simply provides for the manner in which contracts under it shall be proved. It does not attempt to make
such contracts invalid if not executed in writing but only makes ineffective the action for specific performance. The
statute of frauds is not applicable to contracts which are either totally or partially performed, on the theory that
there is a wide field for the commission of frauds in executory contracts which can only be prevented by requiring
them to be in writing, a fact which is reduced to a minimum in executed contracts because the intention of the
parties becomes apparent by their execution, and execution concludes, in most cases, the rights of the parties.
A note or memorandum is evidence of the agreement, and is used to show the intention of the parties. No
particular form of language or instrument is necessary to constitute a memorandum or note as a writing under the
Statute of Frauds. 
*General Rules of Application (mainly Paras):
Applies only to executory contracts. But it is not enough for a party to allege partial performance in order to render
the Statute inapplicable; such partial performance must be duly proved, by either documentary or oral evidence;
Cannot apply if the action is neither for damages because of the violation of an agreement nor for the specific
performance of said agreeement;
*Exclusive, i.e. it applies only to the agreements or contracts enumerated herein;
*Defense of the Statute may be waived;
*Personal defense, i.e. a contract infringing it cannot be assailed by third persons;
*contracts infringing the Statute are not void; they are merely unenforceable;
*The Statute of Frauds is a rule of exclusion, i.e. oral evidence might be relevant to the agreements enumerated
therein and might therefore be admissible were it not for the fact that the law or the statute excludes oral
evidence;
*The Statute does not determine the credibility or weight of evidence. It merely concerns itself with the
admissibility thereof;
*The Statute does not apply if it is claimed that the contract does not express the true agreement of the parties.
As long as true or real agreement is not covered by the Statute, it is provable by oral evidence.

INCAPACITATED PARTIES
Ratification by one party converts the contract into a voidable contract- voidable at the option of the party who has
not ratified.

Art. 1404. Unauthorized contracts are governed by Article 1317 and the principles of agency in Title X
of this Book.
*Art. 1317. No one may contract in the name of another without being authorized by the latter, or unless he has
by law a right to represent him.
*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. (1259a)
*Requisites for a Person to contract in the name of another: a) he must be duly authorized (expressly or impliedly)
or b) he must have by law a right to represent him (like the guardian, or the administrator) or c) the contract must
be subsequently ratified (expressly or impliedly, by word or by deed). (Paras).

Art. 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.
*Two ways of ratification of contracts infringing the Statute are:
a) failure to object to the presentation of oral evidence;
b) acceptance of benefits under them, since the Statute does not apply to contracts which are partially executed.
Cross examination of the witnesses testifying orally on the contract amounts to a waiver or to a failure to object.

Art. 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.
*Art. 1357. 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. (1279a)
*The right of one party to have the other execute the public document needed for convenience in registration, is
given only when the contract is both valid and enforceable. (Paras)

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.

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

*The defense of the Statute is personal to the party to the agreement. Thus, it cannot be set up by strangers to
the agreement.
*Just as strangers cannot attack the validity of voidable contracts, so also can they not attack a contract because
of its unenforceability. Indeed the Statute of Frauds cannot be set up as a defense by strangers to the transaction.
(Ayson v. CA, 97 Phil. 965).
VOID OR INEXISTENT CONTRACTS

What contracts are void or inexistent?

The following contracts are void or inexistent 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 cannot be ascertained;
7. Those expressly prohibited or declared void by law. (a-g, Art 1409, NCC).
8. Those which are the direct results of previous illegal contracts (Art 1422, NCC).

III. NATURAL OBLIGATIONS

Definition
Natural obligations are those based on equity and natural law, which are not enforceable by means of court action,
but which, after voluntary fulfillment by the obligor, authorize the retention by the oblige of what has been
delivered or rendered by reason thereof. In other words, they refer to those obligations without sanction,
susceptible of voluntary performance, but not through compulsion by legal means.

Natural Obligation vs Civil Obligation

  Natural Obligations Civil Obligations
Basis Equity and natural law Positive law
Enforceability Not enforceable by court action Enforceable by court action
3. vs Moral Obligations
  Natural Obligations Moral Obligations
Existence of juridical tie There exists a juridical tie between the No juridical tie whatsoever.
parties not enforceable by court action.
Effect of fulfillment Voluntary fulfillment produces legal effects Voluntary fulfillment does not produce
which the courts recognize and protect. legal effects which the courts recognize
and protect.

