d. Void and Inexistent Contracts

Effect on the reserved right to repurchase if the principal contract of sale is void

Since the underlying contract of sale was inoperative and consequently void, then the reserved right of repurchase would also be void.

Legal Status of Contract

Under Civil Code Article 1491, specified persons are prohibited from acquiring property covered by their respective duties. Paragraph (5) prohibits lawyers from acquiring property or rights in litigation in which they take part by virtue of their profession. (Rubias v. Batiller, G.R. No. L-35702, 1973 — citation for owner check)

Under Article 1491(2), an agent is prohibited from acquiring property entrusted to the agent’s administration or sale, unless the principal consents. A contract entered into without or beyond an agent’s authority is a separate unenforceability issue under Article 1403(1).

Revocation Based on a False or Illegal Cause

Revocation of a will based on a false or illegal cause is null and void. (Civil Code, Art. 833)

Fictitious Contracts cannot be Rescinded

Rescission is not the proper remedy because while the contract here is fictitious and, therefore, null and void, rescission presupposes a valid contract. (Onglengco v. Ozaeta and Hernandez, 70 Phil. 43)

Two types of Void Contracts

• Where one of the elements in Art. 1318 is not present, such as “conveyances by virtue of a forged document” which are bereft of the elements of consent and cause; and
• Those provided under Art. 1409 of the NCC, such as contracts prohibited by law or those where the object is beyond the human commerce. (Sta. Maria, 2017)

The following contracts are inexistent and void from the beginning

• Those whose cause, object, or purpose is contrary to law, morals, good customs, public order, or public policy;
• Those which are absolutely simulated or fictitious;
• Those whose cause or object did not exist at the time of the transaction;
• Those whose object is outside the commerce of men
• Those which contemplate an impossible service;
• Those where the intention of the parties relative to the principal object of the contract cannot be ascertained;
• Those expressly prohibited or declared void by law.

Characteristics of Void Contracts

• The contract produces no effect whatsoever either against or in favor of anyone; hence it does not create, modify, or extinguish the juridical relation to which it refers;
• No action for annulment is necessary, because the nullity exists ipso jure; a judgment of nullity would merely be declaratory;
• It cannot be confirmed or ratified; and
• If a void contract has been performed, restitution may be ordered, subject to the rules on illegality and in pari delicto.

NOTE: The defect of inexistence of a contract is permanent. It cannot be cured by ratification nor prescription.

Updated: Restitution after performance of a void contract is not automatic: where the parties are in pari delicto, neither may obtain judicial relief (Atci Overseas Corporation v. A, G.R. No. 250523, 28 June 2021).

Good Faith, Immaterial

The good faith of a party in entering into a contract is immaterial in determining whether it is valid or not. Good faith, not being an essential element of a contract, has no bearing on its validity. No amount of good faith can validate an agreement which is otherwise void. A contract which the law denounces as void is necessarily no contract at all and no effort or act of the parties to create one can bring about a change in its legal status. (Ballesteros v. Abion, G.R. No. 143361, 09 Feb. 2006)

Parties affected

A party, or a third person whose interests are directly affected, may invoke the contract’s nullity when juridical effects founded on it are asserted against that person.