Articles 1409-1422

What are Void or Inexistent Contracts?

A void contract, also known as a void agreement, is not actually a contract. A void contract cannot be enforced by
law. Void contracts are different from voidable contracts, which are contracts may be (but not necessarily will be)
nullified.
An agreement to carry out an illegal act is an example of a void contract or void agreement. For example, a
contract between drug dealers and buyers is a void contract simply because the terms of the contract are illegal. In
such a case, neither party can go to court to enforce the contract, although some drug users mistakenly believe the
opposite, and therefore take their disputes to court.

Lack of Essential Elements

Inexistent and void contracts cannot be ratified neither can the right to set up the defense of illegality be waived,
they are the following:

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;

1. This relates to Indeterminate object under Article 1349 of the New Civil Codewhich states;

1. “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.

 7. Those expressly prohibited or declared void by law.
Prohibited Contracts
This relates to the following persons who cannot acquire by purchase, even at a public or judicial auction, either in
person or through the mediation of another under article 1491 paragraph four (4) and five (5) of the New Civil
Code which states;

”Public officers and employees, the property of the State or of any subdivision thereof, or of any government
owned or controlled corporation , or institution, the administration of which has been entrusted to them; this
provision shall apply to judges and government experts who, in any manner whatsoever, take part in the sale;”

”Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees
connected with the administration of justice, the property and rights in litigation or levied upon an execution before
the court within whose jurisdiction or territory includes the act of acquiring by assignment and shall apply to
lawyers, with respect to the property and rights which may be the object of any litigation in which they may take
part by virtue of their profession.”

What is it to be filed in court?

In order to follow the rules of law regarding void or inexistent contract, the action to be filed in court is an
“Action for the Declaration of Nullity”.
According to Article 1410 of the New Civil Code:

“The action or defense for the declaration of the inexistence of a contract does not prescribe.”

However, it does not apply to last will and testaments.

How Illegal Contracts with Criminal Offense should be treated?

Article 1411 of the New Civil Code states:

“When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitute 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.”

The rule mentioned in the above second paragraph of Article 1411 of the New Civil Code is related to Article 45 of
the Revised Penal Code which states:
“Confiscation and forfeiture of the proceeds or instruments of the crime: Every penalty imposed for the commission
of a felony shall carry with it the forfeiture of the proceeds of the crime and the instruments or tools with which it
was committed.

Such proceeds and instruments or tools shall be confiscated and forfeited in favor of the Government, unless they
be the property of a third person not liable for the offense, but those articles which are not subject of lawful
commerce shall by destroyed.”

How Illegal Contracts without Criminal Offense should be treated?

Article 1412 of the New Civil Code states:

“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 a fault, may demand the
return of what he has given without any obligation to comply with his promise.”

No Consideration: Restitution after Void Contracts (pp 195-234)

Those who transfer value under void contracts have no remedy in contract and little to expect from the law of
property, since nullity does not in general prevent property passing. However, it has been recently held in litigation
following void interest swaps that the value transferred under a void contract, because it passes for ‘no
consideration’, becomes an unjust enrichment of the recipient at the transferor’s expense, so that restitution must
follow even where the void contract has been fully executed on both sides.
Restitution for ‘no consideration’ is alien to the law of unjust enrichment in the common law. In
particular:

1. Parties to a fully executed contract, though it be void, have no substantial reason for restitution;

2. ‘Failure of consideration’, property understood, can explain all cases of restitution where the defendant

has not completed his part;

3. Cases advanced as warranting a new ground for restitution, called ‘no consideration’ and distinct from

failure of consideration, turn out on closer inspection not to go beyond failure of consideration;

4. The new doctrine creates an unacceptable discontinuity with the past, unsettling the foundations on which

leading cases have been argued and decided, departing from the previous treatment of void contracts and

contradicting the leading treatise on restitution.

These arguments notwithstanding, it will be true that in a jurisdiction which allows restitution for mistake of law,
the results illegitimately attained through ‘no consideration’ will be largely attainable through mistake.

Nevertheless, the further progress of ‘no consideration’ should be resisted because it constitutes a standing
invitation to borrow the language of civilian systems (‘sine causes’, ‘sans cause’, ‘ohne Rechtsgrund’), and civilian
terminology can only do harm if it is imported without civilian substance.